What Happens When Multiple Offers are Made on a Home?

I have worked in several “seller's markets” in my career. In each “seller’s market”, there is a general and obvious identifying common element: There are more buyers in the market than are homes for sale.

There are many economic and practical reasons for, and conditions which, contribute to the formation of a seller’s market. One of the reasons which contribute to the formation of a seller’s market is, during such a market, some homeowners choose to stay in their homes longer before making a move out of choice or necessity. Therefore, fewer homes are for sale. Yet, the number of buyers remain at a constant. People want or must move for various reasons.

I will comment on what buyers, renters and sellers might think through during a “seller’s market”. I’ll also illustrate what real estate agents must and must not do in a circumstance in which multiple offers are presented on a home that is listed “for sale”. I’ll also lay out what options a seller has when multiple offers are made on their home.

For Purchasers
A reasonable strategy for purchasers to consider during a seller’s market is simplicity. In a seller’s market, buyers face a condition in which fewer houses are for sale and experience higher or rising prices. Purchasers can determine specifically whether the features they want in their home match their needs and, if willing, to make some sacrifice-based decisions on their “wants”.

Purchasers may also consider areas or neighborhoods which they hadn’t previously. At the least, this may open additional housing possibilities.

What About a Strategy for Renters and Sellers?

For Renters

There is a couple of issues which impact the ability for renters to enter the real estate market as buyers. Because of rising prices in a seller’s market and, the general uncertainty of the real estate market, some people who rent may opt to delay the purchase of a home during a seller’s market. During this time, some renters incorporate techniques to increase their personal income, save money or become established in their job or career before purchasing a home. Renters may also use this time in the hopes that housing prices will level off before entering the real estate market as a purchaser.

For Sellers

A seller’s market brings higher sale prices, an obvious benefit for sellers. Yet, higher sale prices themselves may be one of the very reasons why there are not more houses for sale during a seller’s market. Some sellers delay placing their home for sale in the hopes that prices will continue to rise. The question often asked is “Where (or, when) is the top of the real estate market?” No one can predict that because it is a relative perspective. One does not know the top of the market until the top of the market has passed.

Of course, one of the ironies of a “seller’s market” is the inescapable and inherent challenge of a “seller’s market”. Once the owner of a house sells their home, generally, they must buy a home. The lack of the number of homes for sale impacts sellers of real estate when they become buyers of real estate.

How Do Real Estate Agents and Brokers Handle Multiple Offers?

For purposes of clarity, here are two definitions:

Listing Agent: A real estate agent who works on behalf of the owner (seller) of a home.

Buyer’s Agent: A real estate agent who works on behalf of the buyer of a home.

Let me describe a hypothetical yet, realistic case which can occur within a seller’s market.

A buyer’s agent submits a purchase offer on a home for sale on the behalf of a buyer client. The buyer’s agent asks the listing agent if there are any other offers at that point in time or anticipated offers they are aware of. The listing agent responds “no”. Later, the listing agent informs the buyer’s agent that the seller has accepted an offer submitted by another buyer. Naturally, the buyer's agent is frustrated, and the buyer is disheartened.

Shouldn’t the listing agent have informed the buyer agent there was another offer?

In the circumstance described above, at the point in time in which the buyer’s agent inquired as to whether there were any other written offers or anticipated offers, there were no other offers the listing agent was aware of at that time.

While there is no law, regulation or “best practice” which controls the way multiple offers are handled by the listing agent, there is a single paragraph found in the National Association of Realtors® Code of Ethics which casts some light on the answer to the question at hand.

Let us briefly explore part of the Code of Ethics that all Realtors® subscribe to. The Standard of Practice 1-15 states, in part, “REALTORS®, in response to inquiries from buyers or cooperating brokers shall, with the sellers’ approval, disclose the existence of offers on the property.”. Plainly stated, real estate brokers do not dictate how multiple offers are managed.

In the hypothetical circumstance described above, the listing agent was not compelled to disclose the existence of other offers unless the seller directed the listing agent to do so. An experienced listing broker will explain to the sellers of a home the pros and cons of disclosing to buyer agents the existence of multiple offers. A seller may choose not to authorize the disclosure of the presence of multiple offers. Part of the rationale behind that decision is, some buyers may elect to withdraw their offer when faced with the prospect of a multiple offer circumstance.

The seller may authorize the listing agent to disclose details of other offers. For example, a seller of a property may authorize the listing agent to disclose the details of one offer to a buyer’s agent of another offer with the hope or belief that the buyer of the other purchase offer will offer a higher purchase price.

What Are the Seller's Options When Faced with Multiple Offers?

What are a seller’s options when faced with multiple offers?

The seller of a home has three choices:

1.     The seller may accept one of the offers.
2.     The seller may reject all the offers.
3.     The seller may present a counteroffer through the listing agent to one, several or all the offers.

The seller does not have to offer the counteroffer to all potential purchasers. The seller may “pick and choose” which offer to make a counteroffer to, if they wish, so long as the decision to make a counteroffer to some and not all of the prospective purchasers is not being made with discriminatory intent.

It is not recommended the listing agent, on behalf of the seller, make counteroffers to buyers with the instruction “The first buyer who accepts the seller’s counteroffer wins the house.”. That directive has practical constraints which may encumber the seller and the listing agent such as, what happens if two or more buyers accept the seller’s counteroffer at the same time?

To avoid such an unfortunate and unintended circumstance, each counteroffer must be made with the following clause in writing “Contingent upon the seller’s acceptance”.

Does a seller have to accept the highest offer? No, a seller does not.

Does a seller have to accept an offer written on their property for the price it is listed for? No, a seller does not.

What Comes After a "Seller's Market"?

You may have answered a “buyer’s market”. A buyer’s market occurs later in the real estate economic cycle. A “balanced market” is the real estate economic migration point which typically occurs after a seller’s market. A balanced market typically presents a dynamic in which there are enough houses for sale to satisfy buyer demand. There would be an increase in the number of houses for sale, an increase in the number of days a home remains on the market, as well as the sale prices levelling off.

How to Handle the Challenge Set Before You

You may have realized that the process of making a purchase offer in the role of a buyer and, considering several purchase offers in the role of a seller can be a dense and intricate process.

Seeking the guidance and counsel of a competent real estate broker will provide you with the prudent options available when faced with a multiple offer circumstance.

If you would like additional information on this or any other real estate related matter, please click the “Contact Me” button.