Realty Reality: Buyers Must be Told Offers are Not Confidential by Bob Hunt
A recent memo from the Legal Department of the California Association of Realtors® (CAR) advises members that they now have an ethical duty, when representing buyers, "to advise their clients that sellers may not treat offers as confidential." This duty arises from the fact that, effective January 1, 2006, an addition has been made to Standard of Practice 1 -13 of the Realtor® Code of Ethics. There it is stated that, when entering into a buyer, or tenant, agreement, a Realtor must advise his or her clients of "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, regulation, or by any confidentiality agreement between the parties." The adoption of this new section of the Realtor® Code of Ethics is the culmination of a debate within the Realtor community that was discussed in this column a little more than a year ago. The often-heated debate focused on the controversial practice of "shopping offers." Offer shopping occurs when a listing agent informs other potential buyers, or their agents, of the price and/or terms of an offer that has been made on one of the agent's listings. Shopping an offer is sometimes seen as a way of getting a better deal for the seller. That is why a listing agent would do it. It is comparable to setting a minimum bidding price at an auction. Whether or not offer shopping actually is an effective strategy is, not surprisingly, a matter of debate. But, effective or not, the really heated discussion had to do with whether or not it is ethical. Many think not. Others aren't willing to call it unethical, but they find it distasteful. The bottom line, though, is that there was not sufficient sentiment within the National Association of Realtors® (NAR) to prohibit the practice of shopping offers. Rather, it was decided that, at least, buyers should be advised of the fact that it might happen. Hence the addition to Standard of Practice 1-13. I don't know about other states, but the CAR memo points out that, "California law generally does not require the existence, terms, or conditions of offers to be kept confidential by either a seller or a listing agent representing the seller exclusively." Thus, in California, at least, if a buyer wanted to be assured of confidentiality regarding his or her offer, it would be necessary to enter into a confidentiality agreement with the seller and the listing agent. Not a likely event. Those paying close attention to the wording will notice that the matter becomes complicated when the seller's agent is not representing the seller exclusively. Namely, things are different when dual agency is involved. Moreover, it is important to keep in mind that dual agency occurs when the buyer and seller are represented by the same company, not just the same person. Suppose a listing agent in the uptown office of ABC Realty receives an offer through an agent from the downtown office of ABC Realty. That listing agent is not free to shop that offer -- to tell others about its terms and/or conditions -- because doing so might be a breach of ABC Realty's fiduciary duty to the buyer. The dual agency issue would seem to bring about another ethical duty for agents. That is, if you are a listing agent, you probably ought to inform your client that, should an offer come from another agent in your company, you will not be able to shop that offer on the seller's behalf. It's all so complicated. |
