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Bidding Wars- Unethical???

One "seasoned" agent refused to give my clients a chance to beat a competing offer because he believes "bidding wars are unethical".

It all happened about a month ago when I took my buyers to see a beautiful house in Huntingdon Valley listed by a Philadelphia Remax agent. It took no more then, oh, 3 seconds for them to fall in love with this house. It had absolutely everything they were looking for and they were more than ready to make a move after months of online searching.

We scheduled a 2nd showing for the next day so their folks could get a look as well (first time home buyers...) and the plan was to write up the offer immediately afterwards. As always, I began some investigative work and made the Seller's agent aware of my clients' strong interest. In return, the Seller's agent, who was far for being any kind of courteous on the phone, informed me there was an offer on the table that was still being thrown back and forth and was to be finalized the next day. I persuaded him (more like begged) to hold off until he had our offer in hand so that my buyers have a shot at it.

Looking at the comps we felt the asking price of $450k was a little steep and with no clues as to where the other offer was hanging we offered $425k, 45 day closing with a strong FHA pre-approval. We rushed to get the offer off to the listing agent, cautiously optimistic. When I dropped the offer I told the agent plain and clear that my clients would be willing to fight if needed.

An hour later I got a call from the listing agent saying the Seller decided to accept the other offer and that it's a done deal. I was blown away. It didn't even occur to me this is a possible scenario. Shocked, I asked "why didn't you give us a chance to come back? We could and would have done better". His reply was just as shocking: "I don't believe in bidding wars. They're unethical." "Really?" I asked in amazement. "Isn't your duty to get the best possible deal for your client? And last time I checked, the Code of Ethics has no problem with aggressively negotiating for your client. Can you honestly tell me what you just did was in your client's best interest?" The conversation (that would be a nice way to put it) went on for a few more minutes before he decided to hang up on me.

The craziest part of the story was, the other offer was just a couple of thousands more. With a little more work, this agent could have gotten his clients a much higher sales price so they would ultimately net more.

So, agents beware! there are agents out there that make up their own ethics rules and you could be their next victim...

Please feel free to weigh in on the comments section!

Posted by Odelia Aminov on 08/11/2009 05:51 PM

Comments (113)

Bidding Wars in the ActiveRain Channel

offer, bids, buyers, sellers, ethics

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113 Comments on Bidding Wars- Unethical???

AUG

There is nothing unethical about bidding, netogiating, etc.

That said, when a buyer loves a home and knows that there is another offer on the table already in negotiating, the buyer needs to go with their absolute "highest and best".

The seller is under no obligation to entertain a lower offer negotiate a lower offer or start the process with a new offer.

That's just the way it is. Don't rely on the kindness of strangers or listing agents to get your buyer's offer noticed.

We recently received multiple offers on a property. The one that won had an escalation clause included, stating that they were offering x price but willing to pay $1,000 over any other offer up to y price. That would be one possible way to avoid something like this happening again if you meet another licensee who thinks bidding wars are unethical.

There is nothing "unethical" about an agent doing their absolute best for a client. You were doing your best - too bad the listing agent wasn't doing the same.

Michael

Hi Odelia ~ I try to prepare buyers for the fact that they may not get another chance - so best, particularly with another offer on the table, to give it their best shot or close to.

I explain that the seller is under no obligation to come back to them - there are NO rules for how a seller will respond to offers. I usually walk my buyers through the "how would it feel if" scenarios - which would have to include in this case how it would feel if they lost the house at $430K for example.

If my buyers were $25K off the mark with another offer in I don't think I would have been surprised to not get a response - especially if you had given the impression that they were really into the house - as a listing agent my thought would have been then why on earth did you come in so low?

Disappointing for sure, but not so surprising. Hate when it happens!

Liz

If you're on the buyer side of the transaction, "bidding wars" can certainly have a negative connotation. But that's simply a component of our free market system. For the seller, they're usually a plus and result in a higher sale price. It has absolutely nothing to do with ethics.

One possible scenario I can see here is that the seller and/or listing agent might have felt that by countering both offers they would lose both buyers. Or perhaps the sellers just felt very comfortable with the first offer and wanted to move ahead. Either way, your offer still should have been presented to the sellers and been given due consideration.

A bidding war is not unethical. When there are multiple offers, I let my buyers know to bring highest and best to begin with, especially if they really love a house. I'm sorry they didn't get the house, but like I tell my clients, it means a better one is coming! It sounds like that agent did a disservice to his sellers.

In the event of a bidding war, I always advise my buyers to come in with their highest and best. Sellers have no obligation to go back to any buyer if one of the offers (price and terms) meets their approval. I also warn buyers that there is a very real chance that this will be their only opportunity to bid on the house and I ask them if they're willing to lose it.

Bidding wars are not unethical, they are great, but they have to be handled ethically! Sorry to hear anyone has that attitude toward such a blessed event.

However, this is a good lesson for the buyers, as well as you as their advisor - put your walk-away price out there and don't lose your next dream house for a few thousand dollars. I am sure you can help them find another.

Real estate is a time is of the essence business. There is no time, sometimes, to have the entire family called in to "approve" a home purchase. If you had a sense of urgency this house was going to move then you might have suggested to your clients to write up the offer and present it ASAP. They have plenty of time to back out, revoke, have the family tour it. The listing agent has a duty to their clients to get the best terms and conditons possible. As an "exclusive" buyers agent sometimes the only thing I can do is get the buyers the home they want -- no concessions, no reductions in price. If it's a multiple offer situation, my offers sail through. Even in a "buyers" market a good home, in a good locaation, priced right will sell quickly. The only thing you can do, is submit their offer in a back-up, second position, and/or watch the multiples to see if it falls out of escrow.

I don't think they did anything unethical, especially since they had an offer in hand and were negotiating it.

How can the offer be LESS then list, and then you write there was an opportunity for the seller to make MORE going with your offer? You didn't offer MORE . . . you offered LESS. I don't get your argument.

What would he have to say about auctions?

Odelia,

In the Toronto market these days, just about evry property in a hot neighbourhood is subject to a bidding war.

I agree with you about the Code of Ethics etc.

I'm surprised that they didn't pause a few moments in order to see your Offer.

In Toronto, bidding wars are really quite co-ordinated, and everyone follows the rules.

Brian

I am left wondering why you would inform the LIsting agent that your clients could go higher on the offer

that is just begging them to reject, what may already be the highest offer, because you told them your clients would go higher. I never tip my hand about numbers

Does anyone see any problem with using an escalation clause like the one used in Barbara's example when they know they are in a multiple offer situation?

"offering x price but willing to pay $1,000 over any other offer up to y price."

Was the listing agent also representing the buyer or just plain lazy? :)

Today I wrote two offers. Both using the escalation clause. What surprised me was that one seller wanted my client to guarantee that she would pay the amount even if the appraisal came in $10,000 lower. Um, no.

I think that the buyers should have come in with their best and strongest offer. As the listing agent if I received an offer that was $25K under the asking price when the buyers knew that there was another offer in active negotiations already, then I would assume that the other buyers (yours) were either not bery strong or not very interested. I would have taken the offer on the table already in negotiations too.

Odelia...

I agree with Lenn ... there is nothing unethical about a bidding war but there is no obligation to counter either. If your clients were willing to pat more they should have done so in their offer. Trying to save a few K cost them the house.

So, you believe that when you receive an offer on one of your listings and your seller counters and you are in negotiations that it is ethical to start negotiations with another offer before the first one is dead?

I tell my clients to put their best foot forward in this market they may not get a second chance to get the home

In our area it isn't unusual to have bidding wars for top notch properties. The agent told you there was another offer on the table and it was in the middle of negotiations. You made a decision to offer less than asking price and who knows what else was on the table. From what you have explained in your blog the listing agent went with the strongest offer for his seller. He was not obilgated to come back to you with a counter-offer.

I don't disagree with the listing agent's approach. The listing agent said "bring your best offer." Your clients didn't bring enough to the table. An agent says "we will fight for the home." What does that really mean? To me, the real moral of the story is to bring your best offer in a multiple offer situation. So, under your scenario, what would you propose the listing agent to do? They reject the first offer and then counteroffer on your offer. Say your client decides not to accept the counteroffer and walks away, what happens then? To me, it looks like the listing agent has two dead contract offers. An accepted contract from a qualified buyer seems better than a lower offer and the agent's promise to beat the other offer.

He probably didn't want to take the FHA offer no matter how high it was. He avoided that argument by coming up with something stupid to say.

The lesson learned is to NEVER count on a counter offer!!!!!!

Dude should come spend some time working with me. Multi counters everyday wanting our "highest and best". Sellers were done a disservice. Even if they didn't want an FHA offer why not have the other people possibly bid higher?

While I would have played it differently as the listing agent, I agree completely with Lenn and Richard. The agent's excuse was lame and false (about bidding wars being "unethical"), but with the knowledge that there was another offer, it's hard to complain when you don't offer enough to get the home.

Of course its ethical to negotiate with more than one buyer at the same time. The seller has no obligation to counter any offer and they are free to deal with multiple offers any way they want. They may or may not set up an auction situation....its up to them. I would assume that your offer was presented and the seller, for their own reasons, chose the other one.

Under the circumstances you describe, I would have advised my clients to forget negotiating and make their first offer their best offer. They might still miss out but at least they would know that they took their best shot

I have used the escalation clause in several multiple offer situations... and usually the other agent is so intimidated by it that they say they won't consider it! They don't know what to do with it, so they come back with a Memo to Buyer. I'll keep submitting them though, maybe one day they won't think they are unethical.

I wonder if the agent even presented your offer to the seller? Very strange that he didn't just ask for the 'highest and best' offer from both buyers -- I'm sure that the seller would have at least another $5000 or $10000 in their pockets right now.

I tell clients if they find 'THE HOUSE' you shoot your best shot right outta the gate.

I did not negotiate for my house. I wanted it and didn't want anyone else to get it. Full price, only a financing contingency big DP quick close.

Nothing unethical about bidding wars, shopping offers or taking whatever darn offer the seller wants.

There are a lot of dissenting views about whether to tip off the listing agent about an offer and this would be a good case to not.

Sounds like they used yours to carve theirs.

I wonder what the listing agent's views on multiple offers were from 1995-2005 when it was a seller's market. That being said, there are a couple of things I would have done to assure that my buyer client's offer was considered. First, like many other agents that have responded here, I would have advised my clients that since there was another offer being negotiated, they should come in as strong as possible. Second, I would have asked if the first offer was from the listing agent or an agent of the listing broker. Third, I would have made every effort to present my client's offer directly to the seller if not in person, then via a conference call. If the seller's instructions are that every offer must be submitted to the listing agent, then I would have asked for a form signed by the seller, or at the very least the listing agent, indicating that the seller received and considered the second offer.

With all of that, there is nothing that says a seller has to consider a second offer, particularly if it was low. It would have been nice if the listing agent had suggested that the seller ask for "best and final offer," but if the seller had been through the negotiating phase with buyer #1 he may have felt that "the bird in hand" was something he didn't want to risk losing.

I don't agree with the listing agent on the bidding war comment, but he did tell you another offer was on the table and when you are in multiple offers, you should have advised your client to put your best and highest offer forward, not tell the listing agent you are willing to fight.

Thank you all for your great comments! I do agree that escalation clauses are the way to go in many of these situations. I even started to include a blank escalation addendum in my Purchase paperwork packet after this incident... Who said it's a buyers market, right...?

It was definitely a valuable lesson learned the hard way, and hopefully some of you can avoid it by being a part of this discussion and reading about other agents' experiences.

By the way, story has a good ending... My clients ended up buying a great home in a nicer neighborhood and are now super happy!!

Always amazed. While working on the west coast, negotiations could take days, all in writing, and best buyer won - allowing buyer and seller to both get the best contract. On the east coast, I've experienced the same thing with listing agents often taking the path of least resistance. Since arriving in this area, I have never had seller reject my offer in writing under these circumstances (although always have asked) - seller loses but will probably never realize it. I have found, you never know what any buyer will ultimately pay unless they are countered and given time and the opportunity to respond. Nice to see the good ending!

Odelia, I immediately wondered if the agent had both sides. Hate to think that way, but his reaction to another contract was unusual. If he had handled it differently, he might have ended up driving the price of the house up and getting more money for his Sellers. As others have said, in this situation you go in with your highest and best right out of the gate because there likely will not be a second chance.

My other thought - things always work out for a reason and the next house is always better for them.

Sharon

I would have advised my buyer to submit their "best" offer the first time, especially since a competing offer existed. Not all RE/MAX agents make up their own rules, just like not all KW agents rely on Listing agents to wiait for their real best offer. Best of luck in your next transaction.

I certainly don't see anything unethical about bidding a property up, as long as everything is done above board. But I also believe that the buyers need to put their best offer on the table if they are in love with the property and know another offer is already in play. There are a number of reasons a seller might opt to take an offer and not do any more negotiating but I don't believe that the sellers would ever tell their agent they think getting the potential buyers to bid higher on their property is against their ethics. I hope the agent advised his clients of the various options they had in the negotiations and let the clients decide how they wanted to proceed, with his guidance . In this day and age, I find it difficult to fault someone if they really are trying to be as ethical as possible but I would encourage that agent to take a look at his reasoning behind deciding that bidding up the selling price is unethical.

What is wrong with giving your seller multiple offers and let them decide which is the best for them.

Aren't we supposed to be getting the most money for our sellers; isn't that part of our fiduciary duty?

AUG

Christine, that is how i see it from the Listing agents perspective. Although there are some deals that are better for the seller, even if it is a deal offering less money.

A hard lesson learned, but, that's how we learn!! It's been a while in our area that we've been seeing "multiple offers" and we'll hopefully have to relearn the process in the near future!!

If I remember correctly -- what I did it was to advise the buyer to bring their best offer and I'd bring their best arguments as to why they deserved the property. I would also fully explain that if that didn't get it -- move on to another in an affordable monthly price range.

I'm soooo glad your experience had a happy ending.

Sue of Robin and Sue

I agree with Lenn. If your buyers were that much in love with the house, and knowing that there was another offer on the table, should have made their best offer. I can see your point in quoting the Code of Ethics in terms of doing the best for one's client. But what would have happened if the shoe was on the other foot? What would have happened if your buyer had the higher initial offer and the listing agent went to the other buyer with the next higher offer and asked them if they wanted to beat your offer? Would you be happy that the listing agent did that? My advise to all of my buyers is that if you like a property enough you will make your best offer if I tell you there are other offers on the table.

I only wonder how you handled it with your buyers. How did you leave it with them? It's bad enough that there are consumers out there that feel that we constantly lie and would believe that I or the listing agent would lie about another offer just to get them to pay more.

It is often times the sellers decision not to take other offers -- no idea what happened in your case -- but especially with foreclosures the banks will often not take other offers -- when they decide , they decide and that is it.

The listing agent sounds like he is LAZY!

Playing devils advocate here...perhaps the sellers didn't want to get in to a bidding war? ( I've had that happen in which the sellers didn't want to counter both offers before them and risk losing both buyers.)

When there is more than one offer on the table the buyer clients have to be counselled that they are getting one shot at it , so they better make it their best.

Bidding war in this market? I like the sound of that!

I think an agent that tells their seller not to get in to a bidding war is the one not looking out for the fiduciary responsibility of his clients and could end up losing his license if someone complains.

Not sure I like the escalation clause, and here's why: in a scenario that provides no insight to the buyers agent with respect to offers on the table, your buyer could end up way overbidding. We had a scenario (figures changed to follow confidentiality requmt) in which a buyer offered a price that was accepted. As the ppwk went to the sellers lawyer, another offer came in that was substantially higher. We were informed of this offer $65k higher (didn't provide an escalation clause), and the buyers lawyer suggested to the buyer that they increase their bid in order to secure the house.

We adamantly disagreed, citing the fact that we had NO knowledge of the capability of the competing buyer to qualify for the house. The listing agent could provide no certainty that the new buyer was qualified for the purchase. Our buyer ultimately got the house under the original terms; the new buyer could't provide loan approval as stipulated in the time frame provided by the sellers lawyer.

Because I'm ignorant of an escalation clause, what's put in there to prevent a buyers offer being "upped" by another buyer who may not even qualify?

Sorry for the long response- relevant to the post only because the author has indicated acceptance of the escalation clause, and I've never done one, but might if the above scenario can be eliminated somehow. Absent that, no way.

Your buyer's offer should have been the highest and best they were able to do. Never tell the other agent your buyer will go higher.

The seller might have been satisfied with the offer they received. When yours came in with the invitation to counter because your buyers were willing to fight, they might not have thought it would be worth it or were simply not going to go through more negotiations.

One more thought about Best and Highest offer: Generally speaking, Buyers in this market have the upper hand and are psychologically geared towards getting "a deal". If they go high from the get go they could potentialy give away a substantial amount of money... The only plus, as all of you said, is the peace of mind of securing the property. So in my case for instance, starting high would have meant overpaying for the property...

Also, first bid is different than a counter in a buyers mind- mentally they are in a different place. They will usually be more apt to going the extra mile once a counter comes back. And as a Seller's agent, that's how you squeeze more out of the buyer.

Bargaining, negotiating is a fundemental part of our business and our duty to represent our clients to the best of our ability. When that crucial step is eliminated, everyone loses.

Odelia... great post and really intelligent comments that you've gotten so far. I so advise my buying clients to go with their very best offer if we determine that there's another on the table. And I do that primarily because I've run into other agents like the one you were dealing with who don't act in a totally ethical way themselves. But, the bigger picture, IMO, is that we had all get ready for some serious bidding wars in the future. Once current inventories have been depleted to a "normal market" supply, and once the market has rebounded to a "normal" level of supply and demand, people looking for "new" homes are going to be bidding for them, at least in my market. So many builders and developers have left the business, the supply of new homes is just not going to be there. There'll be a catch-up period in new construction, and thus I believe many of our buyers will be bidding to get the home they want.

I'm inclined to agree with the majority here. There's nothing wrong with a bidding way....I mean, last time I checked, competition is one of the foundations our a free market society. However, having said that....I would have STRONGLY urged my client to submit their highest and best when knowing that there's another offer on the table.

You don't know the other terms of the winning offer. Perhaps the sellers felt there was a greater chance your offer would fail to close. That doesn't excuse the agent's misguidedness, but it is a valid reason for accepting a lower offer.

My guess is that the agent was acting as a limited (dual) on the offer they accepted. On the other hand, I do agree with some comments above in that if you knew there was already an offer on the table and your buyers had already planned (or willing) to offer higher, I would have put the higher offer in and then get the buyers into the mind set "if they counter we will walk". Glad they found a great home anyway!!

There is nothing unethical about getting the very best price for your client, afterall isn't that what we are getting paid to do? Keeping your clients interests in mind at all times?

This has happened to me and I never understand why. If they don't want a war they can just ask you to come back as highest and best. At least then they will get away with only one round of second bids. This is NOT in the seller's best interest but maybe the agent just doesn't like to deal with messy situations and decided to invent their own rules. So sorry for you 1st timers.

I think Tim hit it on the head! It becomes a matter of which offer will be able to close the deal. The order of acceptable offers depends on preferred financing 1. CASH, 2. Conventional, 3.FHA. With the market still in flux appraisals are consistantly conservative. With all cash offer that is no problem, chances of a low appraisal is not a contingency. I am not sure but if the appraisal is low can the buyer come in with a cash differance? Will that change the FHA loan? The bottom line for the list agent is to present the seller with an offer that can get the deal closed. Which is not always the highest but may be the best. Not to mention over $425000 is jumbo loan territory!

As a listing agent, my reply to you would have been "Make it your highest and best offer then!"

You have to counsel buyers they may NOT get a 2nd chance.

I have had sellers choose the "pick one" method of working with offers, and not start a round-robin bidding war.

Odelia, This is a great post with a lot of great comments. Unfortuantely, I think we all have agents like this that we have to deal with. It's unfortunate for your buyers but hopefully you'll find them something that they like even better! Good Luck.

Odelia,

I don't agree with the listing agents comment and find it unprofessional. However, in my opinion the sellers agent did not act unethically as long as he(she) presented your offer to the seller. In hind sight it appears you should have advised your clients to present their highest and best and not bet on an opportunity for a second chance to increase your offer. I wonder how your clients would feel if they were the first offer under negotiation and a second offer came in and topped you. Unfortunately, someone always loses in a bidding war.

I recently lost in a multiple offer situation where the seller (a bank) countered all three offers asking for responses within 48 hours and shortly there after, before my client could respond withdrew the counter in favor of one presented by the listing broker. One can only wonder??

We don't use the term, bidding war. They are multiple offers and can be handled several ways. In Ohio, we are not doing our duty by turning away an offer that comes in while we have another. That's just wrong on many counts. Most agents set a time the next day for your highest and best. Works very well for all parties. If your clients offer was their best, then they will not feel bad losing the home, because it's more than they wanted to spend.

Odelia although I agree as listing agents our job is to the get the seller top dollar a bird in the hand is better than one in the bush. I read your post twice and it appears there was an offer on the table. In our area if an offer is presented to the seller and countered no other offer can come in. We also use time limits on the counters so our sellers are not tied up long. We also explain to the buyers that moving quickly can lock them into negotiations before another offer comes in.

Our board also uses the K code which means there is an offer on the table but you can still show. That way the buyers know what they are getting into when viewing.

Like most I believe bidding wars are not unethical, the seller deserves the most he/she can get for the property...that's the name of the game. But, if you know there is another offer on the table you should not expect a counter. If, you say, the asking price was off the mark then you should have encouraged your buyers to offer exactly what you and they felt the property was worth, not a penny less, especially when you're only talking about a few thousand dollars. I always advise my buyers to come in highest and best in a multiple offer situation...sometimes you get the chance to increase your offer, sometimes you don't. If you absolutely want the property bid as if you won't get another chance. It hurts to lose your dream home over a couple thousand dollars.

Odelia - I'm sorry to hear that news -- for both your client and the listing agent's client! I have had very similar situations occur with two of my clients recently, only to find out that the accepted offer was presented by the listing broker as well. I think it's time we as a profession took a closer look at Dual Agency.

Best of success to you and your clients in finding another home.

Odelia- If your clients were prepared to pay more then they should have offered more. I'm not a Realtor so I don't have first hand knowledge of making offers, but out here (SoCA), we're in a very aggressive market and I know that my clients agents are telling them to go in with their best highest and to not screw around with trying to finagle a lower price of a couple of thousand.

The smart and motivated Realtors and their clients don't play pricing games, this simply isn't the market for it and they usually figure that one out once they've lost a property or two that they really wanted.

It would be unethical if the agent did not present the offer to the seller.

I always tell my buyers if they know another offer is on the table to give it their best and if it doesn't workout we'll find another home. If they really want the home offer full price and then if they lose it they know they tried their best. Different markets for different parts of the country.

I agree the statement 'Bidding wars are unethical' is a bit off. That being said, in a multiple-offer situation, you cannot count on a counter-offer. This is no longer a simple 2-way negotiation process as there external influences. The agent should certainly present the contract, but the sellers have no obligation to do anything besides accept / reject it. As a listing agent, I would have had to mention a concern about losing both.

I often use the escalation clause - BUT (as always) make sure to make it contingent on appraisal and require documentation of other offer (sorry, but we won't take the seller's word for it that the offer was $XXX.).

Like most everyone here, I don't believe bidding wars are unethical, but you can't change another agents perceptions of things like this (unless they are doing something unethical in response to their beliefs - i.e., not presenting the offer to the seller).

In your case, knowing that there was another offer on the table, it probably would have been best to submit a "highest and best" since they were already in negotiations with someone else. My guess is that you cemented the other by coming in low (they realized what they had in front of them was good). Just like pricing a house high will help to sell your neighbor's home, offering too low in a bidding war only serves to make the other offer look that much stronger.

I am struggling to find the unethical behavior in this example. The real question for you to ask is whether or not the seller was shown your offer. At least in TN, unless specifically indicated in writing, the listing agent (in an exclusive right to sell agency) is required to show all subsequent offers to the seller. I don't know the governing statue in your jurisdiction, but knowing what the situation was going in, why didn't you advise your clients to make their highest and best offer at that time...

Sounds like everything worked out to be OK in the end for your buyers which is what really matters.

With out knowing all the facts regarding the contract the seller accepted, its difficult to really comment if he represented his client well or not (was it a cash offer with a quick close that was more important to the seller etc.). If your offer was comparable in terms of financing and close of escrow etc and the only thing to separate the two was a slight difference in price then a multiple counter offer may have been more advantageous to the sellers in trying to obtain a higher price, however we should not assume that this was the only driving force behind the decision made. As long as your offer was presented to the sellers then the list agent did his job.

Where I believe the list agent could have acted differently was in his communication and attitude to you, his fellow REALTOR. If the accepted offer fell out of escrow, it sounds like he burnt a bridge with his attitude in dealing with you and your clients and could of handled the situation a little differently and not been so confrontational.

There certainly isn't anything unethical with a bidding war. If that was the case probably half the bank REO agents would be involved in an ethical dilemna with their listings. However price is not the only factor with these multiple offers.

If your buyer was going FHA and the other buyer was going conventional with 20% down, I would have advised my seller to strongly consider the offer with the higher down payment. FHA means more hoops to jump through.

Maybe the other agent just didn't want to get into a long disappointing conversation with you for 10 minutes after his seller decided to take the other offer.

I certainly would not advise my client as the listing agent to counter two offers at the same time. The buyer's agent presents an offer and the seller has many choices but after the seller counters the buyer's offer then it is up to the buyer to accept, withdraw or counter. If the buyer accepts then it is on to a executed contract which makes other offers a mute point. If the buyer counters then the seller is not obligated to the buyer at all and can negotiate any other offer.

So, if the seller has not countered any offer then sure it is perfectly acceptable to ask for "highest and best" from all offers on the table which includes the buyer who countered back to the seller.

Ultimately it is the Seller's decision how they respond to offers. Many times I have counseled my seller's to ask for a highest and best offer when competing. We still have to worry about the appraisal issue don't forget. That being said, I think this agent in this circumstance did his client a disservice based on the scenario provided.

I just recently had this happen to me .. I was SHOCKED the other realtors did not wait the extra 2 hours to get our full price offer!

I see you are a Pa Realtor. So am I. I could write a series of blogs on the way some Realtors conduct business. I have been licensed in two other states. I have not witnessed the same kind of behavior.

It is frustrating to those of us who take the Code of Ethics as a vow. The good news is your clients found another home they loved. The bad news is this Realtor is still out there COMMITING REAL ESTATE NOT PRACTICING IT!

Most Brokers will not do anything about it. No body wants to rock the boat.

By chance was the other offer an in house offer?

Sounds like he was just lazy and justified it when your offer came in just below the other one.

Another possibility is that the buyer he was dealing with for his listing were being handled by an agent in the same brokerage (Dual Agency). Thus, the brokerage gets both sides of the commission.

I know NAR tries to hold us to higher standards but who is insuring these standards are being lived up to? Where are the watchdogs?

In our area, the bidding wars are mostly on REO properties. The escalation clause does not work as only one price per buyer can be submitted. Like many have commented, I have found the best thing to do is go in with their highest and best.

I agree with Sheryl Robinson's comments about Odelia's buyers.

Odelia, the responses to your question really reveals the variety of customs and laws throughout the US.

In Texas, we have a form that allows a seller to respond to several offers at the same time, without being bound to any of the responses. I love it, and use it even if there is only one offer, and the seller agrees.

It is from TAR, I think form 1926, and it states that the seller cannot accept your offer as written, but if you will submit a new offer with the following changes------- followed by mutliple blanks, the seller will reconsider- then it goes on to state that this is NOT a counteroffer and the seller is still free to accept other offers.

It is interesting to note that in Texas, we are obligated to present ALL offers to a seller until an offer has been accepted and all parties notified of the acceptance, yet some of the other states say that you cannot present an offer once one is being negotiated--- how horrible for the seller.

The listing agent in your case was wrong in the reason he gave about bidding wars- it should not be his decision, but his clients. Still, that does not mean the seller has to respond to your FHA offer if he already has a better one.

I submitted an offer higher than list price, no buyer inspection contingency, 30 days escrow, 40% down payment, 5% initial deposit. I was promoting my offer as a sure thing.

The listing agent said her client didn't want to look at the offer until the seller returned (in which case the obvious questions is why not wait until the sellers ARE in town before activating this on the MLS?)

Then I get a call that the seller decided to accept another offer that came in after ours....that offer was lower than our offer, still higher than list price, but it has NO contingencies.

When I asked why they didn't counter our offer, the listing agent said the sellers decided to accept that offer because THAT was a sure thing.

Hi Odelia,

1. Your buyers loved the house.

2. You knew of another offer.

3. Your buyer was willing to go higher.

4. You allowed them to offer below their best & highest .

5. Now you want to put the blame on the listing agent ?

I agree that bidding wars in and of themselves are not unethical, but here is my take on this. The first buyer was in negotiations with this seller and a new offer comes in that is less than the counter offer on the table with the first buyer. Why should the listing agent start new negotiations with a new buyer when they have the one that was there FIRST has agreed to a price that was higher than this new offer? If a market is heated and bidding wars start, then when do you stop taking offers and when do you string out buyers long enough for a better offer to come along? Thats where the ethical/unethical debate comes in. I feel that if there were no negotiations going on with the first buyer and the seller had come back to them and said they were rejecting their offer and wanted a better offer from them, then yes, an offer from a second buyer might be worth countering.

Unethical? I think not! But I do think they should have presented their highest and best. I had a young couple just last month do the same thing. Try to get the "deal" after I told them it would be highest and best and I was pretty sure what they were offering was not going to fly. The insisted I wrote it up. They lost the house. Thankfully on their next offer they took my advise and got their home. As said above in Texas we have to submit all offers to the seller. But it really is up to the seller what they are willing to do. I have had some that LOVE the negotiating and others that just want the whole process to just be over! Many times we will never know the full reasons why an offer was not accepted/countered. I am happy to hear they did finally get a good home.

Bill that is some tough love, but I can not find any fault in it either

One of the first things I learned in real estate school is "time is of the essence". If I receive multiple offers in a short time, and I haven't made a presentation to the seller, then with the seller's consent when i do get in contact, I send out a multiple offer sheet to everyone asking for highest and best. This is not something to sit on waiting a day or so either.

Best to put your highest and best offer on the table when you know you are in a multiple offer situation. As the listing agent I have seen bidding wars go astray. Guess what happens? Both buyers go away--thinking something is shady or shaky about having to go back and forth through negotiaions. This really effects your seller. To have a buyer and let them get away; just to do more negotiations. Nope. I tell everyone in the multiple --to bring your best offer.

There are so many variables in this business that it's difficult to judge what is best in each situation. The other offer may have been much stronger - conventional financing with large down payment, quick closing. But I do agree with some of the comments. When you know there are other offers on the table, the negotiating position of the buyers is going to be much weaker. That's not the time for buyers to lowball a property.

I have been following these responses all day and am 100% on board with Bill in response #80. Sorry.

Knowing there was another offer in consideration, I would have encouraged my clients to offer their highest and best offer.

I agree, Bill (#80) had an excellent response.

I am very curious as to the use of an escalation clause.. it shounds like a great idea. How do you get evidence from the listing agent what was bid? If say my buyer bid 425,000 with 1000 any other bid up to 451,000 and suddenly the price came in at 450,000 (the list price) How do you prove to your buyer that the other offer was authentic?

When I know there is another offer, I advise my clients to give their "final and best" - usually this is said by the listing agent in that situation. I have always been told that we can't play one offer against another - we just state "multiple offer situations" to everyone and then pick one offer to work with - usually the highest with the best financials. Since their was an offer in negotiation, I don't feel it would be fair to the other party who is "in negotiation". Once the negotiations have started, an offer has been chosen to work with - at least that is how I look at it.

" I try to prepare buyers for the fact that they may not get another chance - so best, particularly with another offer on the table, to give it their best shot or close to. " I will echo this comment and they were already in negotations with the other offer amd your clients' was lower - not too surptising they didn't get it!

I agree that there isn't anything unethical about bidding wars, but in many states, if you have one, it is very possible that you are breaking the law. Before I continue, I do want to point out that I'm not an attorney. I know that in my area, and many others, only licensed auctioneers are allowed to run auctions, and if your clients are participating in a true 'bidding war', then you may be technically running an auction, depending on the laws in your state. Often it is considered an auction if you give one party an indication of the amount of the other offer, and what they would need to do to be the 'winning bidder'. This is why I'm always very careful in these situations, and I always advise my client to bring their best offer first in a multiple offer situation.

We are the "agents"... the principals are the seller and the buyer. The seller is the one to decide if they want to consider another offer... the agent was out of line here. On the other hand, I would have tried to present the offer in person to the seller.. and have counseled the buyer to make their best offer.

I don't think this was a bidding war at all. This just sounds like a very lazy agent or someone who forgot who he was supposed to be representing.

It sounds like the other agent just didn't want to deal with it. He had an offer, he was content, he was done!

Bidding wars are not unethical at all, simply trying to get the best possible outcome for your client. Hopefully the listing agent really did present your offer to the sellers! Not knowing the intimate details of the other offer, there could be several reasons why they accepted it. It could have been a cash offer (unlikely, but possible), they could have offered a quicker closing, they might have been in a stronger financial position, waived inspections (again unlikely, but possible), etc etc. Bottom line is, the listing agent could have come back to you asking for highest and best, but didn't. You could have advised your client to offer their highest and best from the get go to put them in the best position to have their offer accepted, but you didn't. Unfortunate, but hey, everyone makes mistakes. Live and learn, and best of luck on your next deal!

Odelia,

I own and operate an office near you. While there is nothing wrong with going back and asking both potential buyers to bring back your highest and best, there is no obligation to do so and most agents in our area do not practice that way. Once you knew there was another offer on the table YOU should have gotten your buyers to bring there highest and best or included the escalation clause that is a standard PAR form. You also said they had the other offer for a few days and had been going back and forth and came to a verbal agreement and the papers were to be signed and finished up officially the next day.

I have been on both sides of situations like this and you would be surprised how many sellers will not go back on their word even if another offer materializes afterword, especially after rounds of negotiations as they feel obligated. In one case the other offer was better than mine and the seller still followed through with my offer because they already gave us their word. Sounds like this is what happened and to be honest, I would applaud the sellers if this were the case. Call me a crazy optimist but I miss the days when a persons word was all you needed and believe it or not there are still lots of us out here who do deals on a hand shake and our word every day and stick to what we say.

At the end of the day, I hope you learned a lesson. Next time your clients love a house and you know there is another offer, get them to offer their highest and best or include the escalation clause from the get go. As you just learned, you can't and never should rely on the seller or sellers agent to counter at all, let alone with a highest and best, no matter what the market climate is.

I'm glad it worked out for you and your clients in the end. (Now for the tough love) But don't get it twisted, you and your clients lack of action, not the sellers agents', cost you the deal on the other one ;-)

To Your Success,

Kevin

I have to defend Odelia here, I wouldn't have been surprised at all by her buyers low offer if I were the seller or seller's agent. Buyer's today are looking for deals, because they can get them. Its a buyers market - right?

The seller's agent should've presented the 2nd offer, regardless of how high or low it was compared to the 1st one. The seller gets to make the decision if they want to consider it or not, the listing agent doesn't get to make that call.

As some already mentioned, I think the listing agent was just being lazy and didn't want to deal with it anymore, so he gave a lame excuse to be done with it.

Let's get this straight...

1. the listing agent isn't selling the home, the seller is. The listing agent is only facilitating the terms of the listing contract.

2. A seller has every right to accept lower offers if they choose to- even against the listing agent's recommendation, and even in the face of higher offers that are on the table.

3. Buyers agents should express to their clients that they should leave nothing on the table for further negotiation if they truly like the house. If they really had more gas in the gas tank as you mentioned, then they should have competed to win the race, not to just finish 2nd or 3rd.

When clients are hesitant to write the full amount they are comfortable with, I always comment- "Are you willing to lose the house over X amount of dollars. If you are , then let's write at this amount, but if you are not, then let's write the higher offer- knowing that you gave it your best shot."

Highest and best is the way to go! I had clients this past week who offered full price and cash with no contingencies and closing in less than 30 days. All the listing agent said to me when he called to turn down our offer was that we were beat substantially. Here in Cape Coral, FL. I'm actually not shocked. This market is going crazy...again!

I am a listing agent, and in a nutshell: Do not expect a counter. Period. I am seeing more and more sellers NOT counter. Give your highest and best offer. If an agent tells me they can "go higher," I relay that to the seller along with my opinion that if they could go higher then they should have - ESPECIALLY if they knew there were multiple offers.

Not all sellers want to play the counter game and they can accept or reject any offer they choose, for whatever reason they choose. We also don't owe the selling agent an explanation as to why they didn't receive a counter - it is not mandated that the seller counter you. My response to buyer's agents who ask why is: if you could have negotiated a counter, then you could have offered higher to begin with.

I think it is a disservice to the buyer to not advise them to give their highest and best, especially if they really love the property. If they love it that much, they wouldn't have risked losing it. The value of the house is what it is worth to the buyer, so how could they have overpaid?

He may or may not have been short sighted. He should have shown both offers to the seller. Sometimes if you get a bidding war going you may end up with nothing. I bird in the hand is better than two in the bush. I probably would have tried to set both buyers against each other and drive the price, but it is the sellers decision.

Sounds like the listing agent might have had something at stake - like both sides of the transaction.

AUG

I'd like to hear about how many agents are actually using the escalation clause. I know you can add in that the seller must prove there are higher offers, but how do you prevent your buyers' offer from being escalated by offers from unqualified buyers? That is a very valid point that someone brought up here that I had not previously considered.

In San Diego, on reasonably priced properties we are easily seeing 10 competing offers (our inventory is really low right now). Usually the seller will do a single round of a multiple-offer counter asking for everyone's the highest and best offer.

To Jenny, my wife frequently uses the escalation clause. Only once has an agent attempted to pull a stunt and claim a higher offer than they could prove. In terms of unqualified buyers causing the price to increase, yes, an interesting risk. Of course, few (good) buyer's agents will let their clients waste time making offers that they are unqualified to be making.

Odelia - First off (I read in your comments) congrats to you and your client on being under contract on a better home ! That is super. My wife Stephanie always says "if it is meant to be, it is meant to be". I guess that is the big picture in this market that if the buyer does not get the first property, there are more out there ! Secondly, I do think this could have been handled better by the listing agent. I would have asked for a "sellers reply to multiple offers" or some sort of proof that my offer was presented. Perhaps the other deal was cash or conventnional 50 percent down ? Either way, that is why I use those "sellers reply to multiple offers" in these situations. Many of our listings recently have had multiple offers. Maybe the old days are slowly coming back ? ~ Chris

In the end, the perfect home shows up. I learned from my dad a long time ago, if it is meant to be it comes easy. It is about faith in our creator, god, divine, universe, whatever you believe in.

I think it was in poor taste to use the company name of the listing agent personally in the post. BUT, if you KNEW there was another offer and still wrote the one that you did for your buyers, WHY ARE YOU MAD? You had a good chance to trump the other offer and you blew it. You had a bidding war and you didn't like how it turned out! What you wanted was for the seller to refuse both offers and then go back to you? You had an advantage here and you blew it I think. You knew about the other offer, wonder if the others buyers knew about yours?

Just my 2cents on that.

Lyn I get what you are saying, but here where I am located there are multiple independent Re/Max offices, and without given the individual offices name, it really does not identify anyone. And everyone knows that the largert an organization gets the more likely there will be a few bad apples. Although I do think this should have been a members only post

Supposing that we are all REALTORS and abide by the Code of Ethics we need to remember something I don't see mentioned. It's not the agent's choice as to how multiple offers are handled, it's the seller's choice. If the agent (and I noticed a couple of responses indicating "that's the way agent's in this area...") was acting ethically, they would discuss this with their client prior to getting in this situation and then they could inform the buyer's agent of their seller's instructions, not their opinion as to whether it's ethical or not. NAR feels strongly enough about multiple offers to include it in the Code of Ethics and Arbitration Manual -

And yes I agree with coment #80 (plus a few others) - if you know ahead of time you're going into a multiple offer situation, make your best offer then - it's even more agravating to relay that the buyer's rep claimed they would improve their offer, only to have them change their mind and lose both offers.

If I know that there are 1 or more existing offers, I tell my clients to write an offer that will buy them the house and live with the offer that they write. If their offer is the best, they get the house. It was not too high, it BOUGHT THE HOUSE! If it was too low, live with that fact. It was your decision, buyer. If you could not go higher, I understand. If you did not chose to go higher, I understand (but why...didn't you want the house?).

So, Odelia, why were you surprised when you did not get a counter offer? You already knew the agent did not want to deal with you.

John Juarez

AUG

Wow Odelia. I do not want that Agent selling MY home.

AUG

I hope this agents seller doesn't read your blog, because if they do, they maybe in court and they will see that it is not only not unethical, but that it is in the best interest of the seller to get the highest and best price for their home.

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