When considering Buying or Selling real estate in Ontario, the handling of offers is paramount to success. REALTORS(R) owe a duty of care to clients and must uphold a code of ethics. Proper handling of offers is central to ethical practice of trading. This is true when dealing with Multiple Offers.
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What is a “Multiple Offers” Situation?
Multiple offers is a term used to describe a situation where two competing offers are submitted for the same property. In order for offers to qualify as competing, they must be irrevocable during the same period. In other words, the irrevocable date must be in the future for both.
For example, Seller John has listed 123 Main Street for sale. He receives two offers from Sally and Brian. Sally’s offer is irrevocable until Tomorrow at 11:59, whereas Brian’s offer is irrevocable until 9pm this evening. When Brian’s offer expires, assuming no other offers are submitted, a multiple offer situation no longer exists.
Multiple Offer situations are referred to as “Bidding Wars”, but they can have other names. Offer Night, Bid Date, and Review Period are all ubiquitous terms for Multiple Offer Situations.
Buyers can attempt to avoid these situations by submitting what is known as a Bully Offer.
It’s important to understand the difference between Multiple Offers and Multiple Representation. Many offers can be submitted on one property with different agents and no multiple representation scenario can occur.
Handling Multiple Offers: The Agent’s Responsibility
1. Notification of the Offer
In RECO’s the code of ethics, the “Agent” (in law, the brokerage) representing the seller must make best efforts to notify other parties of valid offers submitted on the property.
In the least, this includes those that have submitted offers on the Property. However, as courtesy, representatives can notify anyone who’s expressed interest in a property.
This can be done with OREA‘s Form 652.
As of 2022, the Agent has to disclose the presence and quantity of valid offers submitted, but not the details of the offer. With written consent by appropriate parties, the Seller may allow disclosure of more details.
Recent legislature proposed by the Government seeks to change this process, known as “blind bidding”.
2. Buyer’s Possibility for Improvement
Prudent practice following notification of the existence of multiple offers, is a brief period allowing buyers to reassess their offer.
During this time, the Buyer and Buyer’s agent can decide whether they wish to improve the original offer in competition with its counterparts. This commonly includes either raising the offer price, or the elimination of conditions.
It’s important to note that the practice of offering improvement is merely courtesy. In no way are Buyer’s required to reassess or reaffirm their offer. All offers are valid until expiration of the irrevocability period.
Buyers are advised to present their “highest and best” offer first and consider improvement only if material facts present during the process.
3. Handling Active Offers
Every Buyer and Seller can have one active irrevocable offer with respect to a property.
While this may sound confusing, its best described with sample scenarios.
For example, suppose a Seller receives four offers at 9am, all irrevocable to 11:59. Should the seller decide not to accept an offer, they could counter-offer ONE of the four offers. Theoretically, the Seller could counter with THEIR irrevocability of earlier than 11:59pm.
During the Seller’s irrevocability period, no other offers can be countered. Should the Seller’s counter offer irrevocability period expire, the Seller is free to continue negotiating additional offers, including accepting another offer before it expires.
The same is true for the Buyers. Should the buyer decide to re-submit an offer on a property, their original offer is immediately voided. Similarly, a Buyer can withdraw an offer to purchase the property before it is accepted.
Multiple offer situations can only exist on one property; a buyer submitting offers on different properties is not considered a multiple offer situation.
4. Form 801 & it’s Role
According to the Real Estate & Business Broker’s Act (REBBA 2002), the brokerage must retain copies of unaccepted offers (or the essential information) for a period of 1 year. Form 801 was originally developed to assist with this.
OREA’s Form 801 – Offer Summary Document – contains all the necessary information required to be retained regarding an unaccepted offer on one page. In traditional paper-based file management, form 801 allowed significant space saving. However, in today’s digital environment, form 801 appears obsolete.
However, a new use for Form 801 exists beyond space saving. Recall that an agent must disclose only the presence of additional offers to all parties involved; not the offer details.
Form 801 excludes unnecessary details, like price and terms.
In certain situations, a complaint could arise regarding the presence of additional offers either during or following the offer process. Form 801 allows a Brokerage to quickly prove additional offers’ existence without divulging sensitive or competitive information.
Tips for Buyers: Multiple Offers
Generally, there are three “rules of thumb” when participating in Multiple Offer (Bidding War/Offer Night) situations as a Buyer:
- Present your highest and best offer first. There is no guarantee you will have an opportunity to improve your offer.
- Do not be bullied by the Agent or Competition. Oftentimes, unethical agents will attempt to coerce buyers into sweetening the “best offer”.
- Due Diligence is Key. Pressure will be put on buyers to waive conditions related to inspections or financing. While this is never recommended, Buyers should ensure they have done as much preliminary investigation as possible related to these factors before considering a waiver.
Tips for Sellers: Multiple Offers
- Don’t play Games. Upon countering an offer, the original Buyer’s offer becomes null and void. There is no guarantee a Buyer will revisit a second time. Don’t lose a good deal for the sake of a few thousand.
- Understand Market Value. Oftentimes, numerous offers will present themselves due to an under-listed property. While this strategy often works in “Seller’s Markets”, its important to understand the true market value of your home and remain realistic with price.
- Inspect Terms. The highest offer isn’t always the best. Offers that are “cleaner” or have higher non-refundable deposits usually have greater chances of success than simply a large number. Ask your REALTOR(R) to advise regarding the “best looking offers”.
Multiple offer situations can be daunting when looking to buy or sell. With so much already at stake, the addition of other parties to a transaction can often distract one from the true goal: transacting the right property, for the right price, at the right time.
Do you have questions about multiple offers? Contact Us.