Counteroffers happen when we reject what is offered and put forward a deal more advantageous to us. Psychologically, a counter on a first offer gives the offering party better deal satisfaction[iii]. It may be insulting not to counter. Legally, the counteroffer extinguishes the first offer and rejects it, making it unavailable unless the offeror explicitly opens it again.
An example is when you try to sell a car for $12,000 and the prospective buyer counters at $10,000. This can either be rejected (“No, the price is $12,000.”) or countered with a concession drop in price (“I am willing to go to $11,000.”) Note that the seller’s counter to the counter extinguishes the first offer. If the buyer agrees to the counter, the deal is made and the first offer cannot be re-opened upon acceptance.
To deal with counteroffers, know what is acceptable to you and what is not before you get into the dynamic. In cultures that look to the counteroffer as an important way to close the deal, always have a throw-in that you can counter with to sweeten the deal. For example, “I will sell the car for $12,000, and I will throw in the performance floor mats and my tow hitch.”