Every five to seven years, multiple offers seem to become a hot topic. This is one of those times. I suspect that most of you have had to deal with multiple offers in the last few months because the market is currently a seller’s market. I thought a review of some of the basics in handling multiple offers might be helpful. First, let’s acknowledge that dealing with multiple offers can be difficult, frustrating, and, if mishandled, can result in angry parties who may file grievances or in some instances, resort to litigation. Serving as an intermediary in multiple-offer situations can make multiple offers even more difficult. It is difficult to impossible to develop hard-and-fast rules on how to handle multiple offers. There are too many variations from one situation to the next to have a firm rule about what to do in a particular situation. Here are some basic rules which will guide you in multiple offer situations.
Address the multiple-offer situation early. Be proactive in addressing the potential for multiple offers, especially when you are in a market such as the current one. When you take a listing, explain to the seller that it is possible that multiple offers may be received and that they will need to determine how to respond to those offers. Let the seller know that they can (a) accept the best offer from all offers presented; (b) select one offer and negotiate only with that potential buyer; or (c) accept none of the offers, notify all prospective buyers that they are in a multiple-offer situation, and ask them to submit their best offer. You should also advise the seller of the advantages and disadvantages of each option. In particular, if the seller elects to not accept any offer and ask for the potential buyers to submit their best offer, they may all decide not to make another offer leaving the seller with no viable options.
Buyer and Seller in Charge. It is easy to forget that buyers and sellers have the right to decide how to proceed in multiple-offer situations, not the broker or sales agent. It can be easy to over-step your authority in these situations. Always consult with your client before making a decision about the best way to respond to multiple offers.
Code of Ethics and "Shopping" Offers. You are bound by local, state, and national codes of ethics; your clients are not bound by those ethics. You cannot assist a client in acting illegally, dishonestly, or fraudulently but they are otherwise free to decide how to respond to offers. In days past, the issue of “shopping” an offer was a really hot topic. Many real estate professionals believed it was unethical and would not “shop” an offer. Keep in mind that whether an offer is “shopped” is a decision for the seller, not the real estate professional. If you represent a seller who receives multiple offers, you should let them know that if they want you to shop the offer by disclosing the terms of an existing offer to other parties, that is permissible. If you represent a buyer, you should let them know that the terms of their offer may be disclosed to other potential purchasers to try to get a better price for the property. If a buyer does not want her offer to be shopped, she should require that the seller sign a confidentiality agreement agreeing not to shop the offer.
Presenting Offers and Counter-Offers. There are few hard-and-fast rules about how offers must be presented. You are required to submit offers and counter-offers objectively and as quickly as possible. You cannot hold back an offer to attempt to influence the decision of your client. There is no rule dictating the order in which you present offers. If a broker or agent representing a potential buyer asks to be present when the offers are presented, you must let the seller decide whether to permit that. You cannot invite a third party into the home or office of a seller without the consent of the seller. If the seller agrees to allow a broker or sales person to be present when his offer is presented, you should encourage the seller to invite all of the brokers or agents to make their offer in person or be present when it is considered. However, it is ultimately the seller’s decision about who to allow to be present.
Cooperating with Other Brokers. According to Article 3 of the Code of Ethics, REALTORS® are required to “. . . cooperate with other brokers except when cooperation is not in the client’s best interest.” Many of the issues which can arise in multiple-offer situations result when cooperating brokers are unaware of the status of offers their clients have made. Listing brokers should make reasonable efforts to keep cooperating brokers informed. However, you must always be aware that if disclosing the status of multiple offers is detrimental to the seller, you cannot disclose. For instance, if the seller elects to take the best of several offers and negotiate only with that potential buyer, you are not required to notify the other parties of the negotiations. It may be in the interest of the seller to try to keep other offers open until negotiations with one party are successful. When there are multiple offers only one of them will be successful so there will always be disappointed parties. There is not much you can do to mitigate their disappointment. But fair and honest treatment and open communication can at least make them feel that they have been treated fairly. Treating people as you would want to be treated is always a good policy.
This post was previously published as one of ABoR's legal topics in July 2014.