Bids Submitted No Longer Confidential
A: I read this post on The Walk-Through, a blog hosted by the NY Times that has become a daily read for me. Apparently, as of January 1st of 2006 agents are required to inform clients that their offers might not be kept confidential!
Its a tricky business that personally I feel should have been left alone by the NAR. The way I do business is that I only inform the seller of the bid submitted and keep that info confidential from my colleagues and other direct clients that may have been interested in the property for sale. My rule of thumb was quite simply "..the bid submitted is information for the buyer, the agent, and the seller ONLY".
The practice is reffered to as "shopping offers" and is a strategy that has as many risks as it does rewards. For example, if I receive an offer of full asking at $500K, and then start shopping around, I may get another offer slightly higher which may not be as qualified or as serious as the original full ask offer. In the end, I can lose the original offer and be forced to reject the slightly higher offer as a result of this greedy behavior.
I understand the seller has every right to try and get the highest price possible for their property, but there should be some level of ethics and professionalism when it comes to accepting and distributing bids received. It appears now that there is no such thing and the only thing I can say is both "Buyer & Seller Beware".
According to the article: Effective Jan. 1 of this year, buyers' agents in all member states, including California, are required to inform clients that their offers might not be kept confidential. Although many home buyers may not realize it, the terms of the offers they make may be revealed to other clients in a practice that the real estate industry commonly refers to as "shopping offers." And although many Realtors purport to find the practice distasteful or even unethical, others point out that negotiation styles and markets differ. In other words, shopping offers is part of marketing - the name of the game in selling a property. "It's all marketing," adds June Barlow, vice president and general counsel of the California Assn. of Realtors, part of the national association. "It depends on the market, how desirable the property is, the number of buyers - all of that plays into it. It's an art, not a science."
While I agree with June Barlow's comment above that "...It's an art, not a science", I believe that any buyer submitting a serious bid deserves some type of respect from the professional that was hired to sell the property. If that bid is acceptable (and the seller broker usually knows what price point is acceptable) than it should be proposed to the seller ONLY and not to other potential clients that have expressed less interest in the property. This practice has higher risks and lower rewards for the seller and could very well disrupt a deal should the broker come back to the original buyer and say we now have a bid that is $5K higher than yours; either come up with your offer or lose the deal.
But thats just me. It complicates things and poses a risk for such little money. For seller brokers who are dealing with multiple bids, it seems to me a Best & Final declaration with a clear deadline is the best way to go, rather than sneaking around and quitely disclosing to any interested buyer what bid was just received in the hopes of getting a slightly higher one. But this is a SHADY business and if you are a shady broker there is not much I can do to change that. Shame on the NAR for allowing this to pass the board of directors. They should have shot it down like they did in 2004:
But although the addition to the Realtor Code of Ethics is new, the practice of revealing competing offers on a property - and the debate it generates - has gone on for years. The same addition was proposed and defeated at NAR's annual board of directors meeting in 2004 after opponents argued that notification might imply endorsement of the practice.
UrbanDigs Says: Brokers should stay ethical & not interpret this allowance by the NAR as an endorsement of this type of behavior in a service business where clients rely on professionalism and ethics. If you have more than 1 bid submitted declare a BEST & FINAL deadline and tell all parties interested that their best offer must be submitted by the deadline. This will achieve the same goal while protecting the buyers interest and still satisfying your fiduciary responsibility to the seller.
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Comments (3)
Overall - good post digger!
Just a couple of points:
"If you have more than 1 bid submitted declare a BEST & FINAL deadline and tell all parties interested that their best offer must be submitted by the deadline."
This statement should not be taken as gospel!
As a sellers broker, your fiduciary duty is to the seller. Receiving more than one bid is not a cause for a FINAL & BEST. There are too many variables involved.
One of the most important is qualifying offers and making sure the buyers financials are in order. This is especially important when dealing with Co-op's. Otherwise, an offer means nothing unless that offer can be backed up. Another key factor is the current condition of the market - Buyers or Sellers Market - or Let's See What Happens Market. FINAL & BEST is definately a risk in any market as buyers may be scared off. Thread lightly and play it by ear.
What if you just listed the property and you receive 2 offers the first day? Do you suggest a deadline for a FINAL OFFER with BEST TERMS is warranted here? I think that may be a bit premature. And may even hurt the sellers position if both offers prove to be non contenders as other buyers might get scared and not bid and wait to see what happens. Then when nothing becomes fruitful, those other byers can now swarm in and submit lower offers in hopes of reenergizing a deflated seller with hopes of scooping up the property.
How about a Buyers Market where buyers have the upperhand and present offers that have specific terms that specify how long their offers is good for and for what terms?
Overall, all licenesed real estate agents and brokers should remember one thing - we are superhuman. We have fiduciary duties that most other do not have. Remember and study your ethics rules often as we are professionals and must carry ourselves as such.
P.S. The Seller should have a voice in this as well as long as their requests do not break any laws.
Posted by founder | April 5, 2006 12:14 AM
founder thanks for the comment!
I agree with many of the points you bring up and realize that my statement in this post was not clear, and written with a few assumptions.
When receiving a bid, Im assuming you are also receiving all the information that you will need to pre-qualify the buyer. A buyer's bid that is not qualified should not even be considered.
Second, I'm assuming that the offer is within acceptable negotiating range of your seller's target purchase price. If the bid is 30% below ask, yes there is no reason to declare a best and final.
However, if you receive 2 acceptable and qualified bids at the same time or before any contracts were sent out, I believe the seller broker should contact the 2 buyers and their brokers and let them know that multiple acceptable bids were submitted and that a best and final will be set by so and so date. In essence you are creating a bidding war for the seller (which is normally what the seller wants anyway) and putting the ball in the buyer's court to place as high a bid as they can to get the property at stake.
If your worry is the seller and their rights, I would think this is the ideal situation.
As for buyers, I haven't had a situation where I was asked to submit a time limit with the bid. I can see why a buyer would do this to let the seller know they mean business.
Thanks for breaking this down in more detail as I should have been much more clear in the post! Look forward to more of your comments!
Posted by Noah | April 5, 2006 3:01 AM
My pleasure Noah - In this orchard we call the Big Apple, your posts are far from rotten!
Well done.
Posted by founder | April 5, 2006 4:27 AM