Today, we are in a classic seller’s market: too many buyers chasing too few properties. As a seller, how do you react if you are lucky enough to receive a number of offers? As a buyer, what should you know about possible seller strategies before you find yourself in a multiple offer situation?

Multiple counters

Some sellers, prompted by their agent, write simultaneous counteroffers to a number of bids. It is called a multiple counteroffer. Each document includes a statement that other buyers are also getting a counteroffer, which may or may not be exactly the same.

I have always counseled against using multiple counteroffers, although the California Association of Realtors (CAR) has legitimized this questionable practice. CAR includes it as an option on its counteroffer form.

Even if the buyer accepts and signs the counteroffer with no changes, the seller is still not obligated to sell to him. The CAR form states, “Acceptance of this counteroffer by buyer shall not be binding unless and until it is subsequently re-signed by seller...below.” The listing agent waits to see which counters come back and then the seller chooses among them.

Multiple counteroffers antagonize most buyers and their agents. First the buyers may have been held back from presenting their offers until the appointed day; now they have to go through another round of waiting and worrying. I know of a number of buyers who were extremely upset at both the seller and his agent for putting them through this.

Even the buyer with the accepted contract can be seriously turned off by the procedure. He could be left with a feeling of distrust as to how the seller intends to handle the rest of the transaction. Although he reluctantly accepts the contract, he might later use inspections to renegotiate the price. Or, worse, as revenge, he may look to use lack of disclosure or other issues to create legal problems after close of escrow.

Countering over asking price

Some sellers who issue multiple counteroffers counter the price higher, even when the initial offer was greater than the asking price. Sellers rationalize why this is acceptable; buyers react with disdain.

I recently heard a story of erroneous seller thinking. A home had been on the market almost two weeks with no offers. At that point, an offer was written very close to the asking price. The seller countered at well over list price. 

The seller believed that, in this market, his house was worth more than the asking price. The buyer’s reasonable question was, “If it hasn’t sold at a lower price, how can it be worth more?” That property is still on the market.

Evaluating competing offers

One of the reasons for multiple counteroffers is that the seller cannot (or will not) decide which contract to accept. Every offer has its strengths and weaknesses. To help in the decision process, here are some key factors to rank each offer:

Purchase price

Financial strength and credit of the buyer (lender pre-approval letter is a must)

Cash down (more makes buyer stronger; all cash, no loan, is strongest)

Deposit in escrow (higher deposit equals stronger buyer commitment)

Flexibility on terms (close of escrow; possession)

Contingencies (inspections; financing; selling another property)

Handling of pest control, roof or structural problems

Is this house special to the buyer?

Seller’s impression of the buyer’s agent

Once the choice is made, the preferred offer is either accepted or countered in primary position. Other contracts may be accepted or countered in backup position (first backup, second backup, etc.). All of the respected professionals I know use this approach.

The cardinal mistake

It may sound illogical, but it happens: selling a home to two different buyers. This is at the top of the taboo list. Inexperienced agents may not realize how easily it can happen, especially in a revved up market.

One cause is improperly worded counteroffers. In such a case, two or more counters may come back signed by buyers, each thinking he has bought your home. This can be avoided by careful use of specific verbiage, especially if you are doing multiple counteroffers and not using standardized forms. 

Another dangerous situation may occur if you improperly notify a backup buyer he is now primary before the first contract has been voided. For example, let’s suppose you received a higher offer from a second buyer after you had ratified a contract. Legally, you could accept the second bid in backup position, subject to the failure of the primary offer. 

Let’s further hypothesize that the first buyer was one day late in removing his inspection contingency in writing. Seizing this apparent opportunity, you instruct your agent to tell the primary buyer you consider his contract dead and the backup buyer receives a fax that he is now primary. After all, as a seller, isn’t this your right?

Perhaps not. What if the reason for the buyer’s delayed inspection contingency removal was a potentially serious problem discovered during inspections? As a further complication, it was something you had not disclosed. The buyer’s position would be he has the right to have the problem looked into and it is material to his buying the house. In such a situation, the first buyer could not be capriciously displaced. 

A competent Realtor would point this out to his seller before taking any action. Regardless, once you are in contract, you need a written rescission from the first buyer before you can safely move another contract into primary position.

Time for inspections

In competition, and to strengthen their offer, many buyers will either not ask for an inspection contingency or will make it very short, e.g., three days. Even if this happens, you, as a seller, should consider giving the buyer adequate time to fully inspect your property. Less than five working days after acceptance is insufficient because the best inspectors and tradespeople are difficult to schedule on short notice. Allowing enough time for thorough inspections will minimize the likelihood of the buyer using this later as a basis for a claim against you.

Final thoughts

Not all properties will receive multiple offers. Some that might have, however, may not have been given sufficient marketing. To maximize the opportunity for offers, make sure your house receives full exposure before accepting a contract.

If you are fortunate enough to get more than one offer, take specific steps to ensure the process is fair to buyers and yourself.

Related Articles: Multiple Offers, Part 1.