In today’s low-inventory real estate market here in St Louis, it’s common for would-be buyers to miss out on a house they want even when they make a strong offer only to find out they got beat out by another buyer offering a higher price or better terms. This is particularly true for people trying to buy a foreclosure with increasing demand and decreasing supply, it is not uncommon to have 5, 10 or even more offers for the newly listed foreclosed property.
Does the listing agent have to inform you of multiple offers?
No one likes to get beat out, particularly on the house of their dreams, so the whole offer and negotiation process can get a little emotional at times. This is particularly true when a buyer, who didn’t even know they were in competition, finds they were beat out by another buyer. This almost always results in the losing buyer asking their agent why they didn’t know there were other offers. This can even get contentious between the agents as well, with the buyers agent often feeling “wronged” if the listing agent didn’t make them aware that they had multiple offers.
There is not one black and white answer as to whether a buyer should be informed they are in a multiple offer situation or not. We have to dig in a little deeper. For starters, if the listing agent is not a REALTOR® then they are just obligated to follow Missouri license law as well as the rules and regulations established by the Missouri Real Estate Commission, both of which are silent on the specific issue of multiple offers. However, the license law and rules are very clear about the fiduciary obligation an agent has to a client, therefore, a listing agent is bound to act in the best interest of their seller. Therefore, if the seller does not want the listing agent to reveal the existence of multiple offers to buyers, then it is not in the sellers best interest for the listing agent to reveal it. If the listing agent is aREALTOR® (as are the majority of real estate agents in the St Louis area) then, in addition to state license law and rules, they are also bound to abide by the National Association ofREALTORS® (NAR) code of ethics. The code of ethics, specifically standard of practice 1-15 states “REALTORS®, in response to inquiries from buyers or cooperating brokers shall, with the sellers approval, disclose the existence of offers on the property.” The key here is “with sellers’ approval”, so, without the sellers approval, the listing agent should not reveal that multiple offers exist to your buyers agent.
Don’t I get a chance to increase my offer? What about “highest and best”?
Before I go further, I should mention that it is my belief, the existence of multiple offers is revealed by the listing agent (presumably with the sellers approval) many more times than it is not as, normally, it is generally in the sellers best interest to let buyers know so the “bidding war” can start.
So, speaking of bidding war, the next thing that comes up from buyers in multiple bid situations is the question as to whether they will get a chance to increase their offer. As in the question of whether to reveal multiple offers in the first place, it comes down to what is in the sellers best interest and what the seller has instructed the listing agent to do. Often, particularly on foreclosures, listing agents will employ a “highest and best” strategy in which they generally go back to all buyers that submitted an offer and give them an opportunity to increase their offer realizing they will probably just have one shot at it. Some buyers like this as they have an opportunity to sharpen their pencil and others deplore it feeling like they are bidding against themselves, in any event though, this tactic often works in producing a very good offer for the seller. However, there are many sellers that, in a multiple offer situation, will not go this route and may choose to negotiate with a particular buyer without informing the other buyers. This is often the result of a buyer standing out, usually with the offered price but also terms that the seller finds attractive, such as perhaps a cash deal, short closing, etc. As a result, the listing agent will often go back to one buyers agent and negotiate without going back to the others which, as long as he is acting in the sellers best interest, is fine.
My advice to buyers
Everything I have discussed here are reasons why, when you choose an agent to represent you as a buyer, you want to use better criteria than “they are the cousin of a friend”, “they are a neighbor”, etc. Your buyers agent plays a much more significant role than just “showing you houses” and their experience, knowledge, negotiation skills, reputation within the industry, relationships with the listing agents in the areas you are looking in, etc, will all be critical in the process. A strong buyers agent can make the difference between you suffering many disappointments and securing your dream home on the first try!
At MORE, REALTORS, we have some of the finest agents in town and invite you to check us out. STLRE.com.
