Q: I am taking a great listing in a neighborhood where there is tremendous demand; the last home that sold had over 25 offers. The Agent who had that listing set a specific date and time for all offers to be presented but several Agents sent their clients’ offers early. Is it a good idea to set a presentation date? What are the best practices and what should be done if Agents ignore the presentation instructions?
A: In a hot market where there is limited inventory, many Sellers’ Agents try to create a competitive atmosphere by having all offers heard at the same time. It is a useful technique but Buyers’ Agents are not obligated to wait; many Buyers’ Agents make “preemptive offers” to get a leg up on the competition.
An offer is considered to be a “preemptive offer” when the offer includes a very short time period for the Seller to respond and either (1) the offer is sent to the Seller’s Agent immediately after the Property comes on the market or (2) the offer is sent to the Seller’s Agent before the time set for presentation of offers. Sellers’ Agents who set a specific time for presentation of offers must review the risks and benefits of that strategy with their Sellers.
I. THE RISKS AND BENEFITS OF SETTING A SPECIFIC TIME FOR OFFER PRESENTATIONS:
A. The Benefits: Setting a specific time for offer presentation can make it easier for Sellers and Listing Agents to compare all of the offers at a single time and can aid in creating a bidding war to raise the sale price.
B. The Risks: The biggest risk in setting time for offer presentation is preemptive offers. If Sellers decide to use this technique, the Sellers will need to be educated on how to best handle preemptive offers and Sellers should provide written instructions to their Agent.
The NAR Code of Ethics requires that all offers be presented to Sellers “objectively and as quickly as possible.” (Standard of Practice 1-6.) However, if Sellers have agreed on a marketing plan to present all offers at a specific future date and not present offers until then, then the Agent is not obligated to present the offer. Therefore, documentation is needed!
II. COUNSELING SELLERS ABOUT PREEMPTIVE OFFERS: Sellers need to be told that there may be preemptive offers and that you will need written instructions on handling those offers. Sellers need to understand that they can decide to ignore preemptive offers and wait for the offer presentation date, or Sellers can decide to have those offers presented to them anyway. To make an informed decision on handling preemptive offers, Sellers need to understand the risks of accepting or rejecting preemptive offers; therefore, Agents need to discuss:
A. The Sellers’ Risks When Accepting a Preemptive Offer: If the Property has not been on the market for a sufficiently long time to test the market for the demand and proper pricing for the listing, it is harder to determine if the preemptive offer is the best deal. Worse, if Sellers accept a preemptive offer, other offer(s) may come in at a higher price, which inevitably upsets Sellers who accepted a lower price.
B. The Sellers’ Risks When Rejecting a Preemptive Offer: The main risk of rejecting a preemptive offer is that the later offer(s) may not be as good as the rejected preemptive bid, or even that no other offers are received!!!
III. THE SELLERS’ AGENTS’ RISKS: When a preemptive offer is accepted or rejected, the Sellers’ risks above may become claims by Sellers against their Agent for their perceived loss. There are other potential problems for the Sellers’ Agents if a preemptive offer is accepted which can be dangerous because the Property has not been on the market long enough to prove its true value. Sellers, or their attorneys, family members, or other agents, may allege that the Property was worth much more than the sale price. It is difficult to prove the real value of a Property which was never “market tested.”
The Listing Agents’ Risks are greatly magnified if any of the following facts are true:
- The Buyer’s Agent is from your office (this creates the appearance that your brokerage encouraged the Seller to accept the first offer so as to double-end the sale) and, even worse, if that Buyer flips for a profit;
- The Buyer’s Agent from your office is also the Buyer and even worse if that Buyer flips for a profit;
- The Seller is elderly (this creates the potential for a costly claim of elder abuse) or cannot read, speak or write English (this creates the potential for a costly claim of lack of informed consent).
If any of these facts exist, your Broker/Manager should be notified before dealing with a preemptive offer.
PRACTICE TIPS:
1. All Sellers should sign a Market Conditions Advisory, or similar document, at the time you take the listing.
2. At the beginning of the listing, send an email to Sellers confirming you discussed the risks and benefits of using the marketing technique of setting a date and time for Offer Presentation and that the Sellers decided to set a date:
“As we discussed, when there is limited inventory, comparable sales data often do not predict the ultimate sale price. You may receive few, or many, offers on your property; they may come in early, one at a time, or all at once. One way to make it easier to compare offers and create a bidding war is set a specific date and time for offers to be presented. You have decided that all offers are to be presented on Date .”
3. Send an email to Sellers confirming you discussed the risks of accepting or rejecting preemptive offers and that you request that the Seller provide you with written instructions regarding preemptive offers:
“Buyers’ Agents may present their offers early (a “preemptive offer”). Accepting or rejecting preemptive offers is risky because the market has not been tested and thus it will not be known if the preemptive offer is the best offer or whether other, perhaps higher, offers will be made on the date set for presentation of offers. Please advise me, in writing, as to how you want me to handle preemptive offers.”
4. If the Sellers provide written instructions NOT to present preemptive offers, do not let aggressive Buyer Agents bully you into presenting their preemptive offer. The short deadline to respond is often nothing more than the Buyer’s Agent’s artificial creation to get their offer accepted ahead of others. Regardless of prior Seller instructions, you must still NOTIFY the Seller if preemptive offers are received and that, unless instructed otherwise, you will follow the Seller’s written instructions. If your Seller is clear that they do not want offers presented until the appointed hour, advise everyone that you have written instructions from the Seller not to present preemptive offers and that they should make their best offer on the date set for presentations and/or have the Buyer extend the offer expiration date for your Seller to respond.
5. If the Seller provides written instructions to present preemptive offers, the moment that you receive a preemptive offer you should (a) let the Seller know that you have received an offer and (b) you must let every Agent whose Buyers have expressed an interest that the Seller has received and will review preemptive offers. Make sure that the Seller understands that it will take time to make all of those notifications and that the Seller should not accept, reject or counter any offer until everyone has been notified that the rules for offer presentation have been changed. Make sure that you have removed the presentation date from the MLS and all other advertising.
6. MLS: If Seller chooses to entertain preemptive offers, be sure to follow all MLS rules regarding that change.
7. Buyers’ Agents: There is nothing illegal or unethical in making preemptive offers if Buyers have given written instructions to present their offer early and Buyer knows that their Offer may be ignored.
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.
© Copyright Broker Risk Management 2021 03/19/21