It is not inconceivable, when it comes to marketing a property in a multi-offer environment, that a Seller may encounter what is generally known as a “reference purchase price offer”. A multiple offer situation arises when a property in question simultaneously attracts several Buyers, who then proceed to submit their respective offers. As buyers are unaware of the price and terms of competitor offers, a reference purchase price clause may seem like the optimal solution, but in fact, it is not.
The central idea of the reference purchase price offer is to take advantage of the next highest good faith offer that is acceptable to the Seller. The offer contains a clause that reads, broadly, as follows: “The purchase price is $ 1,000 above the price offered in the closest good faith competitive offer acceptable to the Seller up to a maximum of $ 350,000. The Seller You agree to provide a copy of the closest competing offer by accepting this offer. ” The reference purchase price offer, therefore, is a smart way by which the Buyer strives to establish a purchase price by reference to the prices contained in the competitor offers. As can be reasonably anticipated, there are many variations in the wording of the referential purchase price clauses.
The problem with this type of offer is that there is a very good possibility that neither the Seller nor the Buyer will be able to seek legal recourse if either of them fails to comply with the completion, due to the wording of the reference purchase price clause. The main case is a 1985 decision of the House of Lords in England, which held that the referential offers are not valid. Since then, this case has been adopted into common law, at least insofar as it applies to referential bidding. The general principle of the law holds that an offer from a bidder that depends for its definition on the offers of others is invalid and unacceptable. The reason is that this type of offer is incompatible and potentially destructive of the bidding process in which it is presented.
Whether the focus is on the reference purchase price offer or the bidding process, there are enough similarities for a seller to worry when it comes to reference offers. One approach that could be used to circumvent the problems that arise when faced with referential purchase price offers would be for the seller to counter with an addendum, which removes the referential purchase price clause and inserts a fixed price for an identical amount in his place. The benefit to the Seller is, of course, that it will not be in a position to have to disclose the closest highest bid to the Buyer, but whether this will be acceptable to the Buyer is a completely different matter.
What all this means in a multiple offer scenario is that in the event that a reference purchase price offer arises, the Seller will have to evaluate its legitimacy, the applicability of the offer and the good faith of the contract. Unquestionably, therefore, the Seller who accepts such an offer will assume an additional risk, the measure of which may well lie in the offers that the Seller has decided to discard in favor of the offer of the referential purchase price. A risk that, ultimately, may not be justified.
Luigi frascati