By Jeffrey D. Chute, Mass REALTOR® and Instructor on Professional Conduct
The year 2013 marks the 100th Anniversary of the Code of Ethics and Standards of Practice of the National Association of REALTORS®. In recognition, Jeffrey Chute reviews key components.
The year 2013 marks the 100th Anniversary of the Code of Ethics and Standards of Practice of the National Association of REALTORS®. In recognition, Jeffrey Chute reviews key components. When REALTORS® represent a client where two or more offers on a listing are being presented, paying attention to some rules of the road can often avoid violations of professional conduct as well as potential legal entanglements.
Article 1: Standard of Practice1-9, states that for a Seller (through his agent) to reveal to the maker of an offer (Buyer) the existence of additional offers he will need the permission of the Seller. Seller Agents Consult the Seller regarding whether or not to reveal to respective Buyers the existence of other bidders. If the decision is NOT to reveal this information, each offer must be negotiated separately. The listing agent is under NO obligation to reveal the existence of multiple offers if so instructed by his Seller client.
While one must never deliberately misrepresent, if a direct inquiry occurs as to the existence of other offers, one may decide to answer with a “no comment”. (Itself of which could be somewhat revealing.) Buyer Agents Ask the Seller’s agent if there are currently other offers. This information can help you and your Buyer decide on strategy. In today’s market with a somewhat lesser inventory, your client may decide there are “other fish in the sea” and move on.
1. Reject all offers.
2. Accept one offer if terms are acceptable to the Seller.
3. Submit a counter-offer to ONE party at a time.
4. The Seller does not accept nor counter ANY offer, but gives the parties a deadline (date and time) to submit their “highest and best” offer, whereupon the Seller may exercise any of the above.
When #4 is used, often all parties will feel they were given their best shot and those parties who are not successful won’t lay the blame on others. When multiple offers arise, remember that a little care in managing the process will allow you to ring value to the respective parties and help you maintain that Professional Image!
For more detailed information, review a recent Q&A developed by Michael McDonagh, MAR General Counsel and Ashley Stolba, MAR Staff Attorney from the Legal Hotline.
MULTIPLE OFFERS AND THE STATUTE OF FRAUDS
Q: A seller verbally accepted my buyer-client’s offer over the phone last night, and told me she would email me the signed offer in the morning. When I spoke to the listing broker today, she informed me that her seller had accepted another offer. My buyers are so upset! Isn’t that a breach of contract?
A: No. Offers are not binding until they are signed by both the buyer and the seller. In order for a contract for the sale of land in Massachusetts to be enforceable, it must comply with the statute of frauds (M.G.L. chapter 259 section 1), which states that no action shall be brought upon a contract for the sale of real property unless it is in writing and signed by the party “against whom enforcement is sought.” Until you receive an accepted offer signed by the seller, technically no enforceable agreement exists. If the seller accepts another offer, even after verbally accepting your buyer’s, there is very little the buyer can do to enforce the agreement.
It is important to note that although this scenario is frustrating, the listing agent probably has not acted unethically. Under Article 1 of the National Association of REALTORS® Code of Ethics, REALTORS® are required to promote and protect their client’s best interest. In addition, Standard of Practice 1-7 specifies that listing brokers shall continue to submit offers until closing unless otherwise instructed by their clients. If the seller receives other offer(s) after he or she verbally accepts your buyer’s, the agent has a duty to submit those offer(s), and the seller has the right to accept it. Many brokers cry foul and state that they would have gone back to both buyers and asked for their “best and final” offers. While this is common, it is not required. In this scenario, the listing broker probably acted in their client’s best interest by presenting all offers and ensuring the seller accepted the best one for them. If you receive a verbal acceptance, you should be sure to communicate to your buyer that it is not binding until it is memorialized in writing and signed by the seller.
A word of caution on e-mail: a recent Massachusetts district court ruling, Feldberg, et al. v. Coxal, held that e-mail exchanges could satisfy the statute of frauds if the material terms of the agreement were present and the parties, through their conduct, displayed intent to be bound. Thus, when negotiating a transaction via email, it is wise to consider the desires of the client in forming an agreement and to be very clear in your email about the intent of the client to form a binding agreement.
Q: I am the listing broker of a property that has received multiple offers. One of the offers is a full price, no contingency, cash offer. Is the seller required to accept that offer?
A: No. By simply placing a house in the multiple listing service or an advertisement in the paper, the seller does not create a unilateral contract that requires him to sell his property for the asking price. A full price, cash offer, therefore, does not create a contract between the seller and prospective buyer. In a seller’s market, multiple full price offers can come in and the seller may wish to seek a higher price. If this is the case, make sure your seller understands that if he is attempting to create a bidding war, all prospective purchasers could abandon the property.
Q: My seller clients have received offers from two different buyers. They now want to counter both of them in writing. Is this permissible?
A: While a seller is legally permitted to counter more than one offer at the same time, doing so is not advisable. If the seller counters in writing both offers and each counter is accepted before the seller is able to communicate an intent to withdraw her counter to one of the two buyers, the seller could be bound to two written contracts and thus have potential liability to those buyers. Even if not in writing, verbal acceptance of both offers could likely raise questions as to whether the seller is negotiating in good faith and treating the buyers fairly.
It is important in any multiple offer situation that the sellers understand their options. Explaining these options ahead of time and working with the sellers to develop a strategy that fits their needs and preferences is always a good idea. Sellers can accept one offer and reject others; they can reject all offers as presented, and make a counteroffer to one; they can reject all offers and continue to market the property to other buyers; or they can reject all offers and give all buyers an opportunity to submit another offer as their “highest and best offer.”
For additional information on multiple offers, visit www.marealtor.com
and click on “Legal.” NAR has also produced a paper entitled “Presenting and Negotiating Multiple Offers” which has suggestions on how to handle these situations. This document may be found at www.realtor.org