The first step in dealing with multiple offers is to have an office policy that specifically deals with the subject. The policy should cover multiple offers from both the seller and buyer perspectives. The company policy should tell agents exactly how the company intends to handle multiple offers and reference any disclosures or notices used to inform clients and customers of the policy. A sample multiple offer office policy, consistent with the procedures discussed in this section, is included in the Model Office Policy Manual developed by the Oregon Association of REALTORS®. Click here to obtain a copy of the Association’s Model Office Policy Manual.
In a single agency situation where the agent represents the seller, the obligation to present “all written offers” in a timely manner is critical. There is still some misguided idea in real estate that offers can, or even should, be presented in the order received. Such a process not only violates the written offer presentation requirement of agency rule and statute, but can, and probably does, violate the basic agency duties of loyalty and diligence.
The most basic duty of a seller’s agent is to help the seller get the best price and terms. Getting the best price and terms means the seller must know of not only all offers made, but all offers that can reasonably be anticipated. Remember also, that the seller’s agent owes the buyer, as well as the seller, the duty to timely present all written offers. Given these duties, it is clear that sitting on one written offer while the seller accepts another offer is a very bad practice.
Multiple offers must be dealt with as multiple offers, not one at a time. It is this consequence of presentation and agency duties that drives most multiple offer dilemmas. From an ethical point of view, the dilemma is how to be fair to the seller and each of the buyers. Fairness in multiple offer situations is usually taken to mean everyone should have an equal chance to get the property.
Equality is a wonderful concept, but it depends entirely on what you mean by “equal.” Buying and selling things is about money. Not everyone has the same amount of money or the same willingness to spend it. Moreover, when dealing with buyers and sellers, what may be fair to the buyer is not necessarily fair to the seller. Fairness, therefore, as an organizing principle, is not of much use when it comes to multiple offers.
The seller’s expectation (multiple offers or not) is to get the best price possible in the situation. Every buyer expects to have a chance to get their best offer in front of the seller for consideration. All problems with multiple offers stem from ignoring or thwarting one of these expectations. Dealing with multiple offers is, therefore, a matter of developing practices and procedures that give the seller a chance to get the best price possible in the situation and the buyer the chance to get their best offer in front of the seller.
Looking at multiple offers in terms of best price in the situation places the focus right where it needs to be: on the situation. Every transaction is different. Handling multiple offers means explaining the specific situation to your client, whether your client is the buyer or the seller. To the seller, the situation includes the viability of each of the offers, the likelihood of getting better offers, the risk involved in trying to get those offers and the methods that can be used to solicit them. To the buyer, the situation includes formulating the best offer and getting it presented in a timely manner.
A seller looking at multiple offers has three basic choices: (1) take the best existing offer; (2) counter one or more of the offers; or (3) reject all offers and ask for new offers. That’s it, just three possibilities. Which is best? On the listing side, that’s where business judgment and, therefore, diligence comes in.
Taking the best existing offer assures the seller a deal. If one of the offers on the table contains terms the seller would otherwise find acceptable, rejecting it to seek better offers creates the risk the seller will end up with no deal at all. Does that mean the seller should take the best offer on the table if they would have taken that offer had it been presented alone? No, of course not, the fact that there are other offers must be considered.
The strength of the best offer is the starting, not ending, point for a diligent assessment of multiple offers. If none of the offers is acceptable, the seller is going to have to pursue one of the other two options anyway. If the best offer on the table is acceptable, the seller must calculate the risk of foregoing an otherwise acceptable offer in favor of trying to get a better offer. That assessment depends on: (1) the strength of the best offer; (2) how close competing offers are to the best offer; (3) how “hot” the general real estate market is; (4) the marketing history (how long on market, level of interest) of the property; and (5) the seller’s circumstances (motivation to sell).
If the seller decides it is best to take one of the existing offers, the listing agent needs to document for their client file the information the agent provided to the seller and the seller’s rationale for not seeking better offers from the other buyers. Such documentation may be needed to later prove diligence with respect to the client or honest and good faith dealing to the disappointed buyers.
If the seller, having considered all the factors, decides (it is the seller who must do the deciding, not the listing agent) to seek a better offer, the question becomes how best to accomplish that objective. “Best” in this circumstance means more likely to result in a better offer than no offers at all. Whatever the means chosen, the seller will have to forego all existing offers and open communication with one or more of the potential buyers. It is at this point that the listing agent’s duties to other parties and agents come to the fore.
The big question, when responding to buyers, is what can, or should, the seller tell one buyer about another buyer’s offer. There is a general real estate myth that one buyer’s offer cannot be shared with another buyer. As a matter of Oregon law, that is not true. In Oregon, as in many states, the seller can disclose the terms of an offer to other buyers. Disclosing the terms of an offer to other buyers is sometimes called “shopping” the offer.
The seller’s legal ability to disclose the terms of offers they receive does not mean shopping the best offer to all other buyers is good business. A major risk to the seller in a multiple offer situation is that the buyers will move on to another property rather than engage in a bidding war. Even if that doesn’t happen, the buyer who discovers their offer was shopped is likely to be mad enough to complain to someone. Such complaints have a way of taking on a life of their own, even if the thing complained of isn’t itself a violation.
Fortunately, there is no business reason to shop an offer. When the seller decides to seek better offers in a multiple offer situation, they have two choices: (1) they can reject and counter offers one at a time; or (2) they can reject all offers and ask each buyer to make a new “best” offer. Neither of these options requires telling competing buyers the exact price or terms others are offering.
Rejecting all offers and asking each buyer to make a new best offer is the most straightforward way to proceed from a contract law standpoint. All that is necessary is for the seller to send each buyer a rejection that informs the buyer there are multiple offers, all offers have been rejected and that each buyer has been given an opportunity to make their last best offer. The rejection should state a deadline for new offers and can contain a minimum price to be considered. Click here for a sample rejection and last best offer clause.
Contrary to popular belief, there isn’t any way to “counter” multiple offers other than one at a time. Counter offers, real ones that is, create the power of acceptance in the offeree. Do that for more than one person at a time and you risk creating more than one contract. At the same time, countering multiple offers one at a time pretty much defeats the purpose because the seller cannot be sure which buyer is willing to pay the most. Other multiple counter offer procedures, like first acceptance wins, have the same best price uncertainty and can create verification problems of nightmare proportions.
The problems associated with using counter offers in multiple offer situations have lead to the development of “multiple counter offer clauses.” A multiple counter offer clause is really just a variation on the rejection and request for new offers theme, but they are formatted and worded to look like a counter offer. Despite the contractual slight of hand involved, multiple counter offer clauses can be effective because they reduce the effort required of the buyer. As with rejection and new offer, using a multiple counter offer clause removes any need to shop offer prices.
There is little a selling agent can do in multiple offer situations other than communicate effectively with their client and take advantage of whatever presentation rules their MLS has in place. Client communication begins with the potential for multiple offers. If there is any potential for your buyer to become involved in a multiple offer situation, you need to make them aware of the possibility. In particular, the buyer must be aware that if they offer less than they are willing to pay for a property in a hot market, they may never get a chance to offer what they are actually willing to pay.
There is a tendency in multiple offer situations for buyers to believe there is some “trick,” other than offering their best price and terms, which will give them an advantage. There is no such trick. Escalator clauses are no exception. In fact, such clauses prove there are no exceptions by either placing the buyer at risk of paying more than they otherwise would have to or signaling the seller they will pay more than they are offering. Click here for a full explanation of escalator clauses.
If the offer being presented does not represent the buyer’s best offer, the buyer is gambling that, although not their best offer, it will be better than anyone else’s offer. The buyer needs to understand this gamble, especially in multiple offer situations. The seller may, at any point (even at the first offer stage), decide to take an offer rather than continue negotiations with multiple buyers.
Real estate agents, especially in multiple offer situations, can become fixated on the price term. Price is a major factor in any offer, but it is not the only factor. The seller is looking for the “best” offer, not necessarily the one for the most money. Financing terms are, of course, a critical factor. The closing date, need for repairs, existing home sale contingencies and so on are important considerations for the seller. So, too, may be the buyer’s motivation. All of this needs to be explained to the buyer.
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