MUST REAL ESTATE AGENTS DISCLOSE CONTRACT TERMS
It may come as a surprise to many real estate agents as it did to me that there is no prohibition in California law nor in the Code of Ethics of either the National Association of Realtors (“NAR”) or the California Association of Realtors (“CAR”) that precludes the disclosure of Offer terms. Having said that, some Boards of Realtors, Multiple Listing Services, and real estate brokerage companies may have more restrictive Rules.
The typical standards are fully set forth at Paragraph 45 of the CAR Statewide Buyer and Seller Advisory which provides: “NON-CONFIDENTIALITY OF OFFERS: Buyer is advised that Seller or Listing Agent may disclose the existence, terms, or conditions of Buyer’s offer, unless all parties and their agent have signed a written confidentiality agreement (such as C.A.R. Form CND). Whether any such information is actually disclosed depends on many factors, such as current market conditions, the prevailing practice in the real estate community, the Listing Agent’s marketing strategy and the instructions of the Seller.”
It is understandable that confusion can exist in this area since the NAR Standards of Practice applicable to all Realtors require that Realtors first: protect and promote the interests of the client; and second: treat all parties honestly. The word “protect” seems to suggest confidentiality and yet the interests of the seller may be best promoted by disclosing terms which could lead to a higher sale price. Honesty requires that any disclosure be made to all parties.
Generally, this issue only arises in multiple Offer situations. Standard of Practice 1-15 deals with this and requires the disclosure, with the Seller’s permission, of the existence of multiple Offers. Standard of Practice 1-13 allows for the disclosure of the terms and conditions of an Offer unless the Seller has signed a confidentiality non-disclosure agreement. The key point is that the listing agent owes a fiduciary duty to the Seller to promote the Seller’s interests. That duty may be best served by disclosing the terms of existing Offers so that a better Offer may be obtained. Of course, some agents may take their clients elsewhere rather than competing in a bidding war. Further, price alone is not the only factor.
To resolve these conflicts, many agents have adopted a practice of creating a time-limit for submitting Offers – such as 7 days from the MLS listing date – following which all Offers will be reviewed and the best accepted. While this may work in some cases, it may not necessarily produce the best Offer or any Offers at all.
One factor is clear however: it is unethical for a listing agent to intentionally “shop” an Offer amongst their own clients to obtain a greater personal gain. That would be a violation of the fairness requirement and be a use of insider information for personal gain.
While the requirement to disclose the existence of pending unaccepted Offers is discretionary, Standard of Practice 3-6 requires that the existence of accepted Offers must be disclosed but not necessarily the terms of the accepted Offer. This would appear to leave the disclosure of terms to be discretionary. However, it is my legal opinion that once an Offer is accepted, a Contract has been formed between buyer and seller. Disclosing the terms of a Contract without the consent of the buyer and seller might constitute an unreasonable interference with Contract and expose the listing agent and seller to a legal action by the buyer.
Bottom-line: whether or not to disclose terms of existing Offers is best determined by discussions between the Seller and the listing agent in consideration of the many factors set forth above.
The attorneys at BPE have a significant amount of experience in real estate contract and brokerage law and are familiar with the issues facing today’s buyers, sellers, and agents. If you would like to know more, please feel free to contact me by e-mail at sjbeede@bpelaw.com or call our main office at 916-966-2260 to schedule a low-cost Consultation appointment either in our Fair Oaks or Sun City Lincoln office.
The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are facing a legal issue of any kind, get competent legal advice in your State immediately so that you can determine your best options.
It may come as a surprise to many real estate agents as it did to me that there is no prohibition in California law nor in the Code of Ethics of either the National Association of Realtors (“NAR”) or the California Association of Realtors (“CAR”) that precludes the disclosure of Offer terms. Having said that, some Boards of Realtors, Multiple Listing Services, and real estate brokerage companies may have more restrictive Rules.
The typical standards are fully set forth at Paragraph 45 of the CAR Statewide Buyer and Seller Advisory which provides: “NON-CONFIDENTIALITY OF OFFERS: Buyer is advised that Seller or Listing Agent may disclose the existence, terms, or conditions of Buyer’s offer, unless all parties and their agent have signed a written confidentiality agreement (such as C.A.R. Form CND). Whether any such information is actually disclosed depends on many factors, such as current market conditions, the prevailing practice in the real estate community, the Listing Agent’s marketing strategy and the instructions of the Seller.”
It is understandable that confusion can exist in this area since the NAR Standards of Practice applicable to all Realtors require that Realtors first: protect and promote the interests of the client; and second: treat all parties honestly. The word “protect” seems to suggest confidentiality and yet the interests of the seller may be best promoted by disclosing terms which could lead to a higher sale price. Honesty requires that any disclosure be made to all parties.
Generally, this issue only arises in multiple Offer situations. Standard of Practice 1-15 deals with this and requires the disclosure, with the Seller’s permission, of the existence of multiple Offers. Standard of Practice 1-13 allows for the disclosure of the terms and conditions of an Offer unless the Seller has signed a confidentiality non-disclosure agreement. The key point is that the listing agent owes a fiduciary duty to the Seller to promote the Seller’s interests. That duty may be best served by disclosing the terms of existing Offers so that a better Offer may be obtained. Of course, some agents may take their clients elsewhere rather than competing in a bidding war. Further, price alone is not the only factor.
To resolve these conflicts, many agents have adopted a practice of creating a time-limit for submitting Offers – such as 7 days from the MLS listing date – following which all Offers will be reviewed and the best accepted. While this may work in some cases, it may not necessarily produce the best Offer or any Offers at all.
One factor is clear however: it is unethical for a listing agent to intentionally “shop” an Offer amongst their own clients to obtain a greater personal gain. That would be a violation of the fairness requirement and be a use of insider information for personal gain.
While the requirement to disclose the existence of pending unaccepted Offers is discretionary, Standard of Practice 3-6 requires that the existence of accepted Offers must be disclosed but not necessarily the terms of the accepted Offer. This would appear to leave the disclosure of terms to be discretionary. However, it is my legal opinion that once an Offer is accepted, a Contract has been formed between buyer and seller. Disclosing the terms of a Contract without the consent of the buyer and seller might constitute an unreasonable interference with Contract and expose the listing agent and seller to a legal action by the buyer.
Bottom-line: whether or not to disclose terms of existing Offers is best determined by discussions between the Seller and the listing agent in consideration of the many factors set forth above.
The attorneys at BPE have a significant amount of experience in real estate contract and brokerage law and are familiar with the issues facing today’s buyers, sellers, and agents. If you would like to know more, please feel free to contact me by e-mail at sjbeede@bpelaw.com or call our main office at 916-966-2260 to schedule a low-cost Consultation appointment either in our Fair Oaks or Sun City Lincoln office.
The information presented in this Article is not to be taken as legal advice. Every person’s situation is different. If you are facing a legal issue of any kind, get competent legal advice in your State immediately so that you can determine your best options.