Table of Contents
Multiple Offers
Multiple offer situations arise when two or more buyers make (or express an interest in making) an offer to purchase the same property at the same time. Multiple offers create a serious risk management problem. For that reason, a thorough understanding of contracts and agency relationships is necessary. If you have not done so recently, please review the Understanding Contracts section of this Topic. A review of the Agency Relationship section of WORKING WITH CLIENTS is also advisable.
The existence of multiple offers does not change license law, contract law, agency law or the REALTOR? Code of Ethics. Contrary to popular belief, there are no "special" rules about multiple offers. That is not to say multiple offers do not present unique license law, contract law, agency law and ethical issues. Multiple offers present all these issues and more.
return to top Statutory Provisions Affecting Multiple Offers
Statutory Provisions Involved
Oregon Revised Statute 696.800 Agent's Obligations - Definitions
Oregon Revised Statute 696.805 Real estate licensee as seller's agent; obligations
Oregon Revised Statute 696.810 Real estate licensee as buyer's agent; obligations
Oregon Revised Statute 696.815 Representation of both buyer and seller; obligations
return to top Explanation of Statutes Involved
The statutes most affecting multiple offers are those that establish the agent's duties to the parties to the transaction. The statutes set out duties owed not just to clients but to other principals and agents involved in a transaction. Click here for a detailed discussion of statutory agency duties.
Administrative Rules Affecting Multiple Offers
Oregon Administrative Rule 863-015-0135 Offers to Purchase
Oregon Administrative Rule 863-015-0200 Agency Relationships
Oregon Administrative Rule 863-015-0205 Disclosed Limited Agency
Explanation of Administrative Rules Involved
Administrative Rules concerned with agency relationships and disclosed limited agency flesh out the statutory duties but add no additional requirements. The Administrative Rules concerning offers, however, do impose additional requirements on licensees. In particular, the Rules demand prompt tender of all offers and a written record of the date and time of the tender as well as the date and time of any response.
The duty to include all the terms and conditions in the offer can also come into play in a multiple offer situation. In multiple offer situations, there is a tendency for the agents to discuss how things will or should be handled. When those discussions cross the line into points of agreement affecting an offer, the agreed-to terms or procedures must be included in the offer itself. Click here for a detailed discussion of offers.
return to top Multiple Offers and Single Agency
Representing the Seller Only
If you represent only the seller in a multiple offer situation, your primary duties to the seller are loyalty, confidentiality and due diligence. Your duties to the buyers involved are honesty, disclosure and fair dealing. Simply put, you must place your client's interest first and protect and advance those interests to the fullest extent possible considering your legal duties to other parties.
Listing agents tend to see multiple offer situations as dangerous situations that place the agent in a conflict situation. They worry that the obligations of loyalty, confidentiality and due diligence owed the seller will conflict with the duties of honesty, disclosure and fair dealing owed to other parties. Fortunately, that is not really the case. In multiple offer situations, the seller's agent can meet most of their legal obligations by simply presenting all offers in a timely manner, recording the date and time of the presentation and making certain all the terms of the agreement are in writing.
The seller's interest in obtaining the best price for the property does not conflict with the duty to present all written offers. Every buyer wants the seller to see their best offer and the seller wants to see every offer. There is no conflict. Nor is there any conflict between the duty to deal honestly and in good faith and the seller's desire for the best price as long as no one is deceived or cut out of the transaction without business justification.
In every multiple offer situation there are going to be one or more buyers who don't get the property. There is nothing the listing agent can do about that. What the listing agent can do something about is making certain they can prove they met their duties to the seller without violating any duty owed to the buyer.
The listing agent in a single agency multiple offer situation needs to think about how they can show anyone who may be interested (a Real Estate Agency investigator, a lawyer for one of the disappointed buyers or their own client) that they fulfilled their legal duties when dealing with the offers. To their own client, that means proving loyalty, confidentiality and due diligence. To the buyers involved, that means proving honesty, disclosure and fair dealing.
Loyalty and confidentiality to the seller are no different in multiple offer situations than they are in any offer situation. Diligence to the seller means developing a business strategy that results in turning multiple offers into a closed transaction that is satisfactory to the seller. That's it. That's the whole deal as far as the seller is concerned. The seller doesn't want to leave money on the table or lose a good offer while trying to get more. Tips and tools for listing agents to accomplish that (and prove they did) are included in the Handling Multiple Offers section of this Topic.
The disclosure, honesty and fair dealing obligations the listing agent owes to buyers can be overwhelming in multiple offer situations unless the listing agent has a procedure in place and follows that procedure. It is tempting for the seller to play one buyer off against the others in a multiple offer situation. This can take the form of "shopping" the best offer or secretly encouraging low bidders to "strengthen" their offer while the seller sits on the best offer or presenting offers in a way that favors one buyer.
None of the procedures just mentioned are actually in the seller's interest and each puts the listing agent at risk. Whatever the seller's strategy for obtaining the best price, the process should involve documentation and an even playing field for all buyers. Giving each buyer a fair chance to purchase meets the seller's needs and protects all concerned from claims by disappointed buyers. Tips and tools for establishing a multiple offer process are included in the Handling Multiple Offers section of this Topic.
One of the things a good multiple offer process must consider is how to deal with escalator clauses. Escalator clauses are used in offers to automatically increase the purchase price if there are competing offers. Such clauses raise very serious agency duty issues. So serious, in fact, that a separate explanation of these clauses and the problems they cause is required. Click here for an explanation of escalator clauses.
return to top Representing the Buyer Only
If you represent a buyer in a multiple offer situation, your main concern (just like the listing agent's) is due diligence to your client. Diligence means doing the best you can to see to it that your client gets the property they want at the best price in the circumstances. If your client got their best offer on the table and another buyer beat it, that's one thing. If they didn't get their best offer on the table, that's quite another.
As the buyer's agent, you don't want misreading the market or making a low-ball offer to be your fault. That means evidence in your client file that shows a discussion of the market and how the terms of the offer were arrived at. If multiple offers are common in the market, one would expect the buyer to have been warned - in writing. Of course, as with any offer, a CMA goes a long way toward showing diligence in helping the buyer craft an offer. Tips and tools for buyer agents are included in the section on Handling Multiple Offers.
Disappointed buyers, and their agents, are quick to believe they have been the victims of deceit in multiple offer situations. This belief is especially likely if one of the competing buyers is represented by an agent in the same company as the listing agent. It is almost certain to be the belief if the listing agent also represents one of the competing buyers. However, given the risk to the seller's agent, it is very unlikely there are as many shenanigans in the presentation of offers in multiple offer situations as is sometimes believed.
Whatever the actual rate of shenanigans in the presentation of offers, there isn't much a buyer's agent can do, other than to take advantage of MLS presentation rules and state law. Most multiple listing services have rules on presentation of offers - know them and follow them. Oregon, like most states, requires the seller's agent to present all offers "in a timely manner." State law also requires the listing agent to have a "written record" of the date and time an offer is presented.
Taken together, MLS rules and state law make it exceedingly foolhardy for a listing agent to sit on an offer and relatively easy for real estate investigators to catch them if they do. What MLS rules and state laws won't do, however, is guarantee that any particular buyer, even if they might ultimately be willing to pay the most for the property, will actually get the property. This uncertainty, always part of any contract formation situation, has lead to the growing use of "escalator clauses."
Escalator clauses sound good to buyers forced into hot markets but there are problems. These problems can trap an unwary selling agent. Certainly, no agent should ever suggest the use of such a clause without having discussed the drawbacks of such clause with their client. That discussion, as with any discussion involving potential breach of agency duties, must be documented. Click here for a full explanation of escalator clauses. Tips for dealing with escalator clauses are also included in Handling Multiple Offers.
return to top Multiple Offers and Dual Agency
Far and away the most dangerous agency situation when dealing with multiple offers is representation of both the buyer and the seller under a "disclosed limited agency" agreement. Disclosed limited agency is just another name for dual agency. That is, a situation in which a single agent represents both the buyer and the seller in a real estate transaction.
A disclosed limited agent owes both the buyer and the seller the same statutory duties as a single agent. In addition, the disclosed limited agent has the duty to not disclose either party's motivation or financial position or certain confidential information as defined by ORS 696.800(3). According to the definition, "confidential information" is anything the agent learns from or about the client, the deal or the client's motivation but does not include what the client wants disclosed or what the law requires to be disclosed.
In addition to a heightened duty of confidentiality, the duties of a disclosed limited agent also include the duties imposed on what are called "designated agents." In a transaction where one agent in a firm represents the seller and another agent in the same firm (i.e., has the same principal broker) represents the buyer, the agents' principal broker is a disclosed limited agent but the individual agents continue to represent only the buyer or only the seller.
Designated agency is not well understood and can cause severe problems in multiple offer situations. While it is true that only the principal broker is a disclosed limited agent in a designated agency situation, the individual agents representing only the buyer or only the seller still have additional duties to all parties. Those duties are to disclose any conflict of interest in writing to all parties, to take no action adverse or detrimental to either party's interest in the transaction and to obey the lawful instructions of both parties.
Because it may be in the seller's interest to disclose to other buyers the existence, or even the terms, of a buyer's offer to other potential buyers, any type of dual agency that creates confidentiality or non-detrimental action duties will put the agents involved in the untenable position of either harming the seller they represent or the buyer they represent.
For that reason, multiple offer situations should be avoided in which one of the agents or the principal broker represents both the seller and one of the competing buyers. Situations in which one of the agents, or the company, represents two competing buyers must be avoided at all costs.
When an agent represents both the seller and a buyer, or two buyers, in a multiple offer situation, the agent owes their buyer(s) full fiduciary duties, including diligence and confidentiality. If the seller wants to use the terms of that buyer's offer to trigger a bidding war among potential buyers, the agent cannot serve both the seller's lawful interests and that of their buyer. If the agent suggests to the seller that the seller reject all offers and seek new offers from all potential buyers, the agent harms their buyer(s). At the same time, if the agent doesn't advise the seller to consider seeking better offers, the agent harms their seller.
There is no safe way to be involved in a multiple offer situation where both the seller and one of the buyers is represented by the same agent or agents supervised by the same principal broker. It follows that in a hot market every offer made by a company buyer on a company listing creates the potential for serious trouble. All that is needed to make that trouble all too real is another offer to be made, either from within or without the company.
The only way to avoid that kind of trouble is to have already received the client's agreement on how the situation will be handled. Since we are talking about dual agency situations here, the disclosed limited agency agreement signed by the clients is the logical place to seek that agreement. This could most efficiently be done by attaching an explanation of how the company will handle multiple offer situations as an addendum to the disclosed limited agency agreement. A complete explanation of this approach, along with samples of the forms and policies necessary, is included in the section on Handling Multiple Offers.
return to top Handling Multiple Offers
The first step in dealing with multiple offers is to have an office policy that specifically deals with the subject. The policy should cover multiple offers from both the seller and buyer perspectives. The company policy should tell agents exactly how the company intends to handle multiple offers and reference any disclosures or notices used to inform clients and customers of the policy. A sample multiple offer office policy, consistent with the procedures discussed in this section, is included in the Model Office Policy Manual developed by the Oregon Association of REALTORS?. Click here to obtain a copy of the Association's Model Office Policy Manual.
In a single agency situation where the agent represents the seller, the obligation to present "all written offers" in a timely manner is critical. There is still some misguided idea in real estate that offers can, or even should, be presented in the order received. Such a process not only violates the written offer presentation requirement of agency rule and statute, but can, and probably does, violate the basic agency duties of loyalty and diligence.
The most basic duty of a seller's agent is to help the seller get the best price and terms. Getting the best price and terms means the seller must know of not only all offers made, but all offers that can reasonably be anticipated. Remember also, that the seller's agent owes the buyer, as well as the seller, the duty to timely present all written offers. Given these duties, it is clear that sitting on one written offer while the seller accepts another offer is a very bad practice.
Multiple offers must be dealt with as multiple offers, not one at a time. It is this consequence of presentation and agency duties that drives most multiple offer dilemmas. From an ethical point of view, the dilemma is how to be fair to the seller and each of the buyers. Fairness in multiple offer situations is usually taken to mean everyone should have an equal chance to get the property.
Equality is a wonderful concept, but it depends entirely on what you mean by "equal." Buying and selling things is about money. Not everyone has the same amount of money or the same willingness to spend it. Moreover, when dealing with buyers and sellers, what may be fair to the buyer is not necessarily fair to the seller. Fairness, therefore, as an organizing principle, is not of much use when it comes to multiple offers.
The seller's expectation (multiple offers or not) is to get the best price possible in the situation. Every buyer expects to have a chance to get their best offer in front of the seller for consideration. All problems with multiple offers stem from ignoring or thwarting one of these expectations. Dealing with multiple offers is, therefore, a matter of developing practices and procedures that give the seller a chance to get the best price possible in the situation and the buyer the chance to get their best offer in front of the seller.
Looking at multiple offers in terms of best price in the situation places the focus right where it needs to be: on the situation. Every transaction is different. Handling multiple offers means explaining the specific situation to your client, whether your client is the buyer or the seller. To the seller, the situation includes the viability of each of the offers, the likelihood of getting better offers, the risk involved in trying to get those offers and the methods that can be used to solicit them. To the buyer, the situation includes formulating the best offer and getting it presented in a timely manner.
A seller looking at multiple offers has three basic choices: (1) take the best existing offer; (2) counter one or more of the offers; or (3) reject all offers and ask for new offers. That's it, just three possibilities. Which is best? On the listing side, that's where business judgment and, therefore, diligence comes in.
Taking the best existing offer assures the seller a deal. If one of the offers on the table contains terms the seller would otherwise find acceptable, rejecting it to seek better offers creates the risk the seller will end up with no deal at all. Does that mean the seller should take the best offer on the table if they would have taken that offer had it been presented alone? No, of course not, the fact that there are other offers must be considered.
The strength of the best offer is the starting, not ending, point for a diligent assessment of multiple offers. If none of the offers is acceptable, the seller is going to have to pursue one of the other two options anyway. If the best offer on the table is acceptable, the seller must calculate the risk of foregoing an otherwise acceptable offer in favor of trying to get a better offer. That assessment depends on: (1) the strength of the best offer; (2) how close competing offers are to the best offer; (3) how "hot" the general real estate market is; (4) the marketing history (how long on market, level of interest) of the property; and (5) the seller's circumstances (motivation to sell).
If the seller decides it is best to take one of the existing offers, the listing agent needs to document for their client file the information the agent provided to the seller and the seller's rationale for not seeking better offers from the other buyers. Such documentation may be needed to later prove diligence with respect to the client or honest and good faith dealing to the disappointed buyers.
If the seller, having considered all the factors, decides (it is the seller who must do the deciding, not the listing agent) to seek a better offer, the question becomes how best to accomplish that objective. "Best" in this circumstance means more likely to result in a better offer than no offers at all. Whatever the means chosen, the seller will have to forego all existing offers and open communication with one or more of the potential buyers. It is at this point that the listing agent's duties to other parties and agents come to the fore.
The big question, when responding to buyers, is what can, or should, the seller tell one buyer about another buyer's offer. There is a general real estate myth that one buyer's offer cannot be shared with another buyer. As a matter of Oregon law, that is not true. In Oregon, as in many states, the seller can disclose the terms of an offer to other buyers. Disclosing the terms of an offer to other buyers is sometimes called "shopping" the offer.
The seller's legal ability to disclose the terms of offers they receive does not mean shopping the best offer to all other buyers is good business. A major risk to the seller in a multiple offer situation is that the buyers will move on to another property rather than engage in a bidding war. Even if that doesn't happen, the buyer who discovers their offer was shopped is likely to be mad enough to complain to someone. Such complaints have a way of taking on a life of their own, even if the thing complained of isn't itself a violation.
Fortunately, there is no business reason to shop an offer. When the seller decides to seek better offers in a multiple offer situation, they have two choices: (1) they can reject and counter offers one at a time; or (2) they can reject all offers and ask each buyer to make a new "best" offer. Neither of these options requires telling competing buyers the exact price or terms others are offering.
Rejecting all offers and asking each buyer to make a new best offer is the most straightforward way to proceed from a contract law standpoint. All that is necessary is for the seller to send each buyer a rejection that informs the buyer there are multiple offers, all offers have been rejected and that each buyer has been given an opportunity to make their last best offer. The rejection should state a deadline for new offers and can contain a minimum price to be considered. Click here for a sample rejection and last best offer clause.
Contrary to popular belief, there isn't any way to "counter" multiple offers other than one at a time. Counter offers, real ones that is, create the power of acceptance in the offeree. Do that for more than one person at a time and you risk creating more than one contract. At the same time, countering multiple offers one at a time pretty much defeats the purpose because the seller cannot be sure which buyer is willing to pay the most. Other multiple counter offer procedures, like first acceptance wins, have the same best price uncertainty and can create verification problems of nightmare proportions.
The problems associated with using counter offers in multiple offer situations have lead to the development of "multiple counter offer clauses." A multiple counter offer clause is really just a variation on the rejection and request for new offers theme, but they are formatted and worded to look like a counter offer. Despite the contractual slight of hand involved, multiple counter offer clauses can be effective because they reduce the effort required of the buyer. As with rejection and new offer, using a multiple counter offer clause removes any need to shop offer prices.
There is little a selling agent can do in multiple offer situations other than communicate effectively with their client and take advantage of whatever presentation rules their MLS has in place. Client communication begins with the potential for multiple offers. If there is any potential for your buyer to become involved in a multiple offer situation, you need to make them aware of the possibility. In particular, the buyer must be aware that if they offer less than they are willing to pay for a property in a hot market, they may never get a chance to offer what they are actually willing to pay.
There is a tendency in multiple offer situations for buyers to believe there is some "trick," other than offering their best price and terms, which will give them an advantage. There is no such trick. Escalator clauses are no exception. In fact, such clauses prove there are no exceptions by either placing the buyer at risk of paying more than they otherwise would have to or signaling the seller they will pay more than they are offering. Click here for a full explanation of escalator clauses.
If the offer being presented does not represent the buyer's best offer, the buyer is gambling that, although not their best offer, it will be better than anyone else's offer. The buyer needs to understand this gamble, especially in multiple offer situations. The seller may, at any point (even at the first offer stage), decide to take an offer rather than continue negotiations with multiple buyers.
Real estate agents, especially in multiple offer situations, can become fixated on the price term. Price is a major factor in any offer, but it is not the only factor. The seller is looking for the "best" offer, not necessarily the one for the most money. Financing terms are, of course, a critical factor. The closing date, need for repairs, existing home sale contingencies and so on are important considerations for the seller. So, too, may be the buyer's motivation. All of this needs to be explained to the buyer.
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