The Law & You: Multiple Offers

Too much of a good thing?

September 1, 2004

Frank was ecstatic. He had a full-price contract for one of his listings, submitted by another broker in his office. Even better, it looked as if another set of buyers was coming in with a backup offer. And, since Frank, with the sellers’ permission, had told the sales associate working with Buyers No. 2 about the first offer, the backup was sure to be for more money. The sellers loved having two offers, too. If something went wrong with one, they’d still sell their home.

Sure enough the backup contract came in for $2,500 over full price. Frank even added a rider to the second offer, using a form available in his brokerage office, that stated: “This contract is conditional upon a senior contract between Buyers No. 1 and seller not closing on or before Sept. 28, this year. In the event the senior contract doesn’t close, this contract shall be in first position.”

Because he was friendly with the associate working with Buyers No. 1, Frank told that associate about the backup offer and urged him to “make sure your people don’t let this one go.”

A few days later, the sellers called. They’d decided that despite the signed contract, they wanted to sell their home to Buyers No. 2 and make more money. Couldn’t Frank just drag his feet until Buyers No. 1 went away? Although he felt funny about the request, Frank agreed. After all, he was the sellers’ agent, wasn’t he? He was supposed to be looking out for their best interests.

So when the lender working with Buyers No. 1 called to arrange an appraisal, Frank told him that the sellers didn’t want to do it this week because they had out-of-town guests. After the lender set up another time for the appraiser to see the house, Frank stalled again by missing the appointment. Now, time was too short for Buyers No. 1 to obtain a loan approval before the contract expired.

Unhappy that they were losing their dream home, Buyers No. 1 went to see an attorney. The attorney decided that Frank had “tortiously interfered” with the buyers’ right to purchase the home by delaying the loan. That is, he had allegedly breached the duty of care he owed to the customers, resulting in a loss. The attorney promptly recorded Buyers No. 1’s purchase contract with the county to show that the buyers had an interest in the property and sued for specific performance. Things weren’t looking good for Frank. But what had he done wrong? He’d simply followed the sellers’ instructions.

When Frank called the sellers, he found they too had heard from Buyers No. 1’s attorney. The attorney told them that because Frank was their agent, they might be liable for his actions. (This sort of vicarious liability isn’t in effect in all states. But in most cases, if the sellers knew about the actions of the agent, the sellers can be held liable.) Frank also learned that the sellers no longer remembered telling him to drag his feet.

As he hung up the phone, Frank figured things couldn’t get any worse. Not a moment later, an attorney representing Buyers No. 2 called to say that if the first contract didn’t close by Sept. 28, Buyers No. 2 were entitled to buy the property. To protect her clients’ interests, she had also recorded their contract and was initiating a suit for specific performance. Frank wondered why he’d ever thought having two buyers for a property was so great.

Frank sighed and picked up the phone to call his own attorney. After a short conversation, he found he’d made mistakes all through the transaction. Next time, he’ll:

  • Tell Buyers No. 1 that Buyers No. 2 exist. Buyers No. 2’s offer won’t come into play until the contract with Buyers No. 1 is no longer in force.
  • Tell Buyers No. 2 that Buyers No. 1 exist and that the backup offer is conditional on the contract from Buyers No. 1 failing.
  • Be sure to include a clause in the backup offer to the sellers indicating that it’s conditional on the purchase contract with Buyers No. 1 failing to close.
  • State clearly in the backup offer contract that if Buyers No. 1 initiate litigation in relation to the backup offer, the sellers can terminate the backup offer.
  • Never play favorites with buyers, regardless of what the sellers say. Article 1 of the Code of Ethics states that even though REALTORS® represent their client, they must treat all parties to a transaction honestly.

Multiple contracts can be a great backup if you handle them properly. If you don’t, they can turn a deal into a nightmare.

Editor’s note: The information presented here doesn’t necessarily reflect NAR’s opinion, and contract wording here may not be appropriate for your needs. Check with an attorney in your area.

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