Handling Multiple Offers

Dear Forms Guy: I am the broker-in-charge at my real estate firm. We have just been through a multiple-offer situation and I wanted to see if we handled it properly. Is that something you can help me with? Sincerely, Sidney

Dear Sidney: Well, it’s not exactly a forms question, but I’ve never seen a good multiple-offer situation I didn’t like. Before we discuss it, though, let me ask you, was this a short sale? Sincerely, Forms Guy

Sidney: No, it wasn’t a short sale. We refer short sales to other brokers who specialize in handling them. But why do you ask?

Forms Guy: Because the way offers and/or contracts from multiple buyers in a short sale situation are handled is quite different from how offers are handled in a more “traditional” multiple offer situation.

Sidney: I see. OK, here’s what happened: An offer came in on one of our listings from a buyer working with an agent from another firm. I’ll call the buyer agent “Frank.” The property was priced to sell. The buyer’s initial offer was for full price but was contingent on the sale and closing of the buyer’s existing home. During oral negotiations, Frank’s client agreed to buy the property for full price but without the contingency. Frank and the listing agent, who I’ll refer to as “Jane,” agreed that Frank would deliver a second offer from his buyer client later that day and that Jane would set up an appointment for the sellers to come in to our office and sign it the next afternoon.

Shortly after her conversation with Frank, a buyer client of Jane’s, whom we’ll call “John,” called to ask about the property. Jane had been working with John, but hadn’t bothered contacting him about this particular property because it was well outside the parameters he and Jane had established regarding the type of property he was looking for. John had seen Jane’s sign in the yard when he had driven by the property and had instantly taken a liking to it. Jane told John the sellers had verbally agreed to sell the property to another buyer. John asked whether the sellers could consider another offer if they hadn’t signed a contract, and Jane told him that they could if they wanted to. She contacted the sellers, and they indicated they would consider another offer. Jane showed John the property later that day. She did not disclose any terms of the first buyer’s offer to John. John loved the property and, without advice from Jane, asked Jane to prepare an offer on the property for $5,000 above the list price. When she got back to our office, Jane discovered that Frank had delivered the second offer from his client while Jane had been showing the property to John.

Jane called Frank to tell him another buyer had just made an offer on the property. After speaking with his client, Frank called Jane back to say that his client was going to stick with the full-priced offer that had been made already. Frank did not ask whether or by whom the other buyer was represented, and Jane did not volunteer that information.

Jane presented both offers to the sellers when they came in the next afternoon at the appointed time. The sellers decided to accept the offer from Jane’s client, John. Jane promptly called Frank to let him know that the other
buyer’s offer had been accepted. In response to Frank’s question, Jane confirmed that she represented John. Frank became very angry and hung up on Jane. He called her back later to say that his buyer was extremely upset and was going to see a lawyer. Frank said that Jane should have told John the property had already been sold, and that she should have told Frank up front that she represented John.

My first question is should my listing agent Jane have told her client John that the property was already sold, as Frank had suggested?

Forms Guy: No, Jane did the correct thing when she said that there was merely a verbal agreement to sell the property. A statement that the property had been sold would have been a false statement that may have violated duties Jane owed to her seller clients and to John.

Sidney: Good. My second question is, did Jane do anything wrong by not telling Frank that she represented the other buyer?

Forms Guy: No. Since Frank didn’t ask, Jane was not under any ethical duty to disclose that the other offer had been submitted by her client, according to Standard of Practice 1-15 of the REALTOR® Code of Ethics.

Sidney: Great. That answers my questions. Do you have any other thoughts on the situation?

Forms Guy: While Jane handled the situation correctly, there are a few additional things that she might have considered doing to best manage the situation. When Jane and Frank had concluded their oral negotiation, it would have been helpful for her to remind him that their verbal understanding would not become a binding contract until the second offer was submitted, signed by her clients and their acceptance communicated to Frank. Until those things had occurred, Frank’s client could have revoked the offer or Jane’s clients could have accepted an offer from someone else or even decided not to sell.

Also, unless the sellers objected, it would have been helpful for Jane to have suggested that Frank present his client’s second offer to the sellers directly, with Jane in attendance, as permitted under MLS rules, and for a different agent in Jane’s firm to have presented the offer from Jane’s client to the sellers. While such measures may well not eliminate suspicions of unfair treatment by a buyer who loses out to an “in-house” offer, they should help establish that the firm handled the situation fairly.

Sidney: Thanks, Forms Guy.

Forms Guy: You’re welcome. And thank you for sharing the interesting multiple-offer situation. Maybe the market is finally picking up!

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