Q: I represent a Buyer who is desperate to purchase a home in my area but there are very few listings in his price range. The MLS and flyer for one house specified that offers cannot be presented before Thursday at 5:00 p.m. I let the Listing Agent know that I had an interested Buyer. My client said he wanted to make an offer now because he would be out of town until Thursday morning. I advised my client that we had to wait to make an offer because I had an ethical obligation to respect the Listing Agent’s instructions. We agreed to meet Thursday afternoon to prepare the offer.
I got a call Wednesday morning that the Seller had received a “pre-emptive offer” and that anyone who was interested needed to submit an offer by 5:00 p.m. that day. I could not reach my Buyer in time and the house sold to the aggressive agent who disregarded the offer presentation rules. My client is upset with me and is claiming that I breached my fiduciary duties to him. Can he make such a claim against me for following the rules laid out by the Listing Agent? What should I have done?
A: Yes, it is possible that the Buyer could make a claim that you were not working in the Buyer’s best interests by not advising the Buyer of all of his options so that Buyer could decide when to make an Offer including the option of making a “pre-emptive” offer.
There is no ethical or legal obligation for Selling Agents to comply with a Listing Agent’s date for offer presentation. While Selling Agents may generally want to respect the Listing Agent’s stated requests or restrictions as a professional courtesy, the first and primary duty of any agent is to work in the best interest of their client.
When there is limited listing inventory to meet the needs of all possible Buyers, Listing Agents often try to control the potential chaos of multiple offers “flying” in at all hours by setting a specific presentation date and time. However, setting those time frames does not act as any type of a bar to Selling Agents from making an offer before that deadline (a “pre-emptive offer”) if requested or instructed to do so by their Buyer.
SELLING AGENTS:
Established time frames for offer presentation is a commonly-used technique when there is limited inventory; however, those times frames are not cast in concrete and Selling Agents are not legally or ethically obligated to abide by those “rules.” Selling Agents, especially those with clients who have special needs or time constraints (or are trying to avoid yet another bidding war), can legally and ethically insist upon the presentation of their clients’ offers if requested to do so by their Buyers (preferably in writing).
Buyers whose schedules prevent them from waiting until the pre-set time are often the best candidates for making a pre-emptive offer. With the Buyers’ permission, their particular urgency can be used to convince a Seller that the Seller should reconsider the original presentation time line.
CAVEAT: Selling Agents should avoid inventing an urgency since that could be construed as making an unethical and potentially illegal misrepresentation of a material fact.
Strategically, pre-emptive offers are not always the best practice to use especially if the Listing Agent is adamant that the Seller will not be making any exceptions; forcing a change in the agree- upon procedures could present problems for the Seller and/or Listing Agent. Arguing with the Listing Agent is not the best way to start a transaction.
Ultimately, the decision to make a pre-emptive offer rests with Buyers who need to be apprised by their Agent of all options and risks. Whether or not Buyers decide to make a pre-emptive offer, they must understand that the Seller can still insist upon waiting to see all of the other offers before making a decision and thus there is no guarantee that using this aggressive technique will be beneficial.
Buyers who have time constraints need to understand that in this type of market, their Agent must be able to reach them by some means of communication. Remind Buyers: Staying “off the grid” is equivalent to being “out of the market.” The best way to lose a bidding war is to not show up.
PRACTICE TIPS:
- Keep your clients informed. Selling Agents must be able to keep their Buyers informed of any changes in the date and time set for offer presentation thus it is extremely important to secure all contact information from all Buyers.
- Advise Buyers who are interested in property where there is a specific date and time for offer presentation that they can instruct you to present a pre-emptive offer. Those written instructions should include the Buyers’ preferences regarding what information you are authorized to provide to the Listing Agent about the Buyers’ need to present earlier than the Listing Agent’s deadline but caution the Buyers to be truthful about their sense of urgency.
- If Buyers want you to present a pre-emptive offer, be certain that you advise Buyers that if the Seller agrees to receive it early, that Listing Agent will be ethically obligated to notify all interested Buyers of the Seller’s change of mind. As such, it is possible that there may still be a bidding war which is what many pre-emptive offers are intended to avoid. This advice should be documented in a confirming e-mail to the Buyers.
- Buyers who make pre-emptive offers should be advised in writing that the Seller is not obligated to review any pre-emptive offers and that, even if the Seller is willing to change the rules, the Seller is not obligated to accept the pre-emptive offer. The Seller can still accept, reject or counter the offer.
- Before succumbing to preparing a pre-emptive offer, be certain that you stop and seek assistance from your Broker/Manager.
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 04/27/18