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Shopping offers: So is it…illegal? Unethical? Or is it just not right??

By Peg Ritenour, OAR Vice President of Legal Services/Administration

As multiple offer situations become common place, REALTORS are increasingly running into situations where the seller wants to “shop” an offer. Here’s an example: Let’s say you represent a seller who has received three offers to purchase. One of the offers is higher than the other two, but the seller prefers the closing and possession dates on the lower offers. He directs you to disclose the price of the highest offer to the agents who represent the buyers with the lower offers, instructing them that their clients will have to match or beat that price. Is this legal for a seller to do? As the listing agent, is it OK for you to do this or will you run afoul of the license law or the Code of Ethics?

Certainly the buyer who wrote the higher offer will think it’s illegal, unethical and just plain wrong for the seller or the listing agent to disclose his offer to other buyers. Why? Because most buyers believe that the terms of their offer to purchase will be confidential and will not be revealed to other buyers. Further, buyers believe such a disclosure would be “unfair”. These assumptions are false in most cases.

First, as to the seller, under Ohio law a seller does not owe a buyer any duty of confidentiality regarding the fact that a buyer has made an offer or the terms of that offer. Therefore, even though the buyer may think it’s unfair, the seller is free to disclose the terms of a buyer’s offer to anyone he wants.

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.) Because a confidentiality agreement would be a legally binding agreement between third parties, it must be drafted by an attorney. Buyers seeking an assurance from the seller that their offer will not be disclosed to competing buyers should consult their personal attorney to prepare such an agreement. As a brokerage, if you find that buyers are asking for a confidentiality agreement you may want to have your brokerage attorney draft a form that can be provided to buyers.

As to the listing agent’s legal and ethical duties, if the agent represents only the seller, under both the license law and the REALTOR Code of Ethics, he owes a duty of confidentiality to the seller only. The fact that the seller has received multiple offers and the terms of those offers may be considered confidential by the seller and therefore the listing agent cannot take it upon himself to disclose that a multiple offer situation exists or the terms of any offer unless he has been instructed to do so by the seller. If he receives such instructions, the listing agent’s fiduciary duty of obedience to the seller would require him to carry out that directive.

This 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. That is because as a dual agent the listing agent owes a duty of confidentiality to the buyer as well as to the seller. As such, he cannot disclose the terms of the buyer’s offer to competing buyers without that buyer’s consent, which the buyer is unlikely to give. Without such consent from the buyer client, the dual agent is unable to follow the seller’s instruction to disclose the terms of the buyers offer to competing buyers. Of course there is nothing the listing agent or buyer can do to prevent the seller from directly providing a copy of the buyer’s offer or disclosing its terms to a competing buyer or their agent unless the seller has entered into a confidentiality agreement as discussed above.

Due to buyers’ confusion about the confidentiality of offers, Standard of Practice 1-13 of the NAR REALTOR Code of Ethics requires 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. It 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.

In today’s market, sellers are largely sitting in the driver’s seat and are increasingly pitting one buyer against the other to achieve the optimum terms on the sale of their property. Helping clients understand the realities of the negotiation process is crucial to establish realistic expectations and avoid buyers get turned off by the home buying process.

— Originally published in the Ohio REALTOR magazine (Summer/Fall 2015)

Tags: legal