Fact Pattern: Take a look at last week’s Legal Tip for a discussion of when to use a Seller Multiple Counter Offer form (SMCO), instead of a Seller Counter Offer (SCO). For this week, let’s say that you represent a seller who has received multiple offers. The seller would like to simultaneously issue an SCO to Buyer #1, and SMCOs to the other buyers.

Multiple Choice Question: Can a seller do that? Pick the best answer:

A. Yes, it’s legal and also advisable from a practical standpoint.
B. Yes, it’s legal, but not advisable from a practical standpoint.
C. Yes, it may be advisable, but it’s not legal.
D. No, it’s not legal nor advisable. 

Answer: The answer is “yes” from a legal perspective, so Answers C and D are wrong. The SCO and SMCO do not prohibit a seller from using the SCO as a response for one buyer, and the SMCO for other buyers. Both the SCO and SMCO alert buyers that, before final acceptance, the seller may continue to offer the property for sale and accept another offer (see paragraph 3 of the SCO and SMCO). The SMCO goes one step further by also informing buyers that the seller is making multiple counter offers that may have different terms (see paragraph 2 of the SMCO).

A seller who issues an SCO to Buyer #1 and SMCOs to the other buyers should be under no risk of entering into 2 binding contracts with 2 different sets of buyers at the same time. If, on one hand, Buyer #1 is the first to accept the SCO, the seller can simply refrain from issuing a final acceptance to any of the other buyers by not re-signing in paragraph 8 of any SMCO that comes back. If, on the other hand, Buyer #2 is the first to accept the SMCO, the seller can still wait to see what Buyer #1 wants to do. If the seller wants to go with Buyer #2, the seller should, as a precaution, withdraw the SCO to Buyer #1 in writing before entering into a binding contract with Buyer #2.

Unfortunately, however, this approach does give rise to a possible fair housing violation. A seller is allowed to favor Buyer #1 for objective reasons, such as price and terms. If, however, the seller is favoring Buyer#1 while discriminating against the other buyers because of their race, color, creed, sex, or other arbitrary characteristic, that would be illegal. Sellers are well-advised to avoid even the appearance of a fair housing violation whenever possible.

Although issuing an SCO to Buyer #1 while issuing SMCOs to other buyers may be legal (absent any fair housing violations), it is not necessarily an advisable approach from a practical standpoint. Answer B is the best answer, at least in my opinion.

After all, the seller could easily issue the SCO to Buyer #1 only (e.g., use a one-day expiration), and wait for a response, before issuing SMCOs to the other buyers. Otherwise, the seller should be advised upfront (preferably in writing), that the seller may end up regretting this approach. The problem is the SCO Buyer #1 has essentially no incentive to be competitive with other buyers, whereas all the SMCO buyers do have such inclination. The seller could easily end up getting into a binding contract with Buyer #1, only to subsequently receive more attractive responses from other buyers. Of course, if this is ultimately the approach that the seller wants to take, that’s up to the seller.

-Thank you to Melissa Ellis (Santa Monica Manager) for suggesting this week’s legal tip!

Copyright© 2022 Berkshire Hathaway HomeServices California Properties (BHHSCP). All rights reserved. Any unauthorized reproduction or use of this material is strictly prohibited. This information is believed to be accurate as of May 2, 2022. It is not intended as a substitute for legal advice in individual situations, and is not intended to nor does it create a standard of care for real estate professionals.