Presenting several promises to purchase

Presenting several promises to purchase raises numerous practical questions for licence holders. Let’s take a look at a few potential scenarios where several promises to purchase are presented simultaneously to the seller.

By two agents representing the buyers

In the first scenario, two promises to purchase are presented to the seller’s broker consecutively by two brokers representing buyers. The seller’s broker must present to his client, as soon as possible after receiving them, any transaction proposal that he receives. When several promises to purchase are presented, the broker or agency executive officer must present each one without preference, including as to the chronological order of receipt, the identity of the licence holder who presented it, or the circumstances in which the proposal was taken pursuant to the Regulation respecting brokerage requirements, professional conduct of brokers and advertising.(1)

When another broker is collaborating in the transaction, the seller’s broker must disclose to him the existence – but not the content(2) – of any transaction proposal without delay, whether or not it is accepted. As for the broker who presented the first transaction proposal, the seller’s broker must inform him of the existence of a second Promise to purchase. Keeping one or the other in ignorance of the existence of a Promise to purchase would constitute an unfair practice and would give the broker in the know an unfair advantage.(3) In addition, not revealing the existence of another Promise to purchase from a buyer constitutes unfair treatment against the buyer.(4)

After presenting each Promise to purchase, the seller’s broker must advise his client in order to help him make an informed decision. The broker must therefore explain to his client the options he has when more than one Promise to purchase is presented, including:

1. Accept one Promise to purchase and refuse the other, should one of them be acceptable to the Seller and should he not wish to make a counter-proposal;

2. Set one Promise to purchase aside and make a counter-proposal for a higher price on the other one, taking into account the various deadlines. If the Counter-proposal is refused, the seller may accept the first promise, but if the buyer accepts the Counter-proposal, the seller will then have to refuse the one he had set aside.

It is important not to rush the conclusion of a transaction. Very often, the time period granted to the seller to consider the Promise to purchase can be used to his advantage, as demonstrated in the second option. Or, sometimes the seller’s broker knows about the possibility of a second Promise to purchase being presented. If he presses his client unduly to accept the first promise without giving him the opportunity to receive the second one, the agency’s and the broker’s civil liability could be at stake, not to mention that this would be a serious violation of the rules of ethics.

It is up to the seller’s broker, therefore, to advise his client properly so that he may get the best price for his property by taking advantage of the various opportunities he has of presenting counter-proposals at the right time, after having received and presented the other promises to purchase, as applicable.

By the buyer’s broker and the seller’s broker

In this case, the seller’s broker’s ethical obligations are the same as in the case of two brokers representing buyers who each present a Promise to purchase: the parties or their broker must be informed of the existence of another Promise to purchase and every party to the transaction must be treated fairly.

The seller’s broker must act with complete integrity, meaning, among other things, that he must not endeavour to have a Promise to purchase that he himself presented accepted by his client, if this would result in favouring his own interests rather than those of his client, Also, a broker cannot reduce his compensation in order to favour the conclusion of the transaction, as this would constitute an unfair practice against the other broker.

Some brokers representing sellers stipulate in the brokerage contract that, if the buyer is not represented by a broker, the remuneration payable will be reduced. The seller’s broker must indicate, however, that this clause will not apply if one or several promises to purchase are presented by other brokers, to avoid any unfair practice or treatment. This clause could read as follows:

“If a promise to purchase is submitted through the broker or the broker representing the agency identified in section 1 during the term of this contract and in fact leads to the sale of the immovable, the broker undertakes to only claim from the seller a remuneration of _____ %. Notwithstanding the foregoing, there shall be no reduction in compensation in the event that one or several promises to purchase are submitted through other agencies or brokers concurrently with a promise to purchase submitted through the broker or the broker representing the agency identified in section 1.”

It is important to note that the confidentiality rule governing the promise to purchase also applies to a buyer acting through the seller’s broker. Under these circumstances, although the seller’s broker knows the terms of the buyer’s proposal, he may not use this information to the benefit of the unrepresented buyer.

What should be done if an unrepresented buyer seeks the advice of the seller’s broker regarding the amount of his offer? The seller’s broker should advise the buyer that he is bound by the confidentiality of the information contained in any Promise to purchase presented by another buyer. The only advice that he may give to the prospective buyer without violating this obligation is to offer the amount of his choice. He can also explain the various alternatives that a seller has when several promises are presented, and explain that presenting a Promise to purchase creates no obligation for the seller.

By the seller’s broker

When the seller’s broker himself receives more than one Promise to purchase from unrepresented buyers, again he must give equal treatment to all parties to the transaction. This means he must provide the same information, and therefore inform both buyers of the existence of two promises to purchase. The above guidelines regarding the advice to be given to each buyer concerning the terms of the promises to purchase or counter-proposals they wish to present also apply in this case.



Notes

(1) Section 102 of the Regulation respecting brokerage requirements, professional conduct of brokers and advertising (“RBR”).
(2) Section 96 RBR.
(3) Section 90 RBR.
(4) Section 15 RBR.

For more information

Read the following article: Cancellation of a previously accepted promise to purchase

 

Last updated on: July 12, 2019
Article number: 123302