Recently, the Legal Hotline topics have drifted away from COVID 19 issues and appear to be market driven. As a result, three of the top questions involve multiple offer situations.

Anneliese Fierstos
Illinois REALTORS® Legal Hotline Attorney

1. Multiple Offers

I am the Seller’s agent and I have received several offers on the same property. Should I disclose to a buyer submitting an offer that there is another offer on the same property?

Sellers have several options when dealing with multiple offers, and although the listing broker can offer suggestions and advice, the final direction a multiple offer situation is directed by the seller. Options include:

• accepting the “best” offer;
• informing all potential purchasers that other offers are “on the table,” and asking for “highest and best” offers, the legal effect of which is a rejection of all current offers;
• countering one offer while putting the others to the side awaiting a successful outcome or breakdown of negotiations on the offer “in play;” or,
• countering one offer and rejecting the others.

There is no legal requirement for a REALTOR® to disclose to all buyers that there is another offer on the table, unless directed to do so by the seller. The REALTOR® Code of Ethics, Standard of Practice 1-15, requires permission from the seller to disclose. The Code further states, “Where disclosure is authorized, REALTORS® shall also disclose, if asked, (emphasis added) whether offers were obtained by the listing licensee, another licensee in the listing firm, or by a cooperating broker.”

In some cases, after an offer is presented, the buyer’s client is concerned about whether the offer was actually presented to the seller. A relatively new Standard of Practice 1-7 provides that if a buyer asks for written affirmation that the offer was presented, the seller’s broker must provide such written affirmation that the offer was presented or that the seller waived the right to see the offer.

2. Contemporaneous Offers

I am the buyer’s agent, and I have two clients that I anticipate will want to make offers on the same property. What are my responsibilities?

A shortage of real estate on the market also creates issues for buyers’ agents. Often a listing will seem perfect for more than one of a REALTORS®’ buyer or tenant clients, resulting in those clients wanting to make an offer to purchase or lease on the same property at the same time. These are called “contemporaneous offers.”

Section 15-15(b) of the Illinois Real Estate License Act (RELA), provides that:

• licensees do not breach a duty to clients by showing the same property to multiple clients or by preparing contemporaneous offers to purchase or lease the same property;
• licensees must provide written disclosure to the clients for whom the contemporaneous offers are being prepared; and,
• licensees must refer any client that requests a referral to another designated agent.

In addition, the rules under RELA clarify the timing for disclosure to the parties making contemporaneous offers to be when the licensee “knows or has reason to know” that offers will be taken under consideration by a seller or their representative at the same time. In other words, as soon as a licensee becomes aware that a contemporaneous offer situation may arise, they should make written disclosure to both clients and consider the option of referral to another designated agent.

3. Escalation Clauses

As a Seller’s agent, how do I deal with a multiple offer situation in which a Buyer has written an escalation clause into their contract?

An escalation clause in a real estate contract is a clause that a buyer uses to say: “I will pay X price for this home, but if the seller receives another offer that’s higher than mine, I’m willing to increase my offer to a capped price of Y,” or even, “I will pay X above the highest offer presented by another buyer.”

Escalation clauses can be problematic:

• Escalation clauses can create a false sense of security in a buyer as they feel the clause guarantees that they will have the highest offer.
• The capped price can create an expectation in the Seller how much they are willing to accept for the property and the buyer has “shown their cards” to the seller.
• It is possible that an escalation clause was being used as a negotiating technique and pushed the buyer far above what they may be willing or able to pay.

How can some issues be avoided?

• Seller can state to all buyers that they will not accept an offer with an escalation clause and will only consider offers with exact dollar amounts and clear terms.
• Legal counsel should be consulted by all parties involved.

4. Procuring Cause

Procuring cause is one of the hottest questions on the hotline due to a shortage of properties on the market and low interest rates.

The National Association of REALTORS® (NAR) “Code of Ethics and Arbitration Manual,”  provides a definition of procuring cause that  goes something like this: The procuring cause will be the agent who originated the chain of events, without abandonment (agent leaving client) or estrangement (client leaving agent), that leads to the successful sale with that buyer.

Licensees with procuring cause questions should keep in mind the following:

• There is no bright line rule to help determine who is the procuring cause.
• Illinois REALTORS® Legal Hotline cannot offer an opinion on which party is the procuring cause.

Illinois REALTOR® Ombudsman Program is an excellent resource for members with potential procuring cause disputes and could be useful before fling for arbitration.

However, a final resolution to a procuring cause dispute may require arbitration by a panel that would consider all the facts and circumstances to determine who best fits within the definition of procuring cause. NAR produced a 17-question “Arbitration Worksheet” that lists pertinent questions for the panel to ask.