You’re in a multiple-offer situation and your buyers really want the house. When you ask the listing agent how much the other two offers are so you can increase the odds that your offer will be the winner, the listing agent says, "Sorry, I can’t tell you that — it’s confidential."
Recently, I had an interesting Facebook discussion about this issue with a Las Vegas-based broker, Jay Rosen, of Since 1917 Realty & Property Management. In Nevada, Standard of Practice 1-13 says:
"A buyer’s agent has an obligation to tell their buyer client that an offer presented to a seller is not confidential unless the seller has agreed to that as a term of the offer. A buyer must gain the acceptance of the seller as to the confidentiality of the offer. Otherwise, it belongs to the seller to do with what they like."
In virtually all states, the listing agent has a fiduciary duty to the seller. The issue then becomes, what is the best way to fulfill that duty during a multiple-offer situation?
The first step in determining your strategy for handling this issue is to be clear on the standards of practice for multiple offers in your state. For example, in California you can have 50 offers with 50 counteroffers active at the same time. In other states, you can negotiate with only one buyer at a time.
The second step is to put the seller in control of the process. According to Rosen:
"The listing agent’s duty is to follow the express directions of the client and perform according to the terms of the contract between you and the client. Informing your client of all options when considering offers and acting in the best interest of the client is the duty of the agent. After informing the client of his options when presenting offers and the client expresses his preferences, then the agent must abide by that agreement."
So here’s a real-world scenario:
You have two offers on a $399,000 listing. One is $379,000 and the other is $320,000. The seller wants to take the $379,000 offer. You suggest to the seller that there might be another $10,000 on the table if you counter both offers at $389,000. The seller counters at $389,000. What do you predict happened?
In this particular scenario, the people who made the offer of $379,000 raised it to $389,000. The other buyers walked away. If I had discussed the terms of the $320,000 offer with the second set of buyers, there would have been no incentive for the buyers to raise their initial offer.
The real issue here is that most agents have no training on how to handle a multiple-offer situation. The first rule is to "shut up and sell." The more you say, the more likely you are to scuttle the deal.
Here are six more proven guidelines for negotiating multiple offers.
1. Establish your multiple-offer strategy upfront
When you first start working with a buyer or seller, explain the multiple-offer process up front. Tell them that if there is another offer on the property, they will be advised of that fact immediately. Be sure to review your state’s guidelines for what is required legally — i.e., whether the sellers can legally issue a counteroffer to all parties or if they have to negotiate only one offer at a time. Reconfirm the strategy they would like to use in negotiating the offer before any of the offers are presented.
2. Involve your manager
Even though it may be an inconvenience, it’s smart to have a member of your management team present at all multiple offers. This enhances everyone’s perception that the process has been fair. Furthermore, if you have an offer on your own listing, it’s smart to have your manager represent the seller and you represent the buyer until the negotiation is complete. Your manager’s role is to assure that everyone is treated fairly and there is no favoritism to any specific agent.
3. Don’t make it a race
After you issue the first counteroffer, ask the competing buyers’ agents to bring back their best offer within 24 hours. Do NOT make it a race. This allows the parties to decide how they want to proceed and increases the probability your deal won’t fall apart later.
4. Avoid the temptation to take another bite
If you ask the parties to bring back their best offer, don’t be tempted to ask for more money. You may issue another counteroffer to clean up the terms on the offer you want to take, but don’t go for more money. If you do, you may end up staying on the market rather than going under contract.
5. Shut up and sell
If you are representing the buyer, it never hurts to ask, "What have the sellers turned down?" Most agents will answer this question. The challenge is that the sellers may have turned down an offer 90 days ago that they would take today. You have no way of knowing.
If you are representing the seller and the buyer’s agent asks about the other offers, reply by saying:
"There is at least one other offer on the table. Please have your buyers bring in their best offer."
There’s no need to explain that the offer is confidential or to discuss any other aspect of the negotiation. When you play the offers off against each other, you generally anger the buyers and many will walk away.
6. How much will the seller take?
There’s only one correct answer to this question: "I don’t know — why don’t you submit an offer and we’ll both find out." While you could answer this question by saying, "The asking price," it may require more than the asking price if there are multiple offers.
Working with multiple offers can be challenging. Minimize the challengers by outlining your clients’ options, having them decide to course of action, and remembering to "shut up and sell."