Despite publications saying the market has cooled, Legal Hotline callers report that sellers are still receiving multiple offers on their properties. As a result, REALTORS® are dealing with a wide variety of complications related to these multiple offer situations.

Under these facts, a seller must be cautious about accepting the second offer before they are certain that Contract #1 can be terminated for lack of performance by buyer #1. A listing broker should advise a seller to have seller’s attorney review Contract #1, as well as all correspondence related to the contract, and offer a specific legal opinion whether the contract is voidable. A seller must be cautious because they want to avoid taking any steps that might result in having two contracts to sell one property. If that occurs, a seller could be faced with defending a suit from buyer #1 for specific performance on the contract which could be costly and outweigh any benefit in accepting the more attractive second offer.

Yes, but take care that the parameters are permissible ones, and are not discriminatory on their face or in effect. A seller might direct the listing agent (preferably in writing) to present only offers within certain price parameters. For example, they might direct a seller that they will not entertain any offers below a certain amount, and they will not entertain offers with any contingencies, like inspection, financing or appraisal. Once parameters are established, they need to be applied consistently. Of course, the seller must avoid establishing any criteria that might constitute fair housing violations. The listing broker should offer the seller guidance on the market trends in the area so the seller does not establish parameters that are so stringent they actually interfere with the marketing of the real estate.

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

• accepting the “best” offer (this should be defined by seller and is not always price alone);
• 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 or permitted 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.

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. This is true even if both buyers want “out.”

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.

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 for a buyer if they believe 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 might 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.
• Seller might counter the “escalation” offer with a specific price.
• Legal counsel should be consulted by all parties involved.

Yes, this would be acceptable as long as you comply with both RELA and the Code of Ethics. First, RELA requires that compensation for licensed activities must be made through your sponsoring broker and your buyer client should be informed as to the extent of your compensation from the transaction. Section 10-10 (b) states as follows: (b) A licensee must disclose to a client all sources of compensation related to the transaction received by the licensee from a third party. In your scenario, you will be paid by both the listing agent and your own buyer client. Under Section 10-10(d) of RELA you (acting on behalf of your sponsoring broker) will be required to disclose to your buyer client the compensation you will be receiving: (d) If in any one transaction a sponsoring broker receives compensation from both the buyer and seller or lessee and lessor of real estate, the sponsoring broker shall disclose in writing to a client the fact that the compensation is being paid by both buyer and seller or lessee and lessor. The Code of Ethics also addresses compensation from multiple parties in Article 7: In a transaction, REALTORS® shall not accept compensation from more than one party, even if permitted by law, without disclosure to all parties and the informed consent of the REALTOR®’s client or clients. Your buyer representation agreement should be drafted to advise how your compensation is paid and who is paying that compensation. That information should be made clear to your client so that they understand that this payment from them is in addition to the co-operating compensation that you will receive.

About the writer: Victoria Munson is the Illinois REALTORS® Legal Hotline Attorney.