Counteroffers to Promote Clarity

This video analyzes the proper preparation and use of a counteroffer form, which avoids the ethical implications of defacing a previously signed document.

Defacing a previously signed document

A broker or agent may not alter a document once it is signed without that party’s prior consent.

Consider a broker who submits an offer to the seller which has been signed by a buyer. The seller is unwilling to accept all the terms contained in the offer. However, the seller will agree to sell if the buyer concedes to a larger down payment, a greater interest rate on the carryback note and a shorter escrow period.

The buyer’s broker strikes out the down payment amount, the interest rate and the escrow period entries on the purchase agreement form signed by the buyer. The seller’s changes are then entered by interlineation to replace the original entries. This activity is called defacing.

The seller signs the form where it provides for the seller’s signature, and initials and dates all the changes, an improper technique referred to as change and initial.

The original offer as altered on its face is then presented to the buyer for their approval. The buyer is to indicate approval by also initialing and dating the changes to form a binding agreement.

Counteroffers: prepared for clarity

This altering of a signed document is improper practice. The broker needs to prepare, and have the seller sign, a separate counteroffer form containing the changes. The counteroffer is then presented to the buyer for consideration and acceptance.

Here, “acceptance” by the seller of the buyer’s offer by signing and altering a purchase agreement offer submitted by a buyer was not an acceptance at all. The alterations written on the buyer’s offer constituted a rejection of the buyer’s offer.

Any counteroffer arrangement constitutes a new offer. Good brokerage practice requires a new offer be presented on a separate form. By using a separate counteroffer form, the broker promotes clarity for interpreting just what has been agreed upon in the event of a dispute. More importantly, defacing of a signed document is avoided. [See RPI Form 180]

The change-and-initial method of preparing a counteroffer often creates uncertainty as to when and who placed which terms in the agreement. Further, the agreement is interpreted against the individual creating the uncertainty, typically the seller who countered by defacing and initialing a signed original document. [Calif. Civil Code §1654]

A counteroffer may be made when the original offer submitted is not acceptable and is either:

• rejected; or
• allowed to expire unaccepted.

Analyzing the counteroffer form

A rejection can occur by a written rejection stating no counteroffer is forthcoming. It may also be rejected by submitting a counteroffer which is an alternative set of terms to the original offer. After a rejection has been communicated, the original offer can no longer be accepted to form a binding agreement. [See RPI Form 184]

The rejection on receipt of a purchase agreement offer by preparing and submitting a counteroffer takes place in one of two circumstances:

• by incorporating the terms in the offer into a new offer which is then modified with alternative or additional provisions on the counteroffer form; or
• by preparing an entirely new offer on a newly prepared purchase agreement form which is submitted as a counteroffer. [See RPI Form 150]

The counteroffer form has four sections, each with a separate purpose explained as follows:

• Reference to prior offer: The purpose of a counteroffer is to reference a prior written offer and state the terms and conditions contrary or in addition to those in the original offer which are agreeable to the party countering.
• The agreement offered: The offer submitted and rejected by a counteroffer has all its terms and conditions “incorporated” into the counteroffer. Terms which are additional to or in conflict with those of the prior offer are then entered on the counteroffer to create the terms and conditions of the new offer. Any terms in conflict with the terms of the original offer override and become the terms of the counteroffer.
• Time for acceptance: The counteroffer expires at the time and on the date stated for expiration. When no specific date is given, a reasonable time to accept is permitted, unless the counteroffer is first withdrawn.
• Signatures: The transaction participant making the counteroffer signs and dates the offer. The brokers sign the counteroffer only to acknowledge their participation in the negotiations. [See RPI Form 180]

The rules for preparing and submitting a counteroffer, and those for accepting a counteroffer to buy and sell real estate, are the same rules applied to determine whether an offer made by a seller has been submitted to the buyer or an acceptance by the buyer has occurred to form a binding agreement.

Real estate agents instinctively consider submitting written offers from a buyer to a seller to comply with the rule requiring a written agreement, signed by the buyer and seller to form a real estate agreement. Likewise, they need to automatically submit written counteroffers from sellers to buyers when the seller will not accept all aspects of the buyer’s offer. [See RPI Form 180]