Don’t assume that the details of your homebuying offer are confidential. Some sellers disclose that information to competing bidders.
When multiple buyers want the same home, the seller’s agent might disclose any buyer’s offered price and terms to any other buyers, according to Finley Maxson, senior counsel for the National Association of Realtors.
A practice in which a home seller’s real estate agent discloses prices and terms of an offer to competing buyers, in an effort to get higher bids.
State laws vary, and some states might have laws that limit or prohibit this common practice, known as offer-shopping. But there’s no national law against it, nor is it prohibited by the association’s code of ethics, Maxson explains. The ethics code applies to real estate brokers and salespeople who are NAR members, known as Realtors.
The seller’s agent may disclose a buyer’s offered price and terms without the buyer’s permission. But the seller’s agent should get the seller’s permission first.
— Carl Medford, real estate agent
“You’re making an offer to the seller, and the listing broker’s job is to help their client achieve their goal of selling their house. As long as they are following their client’s instructions and acting legally, that’s their job,” Maxson says.
What the buyer can do
Before making an offer, the buyer may ask the seller to sign a confidentiality agreement. But the seller may refuse to sign it. If the seller says no, the buyer’s options are to make an offer that’s not confidential or walk away from that property.
“If you’re worried about (offer-shopping), some of the properties might not be for you,” Maxson says. “If it’s a really hot property, it’s likely your offer will be shopped around.”
How offer-shopping helps sellers
Buyers should anticipate that their offer will be shopped and plan accordingly, suggests Carl Medford, a Realtor for Prudential California Realty in Castro Valley, California.
As a seller’s agent, Medford isn’t shy about shopping buyers’ offers.
He says the practice is beneficial since it “puts a sense of urgency on buyers” to write what he describes as “an intelligent offer.”
“As a listing agent, I give as much information as I can to drive up the initial offers,” Medford says. “The person coming in last probably will come in with the best price and terms. I then send out a multiple counter to the top three or four offers to bring everyone up to the same bar, anticipating that at least one of those will sweeten the pot.”
Offer-shopping can backfire
Offer-shopping might seem like a winning strategy for sellers. But it doesn’t always work out as well as sellers hope, says Bob Hunt, broker for Keller Williams Realty in San Clemente, California, and author of “Real Estate the Ethical Way.”
Hunt says offer-shopping can trigger a buyer revolt.
“Everyone, including the original offer, gets huffy and says, ‘I’m not going to get into a bidding war,’ and walks away. It definitely can backfire on you. No question about that,” Hunt says.
That risk suggests offer-shopping isn’t a no-brainer for sellers, but rather a tactical decision they should discuss with their agents. Whether to do it can depend on local practices, the number of offers received, how hot the local housing market is and other factors.
Disclosing offers but not details
Some sellers and their agents settle on a middle ground in which the existence of other offers is disclosed, but prices and terms aren’t. Hunt suggests that approach can help to discourage lowball offers, with less risk of a buyer revolt.
“The listing agent, with the seller’s permission, might tell them they have other offers and they are all over the listed price. If somebody else wants to lowball, you tell them it’s not worth the trouble,” Hunt says.
Yet, this strategy isn’t without risk either. As Hunt says, “There are people who won’t make an offer if they know there’s another offer on the table, even if they don’t know what it is. They don’t want to get into a bidding war.”
Are there made-up offers?
Whether some listing agents make up phony offers to put more pressure on buyers is a subject of what Medford characterizes as “intense speculation” among agents.
Sometimes, agents might be tempted to exaggerate. Other times, sellers might try to push their agent to cross the line. Either way, outright misrepresentations generally aren’t legal or ethical.