A More Transparent Multiple Offer Process

You knew this post was coming…

After yesterday’s discussion opened the door to other ways of “auctioning” off properties – which is how some Torontonians would describe a typical multiple offer situation on a Toronto family home for sale, I figured we should follow up and talk about how to improve the current system.

One major problem with that, of course: there is no system.

Maybe that’s the first problem to address…

MultipleOffers

When trying to “pick” a price to offer on a property that has multiple offers, I tell my clients the following: “Find a price where you’ll be very happy to pay that amount if you are the successful bidder, but where you’re also happy to let it go if somebody bids $100 more.”

It wasn’t until last week when a client finally said exactly what I’ve always been thinking: “David, that’s the stupidest thing I’ve ever heard.  It’s impossible.:

Of course it’s impossible!  That’s the point!

But being involved in a multiple offer process, where you – the happy-go-lucky, nervous-nancy, first-time home-buyer are trying to “pick” a price to offer, in a blind contest, is almost mission impossible regardless.

Nobody really enjoys the process, except, of course, the eventual high bidder!

But is there any way to refine the process itself to allow more transparency?

Is there any way to satisfy the scores of buyers (and agents like me…) who are crying, “There has GOT to be a better way”?

I’m going to make a few suggestions below, some of which are far-fetched, some of which are simple solutions, and most of which will never, ever, be implemented…

1) Offer Registry System

So simple, right?

One of the major problems with multiple offer situations is that we don’t know (or don’t believe) how many offers are registered, and who has them.  You can call the listing brokerage at 6:30pm, when offers are being presented at 7pm, and ask, “How many registered offers are on 123 Smith Street?”  They might tell you, and that number might be up to date.  Or, they might not tell you.  Or, that number could be low, or high.  You just never can be 100.00% sure.

Every licensed real estate brokerage in Ontario should have an “Offer Registry System,” whether it’s via TREB or other regulatory boards, whether it’s a software program, or something in between, and this system should track ALL registered offers.

So simple!

But it will never happen.

I know that at my brokerage, and other full-service, reputable brokerages, we track all offers in our appointment system.  If the receptionist, or anybody at any computer at reception, pulls up a property’s address, it will show each and every registered offer, as well as the agent’s name and brokerage.

Unfortunately, this does not go on at every brokerage, and it never will.

Why?

Well, because of all those chop-shop brokerages that so many members of the general public believe will “help open doors to new business models,” ie. they’re crappy discount firms, with no brick and mortar, being run out of some licensed broker’s mother’s basement, whose phone line goes to a call centre.  Do you think they could have the capabilities to track all registered offers?

It’s so simple, folks.  But it will never happen.

But since this is an exercise, I’ll flush out my point here, and explain what I would like to see.

Every brokerage should have a central offer registry system, and every agent should be able to access it.  If I want to check and see if there are any offers registered on a property, I should be able to log into MLS – the broker version, and click somewhere to see HOW MANY offers are registered, and WHO has them.

It’s too easy for an agent from XYZ Realty Corp to tell you “There’s six registered offers,” when there are only four, thereby misleading you, and your buyers, to offer a higher price.  And more often than not, there are no repercussions for that agent.

I’m telling the truth here, guys.  Reputable brokerages would NEVER get away with that crap, and agents would be reprimanded by their brokers.  But if you’re dealing with a shady brokerage, and they tell you there are eight offers – ask to see a copy of the list of agents with those eight offers.  If the agent tells you “no,” then you decide if you want to proceed…

2) Dual Agency

I have a colleague who sits on the RECO Ethics Committee, and she says that more than half of all cases that come before the panel have to do with listing agents who double-end a property (ie. provide buyer and seller), in multiple offers, without feeling the need to inform the other agents that the listing agent has his or her own offer.

Shady as hell.  But it happens all the time.

The public often says, “Who cares?  The listing agent got the most money for the seller, and that’s what’s important!  What does it matter if he or she didn’t play nice with other agents?”

Well, two wrongs don’t make a right.  And for every happy seller, there are scores of angry buyers…

Some people think that dual agency shouldn’t be permitted, as it represents a conflict of interest.  I agree, but only in some cases.  If you’re representing the buyer and seller, for a property that’s been on the market for 6 weeks, and you have to somehow educate the buyer on what would be a reasonable offer, while not giving away the seller’s position, then yes, that could be a conflict of interest.

But if you’re in multiple offers, and you’re representing the buyer and seller, all you have to do is look at the highest offer, and then draft an offer even higher for your buyer to sign.  That isn’t a conflict of interest.

It’s unethical, illegal, cheating, and exceptionally shady, but it’s not really a conflict of interest.

Nevertheless, I think that measures need to be taken when the listing agent has his or her own offer on a property, when there are other offers from other brokerages.

At Bosley Real Estate, we always have a broker or manager take over for the listing agent, and review the offers, while the listing agent represents the buyer.  That’s the ethical way of doing things.

But again, we couldn’t really make this a rule via organized real estate, could we?  Because what if the agent IS the broker of record?  What if the agent works for a company with 2 other agents, and where the manager/broker is completely absent?  Or better yet, what if the broker/owner is unethical too and encourages this kind of behaviour?

Simple solution, impossible to implement.  Sad, but true…

3) Structured Bidding Process

This one is my favorite, because it would NEVER happen.

Think about the following offer situation…

The listing agent tells a buyer’s agent, “I’ll review the offers, and take the highest one.  No question about it.  You have my word: I will not send anybody back to improve.”

Then, after reviewing six offers, the listing agent takes the top three offers and tells those buyer agents, “We’re sending you all back to improve.  But listen – we are taking the top offer, no if’s, and’s, or but’s.  I guarantee it!”

Then, after reviewing those three offers, the listing agent tells the top two buyers, “You’re both so close, that we can’t make a decision.  So please go ahead and improve your offers, and we’ll pick a winner.”

So my question is this: is that unethical, or is it simply “negotiating?”

Some believe the former, but most believe the latter.  And seasoned real estate agents, no matter if they work with buyers or sellers, will tell you that this is “negotiating” at its finest.  They’re just playing the buyer agents like a fiddle, and dragging them right along.  A seasoned agent might say, “Hey, nobody has to play!  They can drop out at any time!”  They wouldn’t be wrong…

So what is my solution?

We have to implement some sort of process that adds transparency, structure, and formula, while not limiting the listing agent’s ability to negotiate the highest price possible for his sellers.

Somewhere, there has to be an identifiable, structured, “offer review process,” otherwise, it’s just mayhem.

And mayhem currently prevails…

4) Avoiding False Advertising And Misrepresentation

If a property is listed for $799,900, and it says in the broker’s remarks, “Offers reviewed on November 19th, 2013 at 7:00pm,” it’s not false advertising if a the seller turns down an offer of $799,900.

However, if on “offer night,” the seller gets two offers – one as high as $810,000, and they turn both down, they MUST re-list the property at $810,001, otherwise the $799,900 asking prices is blatant false advertising.

Well, up until recently, that was the rule.

However, my manager recently chatted with a broker of record at another firm (a well known firm, at that), and he told my manager, “We here at XXX Realty respectfully disagree.”

The case in question was exactly as described above: a Bosley agent submitted an offer on a property that was over-asking, and the seller turned it down, but continued to offer the property for sale at the original list price.

My manager called the listing agent’s broker of record, and that broker simply said, “We disagree.”  The property was continued to be offered at the price which the seller was NOT going to entertain.

That is false advertising, in every sense of the word.

This cannot continue, and if it’s a new trend, it’s a terrible one.

This type of behaviour has to be reprimanded by organized real estate boards, otherwise, what purpose do they serve?

That’s my list, folks.

And it’s a short one, believe me!

As always, I’d love to hear other suggestions.

Just keep in mind that as I’ve noted above, real estate is far from perfect, and some of these solutions or ideas would be impossible to implement.  We also have the Competition Bureau barking at us every time we try to “force” a brokerage to do anything, whether it’s for the good of the public or not, as it would be deemed “anti-competitive” to force brokerages to do anything they don’t want.

Some of my ideas just couldn’t be implemented because of the doors that have been opened in the past few years, all of which were opened, apparently, to help consumers.  Kind of ironic, but I digress…

23 Comments

Post A Comment

Your email address will not be published. Required fields are marked *

  1. Kyle says:

    Just want to add that i am not directing any sort of animosity toward you Joe Q, frankly whether i agree or disagree i like reading your posts.

    My “direct” tone is me, trying to underscore how utterly ridiculous this discussion is. The idea of proposing how to fix what is “wrong” with the current process, just so that Johnny or Sally doesn’t feel so bad when they lose, is just as absurd as overhauling the entire testing, grading and school system, so that Little Johnny and Little Sally never have to feel bad about failing.

    As far as i’m concerned it comes from the exact same self-centered, misguided, entitled, thinking. The one big difference is that in the school example Little Johnny and Little Sally end up suffering in the long run, whereas in the multiple offer example, it would be the sellers getting completely screwed over.

    1. @ Kyle

      Very nice!

      You and Joe Q. are having a well-structured debate, and I’m glad you felt the need to highlight that you’re “not directing any sort of animosity.”

      You guys are two of the more astute and savvy commenters on this blog, and I thank you for your continued contributions.

      Your back-and-forth on this thread is essentially a blog unto itself!

      1. Joe Q. says:

        Thanks David, I’m blushing. LOL.

        As I said, I think Kyle and I do agree on quite a bit, we just come from different perspectives and so we are “bothered” by different things.

        1. Kyle says:

          This is exactly right, while we disagree on some aspects, we agree on many others. I certainly don’t condone any of the pricing shenanigans, sending everyone back to improve over and over and over, or allowing late comers to crash the bidding party. And even when i am selling i would not resort to these tactics. But the reality that needs to be accepted is these tactics will exist so long as there is a potential economic incentive for them to exist. And you’ve nailed it, real estate is indeed a game. A big huge emotion-fraught game with poorly written rules. Best thing for anyone to do is recognize this and to strategize with it in mind.

          1. ScottyP says:

            I’m drunk right now (4:07am in Japan… so no, I’m not a midday lush)… and I’ve got to say, between Kyle, Joe Q., and jeff316, this is by far the best thread of the year.

            I’m not quite sure what my opinion is on all this. Every time I read one of your posts, I’m like “Yeah, right!”. Then, upon hearing the counter-argument, I’m like “Yeah, that’s right too!”

            Final conclusion? People shouldn’t be dicks. Not saying that any of the above-mentioned posters were being particularly dicky, of course… just that dickery seems to be the name of the RE game, and that there really is no rationalization for being a complete dick, no matter how many extra $$$ you may feel you can garner by being one.

            Put another way, karma’s a bitch. May all seller-dicks be warned. One day, when you complain about being on the short end of the stick, maybe no one will be around to listen….

  2. Kyle says:

    Jeff316 put it much better than i did.

    What a sore buyer considers “sleazy”, a seller may consider “top performing”. Likewise what you consider a knock on the industry image, others may consider to be top quality service. So using the Industry image as a justification is pointless.

    There are two consumers in this equation – buyers AND sellers and as a i keep pointing out, only the seller pays the bills. So what is your justification to tilt the market in favour of the buyer at the seller’s expense? Why should a seller who is paying for the transaction have to give up considerable negotiating leverage, just so losing buyers feel less butthurt?

    Like i said in the auction world that you favour, the buyer pays the bills, that’s the price of transparency. But you seem to think that we should have some unique auction model, where buyers get all the benefit of transparency, without having to pay any form of premium. To use your own argument what other form of commerce has a model like that? Answer none, because it makes no economic sense. I too would love to have my cake and eat it too, and have a few extra cakes lying around in case i get a craving. I was wrong to suggest that this is an “inexperienced buyer” perspective, i think “entitled buyer” may be more appropriate.

    1. Joe Q. says:

      You’re right, maybe I am inexperienced, naive, and entitled. We’ve only ever made one offer on one house — a multiple-offer situation which we won — and are still happily living in it. Maybe when it comes time to sell, we’ll see the light and realize that paying the Realtor’s commission entitles us to introduce as much opacity as possible into the selling process, thereby helping us coax the maximum possible purchase price from the buyer community.

      But satire aside — and to reach a resolution here — I know that you (Kyle) are trying to educate others to be pragmatic, and I strongly agree that that is crucially important (this is why first-time buyers need a good agent). You have the experience of having bought and sold many houses, and so what seems like a game to less-experienced buyers looks more like a system to you — you have been through the process many times in the current market and are more comfortable with it.

      In our case, we were pragmatic in own house purchase, had a good agent and did a tremendous amount of research beforehand to understand both market values and the “system”, knew what we were getting into, made an offer (at what we believed to be a reasonable price based on our research) and got the house — yet I still see the experience as something of a “game” that has flaws that need to be remedied. I have a very strong feeling that most people — not just first-timers, but those who have a more typical pattern of owning maybe four or five homes over their adult lives, buying and selling every 8-10 years — also see the process as a “game”, based on the overall perception of the real-estate industry (see below).

      I think you and I agree on many of these potential remedies, as described by David in his post. Having clear fixed system-wide rules about dual-representation, structured offer processes, offer registration, and false advertising / bait-and-switch / whatever you want to call it, would provide transparency that would indeed work to reduce sellers’ advantage, but that would bring some much-needed integrity to the industry and cut down on the “game” image.

      Here’s hoping that the RE industry’s professional associations find the fortitude to rein in the “mayhem” (to use David’s words) and improve their profession’s image by setting clear rules and enforcing them.


      As mentioned above, a few links describing the general public opinion of the real-estate profession — it’s not a positive picture:
      http://www.hcplive.com/physicians-money-digest/lifestyle/The-10-Most-Dishonest-Professions
      http://www.roymorgan.com/findings/image-of-professions-2013-201305020534
      http://www.readersdigest.co.nz/most-trusted-professions-2013
      http://www.readersdigest.ca/magazine/2013-trust-poll/job-fair-most-trusted-and-most-distrusted-professions?id=2
      http://www.inman.com/2008/03/19/real-estate-least-trusted-profession/

  3. jeff316 says:

    What is the harm with sellers listing below a value they are willing to accept? Don’t tell me that it is annoying – lots of market activity is annoying. And don’t tell me that it is false advertising – because we’ve gone over this again, and again, and again – listing a house is an invitation to treat, not an offer of sale.

    I mean, look at the history of this discussion. David’s written on this a few times and his justification for any action beyond a bid registry system is, at best, weak. (No offense.) Joe Q is consistent the most reasonable and coherent poster here, and even he can’t come up with a strong rationale.

    All of us – both those for, neutral and against – need to start answering the real questions. What harm does listing below value do to the economy, to sellers and to buyers? What harm does negotiating up do to the economy vs. negotiating down? Who is advantaged and who is disadvantaged by regulating a process or prohibiting under-priced listings? What are the unintended consequences of regulating additional transparency? What will happen to bidding and sales strategy, and what impact will this have on prices? What have other jurisdictions done? (Hint – Australia’s a great example of an auction system. And one of the most overheated housing markets in the world, despite not-rock-bottom interest rates and weak job numbers.)

    And those aren’t even the biggies. The one everyone is sidestepping is why does a buyer’s desire for transparency override a seller’s right to sell his/her individual property in the manner that they see fit, according to the conditions that they see fit, and to the person of their choosing?

    What is so wrong, so terrible, so egregious that the government needs to step in and do two things it almost never does – regulate how transactions must take occur, and, if we take it as far as some are suggesting, force individuals to part with their property on terms that may be against their free will?

    I’m not pro bidding wars or pro listing under value. Look, if people just want to play public policy Sim City because it’s interesting and fun and cathartic and emotionally satisfying, by all means, have at it. But until we start answering the big questions, this is nothing but a big honkin’ vent.

    1. Joe Q. says:

      Thanks for the compliment (though I’m not sure it’s deserved). I tried above to advance the argument that the current system makes the whole RE industry look sleazy, and thus Realtors actually suffer in the long-term, but perhaps that isn’t persuasive.

      Regarding “invitation to treat” — I am not a lawyer or a businessman, but my understanding is that this concept applies more to tenders than to actual marketplace transactions. Perhaps “false advertising” is an incorrect term — “bait-and-switch” certainly wouldn’t be. I would appreciate links that explain (hopefully in layman’s terms) why it is legal to publicly use the words “for sale” and a fixed dollar amount, while simultaneously refusing to accept unconditional offers at that dollar amount. Hopefully also with examples of other areas of commerce where one is legally allowed to simultaneously advertise an item for sale at a particular price and refuse offers of purchase at that price.

      1. jeff316 says:

        Oh it’s persuasive, and I don’t disagree with the perception – no argument there and you’re completely right. There’s a lot the industry could do – some of which is identified in David’s post.

        Sometimes all you need is perception to regulate. I don’t know that it’s enough here – particularly as some of the proposed measures pertain to multiple bidding processes and clean bid acceptance and get pretty darn draconian. (Plus, other industries being regulated hasn’t really removed their sliminess factor anyway.)

        My argument, it should be said, is more about the ‘forced sale’ and ‘structured bidding process’ solutions. Because they won’t work, the unintended consequences will be significant, and they’re way out of line with the problem, let alone the perception. I don’t have a problem with registries and dual representation rules or the industry self-regulating its own behaviour.

  4. Geoff says:

    “I like and agree with point 4. I’ve often though that requiring to sell if the asking price is met would go a long way control bidding wars.”

    The problem is that there are other variables at play other than price. An offer meeting the asking price but with a 2 week closing date, or a deposit of $1000, or talk of tearing down a 50 year old family home after purchase are all things that might cause a seller to balk.

    Personally, I think the easiest way for transparency is to simply that let all the selling agents into the room, and have them present their offers one after the other. Any agents who can’t shut up for 10 minutes will be asked to leave and explain to their clients why they were kicked out.

  5. Long Time Realtor says:

    I’m afraid the current system of handling multiple offers is just like capitalism. The worst system ever, except for all the rest.

  6. Kyle says:

    I think the discussion of what is “wrong” with the process may be all well and good, but at the end of the day it’s still purely academic. Yesterday i suggested the answer isn’t to point the finger at the system, rather buyers should become more educated about the process and the market (or get representation from someone who is), and i still firmly stand by this. If buyers want a better chance in multiple offer situations then debating, complaining or fantasizing about a different process does nothing for them, other than give them an outlet for commiserating. If anything, it’s probably counterproductive. I think what makes more sense is to come at it from a practical approach, like discussing how to go in with eyes open.

    I do not work in real estate, but have been in plenty of multiple offer situations (both as a buyer and a seller, as a winner and a loser) to come away with the following. These have worked for me, but my experiences is just a tiny miniscule sample, so by all means feel free to disregard if you like.

    1 – Offer Registry system. This seems to be a best practice. All of the situations i’ve ever been in make sure offers are registered by the deadline. My agent(s) always confirm how many groups there are multiple times though out the day and after the deadline, and they call out the listing agent if they are not immediately notified about changes. Not sure there’s much leverage available here (other than to walk), but i would never let my agent silently accept shenanigans. If all buyers’ agents held the few listing agents that don’t register offers to a higher standard then it would reinforce this best practice into a standard practice and those that don’t do it will have to evolve or die

    2 – Dual Representation. Your agent should ask if the listing agent is representing any of the other buyers. Of course inside information and a potential a rebate to the seller will give the dual represented buyer an advantage, but ultimately economics wins out. If you want the house, and are willing to go higher than the dual represented buyer is (even factoring the listing agent commision rebate) then you WILL win, just know that you will be at a large disadvantage and be comfortable with the price you offer.

    3 – Structured Bidding. Again, there seems to be a best practice around this, as most situations i’ve been in have either been best offer or let the top two improve. But beforehand, my agent(s) have always asked flat out, how is this going to be handled? Will it be best offer or will we get a chance to improve? etc? I think there’s lots of leverage and strategy that can be employed here, but ultimately if you aren’t consistently coming within 3% of the winning price, then the problem isn’t transparency, process, structure or strategy. The problem is you need to get educated on market values STAT, and adjust your expectations accordingly.

    4 – False Advertising. Never been in this situation, but from what i’ve seen, this strategy usually backfires on the seller, especially with the speed of information travel and coverage on the internet these days. I say let the market ravage them.

    1. Joe Q. says:

      The move to more transparency is not IMO really about people who “want a better chance in multiple offer situations” (if that’s what it’s about, the simplest thing would be just to offer more money for the house, as you allude toward the end of your comments). It is really about the business practices and reputation of an industry. There is a direct connection between chicanery like double-ending deals, hiding known physical defects, sending everybody back to “improve” even after promises to the contrary etc. and the low marks Realtors as a whole get for trust / integrity. These practices get more money for the seller, but make the industry look slimy. I think this is what David is getting at.

  7. Jim Smith says:

    I like and agree with point 4. I’ve often though that requiring to sell if the asking price is met would go a long way control bidding wars.

    I also thing a fully open bidding system should be implemented, where all agents can see the full details of the competing bids, including the price. That way, when you have a $680,000 house listed at $599,000, and 10 bids come in, you can see that 8 of them are trying to get it for asking price +/- $5k and that there is only one other real competitor.

  8. Joe Q. says:

    Good post, David. Others will argue that anything that “adds transparency, structure, and formula” to the process will impede the listing agent’s ability to negotiate the highest possible price for a given sale, and thus will never fly. There is merit to this argument. It may take the force of (presumably provincial) law to get things to change.

  9. Joel says:

    I really like the points that you are making here and think that there needs to be a way to keep people from listing houses lower than they would accept an offer for. if the seller were to put out their conditions of sale ie closing date, no financing, no home inspection and get an offer of asking price they should then legally have to sell. They would still be able to sell to a higher bidder if one arose, but this would get rid of some of the ridiculousness of listing much too low or turning down offers over asking.
    If you listed for 700K with 60 day close and no conditions and had an offer for that on offer night and an offer for 750K then you could take the 750K offer, but if only one offer came in you would have to sell at 700K. This would greatly improve the transparency in what sellers actually want for their house and allow buyers to bid higher if they want it.

    1. Joe Q. says:

      This is a key point, especially in light of David’s comment about the broker who feels there is nothing wrong with turning down an offer at a particular price, then continuing to list at that price.

      At some point you wonder what the point of having a listing price is. I don’t know of another area of commerce where one can advertise an item at a certain price, while simultaneously turning down offers to purchase at that price.

      1. jeff316 says:

        The auction industry is your answer.

        Why? Because it also has the two features that are unique to real estate transactions – the presence of conditions of sale and the items being sold are the personal property of individuals.

    2. jeff316 says:

      And what about the situation where the buyer submits a clean offer and 60 days close dependent on financing or home inspection?
      And what about the situation where the buyer submits a clean offer and 60 days close but a 1000$ deposit?
      And what about the situation where the buyer submits a clean offer and 60 days close but wants to tear the house down?
      And what about the situation where the buyer submits a clean offer and 60 days close but wants access to the property every other week until close?
      What happens then?

      1. joel says:

        Well… all of those scenarios would be outside of the sellers set conditions I mentioned above and therefore would not be subject to a situation where they must sell.

        1. jeff316 says:

          So then the requirement to sell on a clean offer is effectively meaningless for most sales because it is near impossible for a buyer/seller to account for all potential conditions.

      2. Al says:

        A “clean offer” in the Toronto market, in multiple offer situations, is one without a financing or home inspection clause. So your characterization of that type of offer as “clean” is not correct.

        And nobody cares what you do with our houses once they are sold and you take possession. It’s none of our business at that point.

TWEETS