Final answer:
The correct response is b) 'the initial offer has been turned down and a counteroffer is being made.' Any change to the original offer by the offeree creates a counteroffer, not a binding contract, and the altered terms are not binding on the offeror unless they are expressly accepted.
Step-by-step explanation:
When an offeree makes any alteration in an offer before accepting it, the original offer is considered rejected, and a counteroffer is being made. This is because an offer needs to be accepted exactly as it was presented—without modifications—to form a binding contract. Any changes suggest that the offeree does not accept the terms as they are and wishes to negotiate different terms. Therefore, option b) 'the initial offer has been turned down and a counteroffer is being made' is the correct response to this question.
If the offeror accepts the counteroffer, a new contract is formed with the altered terms. It is not binding upon the offeror until they expressly accept the changes. If the offeror does not respond, the counteroffer does not automatically become a contract after any passage of time, including three business days, negating option c). Also, the requirement for the offeree to forfeit earnest money depends on the specific terms of their arrangement and is not a general rule that applies whenever a counteroffer is not accepted—disregarding option d).
It is crucial to understand that contract negotiations can involve several rounds of offers and counteroffers before both parties reach an agreement. During job negotiations, for example, potential employees often make counteroffers to adjust the terms like start dates, salaries, or other conditions of employment.