QUESTION: My client recently lost in a multiple offer situation. He really needs to find a house before he moves his family to California and he has asked me to prepare three offers on three different properties. He can only afford to buy one house but he wants to “hedge his bets” and not wait for these three Sellers to respond. All three offers will contain a 5-Day Investigation Contingency. My client believes that if more than one Seller accepts his offers that he can easily use that contingency to terminate the transaction.
I am nervous about following my client’s instructions especially since one of the properties that he is interested in was listed by another Agent in my Brokerage. What should I do? What should I tell my client?
ANSWER: There are significant risks for both you and the Buyer if you present multiple offers on different properties and, if not handled correctly, you are at even greater risk in connection with the property that is listed by your Brokerage. You should not prepare any of those offers without first speaking with your Broker.
When Buyers’ Agents submit multiple offers on different properties at the same time (or while waiting to hear back from any other sellers), there can be significant repercussions for the Agent, the Broker and the Buyer.
A. Cancelling Any of the Deals May Subject Buyer to Liability for Seller’s Damages
Notwithstanding the fact that your client may have lost out in other multiple offer situations, more than one of the Offers submitted may be accepted. If that happens, the Buyer may not be able to safely cancel one or more of those deals in good faith. The Investigation Contingency in standard Purchase Agreements is designed to enable Buyers to cancel the contract if that specific Property does not meet the Buyer’s needs. That Contingency is not designed to be a blanket “Get Out of the Deal Safely” provision to buy another property that the Buyer prefers.
Cancellations made in bad faith create potential legal claims by the Seller(s) whose deal(s) the Buyer chose to cancel. Buyers cannot simply change their mind about buying property and whether or not the Buyer has put any money into escrow, the Seller(s) may be able to seek damages, including legal fees and costs from the Buyer. If you have provided any assurances or if you have allowed your client to believe that he can safely cancel any of these deals, you may be required to reimburse the Buyer for any damages that he has to pay the Seller(s) along with reimbursing your client for his legal fees and costs.
For more information about the risk of cancelling when clients change their mind, see:
Weekly Practice Tip: The “Change of Heart” or “Change of Mind” Cancellation (10/30/20)
B. Agent Liability for Not Acting in Good Faith
Agents must act with good faith and fair dealing with everyone in a transaction (as specified on the front page of the statutory Agency Disclosure form). Legally and ethically, you may not be acting in good faith in presenting offers to sellers when you know that (a) your client cannot afford to buy all of those properties and (b) your client intends to cancel if one of the other Sellers accepts the client’s offer.
If a Seller learns that you were involved in presenting multiple offers and you aided your Buyer in cancelling that Seller’s transaction, that Seller can take any or all of the following actions against you and your Broker:
- File a lawsuit alleging that you were in a conspiracy with your client to defraud the Seller into accepting a contract that you knew your client would not and could not perform. That lawsuit could also allege that you and your Broker are involved in a fraudulent business practice and/or unfair competition in violation of Business & Professions Code Section 17200, et. seq., which could subject you and your Broker to civil penalties in addition to paying any of the Seller’s damages.
- File a complaint with the Department of Real. The DRE could also consider whether you and your Broker are involved in a fraudulent business practice.
- File an Ethics Complaint with your local Association of REALTORS®.
C. Additional Problems if One or More of the Properties Are Listed by Agent’s Broker
If any of the multiple offers are on your Broker’s listings, then you are in a dual agency situation; you may be breaching your fiduciary duties to the Sellers if you do not disclose the truth about the multiple offers. Worse, you may be violating your fiduciary duties to the Buyer if you disclose your client’s financial position and/or bargaining position which could be argued if you reveal that the client is making multiple offers. In other words, you run the risk of both the Seller and the Buyer being able to make claims against you for breach of your agency duties.
PRACTICE TIPS:
- Do not write multiple offers on multiple properties especially if any of the properties are listed by your brokerage. The risks are too great. If you are even thinking about it, discuss the matter with your Broker or Branch Manager since they should make the business decision as to whether or not to take this business risk.
- If your Broker or Branch Manager chooses to disregard the advice above and you are going to write multiple offers, be certain to warn the Buyer in an email not to be involved in this bad business practice which can subject the Buyer to damages. That email should also encourage the Buyer to first consult with a qualified California real estate attorney regarding the risks of engaging in such practice and, in particular, cancelling any of those deals. That email should then be included in the Broker file.
- If the Client refuses to consult with a qualified California real estate attorney, then document that the Client is not following your advice.
See Weekly Practice Tip: Handling Clients Who Will Not Follow Advice (11/16/18)
This Weekly Practice Tip is an attorney-client privileged document 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.
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