In the competitive landscape of Bay Area real estate, “shopping offers” has become a common practice. In fact, shopping offers in the Bay Area is a fact of life, and it is important that buyers and sellers understand how this works. This complex process of navigating a competitive market where there are many buyers for every home means both buyers and sellers to have a deep understanding of the intricate dynamics involved. In this comprehensive guide, I will unpack the essentials of navigating the “shopping an offer” scenario, providing valuable insights for both buyers and sellers.
What is Shopping an Offer?
“Shopping an offer” is a term used in the real estate industry when a seller discloses the details of an offer to other potential buyers. This usually happens when a seller and the listing agent feel there are multiple parties interested in the home, and the seller aims to get the best combination of price and terms on the sale of their house.
Is It Legal to Shop an Offer?
Contrary to what most buyers believe, it is perfectly legal for sellers to shop an offer in the Bay Area (and anywhere else). It’s a common misconception that the terms of a buyer’s offer will remain confidential and won’t be disclosed to other potential buyers. However, this isn’t usually the case. Once a buyer submits an offer to a homeowner, the offer then becomes the legal property of that owner. The owner can do whatever he wants to with it, including using it to find another buyer who will make a better offer (in other words, shop it around).
Ethical Considerations
While it’s legal to shop an offer, the ethical aspect of this practice is often questioned. The REALTOR Code of Ethics, which governs the conduct of REALTORs, does not consider shopping an offer to be a violation. However, the practice may be seen as unfair by potential buyers. But really, the most unethical aspect of shopping an offer is when the buyer’s agent neglects to tell the buyer that this is a distinct possibility, and even common practice, and that they should offer and negotiate accordingly.
When a client makes an offer on a property, it’s the responsibility of their agent to explain that the listing agent might share this offer with other interested parties. This practice, often used to generate better offers, can significantly impact the client’s negotiating position and strategy. The failure of an agent to disclose this possibility to their buyer client is not only a breach of ethical standards but also compromises the client’s ability to make informed decisions, and may result in them losing out on their dream home.
In fact, Article 1, Standard of Practice 1–15, of the National Association of REALTORS® Code of Ethics requires REALTORS® to warn buyer clients of:Â
the possibility that sellers or sellers’ representatives may not treat the existence, terms, or conditions of offers as confidential unless confidentiality is required by law, regulations, or by any confidentiality agreement between the parties.
The National Association of REALTORS has a great page which goes into the ethical considerations of offer shopping which you might want to check out.
For Best Results
Presenting the Offer in Person
One effective way for real estate agents to limit the chances of an offer being shopped is to present the offer in person, direct to the seller. This allows the agent to personally convey the strength of the buyer’s financial position and their interest in the property. It also provides an opportunity to answer any questions the seller or listing agent may have immediately.
In this day and age, it’s exceedingly rare to present offers in person. Most homeowners are uncomfortable with that, and feel part of the reason they are hiring a real estate agent is to handle all of that for them. Also, when there are multiple competing offers for a property, buyers will typically lack the leverage they’d need to get an appointment with a seller, or even the seller’s agent, to go over the offer. But in cases where the competition is not so stiff, presenting an offer in person, if only to the listing agent without the seller present, may effectively reduce the likelihood that your offer gets shopped around.
Seller’s Perspective
From the Bay Area seller’s perspective, shopping an offer is seen as natural. When a seller receives an offer – especially if the offer is not what they are hoping to see – it is unsurprising that they’d want, and expect, their agent to see if there are any other buyers out there who might offer more. In fact, if the seller’s agent failed to even attempt to find stronger offers, that would be a serious breach of that agent’s fiduciary responsibility to the seller.
The Role of the Listing Agent
The listing agent plays a vital role in this process of securing the best possible offer for their client’s Bay Area home. They are required to follow the lawful instructions of their clients, and that commonly includes disclosing the details of an offer to other potential buyers. However, the agent’s fiduciary duty of confidentiality to the seller will, as always, limit their ability to disclose certain information – which would be any information that harms rather than helps their client secure the best offer amongst all competing offers.
This may naturally include not informing the buyer’s agent that the offer is being “shopped around” – while the buyer and buyer’s agent should assume this will be the case, the listing agent is not required to specifically state that s/he is looking for better offers than the one the buyer has submitted. If the listing agent were to tell this to a buyer’s agent, it may cause the buyer to withdraw their offer, thus harming their seller client.
The Dual Agent Scenario
In a situation where the listing agent is also representing the buyer whose offer is being shopped, things can become more complicated. As a dual agent, the listing agent has a duty of confidentiality to both the buyer and the seller. This can create a potential for conflict of interest if the agent does not handle the situation with the strictest possible adherence to the Realtor Code of Ethics. Clear communication to both parties is essential in this case, explaining what the agent’s dual-role is as well as the ethical considerations involved.
Confidentiality Agreements
The California Association of REALTORS has a form which brokerages often require buyers and sellers to sign called the Statewide Buyer and Seller Advisory. This form is chock full of fine print, and addresses the confidentiality of offers:
NON CONFIDENTIALITY OF OFFERS: Buyer is advised that Seller or Listing Agent may disclose the existence, terms, or conditions of Buyer’s offer, unless all parties and their agent have signed a written confidentiality agreement (such as C.A.R. Form CND). Whether any such information is actually disclosed depends on many factors, such as current market conditions, the prevailing practice in the real estate community, the Listing Agent’s marketing strategy and the instructions of the Seller.
A confidentiality agreement can provide a way for a buyer to prevent the disclosure of their offer. Such an agreement would need to be negotiated with the seller in advance of submitting an offer. It is interesting to note that every time I have received a confidentiality agreement, it has been included along with the offer itself – meaning that I already have the offer, but the seller has not agreed to keep it confidential. This is extremely poor representation by the buyer’s agent; the buyer probably thinks this mean the offer will be kept confidential, but the seller is in no way bound to do so, having not agreed to that prior to receiving the offer.
Educating the Client
In today’s competitive market, it’s critical for real estate agents to educate their clients about the realities of the negotiation process. This can help establish realistic expectations and prevent buyers from becoming disillusioned with the home buying process – which is very common in the Bay Area. It’s rough out there for buyers! At least, it always has been the 20+ years I’ve been doing this.
The Bottom Line
In the end, understanding the dynamics of shopping an offer is crucial for both buyers and sellers in the Bay Area. While it can be a complex and drama-filled process, being informed and prepared can help ensure a smoother, more successful real estate transaction.
Real estate agents should strive to keep their clients informed about the status of their offers and any potential counter-offers. This open communication can help prevent misunderstandings and ensure that all parties feel they have been treated fairly and honestly.
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