Tag: Multiple Offers

Here’s How the National Association of Realtors Advises Its Members on How to Handle Multiple Offer Situations  

Many buyers and sellers and their agents have to deal with competing offers for new listings. The Colorado Real Estate Commission has offered no guidance on how to deal  (or not deal) with multiple offer situations. Below, however, is NAR’s guidance based on the articles and Standards of Practice from the Realtor Code of Ethics. Note: The Code only applies to Realtors, and roughly half of licensed real estate brokers are not members of their local Realtor association.

“When representing a buyer, seller, landlord, tenant, or other client as an agent, Realtors® pledge themselves to protect and promote the interests of their clients. This obligation to the client’s interests is primary, but it does not relieve Realtors of their obligation to treat all parties honestly.” (from Article 1 of the 2014 Realtors Code of Ethics)

“Realtors shall submit offers and counter-offers objectively and as quickly as possible.” (Standard of Practice 1-6)

Perhaps no situation routinely faced by Realtors can be more frustrating, fraught with potential for misunderstanding and missed opportunity, and elusive of a formulaic solution than presenting and negotiating multiple purchase or lease offers and/or counter-offers on the same property. Consider the competing dynamics. Listing brokers are charged with helping sellers get the highest price and the most favorable terms for their property. Buyers’ brokers help their clients purchase property at the lowest price and on favorable terms. Balanced against the Code’s mandate of honesty is the imperative to refrain from making disclosures that may not, in the final analysis, be in a client’s interests. (Revised 11/01)

Will disclosing the existence of one offer make a second potential purchaser more likely to sign a full price purchase offer—or to pursue a different opportunity? Will telling several potential purchasers that each will be given a final opportunity to make their best offer result in spirited competition for the seller’s property—or in a table devoid of offers? What is fair? What is honest? What is to be done? Who decides? And why is there not a simple way to deal with these situations? As Realtors know, there are almost never simple answers to complex situations. And multiple offer presentations and negotiations are nothing if not complex. But, al-though there is not a single, standard approach to dealing with multiple offers, there are fundamental principles to guide Realtors. While these guidelines focus on negotiation of purchase offers, the following general principles are equally applicable to negotiation of lease agreements. (Revised 11/01)

Be aware of your duties to your client — seller or buyer — both as established in the Code of Ethics and in state law and regulations. (Revised 5/01)

The Code requires you to protect and promote your client’s interests. State law or regulations will likely also spell out duties you owe to your client. The Code requires that you be honest with all parties. State law or regulations will likely spell out duties you owe to other parties and to other real estate professionals. Those duties may vary from the general guidance offered here. Realtors need to be familiar with applicable laws and regulations. Be aware of your duties to other parties — both as established in the Code of Ethics and in state law and regulation. Remember that the decisions about how offers will be presented, how offers will be negotiated, whether counter-offers will be made and ultimately which offer, if any, will be accepted, are made by the seller — not by the listing broker. (Revised 5/01)

Remember that decisions about how counter-offers will be presented, how counter-offers will be negotiated, and whether a counter-offer will be accepted, are made by the buyer — not by the buyer’s broker. (Adopted 5/01)

When taking listings, explain to sellers that receiving multiple competing offers is a possibility. Explain the various ways they may be dealt with (e.g., acceptance of the “best” offer; informing all potential purchasers that other offers are on the table and inviting them to make their best offer; countering one offer while putting the others to the side; countering one offer while rejecting the other offers, etc.). Explain the pluses and minuses of each approach (patience may result in an even better offer; inviting each offeror to make their “best” offer may produce a better offer[s] than what is currently on the table—or may discourage offerors and result in their pursuing other properties). Explain that your advice is just that and that your past experience cannot guarantee what a particular buyer may do. Remember — and remind the seller — that the decisions are theirs to make — not yours, and that you are bound by their lawful and ethical instructions. When entering into buyer representation agreements, explain to buyers that you or your firm may represent more than one buyer-client, that more than one of your clients or your firm’s clients may be interested in purchasing the same property, and how offers and counter-offers will be negotiated if that happens. (Adopted 5/01)

Explain the pluses and minuses of various negotiating strategies (that a “low” initial offer may result in the buyer purchasing the desired property at less than the listed price — or in another, higher offer from another buyer being accepted; that a full price offer may result in the buyer purchasing the desired property while paying more than the seller might have taken for the property, etc.). (Adopted 5/01)

Explain to the buyer that sellers are not bound by the Code of Ethics. Sellers, in multiple offer situations, are not prohibited from “shopping” offers. Real estate brokers may, unless prohibited by law or regulation, “shop” offers. Therefore, Realtors assisting purchasers in formulating purchase offers should advise those purchasers it is possible that the existence, terms, and conditions of any offer they make may be disclosed to other purchasers by sellers or by sellers’ representatives except where such disclosure is prohibited by law or regulation. (Adopted 5/05)

Remember — and remind the buyer — that the decisions are theirs to make—not yours, and that you are bound by their lawful and ethical instructions. (Adopted 5/01)

If the possibility of multiple offers — and the various ways they might be dealt with — were not discussed with the seller when their property was listed and it becomes apparent that multiple offers may be (or have been) made, immediately explain the options and alternatives available to the sellers — and get direction from them. When representing sellers or buyers, be mindful of Standard of Practice 1-6’s charge to “. . . submit offers and counter-offers objectively and as quickly as possible.” (Revised 5/01)

With the seller’s approval “…divulge the existence of offers on the property” consistent with Standard of Practice 1-15. (Adopted 11/02)

While the Code of Ethics does not expressly mandate “fairness” (given its inherent subjectivity), remember that the Preamble has long noted that “. . . Realtor has come to connote competency, fairness, and high integrity. . . .” If a seller directs you to advise offerors about the existence of other purchase offers, fairness dictates that all offerors or their representatives be so informed. Article 3 calls on Realtors to “. . . cooperate with other brokers except when cooperation is not in the client’s best interest.” Implicit in cooperation is forthright sharing of information related to cooperative transactions and potential cooperative transactions. Much of the frustration that occurs in multiple offer situations results from cooperating brokers being unaware of the status of offers they have procured. Listing brokers should make reasonable efforts to keep cooperating brokers informed. Similarly, buyer brokers should make reasonable efforts to keep listing brokers informed about the status of counter-offers their seller-clients have made. (Revised 5/01)

Realize that in multiple offer situations only one offer will result in a sale and one (or more) potential purchasers will be disappointed that their offer was not accepted. While little can be done to assuage their disappointment, fair and honest treatment throughout the process; coupled with prompt, ongoing and open communication, will enhance the likelihood they will feel they were treated fairly and honestly. In this regard, “. . . Realtors can take no safer guide than that which has been handed down through the centuries, embodied in the Golden Rule, ‘Whatsoever ye would that others should do to you, do ye even so to them.’ ” (from the Preamble to the Code of Ethics). (Revised 5/05)

How Should a Listing Agent Manage a Bidding War?

In today’s seller’s market, it is common for a new listing to attract multiple offers. There are three ways for a listing agent to deal with competing offers. Above all, it is important that the method chosen is in the seller’s interest, since that’s the listing agent’s legal obligation.

The first approach, of course, is to do nothing — not advise buyers that you have multiple offers and simply accept the best one. This approach, however, assures that the seller won’t get the most money he or she could get for their home.

The more common approach is to inform buyer agents that there are multiple offers and instruct them to submit their “highest and best” offer by a particular deadline. Sometimes the listing agent will add that the seller “reserves the right to sell the home prior to that deadline.”

When I’m functioning as the buyer’s agent, I dislike that approach. Why? Because it could inspire my client, shooting in the dark, to offer more than he needs to in order to win the bidding war, but, worse, we could learn later that my buyer could have won the bidding war if he or she had only offered a little bit more.

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The third approach is our approach at Golden Real Estate — to function like an auctioneer. If you’ve been to an auction, you know how it works. Everyone knows what the highest bid is, and no one is blindsided. As I explain to buyers and agents, “The only way you will lose out is if you drop out.”  They universally appreciate this approach.

Using this approach, I got my 6th Avenue West listing featured in last week’s column under contract for $41,000 over the listing price. It’s unlikely that asking for “highest and best” would have produced an offer for that amount. The winning bidder’s agent had submitted a full-price offer initially, but, being updated on competing offers, she won the bidding war with her third submission. The other agents had the opportunity to win the bidding war, but they chose when to drop out. The result was that the winner was happy, the seller was very happy, and no one was angry or blindsided in the process. Disappointed, yet, but not angry.

In a bidding war on my other new listing, the price was bid up by about $16,000. In that case, the seller chose not to take the highest bidder (but not by much) because that buyer was an investor, and she preferred an owner occupant. That reflects an important point when handling multiple offers: The seller is always in charge.

What Does ‘Open and Transparent’ Look Like in Real Estate?

For some reason I’ve never understood, most listing agents believe that they should not be open and transparent with buyers’ agents regarding the disclosure of offers in hand when there’s a bidding war for their listing.

At Golden Real Estate, we believe in being open and transparent. Here’s what that looks like.

Rule number one is to always tell the truth. We never mislead a colleague about offers in hand. If we don’t have competing offers, we’ll never represent that we do. This is a matter of ethics. The Realtor Code of Ethics, to which every Realtor swears allegiance, requires no misrepresentation about anything, whether it’s how successful we are or whether we have competing offers.

Agents from other brokerages, however, typically won’t disclose the price or nature of the offers they have for their listings. At Golden Real Estate, we not only disclose the price and terms of offers received, but we will let each agent know if their offer is surpassed by a better offer. We don’t want any buyer or their agent to have the experience of being blindsided.

This is good for both buyer and seller, and buyers’ agents invariably thank me when I explain this policy. After all, how would you as a buyer like to learn later that if you had only offered $2,000 more (which you were willing to do), you would have won that bidding war?

Similarly, how would you as a seller, like to learn that you could have gotten $2,000 more for your house?

Although this process essentially operates like an auction, where everyone in the room knows what they’re bidding against and chooses on their own when to drop out of the bidding, it doesn’t mean that we let the bidding go on forever.

After the buyers have raised their bids twice, it’s time to ask for a final bid, without offering to return if it’s not the winning bid. While this is our policy, the seller, of course, is the final authority on how long to continue the back and forth. By that time, however, they tend to be quite happy with the highest bid and agree to cut it off. To do otherwise risks antagonizing the buyers and their agents.

It’s important to us as professionals that we leave each party in a bidding war happy that we were transparent enough that they felt they had a fair chance to win a coveted listing.

This approach takes more work on our part than doing what other agents typically do when multiple offer situations arise, which is to inform agents that they have multiple offers and ask buyers’ agents to submit their “highest and best.” Then the seller accepts the best offer and other buyers are upset and angry that they weren’t allowed to raise their offer.

We feel, however, that our approach is not only fairer to buyers’ agents but also produces the best price for our sellers.  We wish that other listing agents would adopt this practice.

Transparency, however, does not extend to disclosing the price at which a home is under contract prior to closing. The reason for that is that if the contract falls, we don’t want the next buyer to know what the seller was willing to accept. That’s because we have an ethical and legal obligation to work in our seller’s best interest.

The only time I would disclose the price at which one of my listings is under contract is when an appraiser needing comps calls me. If we are cleared to close — past inspection, appraisal and other contingencies — I’m willing to help that appraiser know the price so he can do his or her job in appraising a comparable listing for a different seller.

Thanks to this practice, Golden Real Estate has a better-than-average track record when it comes to closing price vs. listing price. In some cases this has resulted in our sellers netting their full listing price even after subtracting commissions and the other costs of selling.

Call me or one of our broker associates at 303-302-3636 if you like how we operate and would like a no-obligation market analysis of your home.

What Is Negotiated When You Purchase a Home? More Than You Might Think!

It’s easy to assume that the main (or only) negotiation in the sale or purchase of a home is the contract price, but it turns out that there’s a lot more negotiation — both before and after going under contract.

Most contracts are or should be countered, and not accepted as written. For example, there are 39 different deadlines in the standard contract — everything from when the earnest money check is delivered to when the buyer gets to take possession.

If the seller is given extended possession after closing, will it be free, and who pays the utilities?  It’s all negotiated.

If a contract falls, it’s usually because of inspection issues, so the seller will want that inspection deadline to be as early as possible — preferably within 5 to 7 days. And there are other deadlines which allow a buyer to terminate and get his earnest money back, so a good listing agent will make sure they are reasonable. For example, I have seen contracts in which the deadline for terminating based on the acceptability of insurance costs is a week prior to closing. That’s ridiculous, because it takes only a couple days to get that quote.

The second big negotiation in any transaction is over inspection issues. Some buyers will want to have the seller fix every single problem identified by their inspector. (Once my seller received an inspection objection notice that didn’t even itemize the problems but said, “Seller shall fix everything listed in the attached inspection report.”)

Negotiating what the seller will and will not fix and what the seller might give as a credit in lieu of certain repairs is different in every transaction, and your agent’s experience in handling that process can be critical in obtaining a favorable outcome, whether you’re the buyer or the seller.

As I have written before, I advise my sellers not  to fix many of the known problems prior to putting their house on the market, but to save some of them as bargaining chips during the negotiation over inspection issues. Getting a back-up contract in place also helps with negotiating inspection issues. If the buyer is asking for an unreasonable number of repairs, I’ll provide those demands and the buyer’s inspection report to the back-up buyer. Often that back-up buyer will agree not to ask for any of those repairs, giving the seller the ability to tell buyer #1 that he won’t fix anything. This can be an effective technique.

Having multiple offers presents a great opportunity for negotiating matters that are important to the seller.  For example, a downsizing seller may have lots of furniture he’d like to sell. Rather than have an estate sale, I recommend making a list, with prices, of the items “for sale outside of closing,” and leaving it on the kitchen counter for every visiting buyer to see.  Many times I have been able to have the winning bidder include in their contract that they will purchase everything on that list at the prices shown. In a recent case, the buyer asked that all the purchased furniture be moved to the garage prior to closing — a sure sign that they bought the furniture only so they would win the winning war for the house!

If the home doesn’t appraise for the contract price, the buyer can demand a price reduction on threat of terminating the contract. Since the appraisal deadline is usually very close to the closing date, the seller may feel compelled to accept the price reduction rather than lose the contract.  But a good listing agent knows that the same reluctance exists for the buyer, so oftentimes the seller can negotiate little or no price reduction.