With listing inventory at an all-time low, we’ve entered new territory when it comes to bidding wars. Properties that used to take 15 or 20 days to sell are now getting 8, 15 or 34 offers and many REALTORS are inexperienced at handling the intricacies of a bidding war.
This blog is meant to be a how-to for real estate agents. It’s a review of the rules and expectations from the Real Estate Council of Ontario (RECO) as well as best practices and etiquette suggestions gleaned from our participation and hosting of hundreds of bidding wars over the last few years.
Why are we writing this blog? Unfortunately, they don’t really teach us how to manage bidding wars in the pre-registration courses, and many brokerages aren’t taking the time to train and supervise their agents. It’s time for more transparency in the bidding war process. It’s time for listing agents to fully understand the rules and how to make the process efficient for all involved. It’s what the co-operating buyer agents deserve. And more importantly, it’s what Buyers and Sellers deserve.
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:
- The basic rules of bidding wars
- Setting up a bidding war
- The offer registration process
- Offer presentation
- One shot vs sending people back
- Communication Best Practices
- Dealing with pre-emptive offers
- Multiple representation
- Commission reductions
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:
- The number of offers (to anyone who has a written offer)
- If you or your brokerage are representing both the Seller and a potential Buyer (to anyone who has a written offer)
- If you or one of the other buyer agents is reducing the amount of the co-operating commission (to anyone has a written offer)
- Any changes to the offer process – for example, your client didn’t want to review pre-emptive offers but now wants to review them (to anyone who has expressed interest in the property)
You cannot disclose:
- The substance of any other offer
Setting Up for a Bidding War
If your pricing strategy is to try to generate multiple offers:
- You will generally set an offer date in the future (usually 6-8 days from the day the property is listed for sale).
- You can set the bidding war date and time for whenever it’s convenient for your Sellers. If you set the date for a holiday or a Sunday, however, keep in mind that it will be difficult or impossible for Buyers to waive their financing or home inspection conditions if they can’t reach their bank or inspector on the weekend.
Pro Tip for Listing Agents: 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.
Remember: Buyers (and their agents) 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:
- A listing agent cannot indicate they have an offer unless they have received the offer or a signed Form 801 declaring that an offer has been signed.
- Brokerages keep copies of all written offers presented to the Seller and counter-offers or complete a summary document
- Buyers who made an offer on a property (or their agents) can request that RECO validate the number of offers that were presented
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. You can read RECO’s Fact Sheet about Bill 55 and Form 801 here.
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.
***Hello RECO, if you’re reading this, please address offer registration!***
Many Listing Agents set an offer registration time (for example, 6 pm) and an offer 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:
- Have your brokerage send out a message to everyone who has shown the property as soon as the first offer gets registered.
- When the second offer gets registered, contact the first offer and let them know they are now in multiple offers.
- If an agent registers or sends you a form 801 directly, make sure to keep your office informed so they always have a tally of the number of registered offers.
- As additional offers get registered, it may not be possible to contact every agent every time a new offer gets registered. If you’re dealing with 20 offers, it’s probably not feasible to contact 20 agents 20 times. Some brokerages have systems that will send out a message after each offer gets registered (I love these systems).
- Important: Before offer presentations begin, send an email to the agents who have registered offers, informing them of the total count of offers.
Behind the Scenes
- Keep an ongoing list of all the email addresses and cell phone numbers of the agents who have shown your listing. If you email them en masse, make sure to bcc: everybody so they don’t see the names and email addresses of other interested parties.
- Keep a spreadsheet with the names and contact information of all the registered offers. This will be an ideal place to track the details of the offers too. Our Offer Summary template has the following headings:
- 801 received (yes/no)
- Offer presentation time (usually scheduled 10-15 minutes apart)
- Agent name and contact info
- Offer Price
- Deposit Amount
- Irrevocable Time
- Closing Date
- Cheque Herewith (yes/no)
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 8 offers when someone shows up or emails you an offer. Here’s what you do:
- Notify all of the agents with registered offers that the number of offers has changed.
- Anyone who has already presented their offer has the right to re-submit an offer because the number of offers has changed.
Behind the Scenes
Before offer presentations begin:
- Meet with your client before offer presentations begin to take them through the process.
- Take them through the terms of the standard Agreement of Purchase & Sale so that you don’t have to explain the details of the pre-printed clauses during the offers.
- Let your Seller know that you will ask the agents to focus their presentations on the most important parts of the agreement and make sure they understand what to expect:
- Inclusions and Exclusions
- Closing Date
- Anything else out of the ordinary
- 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:
- Convenience – especially if one or more of the Sellers are out of town
- Fast – you can quickly review offers yourself without lengthy presentations and time delays
- If you’re dealing with more than 10 offers, in-person presentations can literally take hours. The emailed offer approach prevents dozens of buyer agents from spending the night in their car waiting for news.
Advantages of In-Person Offers:
- The personal touch! Some Sellers like to hear about the potential Buyers who might be moving into their home
- Easier to ask the agent follow up questions (for example, about financing or closing date flexibility)
- Ease of changes – if the Buyers are nearby, it’s quick and easy to make changes to the offer (for example: improved price or missing initials) without having to rely on the buyer agent’s knowledge of technology
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:
- Accept the highest or best offer.
- Ask everyone to improve their offers (note that you can’t reveal the content of any of the offers).
- Ask the top few offers to improve their offers.
- Choose to negotiate with one of the Buyers
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.
- When you ask someone to improve their offer, you are essentially rejecting it, and they can choose to walk away. Recognize the risk that all offers might walk away (and yes, this has happened).
- If a Buyer is asked to improve their offer and chooses to walk away vs. re-submit an improved offer, don’t forget to inform everybody of that change.
- Before sending 20 people back to improve their offers, ask yourself: is this the right thing to do? If someone’s offer is $150,000 lower than someone else’s, is it worth everybody’s time?
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:
- How offers are to be submitted (via or email or date, time and location of in-person offers)
- Ideal closing date and our Seller’s desire for condition-free offers
- Deposit instructions (we always want deposits herewith or in the event of an emailed offer, delivered before the irrevocable time)
- Communication – how to stay on top of the number of offers, how we will communicate final offer tally and how we will communicate to the winners and losers
- Any special requests or disclosures
- Sellers intentions (if they plan on accepting Highest and Best on the first go-round or if they plan on sending top offers back to improve)
The Sold Price
You shouldn’t reveal the sold price to anybody (other than your Sellers) until the offer has been accepted, acknowledged, conditions 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 market as hot as the one we’re in right now, it’s not uncommon to receive a bully offer – an offer made before the scheduled offer time.
The Basic Rules
- RECO requires us to convey an offer to our client as soon as possible – unless we’ve been given clear written direction otherwise.
- So if you have an offer date, you must get clear written direction from your Seller (otherwise you’re in contravention of the rule above). See OREA Form 244.
- The Seller is in charge and can change their instructions, but they must do in writing. So if they wanted to wait to look at offers until next Wednesday but have decided they want to look at offers today, they can. But you must disclose that to anyone who has expressed interest in the property (that gets defined below).
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:
- If a pre-emptive offer came in and you were not told about it, how would you feel?
- How much information do you want about any pre-emptive offers that come in? Do you want to:
- be notified of a pre-emptive offer, without seeing the details?
- see the details, but not formally consider the offer until your offer presentation date?
- consider all offers received before the offer presentation date?
- only consider offers that are above a certain price or contain a certain condition (for example, no inspection)?
- not be informed about any pre-emptive offers at all?
My Seller changed their mind!
It’s their right to do so. But here’s what you need to do as their REALTOR:
- Get the change of direction in writing.
- Change the notes in MLS to reflect the new process
- Notify in writing (text and email is acceptable), anyone who has expressed an interest in the property. According to RECO, this includes “parties that have booked viewing appointments, have viewed the property, have informed the brokerage or the listing representative that they will be submitting an offer on the property, or have submitted an offer or an offer summary sheet on the property.”
You can read the full RECO Bulletin here: Written Direction for Multiple Offers
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:
Scenario 1: The Seller and Buyer are represented by the same brokerage. This could be by the same agent or by different agents working for the same brokerage.
Scenario 2: Multiple Buyers represented by the same agent or brokerage are offering on the same property.
The Basic Rules
- You must have written consent from both the Buyer and the Seller (and both brokerages)
- You need to disclose to anyone with a written offer if you are representing both the Seller and a Buyer
- 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.
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%.
You can read a lot more detail about how to handle commission changes in the RECO Bulletin: Commission Reduction Agreements.
Still have questions? Your Broker can help. And if they can’t…it’s time to find a new Broker.