Handling multiple offers – and requests for highest and best offers

QUESTION: I recently listed a property for sale. After a number of showings, my seller-clients received offers from three different buyers. I presented all three offers to my clients right away. Even though one of them was for more than the list price, my clients now realize that their home could attract an even higher price. They want me to disclose the existence of multiple offers to all three agents, tell them that we already have an above-list price offer, and request that their buyers submit their “highest and best” offer. Would that be considered an illegal shopping of offers? If not, do you have any suggestions as to how I should proceed?

ANSWER: While shopping of offers is indeed prohibited, a request for “highest and best” offers does not constitute shopping. The relevant Commission Rule is A.0115. It states that a broker shall not disclose the price or other material terms contained in one party’s offer to any competing buyer without the express authority of the offering party. Asking for highest and best offers is not the same thing as disclosing the terms of an offer. However, under Rule A.0115, you would not be permitted to tell the competing buyers that your client had received an above-list price offer unless the party making that offer authorized you to do so.

Another thing to keep in mind is that REALTORS® should not disclose the existence of multiple offers to the competing buyers without the prior approval of their client. This is not a legal requirement but rather an ethical one. The applicable provision is Standard of Practice 1-15. The fact is that some buyers will withdraw their offer rather than participate in a bidding war. In your case, your clients have already authorized you to disclose the existence of multiple offers so it would not be unethical for you to do so.

Finally, if your clients want to give the competing buyers one final opportunity to sweeten their offers, consider NOT using the common “highest and best” terminology. We suggest that you instead ask the buyers to submit their “best” offer.: Why that language? Because sometimes the highest offer is not the best offer. Terms that may be just as important as price are (a) the closing date; (b) the amount of earnest money; (c) the length of the due diligence period; and (d) the type of financing. If you ask the competing buyers to submit their highest and best offers, the buyers may assume that if their offer is the highest, it will be accepted. If your sellers then select an offer that is not the highest, you may have invited an easily-avoided dispute with the disappointed high-bidder.

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Filed Under: Contract Law,