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BARRISTER'S BRIEFING: Offers: Trying to Make Sense of it All
Before we begin, it is important to understand that only NAR is authorized to interpret the Code of Ethics, its applications, and its proper enforcement to Member Boards and Board Members. Professional Standard hearing panels rely on these interpretations, as well as NAR’s case interpretations in forming their decisions. No other body, state association, local board, person or attorney is authorized to interpret the Code, including myself. Where NAR is silent on an issue and no guidance is provided, Realtors are free to interpret what they believe to be the correct meaning.
However, aside from NAR’s interpretations and NAR’s case interpretations, no singular Professional Standards interpretation is binding on any other Professional Standards hearing panel and they are free to interpret these provisions as they deem necessary.
Disclosure of Offers
Article 1, Standard of Practice 1-15 states:
Realtors, in response to inquiries from buyers or cooperating brokers shall, with the sellers’ approval, disclose the existence of offers on the property. Where disclosure is authorized, Realtors shall also disclose, if asked, whether offers were obtained by the listing licensee, another licensee in the listing firm, or by a cooperating broker. (Adopted 1/03, Amended 1/09).
First and foremost, this provision applies to only offers that have been presented. It does not apply to offers that have been accepted. As we will see, accepted offers are treated differently.
Second, this Standard of Practice indicates that the power to disclose if there are any offers resides in the seller, not the Realtor. Only the client can decide whether they will or will not permit the disclosure of offers on the property. The Realtor has no say in the matter and he/she must ask the homeowner if it is permissible to disclose the existence of any offers on the property (if it hasn’t already been done in advance). Best practices would dictate that the Realtor should sit down with his/her client and explain the pros and cons of the disclosure of offers to other Realtors.
Finally, if disclosure is authorized, if the Realtor asks, then the agency source of the offer should be disclosed as well.
Article 3, Standard of Practice 3-6 states:
Realtors shall disclose the existence of accepted offers, including offers with unresolved contingencies, to any broker seeking cooperation. (Adopted 5/86, Amended 1/04).
A plain reading of this Standard of Practice would be that once an offer is accepted, the listing Realtor must disclose its existence. While it does not say how or when this message is to be conveyed, best practices would dictate that it be done at the first substantive contact and be done in writing in order to provide proof of presentation.
The bigger challenge comes when trying to determine what “accepted” means. The following are some of the definitions:
• To receive willingly;
• To give admittance or approval;
• To make a favorable response;
• Two parties agree to the terms of a contract;
• Agreement with the belief in an idea, opinion or explanation;
• The action or process of being received as adequate or suitable;
• The creation of a binding contract by speaking or acting in agreement with an offer and its suggested or required terms;
• A contract or lawful pact made between two groups or individuals and
• An agreement to be subject to the terms stated in the offer.
The common business practice and understanding of the term “accepted” in our area is that an accepted offer is a meeting of the minds between a buyer and a seller and their mutual agreement to work together in a concerted effort to consummate a contract of sale. This agreement is a promise to try to resolve all contingencies and get to the closing table. Unfortunately, other regions (for instance, north of Albany) and other professionals assert that, because of the Statute of Frauds and the requirement of a writing for all real estate transactions, an acceptance can only be acknowledged when a fully executed writing exists (i.e. a contract of sale). Further muddying the water are those agents that assert that an offer is “acceptable” but not “accepted,” meaning that the seller likes the terms but is not fully committed to it, or the agent that asserts that an offer is “accepted” once certain specific elements are satisfied.
This issue often arises in a Professional Standards hearing when one party asserts that they were not notified of an “accepted” offer. The other party responds that the offer was never really “accepted” so there was no duty to disclose it. Another way this issue comes about is when one party accepts one buyer’s offer, and then accepts a second offer from another buyer, leaving the first buyer in the lurch and the buyer’s agents angry, asserting that they didn’t disclose the accepted offer. This leaves the Professional Standards panel to determine on a case-by-case basis what an “accepted” offer means.
While we can find some reassurance in the common business practice and understanding of the term “accepted” in our region, this is not a certainty. When confronted with the situation of whether an offer is accepted, the best practice would be to ask the agent what his/her client deems to be an accepted offer, as it is the client that determines when an offer is/is not accepted. Also, in an effort to avoid being hailed in front of a Professional Standards panel, it would be the best practice to be open and transparent regarding all “accepted” offers and disclose early on what that entails.
As I noted in the beginning of this article, only NAR and the case interpretations can guide us on this issue and until such time that NAR comes down with a strong interpretation of what “accepted” means, each Realtor, broker, and Professional Standards panel are left to ponder the true meaning of the term. Until then, we all must be wary, inquisitive, transparent, and methodical about the making and accepting of offers. Otherwise, a Realtor may find themselves sitting before a tribunal more often than they find themselves sitting at a closing table.