Behind the Scenes: Multiple Offers in Real Estate
In a previous blog post, I addressed a common concern of buyers in multiple offer situations and their concerns over even participating in a “bidding war” and run the risk of overpaying for a house. See Multiple Offers: Will I Risk Paying Too Much?
Once clients have participated unsuccessfully in and lost out to yet another bidding war when multiple offers are registered on a property for sale, they often say to me
“How do I really know that there were x number of other offers?
How do I know the other agent didn’t just tell us there were others just to get us to increase the price?”
These are very good questions, and not uncommon in a seller’s market.
Let’s take a look behind the scenes of offer presentations and how they are handled at my brokerage, Chestnut Park Real Estate. Of course, it is imperative that you have confidence in your brokerage that they are professional and will represent you well and handle your transaction with trust, integrity, knowledge, and discretion.
At the time I take a listing, I discuss when the Seller would like to receive offers.
They have two choices:
1) Accept offers at any time after the listing goes public on the Multiple Listing Service® (MLS). A downside to this method is an offer could come in on Day 1, before other serious house hunters even have a chance to see your property.
2) Set a date and time when offers will be accepted. This instruction is done in writing. When signing the listing and offer date instructions, I must ask them to state whether they want to be informed of a pre-emptive offer, if an agent wants to present an offer before the date agreed to. You may notice in some listings, “Client reserves the right to review pre-emptive offers.” That’s why that is advertised. That doesn’t mean they will accept a pre-emptive offer, just that they may be open to the idea.
Pre-emptive offers are sometimes called bully offers, an offer that a Buyer wants to present early and they are not willing to wait until the proposed date. “Take it now or else.”
Usually a bully offer is for a significant amount over the asking price. The reason that the Selling agent and the Seller must agree in writing to the presentation date first, is that the Real Estate Council of Ontario (RECO) insists that the real estate agent must follow the instructions given by the Seller. If the agreed to date is in the future and the instructions do not allow for reviewing an early offer, then RECO interprets that as the agent not following the Seller’s instructions, if they consider a pre-emptive offer. In this case, the real estate agent cannot even communicate that another agent even wants to present an offer early.
Assuming, there are no pre-emptive offers, it is a matter of marketing the property, keeping it clean and tidy, getting as many prospective buyers as possible to see the home, and waiting for the appointed presentation date and time.
Let’s say the offers will be presented at Chestnut Park Real Estate’s office at 7:00 p.m. on Monday, July 20. Usually, the listing will ask that offers be registered by 5:00 p.m. or some appointed time. A registered offer just means that the other agent has a signed Agreement of Purchase and Sale in in his or her possession. No details are divulged prior to presentation. This notice period gives me, as the listing sales representative, time to advise all agents who have registered an offer that there are a specific number of other offers registered, and if any of those registered are being presented by listing brokerage. Just the number of offers, not by whom, or any other details. This allows the other Buyers’ agents the opportunity to discuss a strategy around how much to offer on the property, given 1) the list price 2) the number of registered offers and 3) the Buyers desire to purchase the property.
At the appointed presentation time, an offer can be presented in a couple of ways:
1) via email or
2) in person by the Buyer’s agent.
In the case where there are multiple offers registered, any emailed or faxed offers are received by a confidential reception area, printed, placed in a sealed envelope, and marked Offer #1, Offer #2, etc.
Let’s look at a transaction in which there were five offers on a property.
– Offer #1, the listing agent, was presenting a customer-buyer’s offer in person.
– Offer #2, a different agent from the same brokerage, was presenting a customer-buyer’s offer in person.
– Offer #3, an agent from a different brokerage, was presenting a client-buyer’s offer in person.
– Offer #4: an agent from a different brokerage, was presenting a client-buyer’s offer with an emailed offer.
– Offer #5: an agent from a different brokerage, was presenting a client-buyer’s offer with an emailed offer.
It matters whether a buyer is being treated as a customer or a client. If the agent has a buyer who is a customer, that agent owes them honesty, integrity, and fairness. If the agent has a buyer who is a client, then the bar is raised significantly. Of course, the honesty, integrity, and fairness principles still apply, but the agent also has a fiduciary duty to the client. That means the agent has a legal duty to act solely in the client’s interest.
If two parties (buyers or sellers) are represented (i.e. they are a client) by the same brokerage, that is multiple representation and notice of multiple representation must be disclosed on a form called Confirmation of Co-operation and Representation.
This is how the above scenario is handled at Chestnut Park. The Seller and her Sales Representative (or appointed executive of Chestnut Park) will sit with the Seller in a meeting room. One by one, each offer is presented, starting with offers from Chestnut Park’s own brokerage first. The terms of the offers are noted on an Offer Worksheet in the Seller’s possession, so that the details can be compared. Remember, price is only one term. Date of completion (sometimes called Closing Date) and conditions like financing and inspection are just some of the varied terms that may be included in an offer. An important, often deciding, term is whether the offer is accompanied by a bank cheque instead of a personal cheque. Most Sellers are much more confident with a bank cheque. That peace of mind can often trump a higher offer price. In the case of emailed, offers, these offers are removed from their sealed envelopes when their turn comes, and the Seller and the representative of the brokerage will see those offers for the first time.
Sometimes it is clear that one offer is more attractive to a Seller than all of the others. If not, the Chestnut Park brokerage representative sitting with the Seller will provide counsel to our client. Remember, the Seller is the client of the brokerage, not any one Sales Representative.
There are times when all of the offers are very close to one another, and none of them is accepted. The process is repeated, with the Buyers being given an opportunity to change any of their terms, including price. This is the reason that I recommend presenting in person with my clients. It has an advantage. We are there and you able to sign or initial any changes. On emailed offers, an attempt is made to contact the other sales representatives, but they must, in turn, track down their customer/client, get initialed changes and send back the amended offer via email or fax. This takes time.
Finally, a decision is usually made to accept one offer. Each agent is advised whether or not their offer was accepted. In this scenario, there are four disappointed parties and only one happy, often ecstatic, buyer. In compliance with the new rules about documenting offers (Bill 55), for each offer, either a signed Offer Summary Document or a copy of the complete offer is kept on file at the brokerage.
As you can see, Chestnut Park ensures the process is handled professionally and with integrity.
– Chip Barkel, Toronto Real Estate. Extraordinary Service. Top Results.