May. 7, 2006 - Too much of a good thing?

Source:

http://www.realtor.org/rmoprint.nsf/pages/lawsept04

LAW: Multiple offers

BY OLIVER E. FRASCONA

Too much of a good thing?

Frank was ecstatic. He had a full-price contract for one of his listings, submitted by another broker in his office. Even better, it looked as if another set of buyers was coming in with a backup offer. And, since Frank, with the sellers’ permission, had told the sales associate working with Buyers No. 2 about the first offer, the backup was sure to be for more money. The sellers loved having two offers, too. If something went wrong with one, they’d still sell their home.

Sure enough the backup contract came in for $2,500 over full price. Frank even added a rider to the second offer, using a form available in his brokerage office, that stated: “This contract is conditional upon a senior contract between Buyers No. 1 and seller not closing on or before Sept. 28, this year. In the event the senior contract doesn’t close, this contract shall be in first position.”

Because he was friendly with the associate working with Buyers No. 1, Frank told that associate about the backup offer and urged him to “make sure your people don’t let this one go.”

A few days later, the sellers called. They’d decided that despite the signed contract, they wanted to sell their home to Buyers No. 2 and make more money. Couldn’t Frank just drag his feet until Buyers No. 1 went away? Although he felt funny about the request, Frank agreed. After all, he was the sellers’ agent, wasn’t he? He was supposed to be looking out for their best interests.

So when the lender working with Buyers No. 1 called to arrange an appraisal, Frank told him that the sellers didn’t want to do it this week because they had out-of-town guests. After the lender set up another time for the appraiser to see the house, Frank stalled again by missing the appointment. Now, time was too short for Buyers No. 1 to obtain a loan approval before the contract expired.

Unhappy that they were losing their dream home, Buyers No. 1 went to see an attorney. The attorney decided that Frank had “tortiously interfered” with the buyers’ right to purchase the home by delaying the loan. That is, he had allegedly breached the duty of care he owed to the customers, resulting in a loss. The attorney promptly recorded Buyers No. 1’s purchase contract with the county to show that the buyers had an interest in the property and sued for specific performance. Things weren’t looking good for Frank. But what had he done wrong? He’d simply followed the sellers’ instructions.

When Frank called the sellers, he found they too had heard from Buyers No. 1’s attorney. The attorney told them that because Frank was their agent, they might be liable for his actions. (This sort of vicarious liability isn’t in effect in all states. But in most cases, if the sellers knew about the actions of the agent, the sellers can be held liable.) Frank also learned that the sellers no longer remembered telling him to drag his feet.

As he hung up the phone, Frank figured things couldn’t get any worse. Not a moment later, an attorney representing Buyers No. 2 called to say that if the first contract didn’t close by Sept. 28, Buyers No. 2 were entitled to buy the property. To protect her clients’ interests, she had also recorded their contract and was initiating a suit for specific performance. Frank wondered why he’d ever thought having two buyers for a property was so great.

Frank sighed and picked up the phone to call his own attorney. After a short conversation, he found he’d made mistakes all through the transaction. Next time, he’ll:

• Tell Buyers No. 1 that Buyers No. 2 exist. Buyers No. 2’s offer won’t come into play until the contract with Buyers No. 1 is no longer in force.
• Tell Buyers No. 2 that Buyers No. 1 exist and that the backup offer is conditional on the contract from Buyers No. 1 failing.
• Be sure to include a clause in the backup offer to the sellers indicating that it’s conditional on the purchase contract with Buyers No. 1 failing to close.
• State clearly in the backup offer contract that if Buyers No. 1 initiate litigation in relation to the backup offer, the sellers can terminate the backup offer.
• Never play favorites with buyers, regardless of what the sellers say. Article 1 of the Code of Ethics states that even though REALTORS® represent their client, they must treat all parties to a transaction honestly.

Multiple contracts can be a great backup if you handle them properly. If you don’t, they can turn a deal into a nightmare.

Editor’s note: The information presented here doesn’t necessarily reflect NAR’s opinion, and contract wording here may not be appropriate for your needs. Check with an attorney in your area.

Frascona, GRI, of Frascona, Joiner, Goodman and Greenstein P.C., became an attorney after working as a real estate professional. He speaks and consults nationally. You can reach him at 303/494-3000 or oliver@frascona.com.

May. 7, 2006 - Multiple Offer Guidelines

Source: http://www.realtor.org/2004CEAM.nsf/0/b87ba8badbcacc8d862569dd00728778?OpenDocument

2004 Code of Ethics and Arbitration Manual © 2004 NATIONAL ASSOCIATION OF REALTORS® All Rights Reserved Subject: Ethics Part Number: Part 04 - Part Title: The Ethics Hearing Section/Form Number: Appendix IX to Part 04 Section/Form Title: Presenting and Negotiating Multiple Offers Text:

Appendix IX to Part Four Presenting and Negotiating Multiple Offers “When representing a buyer, seller, landlord, tenant, or other client as an agent, REALTORS® pledge themselves to protect and promote the interests of their clients. This obligation to the client’s interests is primary, but it does not relieve REALTORS® of their obligation to treat all parties honestly.” (from Article 1 of the 2002 REALTORS® Code of Ethics) “REALTORS® shall submit offers and counter-offers objectively and as quickly as possible.” (Standard of Practice 1-6) Perhaps no situation routinely faced by REALTORS® can be more frustrating, fraught with potential for misunderstanding and missed opportunity, and elusive of a formulaic solution than presenting and negotiating multiple purchase or lease offers and/or counter-offers on the same property. Consider the competing dynamics. Listing brokers are charged with helping sellers get the highest price and the most favorable terms for their property. Buyers’ brokers help their clients purchase property at the lowest price and on favorable terms. Balanced against the Code’s mandate of honesty is the imperative to refrain from making disclosures that may not, in the final analysis, be in a client’s interests. (Revised 11/01) Will disclosing the existence of one offer make a second potential purchaser more likely to sign a full price purchase offer—or to pursue a different opportunity? Will telling several potential purchasers that each will be given a final opportunity to make their best offer result in spirited competition for the seller’s property—or in a table devoid of offers? What is fair? What is honest? What is to be done? Who decides? And why is there not a simple way to deal with these situations? As REALTORS® know, there are almost never simple answers to complex situations. And multiple offer presentations and negotiations are nothing if not complex. But, although there is not a single, standard approach to dealing with multiple offers, there are fundamental principles to guide REALTORS®. While these guidelines focus on negotiation of purchase offers, the following general principles are equally applicable to negotiation of lease agreements. (Revised 11/01) • Be aware of your duties to your client—seller or buyer—both as established in the Code of Ethics and in state law and regulations. (Revised 5/01) The Code requires you to protect and promote your client’s interests. State law or regulations will likely also spell out duties you owe to your client. • The Code requires that you be honest with all parties. State law or regulations will likely spell out duties you owe to other parties and to other real estate professionals. Those duties may vary from the general guidance offered here. REALTORS® need to be familiar with applicable laws and regulations. Be aware of your duties to other parties—both as established in the Code of Ethics and in state law and regulation. • Remember that the decisions about how offers will be presented, how offers will be negotiated, whether counter-offers will be made and ultimately which offer, if any, will be accepted, are made by the seller—not by the listing broker. (Revised 5/01) • Remember that decisions about how counter-offers will be presented, how counter-offers will be negotiated, and whether a counter-offer will be accepted, are made by the buyer—not by the buyer’s broker. (Adopted 5/01) • When taking listings, explain to sellers that receiving multiple, competing offers is a possibility. Explain the various ways they may be dealt with (e.g., acceptance of the “best” offer; informing all potential purchasers that other offers are on the table and inviting them to make their best offer; countering one offer while putting the others to the side; countering one offer while rejecting the other offers, etc.). Explain the pluses and minuses of each approach (patience may result in an even better offer; inviting each offeror to make their “best” offer may produce a better offer[s] than what is currently on the table—or may discourage offerors and result in their pursuing other properties). Explain that your advice is just that and that your past experience cannot guarantee what a particular buyer may do. Remember—and remind the seller—that the decisions are theirs to make—not yours, and that you are bound by their lawful and ethical instructions. • When entering into buyer representation agreements, explain to buyers that you or your firm may represent more than one buyer-client, that more than one of your clients or your firm’s clients may be interested in purchasing the same property, and how offers and counter-offers will be negotiated if that happens. (Adopted 5/01) Explain the pluses and minuses of various negotiating strategies (that a “low” initial offer may result in the buyer purchasing the desired property at less than the listed price—or in another, higher offer from another buyer being accepted; that a full price offer may result in the buyer purchasing the desired property while paying more than the seller might have taken for the property, etc.). (Adopted 5/01) Remember—and remind the buyer—that the decisions are theirs to make—not yours, and that you are bound by their lawful and ethical instructions. (Adopted 5/01) • If the possibility of multiple offers—and the various ways they might be dealt with—were not discussed with the seller when their property was listed and it becomes apparent that multiple offers may be (or have been) made, immediately explain the options and alternatives available to the sellers—and get direction from them. • When representing sellers or buyers, be mindful of Standard of Practice 1-6’s charge to “. . . submit offers and counter-offers objectively and as quickly as possible.” (Revised 5/01) •With the seller's approval "...divulge the existence of offers on the property" consistent with Standard of Practice 1-15. (Adopted 11/02) •While the Code of Ethics does not expressly mandate “fairness” (given its inherent subjectivity), remember that the Preamble has long noted that “. . . REALTOR® has come to connote competency, fairness, and high integrity. . . .” If a seller directs you to advise offerors about the existence of other purchase offers, fairness dictates that all offerors or their representatives be so informed. • Article 3 calls on REALTORS® to “. . . cooperate with other brokers except when cooperation is not in the client’s best interest.” Implicit in cooperation is forthright sharing of information related to cooperative transactions and potential cooperative transactions. Much of the frustration that occurs in multiple offer situations results from cooperating brokers being unaware of the status of offers they have procured. Listing brokers should make reasonable efforts to keep cooperating brokers informed. Similarly, buyer brokers should make reasonable efforts to keep listing brokers informed about the status of counter-offers their seller-clients have made. (Revised 5/01) • Realize that in multiple offer situations only one offer will result in a sale and one (or more) potential purchasers will be disappointed that their offer was not accepted. While little can be done to assuage their disappointment, fair and honest treatment throughout the process; coupled with prompt, ongoing and open communication, will enhance the likelihood they will feel they were treated fairly and honestly. In this regard, “. . . REALTORS® can take no safer guide than that which has been handed down through the centuries, embodied in the Golden Rule, ‘Whatsoever ye would that others should do to you, do ye even so to them.’ ” (from the Preamble to the Code of Ethics). (Revised 11/01)