Multiple Offer Situations

You're selling your home. It's priced right and there are eager buyers out there. You could end up in a "multiple offer situation." That's REALTOR®-speak for more than one buyer -- at the same time -- presenting you with an offer to purchase your home. It is also shorthand for a "highly stressful time for all parties involved."

In Ontario's organized real estate system, there are rules about how things happen in such a situation: each offer is registered with the seller's brokerage by the buyer's agent. Registering an offer is done (or should be done) when the buyer's agent has a properly signed Agreement of Purchase and Sale in-hand. And it involves merely telling the seller's brokerage that there is an offer: nothing about its terms or conditions. Usually a registered offer is presented to the seller sometime that evening or whenever is convenient -- and that's when the seller will learn the specifics of the proposed Agreement. Note that after presentation, it is acceptable to "ponder" an offer as long as what's called the "irrevocable period" is still in effect -- so even in a single offer situation, more offers could be registered along the way. (However, it is not uncommon to find buyer agents who try to ramp up the pressure by requiring a response within hours -- a very short irrevocable period or sign-back deadline.)

For the first buyer's agent to register, everything is business as usual. From then on, all other agents are notified that there's an offer registered. Although the terms of the existing offer are never disclosed, this notification changes the complexion of events. Some agents have been asked by their clients to not bother with any home that's got an offer on it already. The fear of multiple offer situations is that high (more on that later). If a buyer wishes to proceed with an offer, it would be registered as well, becoming the second offer registered.

Here's where things get really interesting: the first buyer's agent to register an offer is notified that a second offer has been registered. This happens for all subsequent registrations as well. In the end, all buyers with a registered offer will know how many other offers there are. Generally this notification to the first buyers (who may have offered a lower price or significant conditions because they though they were the only game in town) will give them an opportunity to "sweeten" the terms of their proposed Agreement. In this way, and only this way, people sometimes view this as a "competitive bid" situation. I argue that the name is wrong: it is not a competition like a foot race (you have no idea where the other runners are on the track). I like to think of it as "personal best" approach: the buyers, knowing there are other offers, merely decide what the home is worth to them and how much risk they are willing to bear when dropping conditions off their offer. Prudent advice from REALTORS® should be to continue to keep legal protections in the offer and avoid the feverish and cavalier contract slashing that sometimes happens.

You might ask: as a buyer, why do I need to put my best offer forward when there are other offers? It's because the seller can't accept or counter more than one offer. Imagine if they countered two offers, each irrevocable for a period of time. If the buyers for each offer accepted the counter offers, the seller would have just sold the house to more than one party, which is of course illegal.

In other jurisdictions, there is such a thing as an "escalation clause". This is where the buyer, intent on "winning" the home, offers a purchase price of X dollars above the next best offer. In Ontario, we are saved from this kind of craziness by the rule barring disclosure of the terms of any other offer.

Nevertheless, the fear of a multiple offer situation in Ontario often stems from the stress of not knowing what the other offers entail -- or why you keep losing out on homes you love! Don't forget that purchase price is only one element of an Agreement. Maybe it was the closing date that was most attractive to the seller. Maybe the accepted offer was all-cash or at least had fewer and simpler conditions.

In my view, there is no competitive bidding. It is simply a case of knowing that there are other offers on the home and people are putting their best offers forward. I have been in a multiple offer situation where there were four offers registered and the home still sold for under asking. None of the parties lost their heads. It was pretty eye-opening actually -- and it proves that a rational approach to something that can be so highly emotional is still best. It also speaks to the benefit of hiring a good REALTOR® to keep things in perspective.