In a seller's market, typically inventory, meaning the number of homes available for sale, is very low, and the absorption rate is low as well. Absorption rate is the number of months it would take to sell every home on the market, based on the present rate of sales.
Under these circumstances, more than one buyer might submit an offer for a home, resulting in multiple offers on the desirable homes. When a seller receives multiple offers, a seller enjoys the luxury of choosing the highest and best offer. Many buyers in these situations suffer from offer rejection.
Drawbacks to Making Multiple Purchase Offers
- Breach of Good Faith and Fair Dealing Covenants.
In some states, contract law contains a good faith and fair dealing covenant. If a buyer can afford to buy only one home yet makes multiple purchase offers on many homes, it is possible that the buyer has broken the good faith covenant, which may have legal ramifications. Buyers are advised to seek legal advice beforehand.
- Sending the Same Check With Each Multiple Purchase Offer Could Void the Contract.
Sometimes buyers photocopy an earnest money deposit and submit a copy of the same check with each purchase offer. Since there is only one earnest money deposit check, only one offer actually has a deposit securing the purchase offer. The other offers have no deposits, which may invalidate and / or void the multiple purchase offers.
- Multiple Purchase Offers Could Result in Multiple Acceptances.
If the offers contain no contract contingencies that would allow the buyer to cancel the transaction without consequences, a buyer could end up in contract on multiple purchase offers. In that event, all the sellers may expect the buyer to deposit funds and close each of the transactions. Buyers who refuse to perform could find themselves liable to the sellers and / or in court.
Protection Available for Multiple Purchase Offers
Many buyers are eager to buy bank-owned homes. One of the problems with foreclosure homes is REOs tend to draw a lot of interest from buyers, and the REO banks can take a long time to respond.
The answer for some buyers is to write a multiple purchase offer and submit on a bunch of bank-owned homes at the same time. These buyers might be able to write multiple purchase offers that could avoid liability for bad faith if they are written as conditional offers. This means the offer would contain language that makes the offer subject to the buyer's acceptance after the REO banks accepts the offer. It lets the REO banks know that the buyer has submitted multiple purchase offers.
For more information, please consult a real estate lawyer.
At the time of writing, Elizabeth Weintraub, DRE # 00697006, is a Broker-Associate at Lyon Real Estate in Sacramento, California.