Risks of Making “Sharp Offers”

With the multiple-offer situation developing in the market, many agents are resorting to writing “sharp offers.”  A sharp offer is an offer, which provides that the buyer will pay a certain amount over the next highest offer.  For example, a buyer may offer “$5,000 over the next highest offer.”  This is a risky practice for a number of reasons.

A number of real estate attorneys are of the opinion that sharp offers create illusory contracts, which are unenforceable.  However, an argument can be made that an offer price in a sharp offer can be determined based on the next highest offer, so it is not illusory.  Nevertheless, an argument regarding enforceability exists and can create an issue if one of the parties attempted to cancel the contract.

 Another risk is the unpredictability of the purchase price.  Some sharp offers have reached hundreds of thousands of dollars over the list price.  If a buyer makes a sharp offer, they are obligating themselves to an unknown offer amount.  If they are not able to purchase the property, it could create issues with the seller, depending on the contingencies.  However, if a buyer makes a sharp offer and cannot afford to purchase the property, an argument could be made that the buyer is not acting in good faith.

Other issues have arisen with regard to appraisals in sharp offer situations.  In a number of instances where prices and offers are driven up and a sharp offer is accepted, the property did  not appraise at the sharp offer price.  This could create a dispute between the buyer and the seller.

Selling agents are discouraged from writing sharp offers on behalf of their clients.  If a seller receives a sharp offer, the listing agent should consider countering with a specified purchase price.

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