Multiple-offer situations often prompt questions about what information may be shared with prospective buyers regarding competing offers. While sellers determine the negotiation strategy, licensees must remember that Wisconsin law imposes a duty of confidentiality regarding the terms of offers.
Understanding the limits of that duty helps protect the interests of the parties and ensures compliance with Wisconsin law. The duty of confidentiality preserves the integrity of negotiations by preventing one buyer from gaining an unfair advantage through access to another buyer's confidential offer terms.
Terms of the offer
Prospective buyers may ask whether another buyer offered a higher purchase price or waived certain contingencies. Under Wis. Admin. Code § REEB 24.12, a licensee may not disclose the terms of one prospective buyer's offer to another prospective buyer.
The seller cannot unilaterally waive this confidentiality. Because the offer is a contract between the buyer and the seller, the listing agent would need the consent of both parties before disclosing the terms of the offer to another prospective buyer. As a best practice, any such consent should be documented in writing.
While the terms of an offer are confidential, the existence of an offer is treated differently. Wis. Admin. Code § REEB 24.12 permits a listing agent to disclose factual information about the status of the transaction, including whether:
There are competing offers.
The seller has accepted an offer.
The accepted offer contains contingencies.
The accepted offer includes a bump clause.
The listing agent may not, however, disclose the specific terms of an offer, such as the purchase price, the contingencies included, or the deadline associated with a bump clause.
REALTORS® should also be mindful of their obligations under the REALTOR® Code of Ethics. Article 1, Standard of Practice 1-15 provides that in response to inquiries from buyers or cooperating brokers, REALTORS® shall, with the seller's approval, disclose the existence of offers on the property. If the seller authorizes disclosure, the REALTOR® must also disclose, if asked, whether the offers were obtained by the listing broker, another licensee in the listing firm, or a cooperating broker.
In addition, Article 3, Standard of Practice 3-6 requires REALTORS® to disclose the existence of an accepted offer, including one with unresolved contingencies, to any broker seeking cooperation. This ethical obligation is consistent with Wis. Admin. Code § REEB 24.12, which permits disclosure that an offer has been accepted and that it contains contingencies. However, neither the Code of Ethics nor Wisconsin law authorizes a listing agent to disclose the confidential terms of the accepted offer, absent the consent of both the buyer and seller. Accordingly, while Wisconsin law permits these disclosures, REALTORS® may have an additional ethical obligation to make them when the Code of Ethics applies.
Escalation clauses
Confidentiality frequently becomes an issue when an offer includes an escalation clause that requires the seller to provide the competing offer that triggered the price escalation.
Absent the consent of both the buyer and seller, Wis. Admin. Code § REEB 24.12 generally prohibits a licensee from disclosing the terms of one prospective buyer's offer to another prospective buyer. As such, the listing agent should not provide the competing offer to the buyer whose escalation clause has been triggered.
Whether the seller has contractually agreed to provide a copy of the competing offer under the terms of an escalation clause is a separate issue from the listing agent's obligations under Wis. Admin. Code § REEB 24.12. A contractual provision between the buyer and seller does not alter the licensee's independent duty of confidentiality.
For that reason, escalation clauses are often drafted to provide that the seller or the seller's attorney — not the listing agent — will provide the competing offer if required by the clause.
Right of first refusal
One notable exception to the confidentiality rule involves rights of first refusal.
If the listing agent knows the property is subject to a right of first refusal, Wis. Admin. Code § REEB 24.12(2) requires the listing agent to provide timely written notice of that fact to prospective buyers.
After making that disclosure, the listing agent may provide the holder of the right of first refusal with a copy of the prospective buyer's offer so the holder may determine whether to exercise the contractual right. Licensees are not responsible for implementing the terms of the right of first refusal.
Closing of buyer's property contingency
Another situation in which confidentiality questions arise is when a buyer includes a Closing of Buyer's Property Contingency. Certain variations of this contingency require the buyer to provide the seller with a copy of the accepted offer on the buyer's property. Although this may seem inconsistent with the confidentiality rule, it is not. Wis. Admin. Code § REEB 24.12 prohibits a licensee from disclosing the terms of one prospective buyer's offer to another prospective buyer. In this situation, the accepted offer is being provided to the seller of another property to satisfy a contractual contingency, not to a competing or prospective buyer. Accordingly, the confidentiality rule does not prohibit the disclosure.
In addition, the Distribution of Information provision in the WB-11 Residential Offer to Purchase authorizes the parties' agents to distribute copies of the offer, including to the seller or seller's agent of another property the buyer intends to purchase. Accordingly, providing the accepted offer in connection with a Closing of Buyer's Property Contingency does not violate the confidentiality rule.
Understanding the limits of confidentiality
Confidentiality is not limited to a competing buyer's purchase price. It extends to the terms of an offer generally, subject to the exceptions and disclosure obligations discussed above. Recognizing when disclosure is prohibited, permitted or required helps protect the parties' interests, reduces risk, and ensures compliance with Wisconsin law and the REALTOR® Code of Ethics.
