The bid whisperers
WHEN Topanga Realtors Gary and Karen Dannenbaum have big news, they typically share it with each other first. Except for the time Gary made an offer on a client’s behalf for $2.5 million, and only hours later, wife Karen heard about it through the grapevine.
“That really annoyed me,” she says. “The listing agent had told another agent, who congratulates me. So the word is going around that they have a full-price offer. All someone has to do is offer $5,000 more and they might get it.”
Karen was irritated and a little surprised. Although sellers and their agents have never been legally obligated to keep the terms of offers to themselves, those involved in the business routinely assume they will. But in a hot real estate market -- for reasons that include hopes of sparking a bidding war or simple pride shared with neighbors over how much their home has appreciated -- sellers and some agents have been known to blab.
Now, however, the National Assn. of Realtors has revisited an idea it kicked around two years ago -- and this time made an addition to its code of ethics. Effective Jan. 1 of this year, buyers’ agents in all member states, including California, are required to inform clients that their offers might not be kept confidential. Although many home buyers may not realize it, the terms of the offers they make may be revealed to other clients in a practice that the real estate industry commonly refers to as “shopping offers.”
And although many Realtors purport to find the practice distasteful or even unethical, others point out that negotiation styles and markets differ.
Coldwell Banker agent Paul Ferra, who lists homes in Topanga, Malibu and the Hollywood Hills, says he has some minor problems with the practice. “But in business there are a lot of things that aren’t ethical. It’s legitimate if it gets my seller more money. I do whatever I can to arrange an agreement between buyer and seller.”
In other words, shopping offers is part of marketing -- the name of the game in selling a property. “It’s all marketing,” adds June Barlow, vice president and general counsel of the California Assn. of Realtors, part of the national association. “It depends on the market, how desirable the property is, the number of buyers -- all of that plays into it. It’s an art, not a science.”
Moreover, it seems that the ever-fluid art of real estate negotiation has already spurred some agents to perfect their skills in an emerging subgenre: the confidentiality agreement.
Agent Karen Dannenbaum now writes into her contract formal requests that listing agents keep her buyers’ offers close to the vest.
“In these cases, you have to hope the other agent is ethical,” she says. “I tell my clients, ‘Don’t tell anybody that you’ve made an offer. Your best friend might want a house just like that.’ ”
Broker Diana Bull, who runs three Re/Max realty offices in Santa Barbara, says many of her company’s clients routinely use such agreements, not only to avoid the possibility of their offer being used as bait, but also to shun publicity.
“We have a real high-profile deal going on right now,” she says. “Two movie stars are flying in on their private plane and we’re presenting a confidentiality agreement to the sellers so they can make their offer. They’re going to offer $3.2 million for a house on Birnam Wood Country Club ... and they don’t want their identities to get out.”
Bull, who is also NAR vice president for California, Hawaii and Guam, says that as a direct result of the new requirement to disclose that the offer may not be held in confidence, the California association is drafting a standard confidentiality form that buyers’ agents can present to sellers’ agents. She says the form should be released this month, after which it will be offered to other state associations.
But although the addition to the Realtor Code of Ethics is new, the practice of revealing competing offers on a property -- and the debate it generates -- has gone on for years. The same addition was proposed and defeated at NAR’s annual board of directors meeting in 2004 after opponents argued that notification might imply endorsement of the practice.
On a practical level, many agents say offer-shopping could easily backfire. Buyers might become so angry that they withdraw their offers and, most important for sellers, in relaying a specific dollar amount, they also announce their bottom price.
Says Coldwell Banker’s Ferra, who works primarily as a seller’s agent, “The unknown is powerful. It can really drive the price up.”
That doesn’t mean, however, that agents don’t communicate in ways other than through written offers.
“I’ve never had [a seller’s agent] tell me what the other offer is,” says Realtor Susan Cosentino at Pritchett-Rapf in Malibu. “Instead they might give me a hint but never the details. Or they’ll say something like, ‘They’d like a shorter escrow. You need to submit a good clean offer that’s strong.’ So then that’s what I’ll tell my client. I don’t think that’s unethical.”
San Francisco Realtor Vince Malta, current president of the California Assn. of Realtors, says that only in a few instances would he disclose competing offers to potential buyers. He might inquire whether the seller has had any offers at a certain price range and already turned them down.
“So then the buyer’s agent won’t want to waste his time on that,” he says.
Malta says sellers’ agents in San Francisco routinely deal with competing offers by setting a specific day in, say, two weeks’ time, when all offers will be considered at once.
Malta, who says that in 26 years as a Realtor he has never seen a confidentiality agreement, adds that the new ethics directive has come “in response to a problem that’s out there.” But since the hot market has lost some sizzle, “it’s not a huge problem in California now, I believe.”
In Bakersfield, where last year a federal report recorded the highest home-appreciation rate in the nation, Watson Realty’s Mike Saba says agents appeared more tempted to break the golden rule.
“There’s almost always a couple of agents who spoil it for the rest of us,” he says. “That’s a day-to-day battle.”
“Things are only a problem depending on the market conditions,” adds Kathy Mehringer, who manages 130 agents at Coldwell Banker’s Beverly Hills East office. “It’s in the frenzied sellers’ market -- where there’s so much hysteria about getting a house -- it’s more of a problem.”
She also works as a mediator in real estate disputes, where she says she’s never seen a case involving shopping offers. Although the rules before may not have been spelled out, anything considered an ethical breach was open to a legal challenge.
The trickier situation, agents point out, involves what is known as dual agency, when both seller and buyer are represented by the same agent or even different agents within the same office.
“As a dual agent, I have no business shopping my buyers’ offers,” Mehringer says.