Site icon bspoke Realty Inc.

Bidding War Rules & Best Practices for Ontario REALTORS

Melanie Piche
bidding war rules in ontario

Originally published on GetWhatYouWant.ca. Updated December 2019.

 

Multiple offers (aka bidding wars) are a regular occurrence in a hot market like Toronto. If you’re a REALTOR trying to navigate a bidding war,  this blog is for you. It’s the bidding war how-to for REALTORS; a review of the rules and expectations from the Real Estate Council of Ontario (RECO); and best practices and etiquette suggestions gleaned from our experience participating in and hosting hundreds of bidding wars over the years.

Warning: this is a long read! But if it helps even one agent get more money for their Seller or avoid a RECO complaint, or helps make the bidding process smoother for all involved, then it’ll be well worth your time.

Specifically, this blog will look at:

Caveat: Of course you should always take RECO’s word above mine, and talk to your broker about any in-office policies or other strategies that might be more appropriate for you or your situation.

The Basic Rules of Bidding Wars

According to our Code of Ethics in Ontario, as a REALTOR, you must disclose:

You cannot currently disclose the substance of any other offer (though there is currently a proposal with the provincial government to allow that to happen – details of what that means have not been shared as the rule change has not yet been passed).

Setting Up a Bidding War

If your pricing strategy is to try to generate multiple offers:

Pro Tip: Pick your bidding war date and time carefully. Selecting the same offer date as other properties that are competing with you will split the buyers (in other words, some buyers will bid on Property A and some will bid on Property B) and may result in a lower sales price for your Seller.

Offer Registration

Buyers have a right to know how many other offers exist before they present their offer. Unfortunately, the offer registration process isn’t well defined by RECO or many brokerages and can become messy when there are lots of offers.

In 2015, Bill 55 was passed stipulating how offers should be handled.  Essentially, it required that:

OREA developed a (painful) process to help manage offers with the introduction of Form 801. Form 801’s intent is to allow the buyer agent to confirm to the listing agent that a signed offer exists.

Many Toronto agents refer to an offer being ‘registered’ – meaning that an offer has been written, signed and is ready to be presented to the Seller.  Other than Bill 55, there are no RECO rules for offer registration in Ontario; sometimes offers get registered with the brokerage, sometimes with the agent and sometimes agents just show up with an offer in hand.

Offer Registration Times

Many Listing Agents set an offer registration time (for example, 6 pm) and an offer presentation time (for example, 7 pm). The hope is to encourage people to confirm the existence of signed offers early and ensure a smooth process. Truth: this hardly ever works. Many agents register late and it will always be to the Seller’s benefit to look at late offers. Registration times are suggestions only.

Pro Tip for Buyer Agents: If you want to ensure that a property doesn’t sell without you knowing about it, you should ‘register’ the offer – meaning get it signed and let the listing agent and brokerage know that you have an offer. Send Form 801!

How Many Offers Are There?

Buyers (and their agents) have a right to know how many offers were registered before they present their offer. Here’s the easiest way to keep the buyer agents informed and follow what’s required of you under RECO:

Behind the Scenes:

Pro Tip for Buyer Agents: Always call or text the Listing Agent before you present your offer to confirm the current number of offers. Don’t rely on the number of offers that were registered at ‘registration time’ and don’t rely on what the brokerage thinks is the right number. Things move fast in the last hour before a bidding war and your job is to represent your Buyer, so get all the facts.

What happens if a new offer comes in while other offers are being presented?

This happens more than you realize. You’re reviewing the fourth of eight offers when someone shows up or emails you an offer. Here’s what you do:

Offer Presentation

Before offer presentations begin:

Before signing any offer, read every single word and make sure there are no errors! This is a legally binding agreement. If you’re new to real estate or don’t sell a lot of properties, consider having your Manager, Broker or a more experienced agent review the paperwork too.

Email or in-person offers?

In Toronto, offer presentations happen in person just as often as they happen by email.

Advantages of Emailed Offers:

Advantages of In-Person Offers:

If you go the in-person offer route, focus on the important details while the other agent is present and read through the winning offer in its entirety before accepting it. If you read every line of every offer during presentations, you’ll be there for hours and hours.

Who presents first?

There aren’t rules on this, though convention usually dictates that offers are presented in the order in which they were registered: so first to register presents first, last to register presents last. If you’re efficient, you should be able to schedule offer presentations 10-15 minutes apart.

One-Shot Offers vs. Send-Back-to-Improve

Remember: the Seller is always in charge…it’s your job to provide strategy and counsel to help them maximize the price they receive.

Usually, once offers have been presented you can:

There isn’t a solution that works every time. Make sure to discuss the various options with your Seller before offer night and plan accordingly.

Also note:

Bidding War Communication Best Practices

No matter how you decide to run your bidding war, the best and most important thing you can do is send out an email outlining the plan.

Before hosting a bidding war, our team sends an email to all the agents who have shown our listing (bcc: of course), outlining:

Revealing The Sold Price

While it’s important to let the losing offers know that you’ve accepted another offer,  you shouldn’t reveal the sold price to anybody (other than your Sellers) until the offer has been accepted, acknowledged, conditions (if any) have been waived, and the deposit has been delivered.

Pro Tip: If you’ve got a firm offer and cheque in hand, let the other agents know that the property sold to another Buyer right away. It’s also customary to let them know how much the property sold for vs. making them wait for the update on MLS – if you have the deposit and it’s a firm sale. Texting works wonders! Their Buyers have taken the time to prepare an offer and have contributed to you selling the property for the price you did and deserve to be treated right.

Dealing with Pre-Emptive or Bully Offers

In a hot market, it’s not uncommon to receive a bully or pre-emptive offer – an offer made before the scheduled offer time.

The Basic Pre-Emptive Offer Rules

How will you handle pre-emptive offers?

Make sure to discuss with your Seller what will happen in the event of a pre-emptive or bully offer. You must document this conversation!

The February 17, 2017, RECO Bulletin provides some great questions to ask your Seller:

Help, my Seller changed their mind!

Even if your client has instructed you in writing to not show them any offers, it’s their right to change their mind. But here’s what you need to do as their REALTOR:

Multiple Representation

It’s critical that you understand the rules around multiple representation – it’s where most RECO complaints originate, and it can jeopardize your license and reputation.

There are 2 kinds of multiple representation:

The Basic Rules of Multiple Representation in a Bidding  War

  1. You must have written consent from both the Buyer and the Seller (and both brokerages)
  2. You need to disclose to anyone with a written offer if you are representing both the Seller and a Buyer
  3. If you’re the Listing Agent and see that two of the offers are from the same brokerage, you have a responsibility to let their agents know so that they can get informed consent from their clients.

The rules for multiple representation apply whether you are in a multiple offer situation or not. You can read all about multiple representation in this RECO Bulletin: Multiple Representation.

Commission Reductions During a Bidding War

What do I need to do if I’ve offered a commission discount to my Seller if I also represent the Buyer?

You must disclose the details and terms of the arrangement to anyone who has made an offer before any offer has been accepted.

What happens if the Buyer’s agent offers to reduce their commission?

Occasionally, a Buyer’s agent will offer to take less commission than the Seller is offering, in order to facilitate the sale. This obviously puts their offer at an advantage and RECO has clear rules about what needs to happen in this situation: you must disclose the details and terms to anyone who has made an offer. So if one of the agents has offered to take 2% instead of the 2.5% that was being offered, all other offers need to be notified that one of the agents has reduced their commission from 2.5% to 2%. Many brokerages have policies in place to deal with this scenario, so check with your Broker.

Still have questions? Your Broker can help. And if they can’t…it’s time to find a new Broker.

Exit mobile version