HOW TO AVOID MULTIPLE OFFER SITUATIONS THAT COULD RESULT IN LITIGATION
Written and published by Pearl Insurance. Link in title:
Written documentation is key.
The way offers and inquiries are relayed to the seller can be crucial in any possible lawsuits.
Learn from this real estate broker to avoid a similar mistake.
SITUATION A real estate broker listed an improved commercial property for sale, and the broker followed applicable state law to be treated as a transaction broker. The broker received twelve offers or written inquiries for the property and forwarded ten of the offers to her customer, the seller, via email. The two offers the broker didn’t forward via email to the seller were handled differently. One of the two the broker sent via fax since there was a temporary internet issue. The broker discussed the other offer with the seller over a phone call; this offer discussed over the phone was for $750,000 but had numerous contingencies that the other offers didn’t have. Ultimately, the seller accepted the second-highest offer where they agreed to sell the property for $500,000. A month after the seller closed on the sale of the property to the buyer (buyer one) for $500,000, buyer one sold the property to a separate buyer (buyer two). Buyer two paid $2,500,000 for the property even though these two closings were only a month apart.
PROBLEM After the seller learned about the sale of the property to buyer two for $2,000,000 more than buyer one paid them for the property, the seller claimed that the broker recommended a price that was far too low. The seller later filed a suit against the broker. During the discovery phase of the lawsuit, the seller learned that the broker had listed other unrelated properties for both buyer one and buyer two. Documents produced by the broker during discovery shows that the broker had earned commissions paid by buyer one and buyer two for the closing of the sales of those unrelated properties. In other words, the broker would have had knowledge that buyer one was in the business of acquiring properties at a discounted price and selling the subject property to a developer, buyer two, for a significant profit.
MISTAKE The broker did not make a legal mistake in this situation. Though not legal mistakes, the following were areas the seller attacked in the lawsuit: • The broker didn’t forward all the offers in writing, via email. – The broker had no proof of transmitting the $750,000 offer to the seller, other than the broker’s own word, since this offer was discussed over the phone. The seller denied the broker discussed the $750,000 offer. • The broker’s listing agreement didn’t state that as a transactional broker she could act as the listing agent or transactional broker for anyone else—including potential buyers of the property. • It could be argued that, given the familiarity the broker had with buyer two, she could have potentially breached her fiduciary duty owed to the seller regarding the value of the property.
RESULT In order to avoid the risk of an adverse judgment and potential exposure in excess of policy limits, the broker entered into a settlement agreement for significant monetary consideration.
PREVENTION The broker could possibly have weakened or even avoided the claims in the lawsuit if: • She had forwarded all of the offers in writing to the seller. • Her listing agreement explained that as a transactional broker she could act as the listing agent or transactional broker for anyone else, including potential buyers of the property. If the broker had forwarded all the offers to the seller in writing via email, it might have helped avoid or weaken the seller’s claim that the broker’s failure to forward one offer deprived the seller of an opportunity to negotiate a higher sales price. Likewise, if the broker’s listing agreement had contained a written explanation, she might have avoided or weakened the seller’s claim that the broker had neglected her duties to the seller by listing the unrelated properties for buyer one and buyer two.
