Q: I have a listing on a desirable home in an area with limited inventory. Most listings receive multiple offers. My seller and I agreed that all offers would be presented on Thursday at 5:00 p.m., two days after our Broker’s Open and those rules were clearly spelled put in the Property flyer. An agent called me Tuesday after the Broker’s Open and said she had an offer that MUST be presented since it expires at 6:00 p.m. that day. She personally delivered the offer to me and stated that her buyers are leaving town tomorrow; she also stated that I was ethically-required to present all offers.
I advised the Seller that there was an offer with a short expiration time frame. The Seller wanted to see the Offer. The Offer was way over asking price; the Seller decided to accept it without countering. The Seller was thrilled with the price until an even higher offer came on Thursday. The Seller is talking to her attorney and feels that I let her down. The Broker whose Buyers played by the rules and lost out (even though theirs was the highest offer) has indicated that his Buyers believe I treated them unfairly.
Do I face any liability? How could I have handled this differently?
A: Yes, it is possible that the Seller could make a claim that you failed to provide adequate advice regarding pre-emptive offers depending upon the documentation that you have in your file and the totality of the circumstances. It is also possible that the Buyers who lost out could claim that you acted unethically if you failed to notify their Broker that the presentation offer rules had changed; depending upon the circumstances, they may have other claims as well
This Weekly Tip will focus on how Listing Agents should handle pre-emptive offers.
LISTING AGENTS:
The NAR Code of Ethics requires that all offers must be presented to the Seller “objectively and as quickly as possible.” However, if the Seller has agreed with the Listing Agent on a marketing plan to present all offers at a specific time in the future, then Listing Agents can wait to present any and all offers.
Listing Agents should secure written instructions from Sellers if there is to be any delay in presenting offers. However, even with such written instructions, Listing Agents are obligated to advise the Seller of all offers that the Listing Agent receives and, if the Listing Agent is given a pre-emptive offer that has a short expiration date, the Listing Agent must let the Sellers know about the offer deadline.
Notifying the Seller of the existence of an offer does not mean that the Seller must review it or respond to it. The Seller is the person who is in control of the process and it is the Seller who will decide whether or not to hear any offers before the originally-scheduled date and time.
When the Seller is advised of the existence of a pre-emptive offer, the Seller also needs to be advised of certain practical realities. Often the sense of urgency to present the offer is artificially created by the Selling Agent to try to gain an advantage over other Agents and it may be possible to extend the timing on the offer deadline. It is also possible that regardless of the terms of the pre-emptive offers, other offers may be better — waiting until the established time could create a bidding war to raise the price higher which is often in the Seller’s best interests.
Equally important to the Seller’s decision is that if the Seller wants to make an “exception” for this pre-emptive offer, all other interested Buyers and their Agents will need to be notified of the pre-emptive offer; this could create problems for those Buyers and their Agents who are waiting for the appropriate time to make their offer.
Once the Seller is apprised of the options and the Listing Agent’s recommendations, the Seller needs to give written instructions to the Listing Agent to either: (1) not present the pre-emptive offer (and request an extension of time to respond); or (2) notify all potentially-interested Buyers and their Agents that there is a new date and time for presenting offers. To be fair, the new date and time should take place when the pre-emptive offer is presented. Listing Agents should first notify the other interested Buyers’ agents by phone and then follow up with an e-mail regarding the Seller’s willingness to review a pre-emptive offer.
If the Seller chooses to wait as originally agreed in the marketing plan, then Seller’s written instructions not to present any or all pre-emptive offers can be provided to Selling Agents who will need to decide how to handle their “clients’ urgency.” If the Seller opts to hear a pre-emptive offer, those instructions should also be in writing so that the changed instructions can be provided in an e-mail to all interested Buyers and their Agents.
There is potential danger for Listing Agents whose Sellers decide to change the rules and review pre-emptive offers because any decision to accept, counter or reject that offer is being made in a vacuum without the benefit of knowing what the other competitive buyers may be offering.
For example:
- Seller decides to accept the pre-emptive offer. The Seller may be very pleased with this accepted offer but there is no guarantee that it will be the best offer. If a better offer is presented after the Seller accepted the pre-emptive offer, the Seller and Seller’s attorney, could blame the Listing Agent alleging that the Seller was “pushed into taking this offer.”
- Seller decides to reject the pre-emptive offer. If the offers presented at the agreed-upon date and time are not as good as the pre-emptive offer, the Seller may be upset that the Listing Agent “didn’t make/encourage me to take that offer.”
These two potential problems arising from Seller’s agreeing to review a pre-emptive offer are made worse if any or all of the following facts are true:
- The pre-emptive Buyer is represented by anyone who is affiliated with the Listing Sales Associate’s brokerage (dual agency);
- The pre-emptive Buyer is a personal friend and/or client of the Listing Sales Associate and/or is a real estate Sales Associate in the Listing Sales Associate’s brokerage.
- The Sellers are elderly (claims of elder abuse include mandatory attorney’s fees and other penalties) and/or English is the not the Sellers’ primary language, nor do they speak the same language as the Listing Agent. These types of Sellers are perceived by the Courts as being “easily confused” by their fiduciaries.
Under both federal and state fair housing laws, all Buyers and their Agents must be treated equally. Creating different sets of rules for when different Buyers’ offers are to be presented can lead to a very costly fair housing claim/lawsuit against the Seller and the Listing Agent both in the civil courts and at the Department of Fair Employment & Housing. The Listing Agent could also face action by the Department of Real Estate.
Thus, if Listing Agents want to control the flow of offer presentation and/or the Seller has a specific need to delay those presentations, then it is critical that the Sellers understand the importance of not changing the established rules for anyone, regardless of who is making the pre-emptive offer.
PRACTICE TIPS:
- Keep your clients informed. Even if the Seller has provided written instructions that they do not want any offers presented until a certain date and time, Listing Agents must let the Seller know that pre-emptive offers have been received.
- Listing Agents who receive a pre-emptive offer need to document that they have apprised the Seller of the pre-emptive offer and document that the Seller was properly advised of their options (an e-mail confirming those facts is a great way to document the agent’s advice and recommendations as well as the decision of the Seller).If the Seller wants to see the pre-emptive offer, remind the Seller that a new date and time needs to be established to create a level playing field for all potential Buyers and that it will take time to notify everyone.
- If the MLS remarks specify the date/time when all offers are to be presented and the Seller decides to receive a pre-emptive offer, in addition to notifying all interested Buyers and their Agents of the Seller’s change of mind, be certain to also change the information in the MLS. Note that some MLS rules include a penalty if a Seller wants to accept a pre-emptive offer before changing the offer presentation information in the MLS.
- If the Seller wants to hear a pre-emptive offer, be certain to put a copy of all e-mail notifications to other interested Buyers and their Agents in the Broker file.
- If the Seller wants to accept or counter a pre-emptive offer, provide the Seller with all current comps on the Property and have the Seller sign for receipt of that material; a copy should go into the Broker file to establish what information the Seller used to make a decision.
- Before succumbing to pressure from Sellers, Buyers or their Agents to present pre-emptive offers, be certain that you stop and seek assistance from your Broker.
DO NOT FORWARD THIS TIP TO YOUR CLIENTS OR OTHER THIRD PARTIES. 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.
© Copyright Broker Risk Management 2018 05/04/18