Frequently the questions (actually, usually it’s the answers) on Trulia Voices make me want to slam my head into a wall. Trulia Voices is a “online community” where real estate buyers, sellers and professionals can ask and answer questions of any topic relating to real estate.
Head-slamming content aside, there are also thought-provoking discussions that occur on occasion.
Recently, “George S” a home buyer in Anthem, AZ posed this question:
I had an offer of $205,000 that was being considered by the bank on a property listed for $225000. Suddenly, at the last moment, the listing agent told my agent that there was another offer of $220000 that the bank was considering. We matched that price and got the property. But now I am wondering what proof is there that this offer really existed and that the listing agent was just not jacking the price up.
That’s a great question.
Here was my first response:
You won’t get proof. I understand why you’re asking, but the bank isn’t going to provide the proof.
This happens all the time on bank owned properties.
Consider this. The listing agent’s commission was probably in the range of 3% of sales price. So if the sale went through at $205K, the listing agent’s commission would be $6,150. If the listing agent jacked up the price to $220K, the commission would be $6,600 — a difference of $450.
Most bank owned property listing agents work bank owned homes exclusively, and usually have multiple listings from the same lenders.
If the agent "jacks up" the price to make an extra $450, they risk blowing the sale completely, upsetting the bank, who then pulls ALL their listings from the agent.
It would take an utter fool to make that huge risk for $450. (and the difference is probably even less than $450 as the commissions paid to bank-owned listers is quite often less than 3%.)
And I’m sticking by that. It would take an utter fool of a listing agent to claim there were other offers when none existed.
But then Voices uber-user Dunes correctly pointed out that, sadly, utter fools exist in the real estate space (and lets face it, every other space).
A couple of months ago we had a client that submitted an offer on a home that had been listed for 73 days. A couple of hours after the offer was sent in, the listing agent called and said something to the effect of, “Just wanted you to know that we got another offer in today, so the seller is requesting that you submit your ”˜highest and best’ offer. I pointed out that it was a remarkable coincidence that two offers came in that morning on a listing that had been on the market for 73 days. After consulting with our client, we informed the listing agent that the offer submitted WAS the ”˜highest and best’. In yet another remarkable coincidence, our clients offer was accepted the next day.
Maybe there really was another offer. More likely, the agent tried to employ a “tactic” of claiming there were other offers in an attempt to squeeze more money from our client ”“ and for his seller. A noble gesture, but one that rarely works.
This brings up the question though of whether competing offers should be disclosed, and more precisely to the point of debate on the Trulia thread, should the existence of competing offers somehow be proved to other buyers interested in the property?
Let’s say for the sake of argument that if a listing agent says, “We have other offers,” that proof must be provided. How is that going to work? I can assure you that I’m not about to release ANY information on my buyer’s offer that could compromise their position. On the Trulia thread Alan May (who seems like a stand up guy) suggested the listing agent provide a copy of the offer to other buyer agents.
Well not if there is ANYTHING in that offer that could compromise my buyers position. That would include, but not be limited to, items such as:
- The buyer’s name and their contact info
- The offer price
- The financing terms
- The amount of earnest money
- The closing date
- Any contingencies
- Any requested concessions
- Any variation of the standard boilerplate contract language
Personally, I don’t see what good an “offer” that was missing this information would do anyone. Alan said with the other buyers agent’s name, that he could call that agent just to confirm they had submitted an offer.
My initial reaction to a buyer’s agent calling me to see if I have a buyer with an offer in on the property is, “it’s none of your business”.
Why should I compromise my buyers position so your buyer can feel better? (or submit a stronger offer than they were considering ”“ potentially displacing my buyer’s offer).
“But Jay, how does simply confirming your client has submitted an offer ”“ if no details are provided ”“ compromise your buyers position?
Quite simply, having another buyer and their agent with ANY information regarding my buyer potentially compromises them. And if there is but a sliver of a chance of compromising my clients position then I’m not doing it, plain and simple.
Say I tell Agent Joe that yes, we’ve submitted an offer on 123 Main Street. Joe then tells his client, “Yep. Someone has an offer in”. Joe’s client may then think, “Well crap. I really want that house. I was ready to submit a low offer in the hopes the seller would bite. But now since someone else is already in the mix, I better beef this offer up and go all in.”
BAM. My client’s position has potentially been compromised.
In fact, Agent Joe just compromised HIS clients position by calling me and informing me they are interested. With that info, albeit limited, I call my client and say, “Hey, just got word someone is thinking about jumping in on 123 Main St. Let’s get this thing wrapped up before they get a chance at it.” And BAM, now Joe’s client is left out.
Alan suggested that a third party could be sent the offer for confirmation. He even suggested broker for example.
But no broker with an agent involved in the transaction can be considered a neutral party. Regardless of how ethical and upstanding they may be, that broker has a responsibility to represent that client. In fact, they owe that client a fiduciary duty. There’s no way I’m sending my clients offer to another broker who has a client interested in the property. NO WAY.
It was suggested the agent’s association could vet the offer and confirm its existence. My association has 8 or 9 employees to service 8,000 agents. I can’t imagine dumping “offer confirmation” on an Association. They don’t have the time or resources to handle what could be hundreds of offers a day. And what if the competing agents are in different associations? The association as a “neutral party” won’t work.
I suppose some enterprising start-up could develop an “offer confirmation service”, but that is fraught with issues as well. How would confidentiality be maintained? What would it cost, and who would absorb those costs? How much time would it add to an already lengthy and convoluted process?
To be honest, I can’t think of a way to prove there are competing offers.
Don’t get me wrong, I understand completely the prospective buyers position here. My initial response talked about the $450 that would go to the agent for “jacking up the price”, but there is difference of 15 grand in this case to the buyer. That’s a serious chunk of change, even spread across a 30 year mortgage. I get why a buyer wants confirmation that other offers exist on a property of interest. Sadly, John Q. Public doesn’t have a lot of trust in real estate agents. The vast majority of that this industry has brought upon ourselves. Simply saying, “trust me, there have been other offers submitted” isn’t going to fly. That so many try this “send us your highest and best offer” ploy doesn’t help. I also understand a listing agents desire to get the most money for their seller. That’s what listing agents do, and rightfully so.
So I sit here struggling, writing a 1500 word tome that provides no real answers. Should anyone have happened to read this far, I’d love to hear your thoughts. Should proof of competing offers be provided to other potential buyers? If so, any suggestions for how to do that without compromising the position of any of the parties involved?