Current Market Trend: Multiple Offers
As the real estate market continues to thrive, many buyers find themselves in difficult negotiations, sometimes making offers on several properties in hopes of securing a home. While multiple offers may be effective, some buyers are taking the next step and entering multiple contracts.
There is not much established guidance on this new trend of making multiple offers. Read this scenario to prepare for the risks and obligations for both buying and listing agents.
SCENARIO
A buyer asks their agent to make offers on multiple properties and wins on all bids. The buyer then wants to enter three purchase contracts, each of which would require the buyer to secure a $300,000 loan to close. The buyer tells the agent they have only been approved for a single $300,000 loan. It becomes evident the buyer lacks the financial capacity to close on all three properties and never intended to do so. The buyer’s agent is unsure of disclosure obligations and is hesitant to move forward with entering three simultaneous contracts.
GUIDANCE FOR BUYER AGENTS
The buyer’s agent is obligated to be fair and honest to all parties in a transaction. Entering a contract with no intent to close may bring legal consequence. Non-disclosure of intent may breach an agent’s obligations, even if the purchase contract includes some unconditional termination rights. However, this does vary by local board guidelines.
The buying agent should request permission to disclose the multiple contracts to the seller. If the buyer refuses to do so, the agent may withdraw to avoid breaching their obligations to be fair and honest to all parties. However, if the agent wishes to proceed, they should consult with the local board to ensure the representation would not violate any ethical obligations. If the agent determines they can proceed, they should mitigate risk by doing the following:
- Avoid any communication that could be interpreted as the practice of law.
- Convey to the buyer in writing that the agent is not an attorney.
- Advise the buyer to consult with legal counsel. The agent may provide a list of potential counsel but may not act as an intermediary between an attorney and the buyer.
GUIDANCE FOR LISTING AGENTS
An unsuspecting seller and listing agent are at a disadvantage when properties are taken off the market, only to have the sale fall through. Listing agents have a few options to help sellers evaluate prospective offers. Consider requiring a substantial, non-refundable buyer’s option fee or earnest money deposit. Buyers under multiple contracts often cannot afford to close on all contracts and will not risk losing a substantial deposit on a property they may not purchase. Using this key indicator can help listing agents and sellers avoid those buyers.
If the seller learns the buyer entered multiple contracts that they cannot close, the listing agent should advise the seller to consult with counsel. Be sure to document any recommended legal advice and all discussions with your clients.
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The purpose of this article is to inform and insulate real estate professionals from potential monetary claims and professional grievances. The fact patterns are from actual claims against real estate agents. While the author is an experienced claims representative, the opinions expressed herein are general in nature, not fact nor state specific; and therefore, should not be taken as a substitute for legal advice from an attorney licensed in your state. This article was produced in conjunction with AXA XL and is not to be taken as legal advice.