As the short sales go rumbling along in our various real estate markets, a question has arisen, and the answers are varied and contradictory. The question is: how do I, as the listing agent, handle a multiple offer situation on a short sale?
Make no mistake, however you decide to handle it, people are going to be upset. It’s just like any multiple offer situation. There are winners, and losers. There are essentially two views of how to handle this scenario with short sales. We’ll assume for the sake of clarity, that these multiple offers come in, not all at once, but successively, over a period of a few weeks. If they all come in at once, it’s a no-brainer. Your seller chooses the highest and best offer, with the most likelihood of passing lender scrutiny. However, even if a bunch of offers come in, and you pick the best one, another one is probably going to come in after this initial flurry, and what are you going to do with that one? Suppose it’s higher than the highest and best you have in hand?
One group of agents will simply take the next offer that comes in, and submit it to the lender also. If any offers come in, each offer is simply passed along for the lender for consideration. Some agents will not even take the highest and best of the bunch of initial offers; they’ll just submit them all. As justification, they say that they are “serving the interests of their client”.
I personally believe that not only is this operating unethically, I also believe it is damaging to the interests of your selling client. Let me explain:
First, when your seller and a buyer sign a contract for purchase, it is LEGALLY BINDING. Just because there is a caviat that indicates the contract is subject to the ultimate purview of the lender does not make it any less valid as a contract. Remember in real estate school when your professors talked about “VOID vs VOIDABLE?” This contract, because it is subject to lender approval is voidable. And, it is not VOID unless the lender, in their ultimate wisdom, deems it such. You cannot simply take each successive contract and send it to the lender. Why not? Because the first buyer could sue you, your brokerage, and your client, and rightfully so.
So, how do you handle it? You have two options. You can:
a.) have each buyer who submits a contract sign a waiver relinquishing their right to positional heirarchy. This means that each buyer who submits a contract understands that all offers will be submitted to the lender, and that the lender will choose the best one. This, in my opinion, is the coward’s way to handle contracts. You are going to run into all kinds of disclosure issues. What is each buyer’s question?
“How much are the other offers? I want mine to be the best.”
Unless you have a signed agreement with your seller to disclose the details of offers, you simply can not do this. It is a violation of contract law. You can ONLY disclose the existence of offers, not their respective details. Do YOU want to get into making full disclosure of every offer to every buyer’s agent, and have them simply fight it out? Don’t do it. It’s a recipe for disaster. You can also:
b.) handle multiple offers with honesty and integrity. If an offer comes in that you think has a chance of getting through the lender’s scrutiny, send it to them. When other agents call to inquire as to availability, simply say what you would in any such circumstance:
“I have an offer on the property at this time. You are more than welcome to submit your offer for consideration in a back-up position.”
Now, that wasn’t so hard, was it? Simple, efficient, to the point. And it’s LEGAL! What are the benefits of doing it this way? You protect your client from a lawsuit by an outraged buyer, and you increase your chances that the lender will approve the sale. I can hear you scratching your head. How does this help my client’s chances of having the sale approved by the lender? Simple: if you send multiple offers to the lender, you’ll simply confuse them. They’re confused enough already. Don’t help them. Sencond, by sending multiple offers, you might unwittingly be creating the impression that you’ve got a hot little property on your hands that might be worth more money. This is going to make the lender cocky. Their demands for money are going to go up, and worse yet, they may get the impression that it’s a better idea to take the property away from your client and sell it themselves for more money!
Frankly, unless your seller client is going to be liable for taxes and/or definciencies, they could care less how much the property sells for. They’re off the hook if the property sells, period. By “accepting” multiple offers, you are violating contract law, and doing your clients a disservice.
Caution and Disclaimer: I am NOT an authority on contract law, although I like to pretend that I am. All questions about such issues should be addressed to and by your individual broker or firm’s legal counsel. This is their job, along with taking a hefty cut of your money.