What happens when one party makes a counteroffer?

When one party makes a counteroffer, the original offer is nullified. This is because a counteroffer signifies a rejection of the initial proposal and introduces new terms that the responding party is willing to accept. By doing so, the original offer is no longer in effect and cannot be accepted later. This principle is rooted in contract law, where an acceptance must mirror the original terms for it to be valid. Therefore, making a counteroffer effectively shifts the negotiation process to the terms of the counteroffer instead of the original offer.

The other choices do not align with this understanding of contract law. The original offer does not remain valid since it has been rejected; there is no requirement for the counteroffer to be accepted immediately, as it can be negotiated further or rejected; and a counteroffer does not create a binding contract until it is accepted by the original offeror.