A “Fair” Way To Review Multiple Offers?

We talk about this subject a lot on Toronto Realty Blog, but it’s an important topic for many reasons.

For starters, virtually every residential, freehold, single-family dwelling gets multiple offers, so it’s essential to know what’s going on.

But more importantly, every offer presentation is different, and as a buyer or a buyer’s agent, you never know how it’s going to play out.

I recently worked with a listing agent who reviewed offers in one of the more fair ways I’ve seen in a long time.  Let me explain…

Fairness

It’s been a little more than a month since I last dedicated a post to this topic.

Multiple Ways To Deal With Multiple Offers” was something I wrote back in May, in which I outlined seven ways in which the listing agent can review multiple offers.

Interestingly enough, the way I’m going to describe shortly, was not one of them.

The way I see it there are three pieces of information you, as a buyer’s agent, want to know in any multiple offer situation, or offer night:

1) How many rounds are there, or will there be?
2) How many offers will “make” the second round, if there is one?
3) Will you be given an indication of where you stand?

Sometimes, you get none of this information.

I was in a 25-offer melee two weeks ago, and the listing agent told me, “We’re going into round two.”

This was a listing agent who is more of the “team leader” in a sense that his name is everywhere throughout the GTA, but you only ever deal with him for five minutes on offer night, or for five minutes, if you’re a seller signing a listing.

He gave me nothing on the phone.  Absolutely nothing.

I asked him, “What do you mean round two?  How many of the 25 offers are you working with?”

He didn’t even tell me that.  He didn’t say, “We’re sending them all back,” or even that they’re “Working with the top five.”

He just said, again, for a second time, “We’re going into round two.”

I asked him, “Would you tell me where I stand?  If I’m 25th out of 25, would you do me the professional courtesy of telling me to go home?”

Guess what he said?

“We’re going into round two.”

He didn’t care.

He probably got a kick out of it.

I’ve always been of the mindset that you catch more flies with honey, in this business.

I’ve done five private deals this year with agents from other brokerages, simply by chatting, and keeping in touch.

I’ve “won” in multiple offers, several times, because the listing agent either liked me, or has worked with me before.

It pays to be professional, courteous, and thankful.  Trust me when I say that if you’re an active agent, it’ll come back to you down the road.

A few weeks back, I dealt with an agent who handled the multiple offer process in one of the most unique ways, but also one of the fairest ways, I’ve ever seen.

The property was listed at $1,499,900, and it had “bidding war” written all over it.

I hate that term, since people consider anything over-asking to be a “bidding war,” but in this case, it’s the kind of house where a buyer would pay more than they ever intended to, and might keep going and going well after he or she might have tapped out.

There were nine offers on the property, and all offers were to be submitted by email at noon.

As I always do, I asked the listing agent, “How will you be handling this?”

That’s a question that many agents fumble on, as they either don’t have a plan, or do, but don’t want to say.

This agent laid it all out for me:

“There will be two rounds of bidding.  All offers will be submitted at noon, and after all offers are reviewed, I will tell each agent where their offer ranks.  Agents can either re-submit, stand, or walk.  After the second round of bidding, the highest offer will win.”

Simple enough?

So first off, he tells us how many rounds there will be.  Many agents don’t tell you, and just as many buyer agents get mad when the listing agent goes back again, and again, as get mad when the highest offer “wins” after offers are submitted, and they cry, “I would have paid more in a second round!”

Secondly, he tells us that they’ll essentially give everybody an opportunity to improve, since they’re not really “working with” the top two, or five, etc.

And lastly, he tells us that he’ll give us an indication of where we stand, but more than that – he’ll tell us exactly where we rank!

That’s crucial knowledge as a buyer’s agent!

Sometimes there’s 12 offers and they tell you, “We’re sending them all back.”  You don’t know if you’re in first place, or last place.  I mean, you should, and I usually have a good feel, but imagine knowing exactly where you stand?

Three hours after I submitted my offer, I received an email from the listing agent, that was basically a form email used to all buyer agents, but gave me the following:

Hi David,

Thanks for your offer submission.

Your offer is ranking 6th of the 9 bids

It’s a great well-executed offer but your Buyer will need to show movement on:

1) Price

2) On Sunday evening the ‘Second Floor East’ tenant gave notice she was vacating by July 15th. I changed the MLS listing and uploaded a new schedule clarifying this. I’ve attached the revised Schedule which clarifies both units on the second floor will be vacant on closing. If your Buyer wishes to improve, please replace the previous Schedule B with this one.

FYI – I didn’t think our offer had a shot.  The bank pulled the carpet out from under us at the last-minute, and my clients had to go in $100K shy of what they wanted.

In any event, the email from the listing agent told us we were 6th out of 9 bids.

This told us, essentially, that we were out.

I did like how the agent listed off items that could be “improved upon.”

Consider the “2” that he sent me, might have told other buyer agents that their condition on inspection wasn’t going to fly, or that their deposit was far too low, or that their closing date was too long, or anything else that would help make their offer more competitive.

So imagine being the buyer that’s told “You are 1st of 9 bids.”

You know you’re in the lead, but you know that #2 or #3 could improve, and push past you.

If you’re told “You are 2nd out of 9 bids,” it’s still tremendous information.

If you thought you were way ahead, now you know you’re not, and you’re given a Mulligan.

If you thought your offer was crap, and you didn’t have a shot, now you know you’re in the game.

A cynic, or simply somebody who wants to point out the downside in all this, might still say, “Why the need for a second round?  Why make people “improve?”  Why not just take the highest offer from the start?”

Good point, but I think we all know in this market, a “second round” or any sort of opportunity to improve, even if it’s simply “working with the top two” is going to occur more often than not.

So if you’re a buyer, and you know there’s going to be an opportunity to improve, wouldn’t you rather know exactly where you stand?

I don’t see any real downside to this, except for the person in first place, who knows that the person in 2nd and the person in 3rd have been told where they stand, and that makes it more likely that they’ll make an aggressive move.

Then again, being told you’re in first is a tremendous advantage in itself, so perhaps its a wash.

I don’t remember the last time I’ve seen a multiple offer situation handled this fairly.

In fact, if I were to draw up “rules” from scratch, I don’t know that I could come up with anything better.

So consider that a challenge.

If you were tasked with creating a set of rules for which multiple offers were going to be reviewed, how would you set it up?

And yes, I’m sure many of you would say, “One shot deal, highest offer takes it,” so if that’s your style, then so be it.

But I want to hear from you, so please have your say below.

5 Comments

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  1. condodweller says:

    First of all, I agree despite all the grumblings from the buyer’s point of view it’s the seller’s agent in control. What makes the whole process interesting is all the while buyer’s agents complain about the process and want a more fair process for themselves, once the roles are reversed they will do whatever they think will get the most for their client.

    This is why I smile every time I see David complaining about various listing agent antics, one because he can’t change it, and two, he does whatever he thinks will get his client the most with roles reversed but can’t stand it when someone else thinks different.

    I love the strategies and tactics of the thought process of coming out on top, however, I still say that if a buyer doesn’t like the situation he/she should wait until he/she can have the upper hand and force the buyer’s hand.

    While this process is fair in terms of giving the buyer’s agents a comfort level of where they stand I see one issue from the seller’s point of view which is how do you get the deposit check? David said in the past that a large deposit helps win the deal. As the seller’s agent, I would ask for the amount of the deposit check with the offer in the email and would ask for it to be delivered within the shortest possible time possible to secure the deal so that I can still get the second bidder to deliver a check without knowing the strongest bidder backed out if they did not deliver a check.

  2. Kyle says:

    Usually when i hear of alternative ways for handling multiple offers, i have to do a massive eye roll, because the alternatives are always some variation on how to make the process better for buyers at the expense of the seller. Given that the seller is the one who owns the asset and is the one who pays for both Agents, expecting him to use an alternative process that gives buyers an advantage at his own expense MAKES ABSOLUTELY NO SENSE! Even worse are all the hair-brained calls for rules where sellers should be forced by law or regulation to handle the process in a certain way to make things better for buyers. As if buyers’ emotions and time were somehow more important than anyone else’s.

    The process described here however is pretty brilliant. It’s win-win for everyone involved. Seller gets reasonable assurance of fair market value. Buyers get to know where they rank and that they have one more chance. The whole process is done by email (not sure why this isn’t more common), so it’s efficient and eliminates much of the wasted emotion and time.

  3. Joel says:

    I like this process, but would like to add the actual amounts that someone is ahead or behind by. If you were 4th out of 9th, but knew that you were $100k back it makes a difference than if you knew you were 10K back.

    Same goes for the person in first as they would know if they are ahead by a couple of hundred or $50K.

  4. Dan says:

    While the specifics (multiple rounds, highest takes it) may change with each sale, I think the overall approach of the agent to clearly outline the process to the participating parties is the key differentiation here.

    You could go for a more prescriptive rules, but an overarching, “the bid process is presented clearly to all parties before at the start” could work.

    1. jeff316 says:

      “an overarching, “the bid process is presented clearly to all parties before at the start” could work.”

      That’s a good compromise.

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