If you represent only the seller in a multiple offer situation, your primary duties to the seller are loyalty, confidentiality and due diligence. Your duties to the buyers involved are honesty, disclosure and fair dealing. Simply put, you must place your client’s interest first and protect and advance those interests to the fullest extent possible considering your legal duties to other parties.
Listing agents tend to see multiple offer situations as dangerous situations that place the agent in a conflict situation. They worry that the obligations of loyalty, confidentiality and due diligence owed the seller will conflict with the duties of honesty, disclosure and fair dealing owed to other parties. Fortunately, that is not really the case. In multiple offer situations, the seller’s agent can meet most of their legal obligations by simply presenting all offers in a timely manner, recording the date and time of the presentation and making certain all the terms of the agreement are in writing.
The seller’s interest in obtaining the best price for the property does not conflict with the duty to present all written offers. Every buyer wants the seller to see their best offer and the seller wants to see every offer. There is no conflict. Nor is there any conflict between the duty to deal honestly and in good faith and the seller’s desire for the best price as long as no one is deceived or cut out of the transaction without business justification.
In every multiple offer situation there are going to be one or more buyers who don’t get the property. There is nothing the listing agent can do about that. What the listing agent can do something about is making certain they can prove they met their duties to the seller without violating any duty owed to the buyer.
The listing agent in a single agency multiple offer situation needs to think about how they can show anyone who may be interested (a Real Estate Agency investigator, a lawyer for one of the disappointed buyers or their own client) that they fulfilled their legal duties when dealing with the offers. To their own client, that means proving loyalty, confidentiality and due diligence. To the buyers involved, that means proving honesty, disclosure and fair dealing.
Loyalty and confidentiality to the seller are no different in multiple offer situations than they are in any offer situation. Diligence to the seller means developing a business strategy that results in turning multiple offers into a closed transaction that is satisfactory to the seller. That’s it. That’s the whole deal as far as the seller is concerned. The seller doesn’t want to leave money on the table or lose a good offer while trying to get more. Tips and tools for listing agents to accomplish that (and prove they did) are included in the Handling Multiple Offers section of this Topic.
The disclosure, honesty and fair dealing obligations the listing agent owes to buyers can be overwhelming in multiple offer situations unless the listing agent has a procedure in place and follows that procedure. It is tempting for the seller to play one buyer off against the others in a multiple offer situation. This can take the form of “shopping” the best offer or secretly encouraging low bidders to “strengthen” their offer while the seller sits on the best offer or presenting offers in a way that favors one buyer.
None of the procedures just mentioned are actually in the seller’s interest and each puts the listing agent at risk. Whatever the seller’s strategy for obtaining the best price, the process should involve documentation and an even playing field for all buyers. Giving each buyer a fair chance to purchase meets the seller’s needs and protects all concerned from claims by disappointed buyers. Tips and tools for establishing a multiple offer process are included in the Handling Multiple Offers section of this Topic.
One of the things a good multiple offer process must consider is how to deal with escalator clauses. Escalator clauses are used in offers to automatically increase the purchase price if there are competing offers. Such clauses raise very serious agency duty issues. So serious, in fact, that a separate explanation of these clauses and the problems they cause is required. Click here for an explanation of escalator clauses.
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