Multiple Offer Myths
As I write this blog post on Sunday night, I’m reviewing multiple offers on a listing of mine, for which we were supposed to review offers on Tuesday night, but that damned “bully offer” reared its ugly head on Sunday afternoon.
No matter. I couldn’t wait to drop everything I was doing, put my one day-off per week on hold, and get to the laptop…
My mind is racing with potential blog fodder from this experience, FYI. I’ll save it for later in the week, but w-o-w have the phone calls been awkward today. I’ll tell you all about it on Wednesday.
I now find myself in the (un?)enviable position of being the listing agent, with multiple offers on the table, and trying to play fairly.
I run a fair game, for what it’s worth. I just got off the phone with an agent who said he “might” be able to get his client on paper at a number that is about 15% lower than the bully itself, and rather than waste his time, I told him, “You’re not in the running on this one.”
Some might argue that I shouldn’t give him that courtesy; that I shouldn’t be cordial, polite, or helpful, and let him hang himself with the very length of rope that he seems to be holding. But keep in mind, I already have the bully offer in hand. That offer is already in my possession. This isn’t like the situation I described in my Friday blog, where the listing agent was telling buyers and buyer agents that the seller wouldn’t consider any conditional offers, thereby eliminating multiple bidders from the process, who could drive the bidding higher. In my case, I already have the offer in hand, which is an absurd price.
Either way, the point is simply that listing agents can run the process however they like.
There are, however, a few rules agents must follow.
And this is what I wanted to discuss today.
Last week, I wrote about OREA’s “Final Report,” and how they advised the Real Estate Council of Ontario to update the Real Estate and Business Broker’s Act to add transparency to the process, and allow sellers the option of providing a more open bidding process.
I wholeheartedly agree that REBBA, 2002, needs to be updated, amended, or even re-written.
But in the fallout that resulted from the Final Report, I noticed a lot of incorrect information about how multiple offers are handled in Ontario (specifically Toronto), not just on comment boards and among the general public, but within actual media reports!
So let me clear up what I believe are the five areas where the most misinformation exists, and make note of places where I did see incorrect reporting last week.
Here are my five myths for multiple offers:
Myth #1: You don’t know how many offers there are.
With respect to all the hard-working journalists who wrote articles on the topic of multiple offers and transparency last week, I noticed a couple got this point wrong.
There is absolutely, positively, no confusing this point.
Now a situation may arise when a feeble, inexperienced buyer-agent doesn’t know how many offers there are on a property, but that doesn’t mean he or she can’t find out.
Save for that exact case, you always know exactly how many offers are on a listing. To not know, truly would be “blind bidding.”
It was this point being misrepresented in the newspaper that prompted me to write this blog.
Imagine a situation where a property is listed at $999,900, and you make an offer on the scheduled “offer night.” You don’t know how many offers there are, as per the point in the media. Do you offer $999,900? $1,100,000? $1,500,000? How can you know what to offer if you don’t know who you’re bidding against?
To believe in the myth that “you don’t know how many offers there are” is just incredibly naive.
Myth #2: The listing agent can lie about the number of offers.
Incorrect.
This has always been the cardinal sin among agents, but just in case anybody ever thought about fudging the numbers, the “Offer Summary Document: Form 801” was brought into our world three years ago, to ensure that every listing agent must keep a record of every offer ever registered.
There are times when the number of offers can be confused. Look to the fly-by-night brokerages; the Guy-In-His-Condo Realty’s of the city, for how and when it can be tough to really gage how many offers there are on a listing. Call Bosley, Re/Max, Royal LePage et al, and the front desk is tracking every registered offer. But call the one-man-show, and you get a call centre in Sudbury…
In any event, the listing agent him or herself is the best resource for knowing how many offers there are. Calling the front desk is what you do when you don’t want to hound the person you hope to be working with later that evening.
And that listing agent, cannot lie about how many offers are registered, as you, the buyer agent, have a right to ask for the Form 801’s.
If that agent did lie about the number of offers, he or she is a slam-dunk to be fined up to $25,000 at RECO.
I will admit, the fine isn’t automatic, and it isn’t enough. But the bottom line here is this: I’ve read in the media that agents can exaggerate how many offers are present on a listing, perhaps in the same way that, say, cops can lie to a suspect during an interrogation. Almost like the exaggeration, or lie, is a negotiating tactic.
But it doesn’t work that way.
And if the public thought this was true, then they ought to never offer on any property, ever.
Myth #3: There is always a second round of bidding. Lower offers always get sent back to improve.
Not true.
In fact, I would say that the number of times I’ve been told, “Sorry, we’re going with another offer,” is likely more than the number of times I’ve been told, “We’re going to send you back.”
Nothing is automatic when it comes to multiple offers, because there is no one, set, regulated structure in place. And while it would be easy to suggest there should be, that would remove much of the negotiating from the process, as well as the seller’s right to make decisions.
It is quite common for the listing agent to send back the top, say, two bidders, in a multiple offer process.
And I’ve come across agents in the past that have 18 offers, and simply say, “We’re sending everybody back.” I hate that, since the guy at $900,000 with two conditions, on an $899,900 listing, doesn’t need to be “sent back” in the same group as the guy at $1,200,000 with a $200,000 cheque in hand. But as I said, every agent is free to run the process as he or she chooses.
But much of the public seems to think there’s an automatic “second round,” or that everybody gets another shot. This belief would no-doubt shape a buyer’s strategy and/or bid, and it’s a shame, because a lot of buyers get left behind thinking that they’ll be asked to resubmit their offer no matter what.
As with everything else in a multiple offer scenario, it’s crucial that the buyer-agent have direct, personal access to the listing agent, and communicate effectively to understand the process both before and during the presentations.
Myth #4: There is no point in submitting an offer when the listing agent has his or her own offer.
In certain cases, I would agree. And I see where this myth takes shape.
There are a couple of agents in the city of Toronto (and I’m sure my readers could name these agents in the comments section below) who are absolutely notorious for listing properties on the MLS system, with absolutely zero intention of “cooperating” with other agents. Their sole intention is to solicit buyer-clients, and use these cooperating agents as bait to escalate the price to a number that their new-buyer-client will pay, and their seller will accept.
But save for these couple of agents, you can’t assume that just because a listing agent has his or her own offer, that you’re automatically going to lose.
And you know what?
I actually like when a listing agent has his or her own offer! Because agents and buyers who believe in this myth, won’t submit offers. And that keeps the price lower, and increases my probability of winning.
Now to understand why this point is a myth, you need to understand where the listing agent’s “own offer” comes from.
Give it a think.
Would you believe that, say, the listing agent puts a property up for sale, and then suddenly realizes he or she has a buyer-client interested in the property, shows it to the client, and ends up bidding on the property with that buyer?
Maybe.
But in reality, the number-one reason why a listing agent would have his or her own offer on his or her own listing is…….
…..pulling a buyer from the open house.
And now you see.
Obvious, once you’re told, right?
Many buyers these days want to work with the listing agent, because they think it gives them an advantage. And that, in itself, could be another myth. But in reality, many buyers who are walking around, unrepresented, and who feel they have a leg up in this situation, really don’t understand the market. And they’re most certainly not going to be the highest bidder in a multiple offers situation, as a result.
Many listing agents will submit an offer on behalf of a buyer that they met at the open house, even if it has no shot of being accepted, because it creates an agency relationship (even if just for that one day), and opens the door to a potential relationship, and sale, down the line.
So when I hear a listing agent say, “I have my own offer,” I’m not afraid. I just assume it’s somebody they picked up at the open house, and I move forward with my buyer-client.
You’d be wise to do the same.
Myth #5: Listing agents and buyer agents from the same brokerage will collude.
As with the point above, there are agents, and brokerages, where this will happen.
I bid on a house in April of 2017, and when it was over, and the ‘winning’ buyer agent was from the same brokerage as the listing agent, my colleague who presented my offer on my behalf said, “It was never in doubt. There was no way that (buyer agent name) wasn’t coming out of here with the sale.”
It can happen.
But I can tell you from experience, it’s far, far from automatic.
To be blunt, I could not possibly care less where a cooperating agent comes from, and I would never go out of my way to help an agent from my firm.
Why?
Because there’s no upside. Only downside.
You could argue, “If you help the agent from your firm, then the seller can get more money!” True. But I could help any agent from any firm and the seller would get more money.
My firm isn’t huge; we have four locations in Toronto, and about 250 agents. But having said that, there are still a lot of agents I don’t know.
So then what about an agent from a brokerage with 800 agents?
What about a “franchise” brokerage? Would you argue that they tip their hat to one another? An agent from Re/Max ABC Corp helps an agent from Re/Max XYZ Division? I don’t think so.
There’s no upside here, plain and simple.
I value my reputation and good standing in the industry far too much to ever stick my neck out for somebody that merely shares the same logo on their business card as me, especially when there’s nothing in it for my seller.
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Any questions about specific situations, please comment below.
I’m curious to know what many of you think goes on in multiple offers, what you’ve experienced, and what you want to know.
Franky B
at 8:26 am
David, topic for another post, but I for one would love to hear your thoughts specifically around the question of whether a buyer has a higher likelihood of winning if they are represented by the selling agent.
And is there a way through sold data of checking empirically?
David Fleming
at 7:25 pm
@ Franky B
This depends on the property, the agent, the level of competition, and of course – the buyer.
The problem with the belief that you stand a better chance of “winning” by offering through the listing agent is that most buyers fail to take into account that they’ll have to offer the most money. In my experience, most of the buyers who want to offer through the listing agent are clueless, inexperienced, and naive. That’s a gross generalization, and there are exceptions to the rule, but this is based on my experience.
Almost every time I receive a call from an unrepresented buyer who wants me to submit their offer, it’s for a poor price, with conditions, and often has clauses that are incorrect, ie. they try to contract out of law.
Often times an unrepresented buyer fully expects the listing agent, in competition, to throw in their buy-side commission. This is a fair request, but it’s not automatic. Many buyers assume it is, and often, as I mentioned above, they try to contract out of law, ie. including a clause that says the listing agent will reduce the commission by 2.5%, which ignores the fact that the listing agent is in another contract with the seller. In a case where the listing agent does reduce the buy-side commission, they have to disclose this to all the other buyer-agents. Many agents simply won’t take on the buyer-client, because they know that a reduction in commission will show weakness, and it will actually hurt their perceived leverage position as they work on behalf of their seller.
I would never represent a buyer on one of my listings, in competition.
My reputation and good standing is worth far more than a few thousand bucks.
SW
at 8:30 am
Selling agents who use odd tactics to only favor their own buyer-clients… hmmm…. very tempting to name as it’s so blatant
Maybe it would TREB to wake up
Appraiser
at 8:42 am
TREB October data out this morning:
Sales up 6% year over year. Prices ahead 3.5%.
5 months in a row where both numbers are higher.
Did someone say the correction was in the rear-view mirror?
Could it be the mythical, ‘unicornian’ soft landing?
Let’s hear it from the crash-test dummies.
Chris
at 8:52 am
But bear in mind for all of these stats, that just because it was better than last year doesn’t mean it was a good month. Sales are still having an off year historically; it’s just that it’s “less bad” than this time last year.
– Scott Ingram
https://twitter.com/areacode416/status/1059330220019322880
Geoff
at 10:29 am
I can’t hear your comment Appraiser over the sound of all those axes you’re grinding….
Housing Bear
at 4:35 pm
I will start by saying the October numbers were better than I thought they would be, I did not expect total sales and average prices as a percentage to jump as high month over month from September as they did (both of these numbers should jump though) . Then again, last months numbers were terrible.
But I’m not sure what you are talking about when you say 5th month in a row. Sales were down MOM August to September this year. If you are talking about trend, August 2018 sales were up higher YOY as a percentage than September 2018 was (8.5% vs 1.9%) . Same thing with Prices (4.7% vs 2.9%). August 2018 was better on YOY basis than both of the two metrics you pointed out for October. Average price has only been increasing month over month since August………so three months. Which happens every year at this time. Total active listing are still trending up.
Every month you say the correction is in the rear view. I would say anyone talking about a soft landing is selling you pixie dust, please find me one, but calling that a “mythical unicorn” works too. I’ll give you that one Appraiser.
On a side note, did you read the BOC statement from last week? I can help you predict one thing that for sure will be going up.
Appraiser
at 9:23 am
Also from the report:
“Annual sales growth has outstripped annual growth in new listings for the last five months, underpinning the fact that listings supply remains an issue in the Greater Toronto Area. ”
Where’s the crash dummies?
Housing Bear
at 9:44 am
Active listings are still up. The Toronto domino hasn’t dropped yet, but neither had Vancouver at the start of the year, or multiple other “world class” cities this time last year. NY, LA, Sydney, etc
We can do this song and dance again next month. Bets are in for July
Chris
at 9:52 am
Vancouver is looking brutal. Sales volume collapsing while inventory piles up. Current MOI is above 7.5.
http://creastats.crea.ca/vanc/images/vanc_chart04_xhi-res.png
Chris
at 9:47 am
The reasons why new listings is a poor metric has already been explained to you on multiple occasions.
Pay attention, dummy.
Derek
at 9:56 am
Again, great post.
There are a few weak agents out there. We had used a husband/wife combo (relative of a friend) and were losing bidding wars in 2010. We were so uninformed–first-time buyers–and the agents did not make any effort to educate us. Just rinse and repeat. After half a dozen or so, there was one where I finally got to witness the husband in action and he was so offensive, arrogant and rude to the listing brokerage’s receptionist on offer night that we had to fire him. As an aside, the offers were being presented in one conference room and I was waiting in the adjacent conference room. Heard almost every offer. I thought that was horrible and unfair to the other buyers, despite the fact it could have worked to our advantage, if I had decided to outbid the highest offer that I literally heard with my own ears.
Condodweller
at 8:20 am
Interesesting. You gotta love those thin office dividers. We had a discussion about the difference between the winning bid and the second offer recently. Care to share with us what the difference was in your case since you are in a unique position to know?