Buyers: Make One Offer at a Time
Originally appeared in Bay Area News Group publications on July 10, 2009
In trying to get a leg up, some buyers, at conceivably great risk to themselves and the sellers, are submitting offers on a number of properties all at the same time. People are throwing out these simultaneous bids, predominantly on short sales and bank-owned homes, in the hopes one will stick. If they intended to purchase all of them, and had the ability to do so, this would not be an issue. Conversely, if they disclosed their gambit to each seller in writing, the sellers would then have received full disclosure; however, the offer might not be viewed as a serious one.
As a member of the California Association of Realtors (C.A.R.) Professional Standards Committee, I heard about this problem last month at the most recent gathering of C.A.R. It was highlighted as being widespread throughout the state.
“It’s just business”
Relying on the credo, “It is better to ask forgiveness than permission,” there are agents who encourage their buyers to submit as many as ten offers at a time on different, bank-owned properties or short sales. As the sharply priced ones will garner many bids and a response from the seller may not come for weeks or even months, these licensees convince themselves that this is “just business.”
Underlying a sense of misplaced confidence on the part of some agents is the belief that the buyer can always withdraw, without penalty, based on the inspection contingency or other contingencies, such as financing. This is not the case. According to knowledgeable C.A.R. staffers, if the offer was made in bad faith it is actionable. Translation: the buyer (and his agent) can be sued.
Code of ethics
One of the most important differences between Realtors and other real estate licensees is that members of the National Association of Realtors agree to adhere to a written Code of Ethics.
Article Two of the Code states, “Realtors shall avoid exaggeration, misrepresentation, or concealment of pertinent facts relating to the property or the transaction.” Article One specifies that Realtors “pledge themselves to protect and promote the interests of their client” and “treat all parties honestly.”
Clearly, allowing a buyer to write numerous, simultaneous offers without disclosing this in writing to the seller and without fully explaining risks to the buyer could be seen as a violation of these and, possibly, other articles of the Code.
Potential damages to sellers
Based on the seller assuming the contract was written in good faith, these are some ways in which the seller could be damaged:
- If the seller is in financial trouble, additional marketing time due to reliance on the seriousness of the buyer’s offer (and subsequent failure to close escrow) could push the property into foreclosure.
- If a buyer makes offers on five to ten homes at the same time, he, most likely, will not have enough funds to cover the earnest money deposit if he gets an accepted contract on more than one. At best, the buyer might delay the process to decide which to purchase. Note that the C.A.R. contract says that obtaining the deposit is not a contingency.
- Although the seller does not accept the buyer’s (one-of-many) offer, he may, inappropriately, counter or reject a “real” bid from someone else because he thinks the buyer is offering only on his property.
- A buyer making offers on so many different properties probably will not have completely reviewed all reports/disclosures on each and may have written his contract without enough information. This buyer might be selected and then drop out, causing the seller to lose other, more diligent buyers.
The worst scenario
Not long ago, I heard a local agent explaining how her buyer had accepted offers on two properties and had opened escrow on both. Apparently, pushing these limits is not beyond the capacity of some buyers and their representatives. Needless to say, unless the buyer intends to close on both, not what this buyer had in mind, this is the ultimate example of bad faith.
Repercussions for agents
Once reported, Realtors who have been found to violate the Code of Ethics are liable for disciplinary action from their Association of Realtors. They and their company may be sued for monetary damages by the seller(s). In addition, charges could be brought against them by the California Department of Real Estate. This is a serious matter.
Some agents may argue that the “many-bids-at-the-same-time” trick was the buyer’s idea – a bad excuse. Reputable agents do not operate this way.
Relationships with others in the business and one’s reputation are critically important. Real estate people do not like to deal with those who lack integrity.
The concurrent contract scenario applies mainly to distressed properties perceived as well-priced. As a seller, you would be wise to ask your listing agent to have the selling (buyer’s) agent confirm that the buyer does not have or plan to have other, simultaneous offers on different properties.
As a buyer, be aware of your potential liability to the seller if he is not informed of your other bids and lack of sufficient funds to cover the deposit on each. A real estate attorney can explain the possible consequences.
Code of Ethics Distinguishes Realtors