More Protection For Buyers in Bidding Wars
She thought there’d be a bidding war. And why not? That’s exactly what the real estate agent told her. “You’d better make this your best shot because there’s gonna be a lot of competition.”
So she did. After all, it was the perfect house – worth more than the asking price to her. But how much more?
In the end, she bid almost a hundred thousand over, just to be safe. And in the end, hers was the only offer. None other materialized. Perhaps none ever existed. Just phantoms, or a cruel ruse.
No telling how many people have paid too much, or how much more money has been mortgaged, due to the lies some realtors routinely tell. Bidding wars that erupt occasionally in Vancouver and Calgary, and are ubiquitous in certain Toronto price ranges, have been the breeding grounds for professional misconduct. After all, the temptation in a commission-driven business, in this environment, has been huge. At times, irresistible.
Typically suitors for a property are told to ‘register’ their bids, and to do so by a specified hour on the day of conflict. That ‘registration’ is legally meaningless – it’s just the seller’s agent assuming total control of the process for maximum psychological terror. Bidders are often given these instructions: ‘This is a hot property, and many people are desperate to secure it. We expect multiple bids, therefore make the first offer your absolute best shot. There will not be a second chance. We need a certified cheque up front, and $100,000 would be appropriate.’ Scary, right? Do you offer 5% above list, or 40% over? And do you have a hundred grand in your chequing account today?
Of course, nobody sees all those breathless offers except the seller and the listing agent. In practice, there’s no verification they even exist; no way of knowing how your offer stacked up against the competition. It’s a totally blind auction in which you’re left to bid against nothing but blackness. It’s a process completely open to manipulation and abuse, which should be illegal.
And now it is. Kind of.
Already it’s illegal in Ontario for a realtor to consider any offer which is not in writing. But now it will also be against the law to say there are competing offers in place, or expected, when they’re not actually written and in the dude’s hands. In the past the Real Estate Act has clearly required that all offers on a property be disclosed to all bidders – but without revealing the contents of them. Now any agent who tells you, or even hints, that another offer is expected, can be fined and have their ticked pulled. Nothing can be revealed unless another offer actually materializes.
Not only that, but brokers must now keep copies of all offers in case a rejected bidder smells a rat. Additionally, if you made an offer and lost the deal, you can ask the regulator to verify how many bids the sellers actually received.
So, the new rules (Bill 55) are an improvement. But they won’t stop the house horny from being idiots or the realtors from being hungry. The best possible defence against being mortally wounded in a bidding war is to not join one. You can make a bully offer if you feel feral, offering more than the asking price whenever you want and ignoring the realtor’s attempt to create an auction. Or, better, concentrate your house hunt on stale, unloved, bruised, neglected listings which have been sitting on the market because they have too much hair on them. Often properties which are mispriced end up being overlooked, even after a price cut or two. Vendors who are ‘motivated’- real estate jargon for people ready to eat the furniture – are the best kind. They expect to be screwed, so things are much easier.
By the way, Ontario has has joined the rest of the country in letting brokers and sellers truly negotiate the fee to be charged for dumping a house. In the past you had to choose between a flat fee, and a commission based on the selling price. Now it can be any combination of the two, which is great news for the low-cost, low-commission, low-service broker and bad news for the Royal LePage franchise owner.
Regardless, remember this: everywhere in the country commissions are negotiable. In a hot market no need to pay an average of 5% to sell a property. In a slow one, five points could be a bargain.
And never buy a house from a FSBO. Circumcision is less painful.
Source: Garth Turner – Post City Magazine