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How to avoid multiple offer situations that could result in litigation

By Lisa Scoble posted 02-24-2023 02:30 PM

  
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Situation:
A real estate broker (“Broker”) listed an improved commercial property (“Property”) for sale. The Broker followed applicable state law so as to be treated as a transaction broker. The Broker received twelve offers or written inquiries (offers and inquiries are collectively “Offers”) for the Property. The Broker forwarded ten of the Offers to her customer (“Seller”) by email. The two Offers that were not forwarded to the Seller by email were handled differently. The Broker forwarded one Offer to the Seller via fax as a result of a temporary internet service issue. The Broker discussed the other Offer over the telephone with the Seller. That Offer discussed over the telephone was for $750,000, but had numerous contingencies that the other Offers did not have. Ultimately, the Seller accepted the second-highest Offer, agreeing to sell the Property for $500,000. A month after the Seller closed on the sale of the Property to the buyer (“Buyer One”) for $500,000, Buyer One sold the Property to a separate buyer (“Buyer Two”). Buyer Two paid $2,500,000 for the Property, even though the two closings were only a month apart.
Problem:
After the Seller learned about the sale of the Property to Buyer Two for $2,000,000 more than Buyer One paid the Seller for the Property, Seller claimed that Broker recommended a price that was too low. The Seller later filed suit (“Lawsuit”) against the Broker and, during the discovery phase of the Lawsuit, learned that the Broker had listed other, unrelated, properties for both Buyer One and Buyer Two. Documents produced by the Broker during discovery showed that the Broker had earned commissions paid by Buyer One and Buyer Two for the closing of the sales of those unrelated properties. In other words, the Broker would have had knowledge that Buyer Two was in the business of acquiring properties at a discounted price and selling the subject property to a developer for a significant profit.
 
Mistake:
The Broker made no legal mistake. The following, though not legal mistakes, were areas the Seller attacked in the Lawsuit:
  1. The Broker did not forward all of the Offers in writing. (The Broker had no proof of transmitting the $750,000 offer to the Seller, other than the Broker’s own word; the Seller denied the Broker discussed the $750,000 offer.)  
  2. The Broker’s listing agreement did not state that, as a transactional broker, she could act as the listing agent or transactional broker for anyone else, including potential buyers of the Property.
  3. It could be argued that given the familiarity the Broker had with Buyer Two, she could have potentially breached her fiduciary duty owed to the Seller regarding the value of the property. 
Result
In order to avoid the risk of an adverse judgment and potential exposure in excess of policy limits, the Broker entered into a settlement agreement for significant monetary consideration.
Prevention
The Broker possibly could have avoided, or weakened the claims in, the Lawsuit if:
  1. She had forwarded all of the Offers in writing to the Seller.
  2. Her listing agreement explained that, as a transactional broker, she could act as the listing agent or transactional broker for anyone else, including potential buyers of the Property.
If she had forwarded all of the Offers in writing to the Seller, this might have helped avoid or weaken the Seller’s claim that the Broker’s failure to forward one offer deprived the Seller of the opportunity to negotiate a higher sales price.  Likewise, if the Broker’s listing agreement had contained a written explanation, she might have avoided or weakened the Seller’s claim that the Broker neglected her duties to the Seller by listing the unrelated properties for Buyer One and for Buyer Two.  
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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.
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