February 15th, 2013 at 7:34 pm
In short, I realized that when considering a certain structure to make your offer more attractive, you need to ask yourself one simple question: Who am I trying to incentivize by structuring my offer this way. In other words, when my offer waives all contingencies, who am I trying to attract? When I go directly to the listing agent and ask him to write my offer, who am I trying to attract? If the answer to that question is the seller, then with appropriate advise to your buyer as discussed in our January 18 blog, your offer is fine. If the answer to this question is the listing agent, on the other hand, then we have issues to consider. After all, by making an offer attractive to the listing agent, you are not really addressing the relevant question: Is your offer the best for the seller. As you know, the asset being sold is the seller’s and the offer that is accepted should be the best one from the seller’s perspective. If, however, I write an offer that means more money to the listing agent, does that necessarily mean it is best for the seller? Of course not. As a result, when writing such an offer, one that incentivizes the listing agent rather than the seller, I am working under the assumption that our listing agent is willing to ignore his duties to the seller and steer him to an offer that benefits the agent rather than the principal. As a result, if the goal of our offer’s structure is to benefit the listing agent only, we are encouraging his breach of duty and not doing anything that should benefit our buyer.
Now, I know that in the real world, these offers work. Many listing agents are happy to benefit themselves without considering their clients. So I discuss this issue with you merely to highlight the potential breach of fiduciary duty involved and remind you that, when representing a seller, you should not get involved with these types of contracts. Your duty is to negotiate the best deal for your seller. At that point, when offers come in, your financial interest in the deal is already settled. You have an enforceable listing agreement.
As a result, please remember what our goal is: to get the best deal we can for our client. When we keep that goal in mind, we will remember to incentivize the seller and not the listing agent and, by doing so, we keep ourselves from breaching any duty to our client.
As always, if you have any questions on this issue, please bring them to your manager who will contact the Legal Department if necessary.
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