The North Shore - Barrington Association of Realtors

Multiple Offers

The following was written by the National Association of REALTORS® and has been adopted. The attorney for the Illinois Association of REALTORS® added items specific to Illinois License Law. This is an official policy of the North Shore - Barrington Association of REALTORS®.

The following guidance regarding presentation and negotiation of multiple offers. Presenting and negotiating multiple offers

"When representing a buyer, seller, landlord, tenant, or other client as an agent, REALTORS® pledge themselves to protect and promote the interests of their clients. This obligation to the client's interests is primary, but it does not relieve REALTORS® of their obligation to treat all parties honestly." (from Article 1 of the REALTORS® Code of Ethics)

"REALTORS® shall submit offers and counter-offers objectively and as quickly as possible." (Standard of Practice 1-6)

Perhaps no situation routinely faced by REALTORS® can be more frustrating, fraught with potential for misunderstanding and missed opportunity, and elusive of a formulaic solution than presenting and negotiating multiple purchase or lease offers and/or counter-offers on the same property. Consider the competing dynamics. Listing brokers are charged with helping sellers get the highest price and the most favorable terms for their property. Buyers' brokers help their clients purchase property at the lowest price and on favorable terms. Balanced against the Code's mandate of honesty is the imperative to refrain from making disclosures that may not, in the final analysis, be in a client's interests. (Revised 11/01)

Will disclosing the existence of one offer make a second potential purchaser more likely to sign a full price purchase offer—or to pursue a different opportunity? Will telling several potential purchasers that each will be given a final opportunity to make their best offer result in spirited competition for the seller's property—or in a table devoid of offers?

What is fair? What is honest? What is to be done? Who decides? And why is there not a simple way to deal with these situations?

As REALTORS® know, there are almost never simple answers to complex situations. And multiple offer presentations and negotiations are nothing if not complex. But, although there is not a single, standard approach to dealing with multiple offers, there are fundamental principles to guide REALTORS®. While these guidelines focus on negotiation of purchase offers, the following general principles are equally applicable to negotiation of lease agreements. (Revised 11/01)

Be aware of your duties to your client—seller or buyer—both as established in the Code of Ethics and in state law and regulations. (Revised 5/01)

The Code requires you to protect and promote your client's interests. State law or regulations will likely also spell out duties you owe to your client.

The Code requires that you be honest with all parties. State law or regulations will likely spell out duties you owe to other parties and to other real estate professionals. Those duties may vary from the general guidance offered here. REALTORS® need to be familiar with applicable laws and regulations.

Be aware of your duties to other parties—both as established in the Code of Ethics and in state law and regulation.

Remember that the decisions about how offers will be presented, how offers will be negotiated, whether counter-offers will be made and ultimately which offer, if any, will be accepted, are made by the seller—not by the listing broker. (Revised 5/01)
Remember that decisions about how counter-offers will be presented, how counter-offers will be negotiated, and whether a counter-offer will be accepted, are made by the buyer—not by the buyer's broker. (Adopted 5/01)
When taking listings, explain to sellers that receiving multiple, competing offers is a possibility. Explain the various ways they may be dealt with (e.g., acceptance of the "best" offer; informing all potential purchasers that other offers are on the table and inviting them to make their best offer; countering one offer while putting the others to the side; countering one offer while rejecting the other offers, etc.).

Explain the pluses and minuses of each approach (patience may result in an even better offer; inviting each offeror to make their "best" offer may produce a better offer[s] than what is currently on the table—or may discourage offerors and result in their pursuing other properties).

Explain that your advice is just that and that your past experience cannot guarantee what a particular buyer may do.

Remember—and remind the seller—that the decisions are theirs to make—not yours, and that you are bound by their lawful and ethical instructions.

When entering into buyer representation agreements, explain to buyers that you or your firm may represent more than one buyer-client, that more than one of your clients or your firm's clients may be interested in purchasing the same property, and how offers and counter-offers will be negotiated if that happens. (Adopted 5/01)

Explain the pluses and minuses of various negotiating strategies (that a "low" initial offer may result in the buyer purchasing the desired property at less than the listed price—or in another, higher offer from another buyer being accepted; that a full price offer may result in the buyer purchasing the desired property while paying more than the seller might have taken for the property, etc.). (Adopted 5/01)

Explain to the buyer that sellers are not bound by the Code of Ethics. Sellers, in multiple offer situations, are not prohibited from “shopping” offers. Real estate brokers may, unless prohibited by law or regulation, “shop” offers. Therefore, REALTORS® assisting purchasers in formulating purchase offers should advise those purchasers it is possible that the existence, terms, and conditions of any offer they make may be disclosed to other purchasers by sellers or by sellers’ representatives except where such disclosure is prohibited by law or regulation. (Adopted 5/05)

Remember—and remind the buyer—that the decisions are theirs to make—not yours, and that you are bound by their lawful and ethical instructions. (Adopted 5/01)

If the possibility of multiple offers—and the various ways they might be dealt with—were not discussed with the seller when their property was listed and it becomes apparent that multiple offers may be (or have been) made, immediately explain the options and alternatives available to the sellers—and get direction from them.
When representing sellers or buyers, be mindful of Standard of Practice 1-6's charge to ". . . submit offers and counter-offers objectively and as quickly as possible." (Revised 5/01)
With the seller's approval "...divulge the existence of offers on the property" consistent with Standard of Practice 1-15. (Adopted 11/02)
While the Code of Ethics does not expressly mandate "fairness" (given its inherent subjectivity), remember that the Preamble has long noted that ". . . REALTOR® has come to connote competency, fairness, and high integrity. . . ." If a seller directs you to advise offerors about the existence of other purchase offers, fairness dictates that all offerors or their representatives be so informed.
Article 3 calls on REALTORS® to ". . . cooperate with other brokers except when cooperation is not in the client's best interest." Implicit in cooperation is forthright sharing of information related to cooperative transactions and potential cooperative transactions. Much of the frustration that occurs in multiple offer situations results from cooperating brokers being unaware of the status of offers they have procured. Listing brokers should make reasonable efforts to keep cooperating brokers informed. Similarly, buyer brokers should make reasonable efforts to keep listing brokers informed about the status of counter-offers their seller-clients have made. (Revised 5/01)
Realize that in multiple offer situations only one offer will result in a sale and one (or more) potential purchasers will be disappointed that their offer was not accepted. While little can be done to assuage their disappointment, fair and honest treatment throughout the process; coupled with prompt, ongoing and open communication, will enhance the likelihood they will feel they were treated fairly and honestly. In this regard, “. . . REALTORS® can take no safer guide than that which has been handed down through the centuries, embodied in the Golden Rule, ‘Whatsoever ye would that others should do to you, do ye even so to them.’ ” (from the Preamble to the Code of Ethics).
(Revised 5/05)

The following are comments from the IAR attorney:

( Illinois) Under the Illinois Real Estate License Act of 2000 (the act) there is no specific direction to impose duties upon a licensee requiring disclosure of the existence of dual or multiple offers, only specific statutory duties to represent the best interest of the licensee’s client. See section 15-15 of the Act for a review of the statutory duties.

Section 15-15. Duties of licensees representing clients.

A licensee representing a client shall:

Perform the terms of the brokerage agreement between a broker and the client.
Promote the best interest of the client by:

Seeking a transaction at the price and terms stated in the brokerage agreement or at a price and terms otherwise acceptable to the client.
Timely presenting all offers to and from the client, unless the client has waived this duty.
Disclosing to the client material facts concerning the transaction of which the licensee has actual knowledge, unless that information is confidential information. Material facts do not include the following when located on or related to real estate that is not the subject of the transaction:

physical conditions that do not have a substantial adverse effect on the value of the real estate,
fact situations, or
occurrences.

Timely accounting for all money and property received in which the client has, may have, or should have had an interest.
Obeying specific directions of the client hat are not otherwise contrary to applicable statutes, ordinances, or rules.
Acting in a manner consistent with promoting the client’s best interests as opposed to a licensee’s or any other person’s self-interest.

Exercise reasonable skill and care in the performance of brokerage services.
Keep confidential all confidential information received from the client.
Comply with all requirements of this Act and all applicable statutes and regulations, including without limitation fair housing and civil rights statutes.

A licensee representing a client does not breach a duty or obligation to the client by showing alternative properties to prospective buyers or tenants or by showing properties in which the client is interested to other prospective buyers or tenants.
A licensee representing a buyer or tenant client will not be presumed to have breached a duty or obligation to that client by working on the basis that the licensee will receive a higher fee or compensation based on higher selling price or lease cost.
A licensee shall not be liable to a client for providing false information to the client if the false information was provided to the licensee by a customer unless the licensee knew or should have known the information was false.
Nothing in the Section shall be construed as changing a licensee’s duty under common law as to negligent or fraudulent misrepresentation of material information.

Be aware of your duties to your client – both as established in the Code of Ethics and in state law and regulations.

The Code requires you to protect and promote your client's interests. State law or regulations will likely also spell out duties you owe to your client.

- ( Illinois) Specifically, section 15-15(a)(2)_of the act requires the licensee to promote the clients best interest by:

Seeking a transaction at the price and terms stated in the brokerage agreement or at a price and terms otherwise acceptable to the client.
Timely presenting all offers to and from the client, unless the client has waived this duty.

The Code requires that you be honest with all parties. State law or regulations will likely spell out duties you owe to other parties and to other real estate professionals. Those duties may vary from the general guidance offered here. REALTORS® need to be familiar with applicable laws and regulations.

- ( Illinois) The Act clearly requires honesty with all parties . See section 20-20(h) and section 15-25(a) which sections reference the requirements for honesty by the licensees. While dealing honestly, the licensee is still bound to his/her statutory duties to serve the client’s best interest. Be aware of your duties to other parties – both as established in the Code of Ethics and in state law and regulation.

Remember that the decisions about how offers will be presented, how offers will be negotiated, and ultimately which offer will be accepted, are made by the seller – not by the listing broker. - (Illinois) Section 15-15(a)(2)(E) says that the licensee must obey specific directions of the client that are not otherwise contrary to applicable statutes, ordinances, or rules.
When taking listings, explain to sellers that receiving multiple, competing offers is a possibility. Explain the various ways they may be dealt with (e.g. acceptance of the "best" offer; informing all potential purchasers that other offers are on the table and inviting them to make their best offer; countering one offer while putting the others to the side; countering one offer while rejecting the other offers, etc.).

Explain the pluses and minuses of each approach (patience may result in an even better offer; inviting each offeror to make their "best" offer may produce a better offer(s) than what is currently on the table – or may discourage offerors and result in their pursuing other properties. Explain that your advice is just that and that your past experience cannot guarantee what a particular buyer may do.

Remember – and remind the seller – that the decisions are theirs to make – not yours, and that you are bound by their lawful and ethical instructions.

- ( Illinois) Remember section 15-15(a)(2)(E) above.

If the possibility of multiple offers – and the various ways they might be dealt with – were not discussed with the seller when their property was listed and it becomes apparent that multiple offers may be (or have been) made, immediately explain the options and alternatives available to the sellers – and get direction from them.
Be mindful of Standard of Practice 1-6's charge to ". . . submit offers and counter-offers objectively and as quickly as possible."

- ( Illinois) Section 15-15(a)(2)(B) requires that the licensee timely present “all offers to and from the client , unless the client has waived this duty.” The timeliness of offer presentation will depend entirely on the facts of each case. What may be timely in one set of circumstances may not be timely in another depending on the facts involved.

While the Code of Ethics does not expressly mandate "fairness" (given its inherent subjectivity), remember that the Preamble has long noted that ". . . REALTOR® has come to connote competency, fairness, and high integrity . . ." . If a seller directs you to advise offerors about the existence of other purchase offers, fairness dictates that all offerors or their representatives be so informed.

- ( Illinois) It is important per the Act and the Code of Ethics That to be certain the licensee is promoting the client’s best interest, the licensee follows the client’s directions.

Article 3 calls on REALTORS® to ". . . cooperate with other brokers except when cooperation is not in the client's best interest." Implicit in cooperation is forthright sharing of information related to cooperative transactions and potential cooperative transactions. Much of the frustration that occurs in multiple offer situations results from cooperating brokers being unaware of the status of offers they have procured. Listing brokers should make reasonable efforts to keep cooperating brokers informed.

- (Illinois) Just remember that there is not a specific Provision in the Act requiring disclosure of the existence of dual or multiple offers to cooperating brokers. The licensee and his/her broker must remain free to analyze the specific facts of each situation and, after informing the client of the pros and cons of disclosure versus non-disclosure, follow the client’s instructions to serve the client’s best interest. Given so many possible scenarios, it is impossible for the Act or the Code of Ethics to set forth one unbendable rule. Even if one course of action seems to be appropriate in most instances, it might not be appropriate in every instance.

Realize that in multiple offer situations only one offer will result in a sale and one (or more) potential purchasers will be disappointed that their offer was not accepted. While little can be done to assuage their disappointment, fair and honest treatment throughout the process; coupled with prompt, ongoing and open communication, will enhance the likelihood they will feel they were treated fairly and honestly. In this regard, ". . . REALTORS® can take no safer guide than that which has been handed down through the centuries, embodied in the Golden Rule, 'Whatsoever ye would that others should do to you, do ye even so to them' " (from the Preamble to the Code of Ethics).

A Buyers’ and Sellers’ Guide

Multiple Offer Negotiations

Presented by the National Association of REALTORS®

and the

North Shore-Barrington Association of Realtors®

Information for Buyers

ü In some situations sellers will have several competing purchase offers to consider. Sellers have several ways to deal with multiple offers. Sellers can accept the “best” offer; they can inform all potential purchasers that other offers are “on the table”; they can “counter” one offer while putting the other offers to the side awaiting a decision on the counter-offer; or they can “counter” one offer and reject the others.

ü While the listing broker can offer suggestions and advice, decisions about how offers will be presented – and dealt with – are made by the seller - not by the listing broker.

ü There are advantages and disadvantages to the various negotiating strategies you can employ in multiple offer negotiations. A low initial offer may result in buying the property you desire for less than the listed price – or it may result in another buyer’s higher offer being accepted. On the other hand, a full price offer may result in paying more than the seller might have required. In some cases there can be several full price offers competing for the seller’s attention – and acceptance.

ü Your buyer-representative will explain the pros and cons of these (and possibly other) negotiating strategies. The decisions, however, are yours to make.

ü Purchase offers generally aren’t confidential. In some cases sellers may make other buyers aware that your offer is in hand, or even disclose details about your offer to another buyer in hope of convincing that buyer to make a “better” offer. In some cases sellers will instruct their listing broker to disclose an offer to other buyers on their behalf.

ü Listing brokers are required to follow lawful, ethical instructions from their clients in the same way that buyer-representatives must follow lawful, ethical instructions from their buyer-clients. While some REALTORS® may be reluctant to disclose terms of offers, even at the direction of their seller-clients, the Code of Ethics does not prohibit such disclosure. In some cases state law or real estate regulations may limit the ability of brokers to disclose the existence or terms of offers to third parties.

ü You may want to discuss with your buyer-representative the possibility of making your offer confidential, or of establishing a confidentiality agreement between yourself and the seller prior to commencing negotiations.

ü Realize that as a represented buyer, your broker likely has other buyer-clients, some of whom may be interested in the same properties as you are. Ask your broker how offers and counter-offers will be presented and negotiated if more than one of her buyer-clients are trying to buy the same property.

ü Appreciate that your buyer-representative’s advice is based on past experience and is no guarantee as to how any particular seller will act (or react) in a specific situation.

Information for Sellers

ü It’s possible you may be faced with multiple competing offers to purchase your property. Your listing broker can explain various negotiating strategies for you to consider. For example, you can accept the “best” offer; you can inform all potential purchasers that other offers are “on the table” and invite them to make their “best” offer; you can “counter” one offer while putting the other offers to the side awaiting a decision on your counter-offer; or you can “counter” one offer and reject the others.

ü If you have questions about the possibility of multiple offers and the way they can be dealt with, ask your listing broker to explain your options and alternatives.

ü Realize that each of these approaches has advantages and disadvantages. Patience may result in an even better offer being received; inviting buyers to make their “best” offers may produce an offer (or offers) better than those “on the table” – or may discourage buyers who feel they’ve already made a fair offer resulting in them breaking off negotiations to pursue other properties. Your listing broker will explain the pros and cons of these strategies (and possibly other) negotiating strategies. The decisions, however, are yours to make.

ü Appreciate that your listing broker’s advice is based on past experience and is no guarantee about how any particular buyer will act (or react) in a specific situation.

Information for Buyers and Sellers

Perhaps no situation facing buyers or sellers is more potentially frustrating or fraught with potential for misunderstanding and for missed opportunity than presenting and negotiating multiple, competing offers to purchase the same property. Consider the following issues and dynamics:

ü Sellers want to get the highest price and best terms for their property.

ü Buyers want to buy at the lowest price and on the most favorable terms.

ü Listing brokers – acting on behalf of sellers – represent sellers’ interests.

ü Buyer representatives represent the interests of their buyer-clients.

ü Will a seller disclosing information about one buyer’s offer make a second buyer more likely to make a full price offer? Or will that second buyer pursue a different property?

ü Will telling several buyers that each is being given a chance to make their “best offer” result in spirited competition for the seller’s property? Or will it result in the buyers looking elsewhere?

ü What’s fair? What’s honest? Why isn’t there a single, simple way to deal with multiple competing offers?

Knowledgeable buyers and sellers realize there are rarely simple answers to complex situations. But some fundamental principles can make negotiating multiple offers a little simpler.

ü Realize the listing broker represents the seller – and the seller’s interests, and the buyer-representative represents the buyer – and the buyer’s interests. Real estate professionals are subject to state real estate regulation and, if they are REALTORS®, to the Code of Ethics of the National Association of REALTORS®.

ü The Code of Ethics obligates REALTORS® to be honest with all parties; to present offers and counter-offers quickly and objectively; and to cooperate with other brokers. Cooperation involves sharing of relevant information.

ü Frequently frustration and misunderstanding results from cooperating brokers being unaware of the status of offers they have presented on behalf of their buyer-clients. Listing brokers should make reasonable efforts to keep buyer-representatives up-to-date on the status of offers. Similarly, buyer-representatives should keep listing brokers informed about the status of counter-offers their seller-clients have made.

Finally, buyers and sellers need to appreciate that in multiple offer situations only one offer will result in a sale, and the other buyers will often be disappointed their offers were not accepted. While little can be done to assuage that disappointment, fair and honest treatment throughout the offer and negotiation process, coupled with prompt, ongoing and open communication, can enhance the chances that all buyers – successful or not – will feel they were treated fairly and honestly.