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Wednesday, December 3, 2014

Negotiating Multiple Offers Can -- and Probably Should -- Resemble an Auction

[Published Dec. 4, 2014, in the Jeffco editions of the Denver Post's YourHub section. An abbreviated version also appeared in five Jefferson County weekly newspapers. The last paragraph appears only in this posting.]

There’s an unwritten and largely unspoken protocol when it comes to revealing the specifics of competing offers when more than one offer is received on a listing.  I’m not sure why this is, but maybe some of my colleagues who are regular readers of this column can help me understand why they believe a listing agent should or should not reveal the specifics of offers received.

When functioning as an “agent” instead of as a “transaction broker,” it is clear to me that it’s in my clients’ best interest to maximize the price they get for their home.  In that effort, it seems only right that I should do what I can to play buyers against each other — with my client’s knowledge and approval.

This subject is on my mind right now because in the past few weeks I have been successful in engineering higher sale prices for two of my listings by working effectively with agents who submitted competing offers.

One of the keys to successfully working with competing offers is to tell the truth about them. The question in listing agents’ minds is how much of that truth to reveal. Sometimes I will say exactly what the existing offers are when a third or fourth agent asks me “what it will take” to win the bidding.  Let’s look at a typical scenario and how I chose to play it.

Agent #1 submits a below-full-price offer with $2,500 in concessions. A second agent calls and asks (as every buyer’s agent should) whether I have any offers.  I say, “Yes, but it’s below full price.” The agent asks if a particular purchase price would exceed that purchase price, and I say “yes.”  The agent submits an offer $2,000 below that amount but with an escalation clause stating that they will beat any competing offer by $1,000 up to full price.  I inform the first agent that their offer has been exceeded and that it includes the escalation clause up to full price.  That agent consults her client and informs me that they don’t want to go that high.

A third agent calls and asks the question about existing offers and I give the same information. That agent then submits an offer slightly above full price, all cash, waiving appraisal, and closing in two weeks. I recommend to my seller that he accept that offer and we go under contract. I didn’t ask the 2nd agent if they would like to beat that offer, because their buyer was borrowing 95% (albeit with a strong lender letter) and requiring 45 days to close.

Many agents are more coy about revealing details of existing offers and simply ask each agent for “highest and best” offers. What would you do, and what do you think is “right”?

Once you’re under contract, there’s still more that an experienced agent can do as other would-be buyers show up, disappointed that they didn’t get an offer in on time.  I suggest they submit a back-up offer because, with an attractive back-up contract in place, the seller is put in a stronger negotiating position regarding inspection demands.  If for any reason the buyer chooses to terminate over inspection issues, a seller doesn’t have to put his home back on the market if there is a signed back-up contract. Since only buyers can terminate a contract, the only way a seller can get out of a contract is to inspire a buyer to terminate. A seller can do that by refusing to meet any inspection demands.  

This creates a no-lose situation for my seller, because either he gets the original buyer to drop all inspection demands or he gets a better contract with a buyer who agrees in advance that they will accept the house "as is."  To make that happen, I provide both the inspection report (if it was provided by the first buyer) and the inspection objection notice to the back-up buyer so they know what they would be accepting if they get the home under contract. 

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