Sean sent this question in a couple of days ago:
Question: There are a lot of bank owned homes up in Anthem – is it legal to place 2 separate offers on 2 different houses?
The short answer is yes, it’s perfectly legal (at least in Arizona) to place multiple offers on multiple properties. Your mileage could vary in other states.
But, I’d be remiss if I didn’t discuss the potential ramifications of having multiple offers out.
In an absolute worse case scenario, you could have multiple offers accepted, you dilly-dally around and find yourself with no way out of a contract ”“ meaning you are now under contract to purchase more than one home.
Fortunately, there are ways to cancel a purchase contract without running afoul of the law or risking loss of your earnest money deposit. Primarily this can be done through the inspection period that is generally 10 days from contract acceptance.
I emphasize generally because no two contracts are the same. The boilerplate language in the standard Arizona Residential Resale Purchase Contract provides for a 10 day inspection period. Section 6j of the purchase contract and the Buyer’s Inspection Notice and Seller’s Response (BINSR), which is delivered from the buyer to the seller, contain a provision for the buyer to immediately cancel the contract if they disapprove of items uncovered during the inspection period.
Technically, this is not the “free pass” out of the contract that many say it is. In reality though, as long as you have an item to disapprove, any item, then the contract can be cancelled.
If you are looking at bank owned (REO) properties, you should be very cognizant of the lender’s addendums. They trump the contract and may contain language that significantly shortens your inspection period. Some will even attempt to eliminate the inspection period all together, which should be cause to run, not just walk, away.
So, should you submit multiple offers on multiple properties?
Every situation is different, and there are no blanket answers for a question like this. In the Phoenix real estate market, if you are interested in purchasing a short sale, you almost have to submit multiple offers. It doesn’t seem prudent to submit one short sale offer, and wait 3, 6, 15 weeks or more to get an answer ”“ an answer that may just be “no thanks” so you wind up starting all over again.
If you are looking at purchasing an REO property, particularly one priced at less than $150K-ish, then be advised that these properties often get multiple offers and while some banks respond swiftly, others can take days. If you only submit one offer and you’re outbid, then many other similar homes may have come and gone while you had your one offer under review.
In a traditional sale (not a short sale or bank owned home) you generally give the seller 24 hours to respond to an offer. In this case, it doesn’t make much sense to put in simultaneous offers on multiple homes.
If you chose to go down the multiple offer road, what you want to make sure of is that you’re working with a competent agent that will help you keep track of offers you have out, accepted offers, and all the timelines. Goof this up, and you may find yourself in a situation where you can’t get out of a contract and are well on your way to losing your earnest deposit on one or more of your accepted contracts.
Standard disclaimer: I am not an attorney, nor do I play one on TV, the internet, radio, print or anywhere. You should always seek competent professional legal help for any law related question.
Photo Credit: dbking on Flickr. Creative Commons License.
The Phoenix Real Estate Guy was started by Jay Thompson, and I have a little blogging problem... he liked to say...
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This blog is good and very informative.
Now this should be an interesting conversation. Is it legal? I guess it depends on which lawyer you were to ask.Here is my problem with placing offers on multiple houses, at the top of the AAR contract it says this is intended to be a legal and binding contract. By placing an offer you are telling the seller you intend to purchase the property if yours is selected. I believe you should only be placing an offer on the home if you intend to purchase it. Yes it can be a frustrating process, but it is the process we are involved in. It is also not fair to the listing agents and the asset managers if you are placing multiple offers on homes you may not purchase as it takes them time to submit and review those offers, then once your offer is accepted if you have just accepted another offer then they need to start all over again also.Is it legal, maybe, is it the best ethical practice? I personally do not believe so unless you disclose you have multiple offers on multiple properties.
Francy and I got into a discussion last night about whether disclosure of multiple offers is required. My take is that it should be disclosed. In addition to just being "the right thing to do", lines 176 – 177 of the purchase agreement state:Buyer Warranties: Buyer warrants that Buyer has disclosed to Seller any information that may materially and adversely affect the Buyer’s ability to close escrow or complete the obligations of this Contract.In my mind, that means disclosure is required unless a buyer is truly prepared to close on every offer they submit.I am (obviously) not an attorney. But to my knowledge there is no existing statute (in AZ) that says you can not submit more than one offer at a time on multiple properties. Hence it is "legal" to do so. Even if someone wanted to legislate this practice, how it could be enforced is beyond me.That leads to the ethical aspects of it. The easy response for me might be to say that I'm not overly concerned about the listing agent having to do extra work. That's what they get paid for. My responsibility as a buyer's agent is to my buyer. And as for asset managers on short sales, well they clearly could care less about much of anything. The same could probably be said for those managing REOs. Their ridiculous piles of red tape and incredible delays and inability to make a decision makes this whole process of submitting multiple offers almost a necessity. They have pretty much brought it upon themselves.Now that being said, I'm a big believer of "do unto others". I don't like making extra work for people, but to give my buyer the best chance at finding a home, I'm left with little choice (when it comes to short sales and REOs). My personal record with a short sale buyer is 19 weeks to get a response from a lender. And that response was "No thanks". Is it fair to the buyer to put in an offer and wait 19 weeks only to find out they get to start their home search all over? And how many potential homes did they lose out on in those 19 weeks? I think that's completely unfair to the buyer — my client.If I have to chose between being unfair to my client, or being unfair to the listing agent or asset manager… well, my client is going to take priority every time. If the listing agent doesn't like it, perhaps they shouldn't list these types of properties.
Once again Jay beat me to a response. This time I’m posting anyway!@ Dean – you would have enjoyed the lengthy conversation Jay and I had prior to this post. The two biggest topics were disclosure and ethics.I don’t like multiple offers when it comes to *any* traditional sale at *any* price range. Both buyer and seller should be working in good faith with each other. However, our current market is overwhelmingly driven by short sales and foreclosures where in many cases the lender involved does not always follow the rules and/or does not “work in good faith” with potential buyers. I believe that excessively slow response times on short sale offers create a situation where our fiduciary responsibility to our client involves submitting offers on multiple properties. In the case of foreclosed or REO properties, many have mandatory 5 to 7 day waiting period (in order to collect multiple offers) before they will respond to an offer. Others will list at a very low price to encourage multiple offers above list price. I think that submitting offers on multiple properties should be considered on a case-by-case basis.
OK we are all on the same page, the one thing to remember about short sales is if you use the aar short sale addendum it states there is no contract until the lender approves the contract so i have absolutely no problem putting in a short sale offer and then putting in another offer on another house if it comes up. and it sounds like we agree on the disclosure.
Jay,If you had asked me a year ago if I recommended a Client to write multiple offers on properties I would have said NEVER. Now, like you I'm not sure that in this market I would be doing my Clients a service not to present more than one offer on multiple properties. The is it legal question would have to be answered by an Attorney.In San Diego homes priced under $400,000 are mostly "short sale" or "bank owned" properties. Currently I have some Clients that are waiting on a response on a short sale written over 4 months ago. Likely when we do get a response it will be sorry, but we have accepted another offer. Most times we never get any response and find the property pending on our local MLS.The problem has been created by slow to no response from the Seller (banks) and very low inventory. When you are dealing with a normal equity Seller I can see not advantage to multiple offers – in fact I can make many arguments against it. If you are going to do it, it should be with full disclosure.I always let my Clients make the final choice, we can only advise of the benefits and downfalls of a particular strategy. The problem in making multiple offers in California is the premise of "dealing in good faith" within the contract. So just because the Sellers (Banks) are not dealing in good faith, should the buyer choose to do the same? Two wrongs don't make a right.Offers have to include a period of time to be accepted. In the Standard California Association of Realtors Purchase Agreement, unless otherwise noted it is 3 days from the time the offer is written. Once that time frame has passed the offer is void, but the Buyer can choose to move forward with an acceptance from the Seller if they want. Once a counter offer has been produced, it is a new offer with new time frames and all bets are off.Since I always work in a single agency situation – either for the Buyer or Seller, but never both in the same transaction my advice to Clients in the lower price range if they want to actually close on a home, is usually to consider writing multiple offers. Each situation is different and should be looked upon as such. Jay, like you I am not an Attorney and cannot give legal advice. Should readers need legal advice they should contact the appropriate professional. Also California real estate law may be different than other states. Individual consultation with your real estate agent is key.
You can make multiple offers, just make sure that you don't end up with two houses.
Not only is it legal in PHX, but as the market stands now there probably is not any other way to get a home at all. Submit multiple offers and you just might hear back from one.-Tyler
I feel agents walk a fine-line every time their buyer client bring this idea up. Good faith, honest representation of oneself on paper… it probably would not hold much water in a "reasonable" ethics debate, especially if the EMD isn't any good.I ask my clients, is this short-sale still a good deal? If they feel that another home is a better opportunity, then I let them pull the plug and run where the grass seems greener.
I'm not waiting for clients to bring it up; I'm usually making the recommendation.I also don't believe disclosure is necessary and am not sure where ethics, either the COE or otherwise, enter into the discussion any more than a seller asking for "highest and best" without disclosing how many offers they are countering and what terms they may accept. If it's a question of fair play, then we also ought to look at highest and best as an ethical question.Is it in my clients' best interest to disclose they are making multiple offers when that could handicap their ability to have a single offer accepted? No. Does it really matter to me if it creates work for the REO listing agents? Not really – think of all the time they save these days in their cone of silence not answering the phone, responding to e-mail or updating the MLS.Do unto others is well and good, but in this case I could argue the buyers are doing as is being done to them already.To Dean's point, my buyers are making offers on homes they intend to purchase. Making offers on more than one simultaneously doesn't change that fact, especially in a market where not all (and maybe none) of the offers are going to be accepted. To Jay's point, there isn't anything that will adversely affect my buyers' ability to close as there are no other accepted offers at the time of submission. Buyers aren't required to disclose that they may simply get cold feet and change their mind, but that happens as well. And with a well written BINSR (i.e., one with a legitimate reason to cancel), buyers are able to do so.
An excellent point on the disclosure aspect Jonathan. I can admit when I am mistaken, and now that I ponder it further and consider what you're saying, that's exactly what I'm doing. Francy should be pleased as she took the opposite stance I originally held during our spirited discussion on the aspects of disclosure.
I am a broker/owner here in Kansas City and it is also legal to make offers on more than one property in this area. I also agree that the risk runs high unless you are using a competent agent that can help navigate the ins and outs of doing so. Some sellers will frown upon seeing offers that say the offer is contingent on the buyer not getting an accepted offer on another property but the reward can sometimes be greater than the risk in this Buyers market.
While market realities may almost REQUIRE this method, AAR & Michelle Lind disagrees and disapproves of this practice and states that it is bad faith on the part of the buyer: http://www.aaronline.com/documents/contractsQA…… – 2nd question down. My take is that if someone ever did this to one of my sellers, we'd be going after their earnest money. Would a bank or short sale seller ever do that? Maybe, maybe not. . . .Furthermore it may bring an agent in front of the Board of Realtors on ethics grounds: http://aarnews.com/wp-content/uploads/Archives/….. (page 5)It's weird, weird, wild, wild west times in the market right now and I'm not sure how all this applies to today's market but it's worth remembering that more normal times will come back and what is accepted and practiced today may not cut it down the road. FWIW
This day and age it is wise to have attorney backing since realestate investors, 'the cause to all economic woes' (not… the banks valued the homes – we just went with their experties) are under the gun. Get peace of mind!
This day and age it is wise to have attorney backing since realestate investors, 'the cause to all economic woes' (not… the banks valued the homes – we just went with their experties) are under the gun. Get peace of mind!
The dilemma here really is the delineation between ethics and legalities. Where laws may not have caught up with current trends, morals and ethics take up the slack. Is it legal? I cannot say for sure.