The Real Estate Council of Ontario (RECO) recently published a brochure with some consumer focused information about competing in a Multiple Offer for a home in Ontario. The publication offers some good tips on setting an offer price and understanding the risks involved when excluding conditions on financing and inspection. The brochure unfortunately falls short by not recommending any new rules or guidelines on how the real estate industry should manage multiple offers and how to improve the transparency to consumers.
When more than one buyer competes for a home in Toronto, they have to put their best offer forward from the start because the seller typically accepts the best offer presented. The best offer is usually the one with the highest price and fewest conditions. Most buyers who win multiple offers often exclude a condition on financing and inspection in order to make their offer more attractive (See Realosophy's Home Buyer's Guide to learn more about the risks of removing conditions from your offer).
What makes multiple offers particularly stressful for many buyers is the lack of transparency. Buyers are only told how many other buyers are competing for the same house. They know nothing about the contents of the other offers, who the other agents are or even what brokerage they work for.
This lack of transparency can be particularly problematic when offers are being presented via fax. Suppose your agent faxes in your offer to purchase a home and later that same evening the listing agent informs you that another buyer has faxed in an offer for the same house. The listing agent then asks your agent if you would like to improve your offer given that you are now competing with another buyer.
The first question every buyer asks in this situation is how do I know the other offer is real? How do I know it’s not a Phantom Offer? It’s not uncommon for another buyer to come in at the last moment but how do we ever know that the new offer in our particular situation is real and not fake? (See Realosophy's Home Buyer's Guide to learn more about Fake/Phantom Offers)
The first step our agents take in these kinds of situations is to ask the listing agent who the other buying agent is and what brokerage they work for. This information is important because if our client happens to win the property, we can at least follow up with the other buying agent to confirm that they in fact put an offer on the property.
When representing sellers, it’s our brokerage’s policy to always disclose the name and brokerage of the buying agent for every competing offer. I find that most professional listing agents share the names of the buying agents who are representing buyers because they want there to be more transparency in the multiple offer process. Shrewd listing agents also know that the more comfortable buyers feel about the process the more they are willing to spend on a home.
I have come across listing agents who refuse to disclose any information about the other buyer’s agent. Here our buyers are faced with a difficult decision; do they stick to their original price and risk losing the house if the listing agent is telling the truth or do they pay a premium knowing full well that the listing agent could be lying about the other offer?
The real problem with the multiple offer process is that the lack of transparency makes it very difficult to prove when a listing agent is acting unethically.
In a recent Toronto Real Estate Board task force on Multiple Offers, the Real Estate Council of Ontario reported that they received one complaint regarding phantom offers over a nine month period and fifty complaints regarding the offer process in general. The task force concluded that the number of complaints was relatively low given the 87,000 real estate transactions in the Greater Toronto Area in 2007. As a result they offered few recommendations on how to provide more transparency and consumer protection into the multiple offer process.
Here my views differ from most others in the real estate industry. We should not be looking for evidence of unethical activity before implementing new consumer focused policies in the real estate industry. We simply need to look to RECO’s mission which is to foster confidence and uphold integrity in real estate transactions. Adding more transparency to the multiple offer process by making it mandatory that the name and brokerage of every buying agent be disclosed would move us one step closer to this mission.