How to Handle a Multiple Offer Situation When Selling Your Home
Below is some information you will want to be aware of with respect to your conduct when considering multiple offers to buy your home.
Whether to Disclose Other Offers Made to Potential Buyers
When negotiating a sales strategy with your realtor, you may wonder whether it makes sense to disclose the substance of offers already made to other potential buyers.
In Ontario, realtors and brokers are bound to a Code of Ethics, by a regulation made under the Real Estate Brokers and Business Brokers Act. Section 26 of the Code of Ethics reads as follows:
26. (1) If a brokerage that has a seller as a client receives a competing written offer, the brokerage shall disclose the number of competing written offers to every person who is making one of the competing offers, but shall not disclose the substance of the competing offers.
(2) Subsection (1) applies, with necessary modifications, to a brokerage that has a seller as a customer, if the brokerage and the seller have an agreement that provides for the brokerage to receive written offers to buy.
Basically, this means that you are under no obligation to disclose the substance of offers already made (in other words, the actual purchase price offered by other buyers, and any other associated conditions) to other potential buyers. All you must disclose is the number of competing offers.
This is generally advantageous to sellers in the current red-hot market. It allows you, as a seller, to set a date by which all offers must be made, creating a bidding war, and forces buyers to genuinely put forth their maximum bid based on their subjective perceived value, rather than trying to bargain the seller down to the fair market value.
Caveats to Consider When Creating a Bidding War
Although it seems like the seller has the upper-hand in the current seller-friendly, high-demand market, there are a few drawbacks to perpetuating a large-scale bidding war.
First, bidding wars are an unpleasant experience for buyers. Prospective buyers who are familiar with the process of buying and selling and buyers who have already lost out in other bidding wars may loathe to pursue a property being sold through a bidding war. Some buyers may turn to properties being sold by more traditional methods after losing out on several “close calls” in bidding wars. You may miss out on these prospective buyers if you opt to sell by way of a bidding war.
Second, bidding wars can sometimes result in buyers becoming extremely competitive, losing their sense of reason, and later realizing that they cannot get the financing they need, or backing out of the deal because they realize too late that the price they have offered is simply too high. Although you may have a legal remedy against a buyer who backs out of a done deal (e.g., for the time and expense of having to re-sell the house, and possibly at a lower purchase price), litigation is never fun. It will cost you time and money, even if a court decides in your favour.
The above being said, in markets as heated as Toronto’s, bidding wars seem to have become the default offer process.
Be Aware of Rules and Regulations Surrounding Phantom Bids
One popular method of eliciting higher offers from existing potential buyers is to use a poker-style “bluffing” strategy to insinuate that you have received other higher offers than theirs. You may then ask a buyer to reconsider whether the offer is their final one. This is sometimes referred to as creating “phantom bids.”
As of July 1, 2016, the Real Estate Council of Ontario implemented new legislation to combat dubious practices by home sellers. Under these new rules, this type of behaviour is not allowed. The legislation was implemented in response to severely inflated sale prices that regularly exceed fair market value. Think carefully about working with any agent who encourages selling tactics that violate the law. You may end up with the headache of a lawsuit (even if a nuisance-value lawsuit), from an angry prospective buyer.
Be Careful When Considering Initiating a Second Round of Bids
In a highly seller-friendly market, you may receive so many offers on your property that you consider holding a second round of bidding. You may consider this if there are several high bids right around the same price. However, if you have represented to prospective buyers that you would only conduct one round of bidding, your prospective buyers may be turned off, become mistrusting, and back out entirely. Try to be as upfront as possible with your prospective buyers from the outset about your offer process.
Speak to a Real Estate Lawyer in Etobicoke at Martin Goose & Associates
While a realtor may help to draw in prospective buyers and to help sell your home, it is always wise to speak to a real estate lawyer if you have any uncertainty about the legality of the offer process you are employing, and any potential drawbacks of a particular selling strategy. You will want to contact a lawyer for the closing of the deal, so why not speak to us first before you commit to the terms.
Our full-service law firm can help you with your real estate and other legal needs.
We are one of the law firms in Etobicoke that receive repeat business. Call us at 416-239-4811.