A 'bidding war' may sound like a military incursion fought over a real estate purchase, but really, it simply means there is competition from multiple buyers, all submitting an offer to purchase the same property and then increasing their offer to compete. It can cause frustration and serious issues for buyers looking for their next home, and can be very rewarding for sellers who end up selling for much more than they are expecting.
The competition in today's seller's market, where supply is low and demand is high, pushes buyers to submit offers with a price much higher than the list price, and in order to keep their offers competitive and 'clean', they may even exclude some conditions that would otherwise be reasonable to include such as a home inspection or even a financing condition. However frustrating or rewarding a bidding war might be for buyers and sellers, bidding wars are not absolute chaos and there are rules and guidelines for agents to follow when handling multiple offers.
Ethics
The Canadian Real Estate Association (CREA) has a Code of Ethics all REALTORS® must follow as a standard of conduct based on moral integrity, competent service to clients and customers, and dedication to the interest and welfare of the public. This standard ensures the protection of the rights and interests of consumers of real estate services. Under this code, REALTORS® have a duty to protect and promote the interests of their clients. This duty would require that if a client wishes to encourage a multiple offer situation and possibly a bidding war, it is the REALTORS® obligation to do what is best to promote their client's interests.
REALTORS® also have an obligation to disclose if they are representing multiple clients in a specific sale, such as if they represent both the seller and a buyer, since all parties need to provide informed consent, and no private information regarding motivations, circumstances, etc. is to be shared between parties that might give an advantage to either party.
Manitoba Disclosure Rules
When there are multiple offers submitted for a property, and there is a set date and time when offers will be presented to the seller for review and consideration, the listing agent is required to communicate to all buyers or their agents that there are multiple offers and may provide the total number of offers. Generally, this is done an hour to 15 minutes before the offers will be presented and this provides an opportunity for buyers to consult with their agents and decide if they wish to make any changes to their offer. If changes are to be made, the buyer or their agent will communicate the changes to the listing agent who will update their submitted offer.
According to the Manitoba Securities Commission, the listing agent must be very precise in their communication to the competing buyers or their agents. Listing agents must not disclose any details of the competing offers, whether directly or by implication, and likewise, must take heed of contract law, and traditional industry practice related to the options of acceptance, rejection or counter. Some very limited degree of "pre-qualification" and "clarification" is allowable. Any other variation will make the listing agent subject to discipline. Except as noted below, as a general rule, an agent (acting on a seller’s instruction) may only accept, reject or counter an offer, and do so in writing.
By way of an exception to the general rule, a listing agent may contact the buyer or their agent and communicate in the following manner:
- If there is something unclear (or there appears to be an error in drafting) on the buyer’s offer, the listing agent can seek clarification.
- The listing agent can enquire whether the buyer is flexible on a particular term (e.g. possession date, or the amount of the deposit).
In doing so, the listing agent must be precise in noting that they are not communicating a counter-offer, but are merely going through a pre-qualification or clarification exercise. Likewise, there is no guarantee that a seller will issue a counter-offer, or select the offer for further consideration, once the presentation process begins.
In the interests of transparency, a listing agent must keep a list of offers presented to the seller. The list will be maintained on a draft form provided by the Manitoba Real Estate Association (MREA). The form will note the following information:
- the number of offers presented to the seller;
- the identity of the buyer agent/selling agent;
- a notation of whether the offer was received in a sealed envelope;
- a notation of whether sealed envelopes were opened in the presence of the seller;
- the form will be signed by the seller and/or listing agent.
This list will be maintained on the listing brokerage’s file and will be provided to any buyer, buyer agent, or selling agent who wrote one of the competing offers, and requests a copy.
Sellers Under Listing Properties
Although the REALTOR® Code requires REALTORS® to protect and promote the interests of their clients, the Manitoba Securities Commission has cautioned agents about under listing properties and possibly committing fraud. They remind agents that the definition of fraud in the Real Estate Brokers Act includes "any course of conduct or business calculated or put forward with intent to deceive the public or the purchaser or the vendor as to the value of real estate." Deliberately under valuing a property in a listing in order to create a bidding war qualifies as fraud under the Act as the listing agent is deceiving the public and creating an interest in the property for buyers who are not qualified to purchase the property at the price the vendor is expecting to accept. In addition, advising a vendor to list a property below market value also qualifies as fraud under the Act.
If the Commission receives a complaint alleging that a listing agent under listed a property, it will be up to the agent to demonstrate how they determined the listing price. If the agent is found to have deliberately under listed the property, appropriate disciplinary action will be taken.
Sellers and their agents should use a Comparative Market Analysis to determine the fair market value when listing a property and the price at which the seller decides to list the property should be a number they would be willing to accept.
How to Win a Bidding War
There are a few things in an offer that a seller is going to be looking at, and the more attractive your offer is to the seller, the more likely they are to accept your offer. The seller and their agent will be essentially looking at what additional terms may be included, what conditions are included, what price is being offered, and the possession date. In addition to these few things within the offer itself, sometimes including a personal cover letter can make a difference, especially if the offer matches closely with another one, the amount of the deposit cheque and whether it is included in with the offer can matter especially for unconditional offers, any mistakes on the documents, and if the documents are clear to read. I've had several buyer clients win bidding wars and not be the highest price by considering all of these factors and making the best offer possible for their specific needs. Remember that you may not know you're in competition until just before the time offers will be presented, so your initial offer doesn't need to be any higher than the asking price since you'll have an opportunity to update your offer and that's when the following tips will come into play if you want to fight to win the bidding war.
- Work with a good real estate agent.
- Put your best price forward.
- Be pre-approved for financing and let the seller know you are pre-approved.
- Make the offer as 'clean' as possible.
- Make the deposit amount as high as possible - it counts towards the downpayment.
- Include the deposit cheque if possible.
- Find out from the listing agent what the seller's ideal possession date would be and try to get it as close as possible in the offer if it works for the buyer.
- Include a personal cover letter - it can't really hurt.
Having a responsive, experienced, and knowledgeable agent to provide guidance and strategies to win the bidding war is key! Contact Andrew St. Hilaire Winnipeg REALTOR® to help you win as a buyer or a seller in today's real estate market.
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