Once in a while you end up in the unusual situation of having more than one Buyer or tenant bidding on a single property. Although at first glance this is “good” for the Owner, and can often yield better than anticipated pricing, you are just as likely to end up with two angry prospects, no transaction and a frustrated Seller.
This is usually not too difficult to manage. Although you and your Owner are not obligated to conduct a formal “auction” or even to negotiate with any particular party, you as a licensee are obligated to present all offers and to deal honestly and fairly with all parties. I recommend the following procedure:
- Advise the Owner of their options and allow the Owner to choose how to proceed. Options are:
- work with one offer (accept or counter the offer); sometimes one offer is better than the other and worthy of dealing with a serious buyer/tenant individually rather than starting the multiple offer procedure
- decline all offers (sometimes offers are just rotten); if you are using the multiple offer procedure, do not decline any of the offers, allow weak offers to “compete”
- use the multiple offer procedure below; this usually works best if you have 3 or more offers or two very competitive offers. With two or more almost equal offers, one buyer might be willing to do what is needed to come out as the winning contract holder. Typically, with 3 or more offers, one buyer might drop out, another will stay at the same price, and the other will present a better offer than the original offer. Great properties and/or strong seller markets often lead to multiple offer scenarios. Ask for guidance.
- Multiple Offer Procedure:
- Advise bidders that there is another offer being considered, the terms of which you are not permitted to disclose.
- Ask the bidders agents to submit their highest and best offer. Explain to them that you must have their offer by a certain time, at which your Seller will decide which party to negotiate a contract, lease whatever with.
- Explain to all bidders that the owner is not obligated to deal with any of them, to take the “highest” price or limited in any way as to his/her freedom of action. However, it is your intention to submit each party’s “best” offer and allow your Owner to chose how he/she wants to proceed.
- Explain that if a particular bid is not selected, you will not be able to reveal to the unsuccessful bidder the terms and price proposed by the successful party; that this information is confidential until it becomes a matter of public record.
I suggest you communicate these facts in writing to the agents involved, so you can be prepared to refute the not uncommon whining and complaining from the “loser” that he/she did not receive full and fair consideration. The following is suggested language you can use to notify the parties:
re: [file title of transaction]
Dear [Agent Name]
We have received a competing offer from another party for the same property for which your prospect has submitted an offer to buy/lease. We are not permitted to disclose the terms and conditions of that offer and will treat any offer you make with the same confidentiality. We do not intend to and are not obligated to hold a formal auction for the property. However in order to minimize confusion and to obtain the best price and terms for our Seller/Lessor, we have decided to request that each party make his/her highest and best offer in complete, written form, available to us for presentation before the close of business [insert date here].
If we receive your proposal prior to that time, we will present it to our Owner/Seller, along with any competing offers received for his/her consideration. The owner is not obligated to deal with either of the parties, to take the “highest” price or limited in any way as to his/her freedom of action. However, it is our intention to submit each party’s “best” offer and allow the Owner to chose how he/she wants to proceed. When the Owner has decided, I will notify the bidder selected and he/she will be given the first chance to formalize the proposed transaction with the Owner. I will also notify the unsuccessful bidder promptly.
If your offer is not selected, I will not be able to reveal the terms and price proposed by the successful party since this information is confidential and would only become available through examination of public records if a sale is recorded.
Very truly yours,
[signature]