Phony "bidding war" - ethical or legal?

[Nate Richards]

Hi Guys, 

I have a question, due to a situation that has me a little flustered to say the least, and quite frankly wondering if the listing agents actions are; (1) ethical or (2) legal. Please let me know some opinions.

Setting - Location NE Ohio, estate sale, SFR listed slightly below market but needing minimal repairs; new roof, int paint, & BA update which would bring it back up to a full market value investment, and advertised as a "Quick possession, estate to be sold "as is" condition".

Situation - I personally inspected and offered via my agent @ 20% below list, all cash, 3 day close, on 1/15 (2 days on market). At that time there were no visitors to the home (snow was undisturbed). On 1/17 we followed up with a status request, and reply that Atty was reviewing the offer. On 1/20 we followed up, and were informed that the Atty was requesting the judge approve a sale below list price, which was also the tax appraised value. Late on 1/21, we followed up again on court status and were informed that there is now another offer, and court review will take 2-3 weeks. Today, 1/22, we were asked to submit a "best and final offer", as there are 2 and soon to be 3 offers. I could have closed on this home by 1/19 if the seller was actually able to do a quick possession as advertised. We requested confirmation that the court has approved a quick sale and that we be informed of their best offer/counter when they are able to sell, and I will respond within 1 hour. They have replied that they do not know how long approval will take and that I need to submit my best. So my questions at this point;

(1) Can you advertise as quick possession if you cannot complete a quick possession, this seems like false advertising?

(2) Is it unethical as an agent to sit on an offer for 7 days in order to create a multiple bid situation?

(3) Is there a way for me to compel a counter which I can accept or decline, especially since my offer was in uncontested for so long?

I have heard that an agent is supposed to disclose the value of the competing offer if you request it, but I am not an Agent. This also seems like unethical and possibly illegal behavior.  In the past I have submitted a "best offer" (a unique one like $123451), and been "outbid" by $1, ($123452 listed on the transfer) on a number that could not have been duplicated by another party, so I know that my bid has been shared with 3rd parties in the past. 

I like the property, but we're pretty close to "all the money", and I would like to get it if possible, which is why I am requesting a counter when sale can be completed. On the flip side I'm frustrated enough that have contemplated just jacking the price up way over list and walking away after 45 days as no deposit is required.

[Account Closed]

In short...  the seller's agent's job is to get the most money they can.  Especially in estate transactions that is often done by releasing the amounts of offers to people with emotional attachments and possibly partial interest in the property.

You might have done little more than help some of the heirs set the price they will have to pay to the other heirs to get the property.

Also if an agent says to the seller... "I know someone who might beat this offer if I tell them how much it is..."  all sellers will say tell them.

[Russell Brazil]

Nothing here is unethical. Just because you want them to respond quickly, does not compel them to. You were free to withdraw your offer at anytime while they were waiting for more offers to come in. They absolutely can not reveal the price of other offers. The only time this is acceptable in most states is if an escalation clause is used, then they can reveal the next best offer to create the escalation amount. Escalation clauses are not typically use though with estates or REO's. If you were outbid by $1, then that is almost certainly someone using an escalation clause. The details in your post make me think you are a novice. I would spend some time learning instead of getting angry at people on the other end of the table.

[Account Closed]

@Russell Brazil  I think this kind of probate case might be one of the few places I would use an escalation clause.

In most cases, I would assume the other side would simply have a friend offer enough to push me to the max.

[JD Martin]

When you are dealing with court approved sales there's no telling what can happen. One of my properties I bought through a court-appointed executor. Because it was an all cash offer, the executor accepted somewhat under list price. The court held up the approval of the sale for almost a week because the judge felt the price was too low. When no other offer was forthcoming during the week, the court signed off on the sale even though the judge said he felt the offer and sale price was still too low. If the court had declined to approve, I would have been in the position of bidding against myself. 

In all cases, you have to know what something is worth to you, maximum. If you get it for less than that, fantastic, if you get it for that, you got a fair deal, and if you go over that's on you. 

[Account Closed]

Hi Nate,

You never mentioned it was a probate sale. You said it was an estate sale, which could mean anything. If it is a probate the listing agent would have to post the accepted bid and what the next highest bid would have to be. Usually 10% of the original offer and $500. That is, if the PR (personal representative) has limited authority. If the PR has full authority that would mean they do not need to go to court for approval. Here in California us agents can tell prospective buyer what the amount of the offers are, but we don't. It's not illegal nor is it unethical to share that information. Agents don;t for the fact they can probably get higher offers if they do not disclose that information.

[Mike Cumbie]

Hi @Nate Richards,

I agree with @Russell Brazil on this one. Essentially if you put a house on the market for 100K and someone came in 3 seconds later with a 80K offer there is nothing that says they have to accept it (Quick close or not). There is nothing that says you are "exclusive" in the "negotiation". There is nothing that says they have to accept it within your time frame. My thoughts are they did you a courtesy in offering you another chance to make an offer that is higher. They could have easily taken the first offer $5 higher but in the sellers best interest they wanted a bidding war (I can't blame them). 

Just my thoughts and good luck on your deal!

[Richard Dunlop]

IF you had submitted a full price offer the

Seller was probably able to do a quick possession.

If your offer is less than they had expected or hoped to get I would expect them to evaluate the possibility that more exposure might bring a better offer

[Nate Richards]

Thanks everybody for the quick responses! Tons of good info as usual. 

Yes i am a novice, offering on 1-2 properties per week.  Trying to aquire 2-4 properties a year. 

This is a probate case, I've bid on half a dozen estates but none probate, so the 2-3 week thing is throwing me. 

(Not disclosing that only a full price offer could close quickly is deceptive - which is unethical)

Someone suggested I was potentially angry, I'm not, it's a math problem plain and simple. However, it's frustrating to be deceived for no reason.  (Told it's able to close quickly, and told its being evaluated. When in reality they wanted to hold out for a higher number)

In prior experience dealing with listing agents for estates, they have disclosed that they were delaying to see if a higher offer comes in, and sometimes even provide a time frame.  That is completely reasonable and understandable.

In this case we were led to believe (told explicitly) they were seeking court approval but in reality delayed that submission until multiple offers arrived. Deception plain and simple. From college thru my entire working career I was taught that intentional deceptive practices were indeed unethical. Past history with other agents would seem to confirm as well, though surprisingly not viewed that way here.

I'll sit on it, if the sellers agent is truly trying to get the best offer they can then it's their responsibility to investigate via a counter to my offer with something they have in hand. After all, they don't even have a deadline requirement for my highest and best offer, since they dont know when court will reply. A 4th bidder could jump in 3 weeks from now while waiting on the court. If they won't, oh well.

Thanks again for the great feedback everybody!

[Jay Hinrichs]

@Nate Richards  par for the course on offers that are lower than ask.. no problem with this scenario the fiducerey is to the seller not you.

[Nate Richards]

@jay hinrichs, are you suggesting that I am possibly only bidding against myself? 

Yes an agent must work in the sellers best interest. But is the agent only expected to be truthful with their own client? They aren't being asked to look out for the buyer, (I have my own agent for that), just not be dishonest. You say this (dishonesty) is par for the course, so there are potentially no other bidders. If I've been misled 2 out of 2 times already that I know of, I should assume they are also lying about having multiple offers. No? 

Time to walk. I'll avoid this agents listings in the future. Thanks! 

[Joel Owens]

Technically unless a REALTOR there is no code of ethics they agree to. Most states that license care about violating license laws and protecting the interests of the general public. These third parties entities like NAR or an MLS they could care less about.

Some agents make up all kinds of things. I have been watching a property for awhile. It has been listed with a few brokerages for awhile. I live in the area and have seen the strip center. The seller owns other strip centers in a different county. He bought the note cheap from a bank years ago. The issue is it is a 26,000 sq ft strip center but he is selling the remaining 16,000 sq ft and it is a retail condo association. So the rest of the units are owned by different owners and investors. If you buy the 16,000 you have to develop out the interior space and be head of the association as majority owner.

I have been out there before and walked around. Listed for 800,000. I offered 400,000. They came back at 750,000 with agent saying they had activity from other buyers blah,blah,blah but they wanted to come back to me to see what could happen.

I told them the other investors aren't local and haven't walked the property. The property is on a good road but mid block. No access but a turn lane and no red light. Going per sq ft is 18 for retail in the area. I know this will rent for 10 sq ft and will be mom and pop because corporate will pay higher money for the corners and red light strip centers. Karate schools and other type businesses just wanting to be in the area will go for the cheaper rent and sub-standard location to have a place for business.

I told them if the seller can get an outside investor for that price to have at it and wished them the best. Properties come up everyday and let a sucker buy it. I will wait for the new owner and then buy it off from them at a loss when it is not what they think it is.

Sometimes owners will sit on a lower offer with a few days to market. They will wait a few weeks to see what else comes in before accepting or going close to it. It helps if you are a strong buyer. Example if one of my clients on the commercial side is worth 40 million buying a 5 million dollar strip center but price is low the seller will think really hard about taking that offer versus waiting. The price might be higher from someone else but they might not be as strong or part of a group where one investor falls out at the last second.

If the buyer is weak with a little track record and not much reserves for net worth and liquidity and offer is much lower than it's a non-optimal buyer. On the SFR side you can get an unskilled seller or agent more often. Not as much on the commercial side.

[Nate Richards]

Update - So it's been a while and I ended up getting this property mentioned above. I used the rationale provided, that it's the listing agents responsibility to obtain the highest offer to entice them to counter. 

Heres how it went. I responded to the listing agent directly (cc to my agent) for fear of being censored by my agent, that 

"XXX,

Thank you for the opportunity, however I do not participate in bidding wars. I can reply to a counter offer immediately (within an hour). Should you choose to counter, my offer will still be an all cash deal. Feel free to contact me once you are in a position to accept an offer."

4 working days later I received a counter offer $200 above the "competitions" initial offer. It was not an all cash offer. 

We closed 10 days later.

Thanks to all, who got me thinking about this scenario how to leverage the listing agent for my benefit.