Estate agents increasingly call for best and final offers particularly on run down properties. The practice lacks transparency and is so open to manipulation that it should be illegal.
It’s a seller’s dream, several offers on the table and a perfect opportunity to play one off against the others. To fuel nervousness the agent is not revealing what offers they’ve received. Enquiries are met with a polite: “I’m sorry I can’t release that information”. Can’t release that information? Is there now a law in the UK against transparency in market transactions?
There is a law against giving information to one party and not to all and EAs are obliged to take instruction from the seller. However, the logical, transparent and morally coherent procedure is to publish offers openly on-line and ask for higher bids. The Property Ombudsman’s 2014 code of practice authorises this practice.
When they go to best and final offers EAs are deliberately not acting transparently. They are hiding behind the legal obligation not to reveal rival offers to one party in order to deliberately withhold information from all. And this is vital information for people engaged in probably the most important financial transactions of their lives.
If the property was a repossession the agent would be legally obliged to publish offers. Likewise, in property auctions there is a legal requirement that bids are made openly and transparently. Why don’t the same rules apply to sale by private treaty?
Estate Agents frequently tell buyers that best and final offers constitute “a kind of informal auction”. This is utter rubbish. Auctions work for buyers and sellers alike because they involve transparency, information and enforcement.
Transparency Vs Deception
In auctions everyone knows that the property will go to the highest bidder who will not pay more than a thousand pounds over the next highest bid.
With best and final offers, the buyer is shooting in the dark trying to double guess rivals whose number, identity, bids, buying position, and even their very existence, are unverifiable. There is only the EA’s word that the whole process is not a deception.
It may well be that rival bids are much lower than lead bids and the whole process is just a sham designed to squeeze some more cash out of the poor sod whose offer was going to be accepted anyway.
It is very possible that the rival offers don’t even exist or that they have been made by accomplices of the vendor. The vendor knows what the highest bid is and can ask a couple of mates to ring in bids just below that. This is easy because EAs don’t really verify bids before the showdown. If anything they may ask for proof of funds which many people can provide easily.
And who’s to say that this is “final”. Until exchange of contracts the vendor is free to withdraw in favour of a better offer anyway. It is not uncommon for buyers to go through the stress of best and final offers only to be told some weeks later that a better offer has been made.
Information: The Buyer Bites Back
Reputable auctioneers give bidders as much information as they can. They publish legal packs with title deeds and other relevant documents. The auction house will have surveyed the property and will normally flag up any structural problems.
With sale by private treaty, all this information is gathered by the buyer after agreement. And this is when payback time begins for the vendor. Having been hauled through the best and final offer mangle and committed more funds than they should have done, the buyer is eventually the last (wo)man standing. The other bidders have moved on. The agent has marked up a sale and is keen to get the commission and close the file. All the momentum and excitement has dissipated and the seller is anxious to get the deal sealed.
Then the buyer’s solicitor draws attention to an obscure covenant in the title giving a utility company access to the garden. Keen to justify his fee he advices the buyer to “renegotiate”. The surveyor’s report flags damp under the window, rubber cables, and a rotten window cills. Renegotiate. Then the mortgage offer finally comes through. Guess what? It’s lower than expected. Have to renegotiate.
Okay, I know what you’re thinking. The seller pulled one on the buyer with the best and final offer scam so it’s only fair that the buyer battle the price down a bit now that the seller is vulnerable. But what about the guy who put in the next best offer? (S)he is the real losers here. Maybe they had their finance in place and had done their homework on the property but because the UK property market is structured to the advantage of scammers, they lost out.
It is here that the biggest difference with a real property auction becomes apparent. Once the gavel falls in an auction both sides are committed to transact. A large deposit, usually 10%, is instantly payable and exchange of contracts happens simultaneously. This way there is no room for post agreement shenanigans.
Ridiculously, buying property through agents - be it after best and final offers have been called or not – involves no such enforcement. The infamous “subject to contract” clause means that players are at liberty to keep playing, renegotiate or even pull out, right up until contracts are finally exchanged. This fuels insecurity and nervousness all-round and often makes otherwise ethically minded people feel that any behaviour is acceptable, and indeed normal, in property negotiations.
In many places agreed property sales can be enforced and it is ridiculous that in England - a country that prides itself on a free market underpinned by a strong judiciary – the biggest single transaction that most people make is negotiated in a legal vacuum. The primary beneficiaries of this anarchy are of course the legions of solicitors and conveyancers whose livelihood depends on this archaic structure not being reformed, but that is the subject for another blog.
Estate Agents are duty bound to get the best offer they can for their clients. However, they shouldn’t legally be allowed to achieve this by deliberately withholding information from prospective buyers. Freedom of information within a market is a public good and deliberately withholding information necessary for buyers to make informed decisions is ethically questionable.
Be-that-as-it-may, there is little chance of the law changing anytime soon. In the meantime if you’ve made a strong offer on a house and are told by the agent that it is going to last and final offers, what should you do?
It’s difficult. If you are fairly sure that yours is the highest offer the best course of action may be to leave the offer on the table unchanged. If you are absolutely sure that you are the strongest bidder you could even technically reduce your offer by a few thousand. See how they like that!
If you are not sure, try and get in touch directly with the seller. Tell them that you may withdraw unless all offers are published and verified. Failing that try and get information out of the EA. (S)he cannot tell you what the other offers are but (s)he can tell you how many bidders there are and they may be induced to give away hints about how “serious” the other offers are.
If this doesn’t work and you are cool enough, you could turn around tell the EA and buyer that the process is unacceptable and that you are withdrawing your offer. If yours is the best offer on the table and you put on a convincing show you will probably fine your offer is suddenly accepted.
If the seller brushes you aside and proceeds to best and final offers (s)he is either calling your bluff or that there are other strong offers on the table. If it’s bluff and yours is the best offer you can be pretty sure that the EA will get back to you once the deadline is up. If you conclude that there is strong competition you must decide what offer you can and want to make and stick to it.
Finally, I would advice anyone who has an offer accepted through an Estate Agent to condition their offer on the buyer sending a letter to the Agent instructing them to take the property off the market and not to accept or forward any further offers. If the seller does not do this, the EA is legally bound to forward any offers recived before exchange of contracts. If this happens, the buyer may find that te promised best and final offer suddenly loses its finality.