HANDLING MULTIPLE OFFERS
In today’s seller’s market, it’s fairly common to have more than one offer on a property. So, what is the correct and ethical way for the listing associate to handle multiple offers? We’ll guide you.
Inventory is down, and buyers are scrambling to make offers on the few listings you do have. Three offers for a property come in on the same day. What do you do?
Salespeople can find themselves tripped up over something that may seem simple, yet, depending on the circumstances, can also be somewhat confusing.
And in the real estate business, confusion can be costly.
Here, we address a few common misconceptions regarding offers. Once these misconceptions, or myths, are dispelled, we then tackle strategies for handling multiple offers.
Myth No. 1
I don’t have to present verbal offers.
All offers must be presented, including verbal offers. Often, salespeople who believe verbal offers don’t have to be presented are confusing contract law with the law that governs offers. The only exception would be if the seller directs you not to present verbal offers.
In Florida, sales contracts must be in writing to be enforceable in court, as mandated by the “Statute of Frauds.” Because offers are not yet contracts, they are not governed by this law.
Myth No. 2
Once you have a verbal acceptance, you don’t have to present other offers.
As we stated in our discussion of Myth No. 1, sales contracts generally have to be in writing to be enforceable. Therefore, verbal acceptance, even of a written offer, does not create an enforceable contract. Even with a written offer and acceptance, you need to continue to present other offers until the seller directs you otherwise.
So many times, offers are faxed or emailed to the listing associate and all further negotiations are handled by phone. The negotiations continue back and forth until a verbal agreement is reached.
As the listing agent, you then inform the other associate, “We have a deal” because all that remains is to fax and sign the final agreement.
But what do you do in a situation where you are contacted by another salesperson with another offer before the final agreement has been signed? If you believe that you in fact “have a deal” with the first associate’s buyer and fail to present this additional offer, you are guilty of concealment, unless the seller directs you not to present verbal offers.
Myth No. 3
My sellers don’t need to know about other “potential” offers.
Consider this scenario. As the listing office, acting as a single agent of the seller, you have an offer on the table the seller is considering, but has not accepted. You get a call from another salesperson who recently showed the property and informs you that he is meeting with his buyers the next day. He tells you he is fairly certain they will want to make an offer.
You must tell the seller about the potential offer that may come the next day. The decision to act on the offer in hand or delay until the potential offer does or does not materialize rests squarely on the seller’s shoulders.
As the salesperson, you should offer your advice and expertise. The point here is that you have met your obligation to inform the seller of other, potential offers, and the seller cannot claim later that you concealed this information.
Myth No. 4
All offers require some form of deposit.
While it is true that all offers must include valuable consideration, that consideration does not have to be money. Entire law books have been written on the subject of consideration in contracts.
Stated simply, the promise of the buyer to pay the agreed purchase price and the return promise of the seller to convey title to the property creates the necessary consideration to bind the contract. Therefore, if contracts do not technically require a deposit, then offers certainly do not.
We would be remiss to ignore the practical side of this subject. A seller always considers more seriously an offer with an earnest money deposit than one without, since a buyer is less likely to breach a contract if the penalty is loss of a sizable deposit.
Myth No. 5
Offers must be negotiated in the order they are presented.
Many selling associates are upset when they are told by the listing associate that another offer has been presented to the seller while their offer is still in negotiation.
The common complaint from selling associate No. 1 is, “My offer was first, so the sellers have to conclude negotiations on my offer before considering another.”
The reality is that sellers are free to negotiate offers in any order they choose. This may seem unfair to selling associate No. 1; however, the seller has every right to try to obtain the highest possible price and the best possible terms.
So far, our discussion has focused on clarifying the basic rules on offers. Now let’s turn our attention toward strategies for handling multiple offers.
As always, the seller looks to the salesperson for his or her expertise and guidance. Assuming the seller is not prepared to accept one of the offers as presented, the following strategies can be suggested as alternative ways to handle multiple offers. Each strategy has pros and cons depending on the situation at hand. The final decision as to which strategy to choose always rests with the seller.
Strategy No. 1
Pick one and run with it.
This simply means selecting one offer and negotiating it to its eventual conclusion. The end result will be either an accepted offer resulting in a contract or failed negotiations. Should the negotiations fail, the seller moves on to negotiate with a buyer who has made another offer.
One problem with this strategy is that the other buyers may not wait around while your seller negotiates with only one offer.
Another problem to consider is the possibility that one of the buyers with whom the seller did not negotiate would have ultimately agreed to a better contract.
The positive side of this approach is that it’s the simplest and least confusing scenario for the seller and salesperson.
Strategy No. 2
Run with all of them.
In this approach the seller verbally counters all offers with a set of very specific terms. The purchase price, type of financing, amount of deposit, closing date, repair limit and other terms are clearly stated to each buyer. All or some buyers are countered at the same time. The seller agrees to accept the first buyer who presents a written offer meeting the seller’s specified price and terms.
This strategy offers the sellers an excellent chance of getting their price and terms because they are dealing with more than one buyer simultaneously. The downside is that buyers, feeling they are being drawn into a bidding war, may not want to participate, and all verbal agreements are not enforceable.
Strategy No. 3
Set a deadline.
Using this strategy, the seller does not counter any offer. Instead, the buyers are given a deadline by which they are asked to submit their best offer.
All buyers then have the ability to put their “best foot forward” and submit the best offer they are willing to make.
While the downside remains the same as in Strategy No. 2, the upside is that the seller could receive an offer higher than the original listing price. That’s because, in this strategy, the seller is not setting a specified price, just a specified time limit.
Obviously, if none of the offers is acceptable to the seller, the property would remain on the market.
Strategy No. 4
Everybody bids.
There are many ways to handle this strategy. One of the more common would be to advise all buyers that their offers are unacceptable at this time and that other offers are on the table.
All negotiations are handled verbally. As each buyer raises his or her offer, the others are given the chance to go higher. Prior to the seller’s making his or her final decision, each buyer is given one more chance to make a final offer.
As in Strategy No. 3, the upside is that the seller may receive more than the listing price. However, the downside with this approach is that the buyers are truly in a bidding war and may drop out earlier because they fear overpaying for the property. Also, as stated before, all verbal agreements are not enforceable.
Handling multiple offers can be tricky, but if you exercise caution and employ a strategy, sellers and buyers can come out ahead.