By Gary Isom, Executive Director of the Arkansas Real Estate Commission
One of the more frequent complaints filed with the Arkansas Real Estate Commission concerns the presentation of offers for real estate.
It’s fairly common for buyers whose offer was not accepted to suspect that their offer was not presented to begin with, especially when that offer was at or near full asking price. In many cases, these buyers file a complaint with the AREC. While many of these complaints are withdrawn once the AREC is able to verify for the buyer that the offer in question was indeed presented, the issue raises a few questions.
• Should all offers be presented?
To answer the question in short, AREC regulations require that all offers be presented to the seller.
This regulation is sometimes challenged when it comes to verbal or email offers. However, the regulation is unambiguous on this point: All offers must be presented, including verbal offers, email offers and even offers written on bar napkins. However, brokers can and should advise their sellers regarding the form and validity of an offer. For instance, the broker may advise the seller that a verbal offer is not enforceable or that an offer on a bar napkin is not technically an Arkansas attorney approved real estate contract.
All offers should also be presented to the seller in a timely manner. When multiple offers are received on the same property within a short time frame, the real estate broker will likely present all offers simultaneously. There is no requirement that the offers be presented in the order received.
So, if a broker receives three offers for a listed property on the same day, all three offers should be presented to the seller in such a manner that the seller can compare the offers and make a decision. The seller may accept one offer and reject the other two. The seller may accept one offer, then accept a second offer stipulating that it is a backup offer to the first offer. If the seller desires to counter multiple offers, conditions need to be placed in the counter offers that will ensure that the seller does not become legally bound to more than one of the counter offers.
The acceptance of an offer by a seller does not remove the obligation of the broker to present additional offers as they are received. Experienced brokers, often from previous experience, will know what to do if a seller who has already accepted an offer receives any better or higher offers on the property. It can be not only embarrassing but problematic if a seller accepts an offer, only to receive an offer for a greater amount shortly thereafter. Sellers need to be notified by their brokers in advance that this may happen. These offers may be reviewed and accepted as backup offers in case the current contract is not executed.
• Should brokers obtain verification of the presentation of all offers?
In a seller’s market, it is not uncommon for multiple offers to be received for full price or even above the offering price at which the property was listed. Buyers, who make such an offer only to later learn that their offer was rejected, are quick to question whether the seller ever saw their offer.
In the AREC’s experience, it has usually been confirmed that the seller did indeed receive and review all offers; however, brokers would do well to document this fact.
Most brokers who are well experienced in the real estate business will instruct their agents to obtain written confirmation to document that offers have been presented. This often takes the form of documenting on the offer itself that it was rejected, if not accepted. This one simple action can save buyers and brokers alike the heartache of filing or receiving an AREC consumer complaint.
• Are buyers entitled to the details of competing offers?
Buyers tend to think they have the right to know about any and all other existing offers on the property they’re considering. Some even think they should be given the amount and terms of competing offers.
While brokers are not required to disclose such information, they must always be honest. Consequently, when a buyer or buyer’s agent requests such information, the listing broker may very well reply that this information will not be disclosed. All brokers are charged with protecting the best interests of their client. Disclosing information about competing offers would be contrary to the listing broker’s obligation to secure the best possible offer for their seller.
Sellers will often instruct their broker to request the “highest and best” offer from all prospects who are interested in their property. This practice is not prohibited, and there is no requirement that the terms, conditions and offering price of the accepted offer be disclosed. As stated before, all offers received in response to such requests are to be presented to the seller for his or her decision.
• Does the agent’s compensation have a bearing on how offers are presented to the seller?
Another situation in which buyers are inclined to file complaints questioning whether their offer was presented revolves around the compensation structure often present in real estate transactions.
Buyers are usually aware, possibly though their agents, that it is financially advantageous to the listing firm to have a buyer who is also represented by the listing firm. So, when prospective buyers who make an offer through ABC Realty on a property listed with XYZ Properties somehow learn that their offer was rejected in favor of a competing offer presented by an agent with XYZ Properties, the buyer sometimes becomes suspicious and files a complaint with the AREC. With such complaints, the AREC investigator will attempt to establish that all offers were presented to the seller and that the seller made the decision on which offer to accept.
• Is it advantageous to the buyer to include an escalation clause in his or her offer?
A tactic recently brought to the attention of the AREC’s investigative staff involves the use of an escalation clause in an offer.
In this scenario, a prospective buyer makes an offer for a fixed amount, but with a provision that the buyer is willing to pay more, e.g., up to $5,000, in the event the seller receives a better offer.
This can create a perplexing situation. If the seller’s agent reports back to the buyer’s agent that a better offer has been received, the first thing the buyer’s agent will likely want to do is confirm that the better offer is legitimate.
Another question is whether the escalation clause is triggered simply by the presentation of a greater offer or by an actual acceptance of a greater offer. In that case, the acceptance of the greater offer would have to be conditioned upon the previous offer, including the escalation clause. As you might imagine, this is a situation in which a broker would be wise to have the parties consult their own attorneys.
Real estate brokers are very aware of the AREC’s requirement to present all offers, and most brokers make diligent efforts to comply and to be able to establish that they have done so.
Buyers who suspect that their offer may not have been presented should ask their agent to obtain documentation showing that the offer was presented to and reviewed by the seller. In the event such information is not provided, consumers can contact the AREC’s investigative staff at 501 683-8010 for information and assistance.
House to House is distributed by the Arkansas Realtors Association. For more information about homeownership in Arkansas, visit www.ArkansasRealtors.com.