BROKER RISK MANAGEMENT
WEEKLY PRACTICE TIPS
MULTIPLE OFFERS AND COUNTER-OFFERS
OR, “FAST MARKET BLUES”
Q: I am a listing agent and I received four offers. The seller chose one that was superior and signed it. After I delivered the signed offer to the buyer’s agent, I looked at my cell phone and there was an e-mail from a fifth buyer’s agent with an offer attached. That buyer’s agent said she would be submitting an offer on my listing but I didn’t receive it on my phone e-mail until I was at seller’s house and never looked to discover it. Help.
The day before on a different listing, I received one offer and it was countered. While that counter was still active, I received two more offers. Fortunately, seller saw the two new offers and chose not to counter them.
This is a crazy market. How can I stay out of trouble?
A: Caution must always be taken when the market is moving very fast, usually with too many buyers and not enough inventory.
OFFERS: As a listing agent, ALWAYS check your e-mails right up to the time a contract is ratified. Listing agents are obligated to present all offers to the seller. So, you must be sure that all offers you’ve received, EVEN IF YOU HAVEN’T OPENED THE E-MAIL WITH THE OFFER, are presented to the seller.
In your situation there is little that can be done once a contract is ratified. If the offer that was not presented was more than the ratified contract, the seller may claim that you and your broker owe seller the difference.
COUNTER-OFFERS: When it comes to counter-offers, here are some rules:
When more than one offer is received, the seller can: (1) reject them all; (2) accept one offer; (3) counter one offer; (4) counter some offers; or (5) counter all offers. It is up to the seller to decide — with guidance from the listing agent — which is the best strategy.
LISTING AGENTS:
1. ONE COUNTER-OFFER (“CO”) FOLLOWED BY OTHER OFFERS: If you have one offer which you have countered (and therefore the CAR Seller Multiple Counter-Offer form was not used), and then you receive another offer or offers which your seller wants to entertain, FIRST CANCEL THE FIRST COUNTER-OFFER IN WRITING. That is your most important task at that time. Then the seller can deal with all offers with all of the above options. Remember that offers and CO’s can be cancelled even though there is time remaining before they expire.
2. SHARP BIDS: Sometimes, the listing agent may receive a “Sharp Bid” where the buyer offers to pay “$xxx more than the next highest bidder.” The seller does not have to take that offer.
See Weekly Practice Tip entitled “Sharp Practice Offers”
3. YOUR OWN BUYER: If you have a buyer making an offer on your listing and there are going to be multiple CO’s, have another agent or a manager draft and present that buyer’s offer and represent that buyer until a contract is ratified, while you counsel only the seller during the negotiation phase. This will preclude the seller or an unsuccessful buyer from asserting that you used the information from other offers to your own buyer’s advantage – and to the disadvantage of the other buyers.
4. CHECK YOUR PAPERWORK: When making a Multiple Counter-Offer, be sure to use the proper form. CAR has three counter-offer forms: Buyer Counter-Offer (form BCO), Seller Counter-Offer form (form “SCO”); and a separate form for multiple counter-offers (form “SMCO”). Be sure there is an expiration date and time. Make sure your name is in the box to “personally receive” the counter-offer.
5. ACCEPTING THE SUCCESSFUL BIDDER: When Seller Multiple CO’s have gone out to more than one buyer, and one or more of those signed Multiple CO’s have come back, review them in detail. Some buyers may have changed the price and/or terms. Be sure that the seller signs the successful bidder’s CO in the proper place at the bottom of the Multiple CO form.
BUYER’S AGENTS:
1. MARKET CONDITIONS ADVISORY: Give your buyers a Market Conditions Advisory (either a separate document or part of a larger company or AOR Advisory). Discuss the Advisory with buyers and have them sign it. Make sure that they understand what it means to make a contingent-free offer. Make a note in your transaction log.
2. KNOW WHERE YOUR BUYERS ARE: When the offers are being presented, know how to contact your buyers if you anticipate that they are going to receive a counter-offer.
3. REVIEW THE COUNTER-OFFER WITH BUYERS: Go over all of the terms of the counter-offer so that ALL terms are understood before your buyers sign. Be sure to get a copy of the signed original offer along with the CO to see if seller addressed liquidated damages and/or arbitration in the contract form.
Unless seller states otherwise, at this point you can counter the counter; for example, raise your offering price to make the offer more attractive to seller.
4. CONFIDENTIALITY: Under California law, sellers are not obligated to keep the terms of offers and counter-offers confidential. Agents, however, are limited in disclosing the contents of offers and counter-offers by their fiduciary duty to their client. However, with the seller’s permission, for example, the listing agent could disclose contents of all offers, etc., to the other buyers. If your buyers want their offer and the contents to be held as confidential, there must be a separate confidentiality agreement.
See CAR form entitled “Confidentiality and Non-Disclosure Agreement” (ZipForms form CND)
For more information on counseling sellers and buyers in a fast market on such things as contingent-free offers, pre-emptive offers, etc., see Weekly Practice Tip: “Too Many Buyers and Not Enough Sellers”
ALL AGENTS:
Finally, all agents should be aware that in the CAR Purchase Agreement and various CO Forms, the “Confirmation of Acceptance” paragraph is not necessary to be signed to have an accepted contract. As that paragraph states, it is merely there as evidence when the acceptance occurred.
Acceptance actually happens when the last signed, unchanged offer or CO is delivered and personally received by the other party or the designated agent who is authorized to receive it.
WEEKLY PRACTICE TIP: DO NOT FORWARD TO CLIENTS. This Weekly Practice Tip is for the exclusive use of clients of Broker Risk Management and their agents. It may not be reproduced or distributed without the express written consent of Broker Risk Management. The advice and recommendations contained herein are not necessarily indicative of standards of care in the industry, but rather are intended to suggest good risk management practices.