Real Estate Bidding Wars: What To Know

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Caught in a bidding war? Know the rules
June 24, 2011

Mark Weisleder

Multiple offers or bidding wars continue to happen all over the GTA. Buyers, sellers and real estate agents need to be aware of what to expect. The rules may be different, depending on whether you are selling your home through a real estate agent, or privately.

I have been asked a range of questions on this subject: “Why can there not be a silent auction when a house is sold?” “What does registering an offer mean?” “How did the house sell last night when the seller said offers were not to be delivered for three days?”

To create the atmosphere for multiple offers, it may indicate on the MLS listing that interested offers are to be submitted in three days. The seller hopes this will give many buyers the opportunity to visit the property during the three-day period and that this will result in multiple offers.

However, there is nothing stopping someone from delivering an offer immediately. The seller’s agent is under an ethical obligation to bring every offer to the seller’s attention. The seller then has the right to deal with the offer, if they want to.

Most sellers will instruct their agent to tell this anxious buyer to wait until the proper time period. However, if the seller wants to consider the offer, their agent will then change the information on the MLS listing immediately to notify every other agent that the rules have changed, and that offers can be submitted that evening. The agent will also likely call every other agent who has expressed an interest in the property to tell them personally that offers can now be brought immediately.

When a buyer agent has a signed offer, they will usually call the listing agent office to register their offer verbally. There is a protocol that has been established in Toronto that if you were the first to register your offer, you will be given the first opportunity to present it to the seller in person, if there is more than one offer. This is just a protocol, and does not have to be followed by every real estate firm.

However, an offer is not completed unless it is communicated to the seller or seller’s agent, either by personal delivery, fax or email. Therefore, a buyer can still cancel their offer at any time before it is communicated. That is why an offer might be registered but never delivered. The buyer changed his or her mind.

Why can’t we have a silent auction? When buyers make offers through an agent, the agent has an ethical obligation not to disclose the contents of any offer to any of the other buyers. A seller agent can only tell all other bidders how many offers were received. They cannot tell the price or identity associated with any of the offers. However, a private seller could take one buyer offer and just show it to another bidder. This is one of the main reasons private sellers have trouble creating bidding wars.

I think it was a lawyer who created the “sharp bid clause.” An example would be “I agree to pay $5,000 more than any other offer.” This clause would require the seller to tell the buyer what the other bids were so they could bid $5,000 more. An agent cannot do this based on their code of ethics. However, you could give this to a private seller in a bidding war, where the rules are different. If you are thinking of using this clause, I would caution you to add something like “not to exceed $X or a maximum price,” so you do not end up paying more than you can afford.

By understanding the bidding war rules, buyers and sellers can be better prepared for this extremely stressful negotiation.

Mark Weisleder is a lawyer, author and speaker to the real estate industry. Contact Mark at mark@markweisleder.com