Is it OK to ‘shop offers?’
On February 25, 2013
By Peg Ritenour, OAR Vice President of Legal Services/Administration
In a recent OAR Daily Buzz post, a member asked if REALTORS in Ohio are permitted to “shop offers.” The example that was given was about a multiple offer situation in which the terms of one buyer’s offer provides that he will pay $X amount more than the highest verifiable offer. The question posed was whether it is legal to have a provision like this and for the seller to provide a copy of the “verifiable” offer to the other buyer.
A buyer’s agent can submit an offer with this type of provision and it must be presented to the seller. Of course REALTORS all remember from their Real Estate Law class that a purchase contract must contain specific terms so that a meeting of the minds can be established — and probably no term is more important to the parties than price. Because the offer described above requires the seller to provide proof of another offer, the purchase price can be established. A buyer who wants this type of contract provision should definitely require some documentation to establish the price that was offered by another buyer and require that to be a bona fide offer. The buyer may also want to consider placing a cap on the price he is willing to pay. For more in-depth discussion of the issues involved in such clauses, click here.
The issue that concerns most REALTORS is whether the seller or listing agent can legally disclose one buyer’s offer to a competing buyer. Certainly most buyers believe that the terms of their offer to purchase will be confidential and will not be revealed to other buyers. However this assumption is false in most cases.
Under Ohio law a seller owes no duty of confidentiality to a buyer regarding the fact that a buyer has made an offer or the terms of that offer. The only way a buyer can prevent such disclosure by a seller would be to negotiate a confidentiality agreement with the seller in advance of submitting an offer. (Including such a confidentiality provision in an offer is not effective as the seller will not have agreed to this term unless he accepts the buyer’s offer.)
As to the listing agent’s legal and ethical duties, if he represents only the seller, he would only owe a duty of confidentiality to the seller and no such duty to a buyer. However he cannot disclose that another offer has been received, or the terms of that offer unless he has been instructed to do so by the seller. If he has been so directed, the listing agent’s fiduciary duty of obedience would require him to carry out the seller’s instructions.
The issue becomes more complicated if the listing agent is acting as a dual agent also representing the buyer whose offer the seller has instructed the listing agent to disclose. As a dual agent the listing agent also owes a duty of confidentiality to the buyer. As such, he cannot make this disclosure without that buyer’s consent (which the buyer is unlikely to give). Of course there is nothing the listing agent or buyer can do to prevent the seller from providing a copy of the buyer’s offer or disclosing its terms to a competing buyer.
Due to buyers’ confusion about the confidentiality of offers, NAR amended Standard of Practice 1-13 of the REALTOR Code of Ethics in 2006 to require REALTORS to address this issue with their buyers. Under this Standard, REALTORS are required to advise their buyer about the possibility that the seller or listing agent may not treat the existence, terms or conditions of their offer as confidential unless the seller has agreed to do so under a confidentiality agreement. This disclosure must be made at the time a REALTOR enters into an agreement to represent a buyer. This can be done verbally, but it is recommended that REALTORS do so in writing. This could be included in a buyer agency contract or in the brokerage’s Consumer Guide to Agency.