Professional Standards

Multiple Offers

By: Linda Modlinski, Senior Vice President

Multiple offers can and do occur on a regular basis within the real estate industry. Some agents view multiple offers as a great problem to have while other agents hope they never have to become involved in a multiple offer situation. A Standard of Practice was added to Article 1 of the REALTORS® Code of Ethics that became effective on January 1, 2003, that requires each and every REALTOR® to have a discussion with their sellers on how to handle multiple offers. The new standard reads as follows:
REALTORS®, in response to inquiries from buyers or cooperating brokers shall, with the sellers' approval, divulge the existence of offers on the property.

Let's carefully review what this standard requires.

First of all, the standard refers to "in response to inquiries". This means that the listing agent is not automatically required to disclose the existence of multiple offers to other buyers or agents, but rather it requires a response from a REALTOR® when the question is asked. Secondly, before the REALTOR® can divulge the existence of multiple offers, he/she must have the  consent of the seller to do so.

How should this be handled? It is our recommendation that the listing company should adopt and follow a standard policy on multiple offers that is reviewed by the seller before any written offers are received. It is very important that the listing agent explain the potential of multiple offers to the sellers and that the risks and rewards of divulging the existence of such offers should be clearly explained. The seller should know he/she may receive a higher price for the property if other buyers and their agents are informed if a multiple offer situation develops. However, the listing agent must also be very clear to point out that the seller may risk losing other offers if potential buyers withdraw their offers after being told of the existence of other offers. The decision on how to handle multiple offers rests solely with the seller.

Does this mean that a brokerage company cannot adopt company policy on how their firm will handle multiple offers? No, in fact we believe just the opposite. A company should adopt and follow a standard policy on multiple offers, but the policy must be reviewed and approved by the seller. Let's use the following illustration: A brokerage company adopts a standard policy that their company will divulge the existence of all multiple offers if such a situation occurs within the listing period, whether or not if asked by a buyer or a cooperating agent. This policy should be explained to the seller at the time the listing is taken, explaining both the potential for offers over the asking price as well as the possibility of losing a potential buyer who learns of other offers. If the seller disagrees and feels the potential to lose buyers is greater than the possibility of securing offers higher than the asking price and does not want the listing agent to divulge multiple offers, than the REALTOR® is duty bound to follow the lawful instructions of the seller. if the answer is yes, it is your obligation to ask if any of the offers were obtained by the listing agent or another licensee in their firm.

REALTORS® who represent or work with buyers as facilitators should also take care when they have written an offer for their client to inquire of the listing agent or broker whether there are any other offers that are being considered by the seller. If the answer is no, it might also be a good strategy or business practice to ask if another offer is written before your client's offer is accepted or rejected if the existence of such an offer will be disclosed. Remember, the obligation to divulge multiple offers is only required when the question is asked, and then with the seller's approval.

Agents have asked if a written consent by the seller to disclose the existence of other offers is required to satisfy the Code of Ethics requirement. This Standard of Practice does not specify whether the seller's consent is to be oral or written. Each brokerage has the right to make their decision on how they will obtain the seller's consent or permission to divulge the existence of other offers. Written instructions (consent) is certainly the preferred method. An addendum to the listing agreement or blanket instructions are options that a company may consider adopting. We would discourage oral instructions from the seller as it could create problems down the road if a disagreement would arise between the seller and his listing company.