Categories: For Buyers
So What Do We, as Buyers, Do When There are Multiple Offers?
I’m asked this question repeatedly now that almost every condo buying situation in Hoboken involves multiple buyers. While every situation is unique, it is helpful to have a general sense of what the options are when this situation arises. In fact, it is more important than ever to use an agent with extensive experience in handling offers for buyers in multiple bid situations because these situations are so often mis-handled and so many people, including many agents, do not know or understand the rules.
First and foremost – it is the seller’s decision as to what to do when there are mutiple offers. The seller has several options:
1. The seller can communicate and negotiate with each buyer’s offer independently and individually. The seller does not have to disclose that there are offers or the terms of the other offers.
2. The seller can have the listing agent hold what is called “final and best”. Each prospective buyer is told that there are mutiple offers and are given the opportunity to present their “final and best” offer by a given deadline. Typically, the terms of the bids are kept secret though they don’t have to be. Whether or not to disclose the terms is up to the seller. Upon receiving all the bids, the seller then chooses the buyer with whom they wish to proceed. The choice is typically made on the basis of a combination of sales price, amount of down payment, timing, how likely the buyer is to get the loan, how likely it is for the deal to close and any other terms presented.
Here is what the National Association of Realtors 2012 Code of Ethics has to say about offers:
• Standard of Practice 1-15
Realtors®, in response to inquiries from buyers or cooperating brokers shall, with the sellers’ approval, disclose the existence of offers on the property. Where disclosure is authorized, Realtors® shall also disclose, if asked, whether offers were obtained by the listing licensee, another licensee in the listing firm, or by a cooperating broker. (Adopted 1/03, Amended 1/09)
In plain English, offers are confidential information. If and only if the seller approves, I must tell other agents of the existence of another offer. But if the seller does want me to disclose whether there are other offers, I must also disclose whether that offer is being made by my buyer, or the buyer of another agent at the same company as me, (i.e., “in-house” ) or the buyer of an agent from a different company. When the buyer is brought by the same company as the listing agent, the broker gets both sides of the commission so there is a theoretical motivation for the listing agent to push the seller to accept the in-house offer as the brokerage would then earn more though not necessarily the agent.
I’m often asked by buyers in multiple bid situations why they can’t know what the other buyers are bidding. Whether or not to disclose this information is a strategic decision that affects negotiations. Many times when a buyer finds out there is already an offer on a property they lose interest and say they don’t want to get involved. Disclosing the existence of an offer may scare away a buyer.
Let’s say a property is listed at $500k. Let’s further assume Buyer A offers $450k for the unit. The offer is disclosed and the amount revealed. Buyer B bids $451k – just enough to beat buyer A. But if Buyer B only knows there is another offer and does not know the price or terms of the other offer, Buyer B might offer more than $451k. The seller might potentially reap more than had Buyer A’s offer been disclosed.
Let’s take the same situation and look at what happens without disclosure – Buyer A offers $450k. Buyer B is told there is another offer but not the amount. Buyer B was going to offer $445k but now he is all nervous that the other offer might be higher than that so he offers $475k.
Let’s say the seller decides to hold “final and best”. Buyer A initially offered $450k. Buyer B was going to offer $445k. Buyer C comes along too. None of the buyers know what the other buyers are bidding – just that there are now 3 interested buyers in the running. The blind auction takes place and one of the buyers offers more than full price to attempt to secure the sale. Seller ends up with even more money. This is what typically happens and why agents often advise that the seller not disclose too much information. I’m often told by the listing agent “we have a very strong offer so your buyer will have to come in over asking if he or she wants the property”. Do I have any way to confirm this? Only if we lose the bid and I see what the property closes for several months later.
The bottom line is that these situations are becoming more and more frequent. The negotiations can be very complicated and they are often mishandled. An educated consumer is the best customer! If your agent can not or will not explain these concepts to you clearly and show you what the rules say about these types of situation, run! Do not walk, run and find a better agent who knows the rules and knows how to deal with multiple offers. The Hoboken condo market is at an all time inventory low – only 185 units for sale today. The competition for the good units has become fierce. You need every advantage you can get if you hope to beat out the other buyers out there.