With Spring here and the real estate market coming back in many areas there's the potential of a new and interesting problem for real estate professionals, how best to handle multiple offers.
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Let's face it, if you've listed a home and several buyers are hot to purchase that's nothing but a good situation for client sellers.
The catch is that for buyers the good news may not be so great. Before engaging in a bidding war they may want more information, including a look at competing offers.
The buyers' caution may well be deserved. For instance, a reader of my syndicated newspaper column says that his elderly mother boosted the offer for a home when told of multiple bids, bids which it was later discovered allegedly did not exist.
Alternatively, as a buyer I would not want my bid revealed to a competing buyer under any condition. The purpose of my bid is to purchase the property, not provide advice for an opposing buyer.
The National Association of Realtors takes the position that in absence of state rules to the contrary bids can be shared.
"Purchase offers generally aren’t confidential," says the Association. "In some cases sellers may make other buyers aware that your offer is in hand, or even disclose details about your offer to another buyer in hope of convincing that buyer to make a 'better' offer. In some cases sellers will instruct their listing broker to disclose an offer to other buyers on their behalf."
It adds that:
"Listing brokers are required to follow lawful, ethical instructions from their clients in the same way that buyer-representatives must follow lawful, ethical instructions from their buyer-clients. While some REALTORS® may be reluctant to disclose terms of offers, even at the direction of their seller-clients, the Code of Ethics does not prohibit such disclosure. In some cases state law or real estate regulations may limit the ability of brokers to disclose the existence or terms of offers to third parties."
This approach raises a question: Why doesn't the Code of Ethics ban the disclosure of rival bids?
The case for disclosing bids is simple: Buyers want to be sure that competing bids actually exist, that they're not raising their offers needlessly. Also, if you can see the other person's bid you can decide whether to go higher or not, you have leverage that you would not have without disclosure. Think of poker, if you can see someone else's hand you might bet differently.
But are there cases where buyer offers should be confidential? In the context of a typical residential sale, a transaction where more than price can be negotiated, there's a case for assuring that bids remain confidential. For instance, bidders do not want their offers "shopped" so that another purchaser gets the property nor do they want the terms of their offer revealed for reasons of privacy and marketplace leverage.
"Multiple bids are common with auctions, so bidders know instantly how much interest there is in a property, and what it will take for them to win the bid" said Rick Sharga, executive vice president at Auction.com. "An auction setting lends itself to multiple bids, a speedy transaction and a good result, in part because you're working with buyers who either have cash or financing lined up."
Situations with multiple bids are surely desirable for sellers, a challenge for buyers and a red flag for real estate professionals. With a property which seems likely to be popular speak with brokers, managers and attorneys to see how multiple bids should be handled and what can be disclosed in your jurisdiction.
An auction is clearly an open process where bids are changed repeatedly over a specific time period until sold. Selling a home is usually not by auction therefore I do not believe auction guidelines apply. If a municipality accepted bids for a contract of services, real estate, or personal property the bids are accepted and opened all at once. The bid of one is not divulged to another bidder before-hand. Doing so will result in lawsuits and/or prosecution. Why would selling a home not have the same rules? I have made multiple offers on multiple properties over the years and at no time was I ever privy to another offer. My realtor had informed me he could not ethically divulge other offers to me. Another point to consider is this: If multiple offers or a bidding war ensues then it is likely the listing price of the property was too low. As a seller, if my listing sold at full asking price in a short time period I would be furious with the realtor. Being the "professional" they should have known the asking price was too low, or may have been looking for a quick commission. What other explanation is there?