The spring real estate market is picking up speed and in some circumstances, producing multiple offer situations. Multiple offer situations can create anxiety, disappointment, and frustration for everyone involved in the transaction, which is why it is important for REALTORS® to have a clear understanding of their obligations and their client’s expectations before a multiple offer situation arises in order to ease tensions. Let’s begin by reviewing the pertinent provisions of the National Association of REALTORS® Code of Ethics (“COE”).
Article 1 of the COE requires REALTORS®, when representing a buyer, seller, landlord, tenant, or other client as an agent, pledge themselves to protect and promote the interests of their client. This obligation to the client is primary, but it does not relieve the REALTOR® of their obligation to treat all parties honestly.
Standard of Practice 1-15 states that, REALTORS®, in response to inquiries from buyers or cooperating brokers shall, with the seller’s approval, disclose the existence of offers on the property. Where disclosure is authorized, REALTORS® shall also disclose, if asked, whether offers were obtained by the listing licensee, another licensee in the listing firm, or by a cooperating broker.
Conversation with Seller at Time of Listing
When you take a listing, you will want to have a conversation with your seller – before any written offers are received – explaining the various ways to handle a multiple offer situation (e.g. acceptance of the best offer, requesting all potential purchasers submit their best offer, or countering one while rejecting the others).
You will also want to inquire whether the seller will permit you to disclose, if asked, the existence of offers on the property. Knowing this information before the question is posed to you by the buyer, or anyone representing or assisting the buyer, will eliminate the possibility of breaching your obligation to protect your client’s interests, and assist you in complying with the obligations to disclose the existence of offers when asked and when authorized by the seller. Note however, that disclosure of other offers cannot be made until after you have presented the buyer’s written offer to the seller. MN Statute & 82.71, Subd. 2 prohibits disclosure of the terms of an offer to another prospective buyer, or the licensee representing or assisting the buyer, prior to the presentation of the offer to the seller.
Your brokerage may even wish to develop a standard company policy as to how the firm will handle multiple offers that can be explained and approved or modified accordingly by each seller client, and reflects the context of your agency representation with that client (e.g. seller’s broker or dual agent).
You can certainly provide advice to sellers of the pros and cons of each approach – such as the risk of losing a buyer versus the possibility of obtaining a higher offer. However, it is important to remember that the ultimate decision on how to handle multiple offer situations rests solely with the seller, and you will need to comply with their lawful and ethical instructions.
Conversation with Buyer at time of Buyer Representation
When entering into buyer representation contracts of facilitator services agreements, you will want to explain to your buyer that a multiple offer situation may arise and that seller may “shop” the buyer’s offer.
Standard of Practice 1-13 states, in part, that when entering into buyer/tenant agreements, REALTORS® must advise potential clients of the possibility that sellers or sellers’ representatives may not treat the existence, terms, or conditions of offers as confidential unless confidentiality is required by law, regulation, or by any confidentiality agreement between the parties.
You may also want to point out to your buyer the language in the buyer representation/facilitator contracts that explains that other potential buyers may consider and/or make offers to purchase through the broker the same or similar properties, and the buyer is consenting to the broker representing other potential buyers. Again, a brokerage may wish to develop a standard company policy explaining to the buyer how the brokerage intends to handle multiple offers in this situation.
You should also advise the buyer about the pros and cons of negotiation strategies, and always keep in mind that the buyer ultimately makes the decision on how to proceed.
As a licensee representing or assisting the buyer, you will want to remember that the seller and the licensee representing or assisting the seller are not obligated to inform you of other offers unless you inquire and the seller has authorized the disclosure. If you and your buyer wish to know whether there are other offers on the property, you will need to inquire. Additionally, you can also inquire whether other offers were obtained by the listing licensee, another licensee in the listing firm, or by a cooperating broker. If you inquire and the sellers has authorized the disclosure, then the REALTOR® is obligated to disclose that information to you.
Dual Agency Situation
In the event a dual agency arises in a multiple offer situation, you will need to ascertain, on a case by case basis, whether your brokerage my disclose that there are multiple offers or shop any of the offers submitted. Dual agents may not advocate for one party to the detriment of the other, and your brokerage will need to consider the legal and ethical obligations owed to both the buyer and the seller in a multiple offer situation before taking any action that would be detrimental to either party.
Duty to Submit All Offers
Whether you are representing the buyer, the seller, or serving as a dual agent, remember that MN Statute & 82.71 requires that all written offers to purchase of lease shall be promptly submitted in writing to the seller or lessor, and Standard Of Practice 1-6 requires REALTORS® submit offers and counteroffers objectively and as quickly as possible.
The National Association of REALTORS® has also summarized other important considerations when presenting and negotiating multiple offers. Please refer to Appendix IX to Part Four of the Code of Ethics and Arbitration Manual for further information.
The Minnesota REALTORS® is the largest professional trade association in the state with more than 17,000 members who are active in all aspects of the real estate industry.