Offers Counter Offers & Multiple Offers Flashcards
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Offer ➡️ Contract
A contract is a legally binding and enforceable agreement that consists of three stages:
An offer is made. An offer is a proposition made by an offeror to an offeree to agree to the terms of a binding contract. Counteroffers and negotiation can be a part of this stage.
Offer and acceptance is achieved. This is the mutual understanding and agreement of the parties of a contract to that contract’s terms. An offer becomes a contract when the offeree communicates acceptance to the offeror.
There is performance of the contract. This is the fulfillment of promises made in the contract.
Note: Remember, the offeror is the person making the offer. The offeree is the person receiving the offer.
What an Offer Looks Like
An offer can be a piece of paper, with the terms handwritten by the license holder. It can be an official-looking memo. Often it will be a contract, with the blanks filled out by the broker or agent.
The point of an offer is to begin the conversation about price and requirements and to sketch out a timeline. The state of Arizona does NOT provide and require the use of a specific, standardized contract. The brokerage you work for may have a specific system or template for offers.
Presenting an Offer
Once the buyer has decided they are ready to make an offer, the buyer’s agent will contact the listing agent in order to present an offer. This can be done one of two ways:
Personal presentation to the listing agent, or
Sending an electronic offer to the listing agent*
*These days, electronic presentation is much more common!
Four Responses
When a seller has received a buyer’s offer, four responses are possible: total acceptance, counteroffer, no response, or rejection.
The Seller Decides
Keep in mind that it’s the seller, not the agent, who gets to choose which response is best. The license holder cannot make decisions for their client, or sign/initial anything for the client.
Communication of Acceptance
The acceptance of an offer is reason to celebrate. 🎉
It means that a meeting of the minds, aka mutual agreement has occurred. Both parties fully understand the terms and agree to them.
Acceptance needs to be unconditional, unambiguous, and not change any part of the offer. This is sometimes called the “mirror image rule.”
Delivery
If a seller wants to accept an offer, the main thing they need to do is communicate their acceptance to the buyer. The offeror’s reception of the notice of acceptance is often called delivery.
The official acceptance of a contract gives the buyer equitable title. It means they have a legally recognized interest in the property even though they won’t receive the actual title until closing. With this equitable interest, the buyer has the power to insist on specific performance of the contract. You can see how this makes accepting an offer a very serious and final decision for the seller.
Offer Termination
Offers can be terminated in a number of ways — not all of them negative. We went through that big ol’ list in the previous level: acceptance, counteroffer, rejection, expiration, revocation, death or mental incapacity, destruction, or improper acceptance.
The best way for an offer to terminate is through its acceptance, which gives birth to a contract!
About That Revocation…
Revocation is the termination of an agreement by the person who granted it, such as when a principal terminates an agency relationship or withdraws an offer.
An offer can be withdrawn any time prior to the proper communication of the offer’s acceptance — even if a previously stated deadline for acceptance has yet to expire.
But once the offeror has been notified of an offer’s acceptance, the right to revoke the offer has passed.
You’ll want to follow best practices for everything real estate – and that includes offers. 🏆
Present All Offers
Even if an agent knows (and maybe they don’t) what kind of offer a client will accept or reject, it’s simply not their place to make that call.
The key is to PRESENT ALL OFFERS — even those you think your client will reject.
The Only Exception
The only exception to the “present all offers” rule is that you may turn down offers on your client’s behalf if they give you explicit permission to do so. For example, a seller may have a specific bottom line for their selling price or a certain concession that they refuse to make for offerors. The seller may essentially ask you to NOT waste their time with offers that fall below their communicated minimum requirements.
Don’t encourage your client to set a limit like this, but accept it if they choose to have one. Respect their request and, ideally, get this agreement in writing.
Make Their Decision an Educated One
While you won’t be accepting or rejecting offers on your clients’ properties for them, you can certainly give them the tools to make those decisions.
A good place to start would be getting your clients to consider not only price but also other factors that could be important to them, such as:
Flexibility on the closing date
Buyer financial strength
Earnest money amount
Willingness to pay closing costs
Contingencies that could derail the agreement
You’ve Got Options
Make sure your client knows that their options are to accept, reject, ignore, or counter the offer.
Best Practices for Offers
A counteroffer is a contract proposal submitted in response to a previous offer, modifying the terms of the original offer.
A counteroffer is considered a rejection of the original offer, meaning the original offer dies with the submission of a counteroffer. 💀
Like original offers, a counteroffer can be accepted, rejected, ignored, or countered again. It can also expire and terminate in all the ways that an offer can terminate. A counteroffer is basically a new offer!
Sometimes a client will be reluctant to counter an offer that’s not that far off. Maybe they’re not the haggling type. This is where your finely tuned negotiation skills can come in handy. You can help your client craft a counteroffer that gets them closer to their ideal sales terms and you closer to your next commission.
A close-up of man signing a written agreement.
Get It in Writing!
To be valid, a counteroffer must be in writing. Sometimes the parties insist on trying to work out the details orally and then later finalizing it in writing. The problem with that is that people tend to forget what they said. If you are ever conveying what your client or the other agent told you orally, remember to always follow up with “subject to written confirmation.” Without written confirmation, no one is locked into the offer.
While Countering
A party has the ability to cancel their offer or counteroffer, but only if this takes place before the other party accepts the offer. There is no commitment until that offer has both parties’ signatures on it.
If the seller has already sent a counteroffer to a prospective buyer and then receives another offer that is even better, they should withdraw the first counter before answering the new offer.
License holders need to make buyers aware that while they are countering, the property is still available and the seller is free to sell it to someone else.
Counteroffers
Let’s look at multiple offers from the listing agent’s point of view. Here are some important things to keep in mind!
Be Grateful
The great news is that multiple offers are obviously to the seller’s advantage. Offers pile up when you’re in a seller’s market, meaning there are more buyers than there are available properties.
Have a Plan
If you’re the agent listing a property that you think will attract multiple offers, discuss a plan with your seller before you even post the listing. You and the seller can decide to treat multiple offers in one of the following ways:
Tell none of the buyer’s agents that there are multiple offers 🙊
Tell all the agents that there are multiple offers to encourage them to submit their highest and best offers 🗣
Tell a select buyer or buyers (but not all of them) about the multiple offers 🤝
Limit Disclosure
You and your client can determine if and how you will disclose multiple offer situations to your potential buyers.
Disclosure to buyers should be fairly limited on this subject. Don’t disclose the terms and conditions of other offers to any of the agents. This would give the clued-in agent and their client an unfair advantage when it comes to negotiating. You want to treat the buyer agents fairly, but your client’s interests are still your biggest priority.
Follow the Seller’s Directions
Agents are not required to make buyers aware that multiple offers have been made. At the direction of the seller, agents are free to share as much or as little as they want with buyers about the other offers on the table. It just depends on the negotiation strategy.
Note that an agent should never disclose the existence of multiple offers UNLESS the seller has given them permission to do so (preferably in writing).
Purchase offers are normally not confidential documents. If it’s important to a buyer to keep their offer confidential, a buyer’s agent can establish a formal confidentiality agreement between the parties prior to submitting the offer.
Don’t Lie!
While the agent is not required to go out and tell the other buyers about others, neither are they allowed to lie. If a buyer asks an agent if there is another offer, and there is, the agent must say yes. However, as described above, the agent and seller get to decide how much detail to give.
Avoid Multiple Counteroffers
Some sellers and their agents propose counteroffers to more than one buyer. This is not a good practice. Remember, a counteroffer to a buyer remains open until the buyer rejects it (in writing) or it is withdrawn (in writing) by the person who made it.
Encourage Patience
Your client may be tempted to accept a great offer that comes in on the very first day that the house spends on the market. Try to pump the brakes. By suggesting that the house be left on the market for at least a week, you can allow full market exposure to work its magic. This patience could net your seller several excellent offers to choose from.
When You’re the Listing Agent
Present All Offers
You are legally and ethically required to present all offers to the seller. It doesn’t matter if someone offers $20 and a stick of chewing gum for your client’s modern downtown condo. You must present every offer. It’s the seller’s decision to make, not yours.
And as the listing agent, it is your fiduciary duty to present all offers to the seller. That means the good, the bad, and the ugly.
Let’s say your client wants to sell a home for $150,000. You get three offers:
An offer for $150,000
An offer for $147,000
An offer for $135,000
Which of these are you presenting to the client? If you guessed “all of them,” you’re right!
The Only Exception, Revisited
Remember, the only exception to the “present all offers” rule is that you may turn down offers on your client’s behalf if they give you explicit permission to do so.
Submit Offers in a Timely Manner
Offers don’t need to be presented in the same order in which they are received (although that’s usually how it ends up happening in practice). Simply present all offers and counteroffers as objectively and promptly as possible.
Act on the Seller’s Decisions
There are many misconceptions about what a seller must do with an offer. The seller usually does not have to do anything. A buyer’s agent might argue that:
“The seller must answer my buyer’s offer first because it came in first!”
“The seller must respond to my buyer’s offer since we presented it in writing!”
“The seller must take my buyer’s offer. It was full price!”
Those arguments aren’t valid. Instead, the seller has several choices, which include:
Accept one offer and ignore or reject the others
Reject all offers
Reject one offer and make a counteroffer to that buyer
Your client has options. They can take the first satisfactory offer that comes in, or wait patiently for a better offer. They can enter into negotiations with a single buyer or prompt all interested buyers to submit their very best offers. Keep the lines of communication open with your client and act on their decisions promptly.
Stop Marketing After Offer Acceptance
Once your client has officially accepted an offer, you are no longer obligated to advertise their property or show it to additional buyers. This is the understanding unless your client has requested in writing for you to continue marketing the property after acceptance of an offer.
More Tips for Listing Agents
Prepare the Net Sheet
The specific terms of an offer or counteroffer can be just as important to the seller as the purchase price at the top of the page. Most clients are less concerned about the actual sales price of their home than they are with what they will net when it’s all said and done. Obviously, the two are connected, but there are different ways to achieve the end goal.
For instance, if Buyer Antonio is willing to pay the full asking price of $250,000 for a home but refuses to pay any closing costs, that offer will net the seller less than Buyer Betty’s offer to pay $245,000 plus all ($6,000 worth) of the closing costs.
Likewise, a buyer who can close a month or two sooner might net the seller a couple of thousand dollars more than a second offer at the same sales price but with a pushed-out closing date request.
That’s why, no matter how many offers you have to present, you want to provide your client with a net sheet for every offer. A net sheet gives your client a good estimate of what they can expect to walk away with after all closing costs are considered. Net sheets also help agents educate potential sellers during the pricing conversation, and allow clients to see exactly what they’d be making depending on the offers they receive.
Here’s an example:
An example of a net sheet.
Net Sheet for Seller
What if you’re on the other side of this situation? If you’re the buyer’s agent, you have your work cut out for you. You have to help your client navigate a competitive environment AND ease any frustrations that may arise. Here’s what to do!
Be Enthusiastic at Open Houses
If you attend an open house with your client, agree to show your enthusiasm about the house if you’re loving it. There’s a time and place for detailed questions, but making a good impression on the listing agent is key.
Recommend Good Lenders
Loan qualification letters let sellers know that a buyer is going to be able to pay without issues. As you know, buyers get to select their own lender if they are securing financing for a purchase. You can give recommendations, but not requirements.
That being said, it may hurt your client’s bidding power if they choose a lender that has a bad reputation and fails to close on time. Recommend lenders that you and other agents respect.
A close-up of a calculator, house, and an agent as they try to estimate a good offer for their client.
Help Your Client Determine the Price
Your client may know exactly how much they want to offer for a particular home, multiple offers or not. If you think their offer is way too low for a chance at acceptance, you can express this concern and make suggestions for a stronger offer. If your client insists on submitting a low offer, you should cooperate and write up the offer all the same.
More often, homebuyers will want to talk through their offer with you and get your advice on its viability in the situation, especially if you find out that the seller already has other offers on the table.
The Price Is (Just) Right
It’s important to guide your client to their best offer. If the offer is too high, they risk overpaying for a so-so home just for the sake of “winning.” If the offer is too low, they risk losing a great home for the sake of saving a little money. It’s enough to stress out any homebuyer, but finding the right middle ground isn’t as hard as people may think.
The perfect offer is one that they won’t regret, no matter the outcome. If it’s turned down, they won’t say, “I wish I had offered more.” They will be able to see the price it fetched from someone else and accept that the price was over budget or higher than what they’d be happy paying. If it’s accepted, they won’t have buyer’s remorse or say, “I wish I had gotten a better deal.”
When You’re the Buyer’s Agent
What else should a buyer’s agent do in a multiple offer situation? Read on!
Limit Contingencies
I’ll go in-depth about contingencies in the next chapter, but for now, know that these are conditions that must be met for a contract to become binding.
Try to avoid contingencies unless your client really needs them. Don’t include an appraisal contingency if your client is dead set on the property. (An appraisal contingency makes the sale contingent on the property meeting a certain minimum appraised value.) If they are willing and able to pay their offer price for the property (even if the home appraises at a lower price), this contingency is unnecessary.
Tap Into Resources
In highly competitive markets, your client has a better chance of securing a property if they can put down a larger down payment. Another negotiating tool is to limit requests for seller-paid closing costs in the offer.
Your client can also choose to spring for their own home warranty and title policy. Anything you can do to save the seller some money on closing day will be a point in your favor.
Consider Seller’s Living Situation
It will most likely be evident if the owner is still living in the home or has already moved away. Their status can give you a clue as to which incentives to try. 🕵️
If the seller is living in the home, consider offering a lease back to them. They might appreciate being able to stay in the home for a few days or weeks after closing while they coordinate the purchase and/or move to a new home.
If the property is vacant and you’re dealing with an empty (or perfectly staged) home, you can infer that the owner is plenty ready to stop paying for it and maintaining it. Note when the house went on the market. Most sellers want to get through the process as quickly as possible and move on with their lives. If you can offer a quick closing, do so!
Get on Listing Agent’s Good Side
Be prompt and polite in all your dealings with listing agents. They may be willing to clue you in on what’s most important to the seller when it comes to contract terms. The listing agent should also tell you what the seller’s ideal closing date is. You can also see if your buyer is willing to do things to sweeten the deal, such as offering a larger down payment.
Respect Undisclosed Information
Even if you two are pals, the listing agent shouldn’t disclose details about the other offers in a multiple offer situation. That would give you an unfair advantage in determining your client’s offer, therefore treating the other interested parties unfairly. It could also put an upper limit on how high your client would have to bid, which is not in the seller’s best interest.
Prepare Net Cost Sheet to Buyer
Guess what? A net sheet for the buyer, exists, too. While the seller sees all their possible net profits, the buyer sees all their possible net costs. Many brokerages will have their own “net calculator” for agents to use with buyers and sellers.
More Tips for Buyer’s Agents
Another tool available to buyers in competitive markets is the escalation clause. An escalation clause (also known as an escalator) is a clause in an offer stating that the buyer will automatically increase their offer price by a certain increment if the seller receives a better offer on the same property.
An offer that includes an escalation clause will state an offering price just like any other offer. This is the price that the seller can accept or counter if there are no other, more attractive offers. The escalation clause only kicks in if there is at least one better offer on the table. In such a case, the offer with the escalation clause automatically raises its offer above the competing offer’s price.
Scenario: Thomas’ Dream House
Thomas, a buyer, found his dream house and knew he’d have some competition from other buyers. He had his agent submit an offer on his behalf to purchase the house for $300,000. He chose to include an escalation clause saying that he would beat any competing offer by $2,000 as long as the final purchase price did not exceed $310,000.
Thomas is only on the hook to pay $300,000 for the house if no one else makes a better offer. If someone does make a better offer, he will pay as much as $310,000 to help his offer get selected. If another buyer offers $311,000, that person has beaten his offer (barring other contract terms) and the seller may very well choose their offer instead of Thomas’s.
Two offers are shown, 1 is $300,000 while 2 is $308,000. But Offer 1 has an escalation clause up to $310,000, so it wins.
That Escalated Quickly!
Sounds like a foolproof way to make sure your client wins the bidding war, right? Well, it’s complicated. There are a few issues that make escalation clauses less attractive:
Some sellers choose not to accept offers with escalators, preferring that buyers simply submit their best offers upfront.
The upper limit stated in your escalation clause is important (you don’t want your buyer to get stuck paying way more than expected just to beat someone else’s exorbitant offer!), but it also explicitly tells the seller how high you’re willing to go. 😳
Your client could be vulnerable to less-than-genuine competing offers that are submitted or fabricated just to drive up the price on your offer.
Escalator Safety
Here are a few tips for using escalation clauses wisely:
Don’t use them unless you’re pretty certain there will be multiple offers. If the property is not as hot as your buyer thought, you’ve exposed their upper limit (and therefore weakened their bargaining power) for no reason. You can bet the seller will come back with a counteroffer higher than their base offer.
Make sure your buyer is 100% comfortable with the upper price limit. They may very well end up paying that much!
Safeguard against fake or disingenuous competing offers. Specify in the escalation clause that other offers must be “bona fide” and that you must see proof of the offer you’re supposed to beat.
Consider requesting a financing, inspection, and/or appraisal contingency. That way, your buyer will have some protection (read: ways to get out of the contract) if the escalation clause lands them at a price they don’t like. But be careful. While an escalation clause strengthens an offer, most contingencies weaken an offer, and it could all cancel out.
Include an end date for the offer. That way, a seller can’t surface the escalation clause long after the borrower has forgotten they ever even made an offer on that home.
Escalation Clause
Prepare the Offer
Once your buyer client has settled on what they want to offer, fill out the offer completely and correctly. Promptly deliver the offer (including a copy of loan pre-approval, if applicable) and remind your client to be ready to send the agreed-upon earnest money. Offering more earnest money can be advantageous in a multiple offer situation. It shows that your client is serious about buying the property.
Withdrawing Offers
Remember that an offer may be withdrawn at any time, for any reason, prior to the seller accepting the offer. Do it in writing. Knowing that an offer may be withdrawn can give your client peace of mind if they are uncertain about anything or interested in submitting offers on more than one home.
Empathize if the Buyer Loses Bidding War
Losing a bid in a multiple offer situation is tough. Inform your client personally by phone, not email. Try to empathize with a disappointed client, but remember to set a positive tone and reassure them that there are plenty of house fish in the neighborhood sea. 🐠
A personal anecdote may be helpful here. Tell them about a time when you or one of your other clients had an offer rejected, only to find an even more perfect home later on.
One Buyer, Multiple Offers
Sellers won’t be the only ones juggling multiple offers!
Sometimes, a buyer may see fit to submit offers on two or more different properties at the same time. This is a somewhat risky strategy that may only be warranted in competitive seller’s markets. If more than one of the buyer’s offers are accepted, they must proceed carefully or risk consequences: losing earnest money or being on the hook to buy two homes! 😧
That being said, buyers are free to submit simultaneous offers in Arizona. This is where option periods and contingencies come in handy. The buyer will need a legal “escape route” from the contract(s) they don’t want to move forward with. The buyer’s agent in this situation must be communicative and keep a close eye on contingency deadlines.
Last Steps for Buyer’s Agents
Many transactions involve multiple offers, and most involve a counteroffer or two. As a real estate agent, a major part of your job will be negotiating for your client and facilitating the exchange of sales contracts. Get to know the process, always communicate well, keep your client’s interests in mind, and you’ll be an amazing agent!
Before you go, let’s review some of the important terms, concepts, and principles you’ve learned along the way.
Key Terms
Here are the key terms you learned in this chapter:
binder
a preliminary agreement for the sale of a property secured by a valuable deposit from the potential buyer; aka letter of intent
counteroffer
a contract proposal submitted in response to a previous offer, modifying the terms of the original offer; considered a rejection of the original offer
offer
a proposition made by an offeror to an offeree to agree to the terms of a binding contract; becomes a contract upon acceptance
offer and acceptance
the mutual understanding and agreement of the parties of a contract to that contract’s terms; process that changes an offer into a contract when the offeree communicates acceptance to the offeror
revocation
the termination of an agreement by the person who granted it, such as when a principal terminates an agency relationship or withdraws an offer
Key Concepts & Principles
Here are the concepts and principles you’ll want to master from this chapter.
How an Offer Becomes a Contract
An offer becomes a contract after the offer is accepted AND that acceptance is communicated to the offeror. An offer can be withdrawn at any time prior to the proper communication of the offer’s acceptance.
a flowchart showcasing the process of an offer turning into a contract
Image description
Counteroffers
Counteroffers are legally considered a rejection of the original offer. When a counteroffer is made, the original offer is terminated and the new offer takes its place.
If the offeree wants to change any of the terms of the offer, a counteroffer is necessary.
Multiple Offers
Multiple offer situations occur when more than one party submits an offer on a single property. If you’re the listing agent, make a plan with your seller regarding how you’ll handle multiple offers. Provide your seller with a net sheet for each offer and help them make educated decisions about how to respond.
If you’re a buyer’s agent in a seller’s market, help your clients understand how to make their offers as compelling as possible. This could mean limiting contingencies, paying for closing costs, or being flexible with dates.
Chapter Summary
