Competing offers happen on a regular basis in Calgary’s real estate market. And multiple offers don’t necessarily happen only in a sellers’ market. Even in a buyers’ market they occur. For example, when a property is priced well below market value in a buyers’ market, multiple offers can be sparked. Sellers love the idea of receiving multiple offers because often this results in a higher selling price.
Scenarios for competing offers
When a seller receives multiple offers, s/he can decide on one of two scenarios:
- A seller can decide on disclosing the fact there are multiple offers to all buyers and ask them to increase their offers.
- Or the seller can decide to just pick the best offer and decline the other offer(s). This decision must be done in writing, so the selling realtor always has proof of this decision from the seller.
Each scenario has its pros and cons, and much will depend on the situation. Obviously, the goal is to get as much for the house as the seller possibly can. However, sellers also want the security that their home will sell.
Disclosing multiple offers to all (potential) buyers
If a buyer feels the decision was made under stress, the buyer may regret his/her offer
In essence, a buyer can do one of several things:
- Increase his/her bid with a higher price.
- Improve on the conditions; for example, take out the home inspection or take possession sooner.
- Leave his/her bid as is.
- Choose to withdraw his/her offer!
Dangers of multiple offers
Multiple offers can also work against a seller
Buyer’s remorse increases with multiple offers
For many, buying a home can be stressful and exciting, and sometimes anxiety can set in. And if a buyer feels his/her decision was made under stress, without enough time, or feels s/he paid too much under pressure, the buyer may regret his/her offer. Buyers can get remorse and pull out during the condition days.
Paying too much for the home when competing
A third danger can be price. Most often, multiple offers drive up the price of the home. However, before approving the financing, lenders often do an appraisal on the home. If the bank finds that the buyers paid more for the home than what the appraiser indicated, the lender can decline financing. This usually means that the buyer is not able to fulfill the financing condition, and the purchase falls through.
Sellers don’t have to disclose multiple offers
A seller needs to understand all these ramifications before deciding on a strategy. Either reveal there are multiple offers, and hopefully get a better price, or don’t disclose this and pick the best offer in the first round.
In our experience, disclosing that buyers are competing often works well to get more money for the home. However, the seller needs to realize it can also backfire. Much will depend, on the current markets (buyers’ or sellers’ market), the type of property and/or how the property was marketed and priced.
An auction to sell your home
A seller is never allowed to entertain more than one offer at a time
Buyers in competing offers; not always about price
For a buyer, it is important to know that just increasing his/her price may not always be a guarantee to win the battle and get the house. A seller can also look at the conditions in the offer. Here, just like the seller, the buyer needs to think about a strategy and reachable options to make the offer attractive to the seller. And as mentioned earlier, much will depend on the type of market, the type of property etc. In practice, we have seen all kinds of scenarios that worked for the buyer. There is not just one given option.
In general, a buyer can improve the offer in several ways:
- Most often, the buyer increases the purchase price offered.
- The buyer can take out the home inspection condition. Although, obviously, this can be very risky for many reasons.
- A shorter possession date can be in favor for the seller, as well. Most often, a seller likes a quick closing because that means fewer carrying costs such as interest, utility costs, tax payments etc.
- A higher down payment indicates to the seller a stronger financing position.
In some cases, the buyer can also increase the deposit, which may increase the seller’s ‘good faith’ in the prospective buyer.
- Eventually, every motivated seller will look at what is in his/her best interest. And it can be one reason or a combination of all things that makes a seller decide to choose one offer. Just offering the highest price does not necessarily mean that the buyer ‘wins’.
Obviously, the strongest offer is the one with the highest price, without financing, without a home inspection or any other condition. Then a house will sell firm immediately.
The rules from the Calgary Real Estate Board on multiple offers
(Other boards may have different rules!)
- Unless the seller gives written instructions not to disclose multiple offers, the selling agent must inform all competing buying agents of any written offers.
- The selling agent is not obligated to provide the names and brokerages of those agents who have submitted the competing offers. HOWEVER, that raises ‘big red flags’ to the buyers because the buying agents want to call the other competing agents to check if these offers are, indeed, being made.
- The selling agent also must inform the buying agents if any of those competing offers are being withdrawn.
- If the seller has decided not to let buyers compete, the seller must put that in writing (email or paper). Again, it is up to the seller to decide if s/he wants to let potential buyers compete.
There is one particular situation that needs extra consideration:
In the case where one buyer is not represented by a realtor, and wants to submit an offer to the selling agent directly, and the selling agent receives notification that more buyers, with or without a realtor, will submit their offers, then the selling agent must involve his/her broker.
In this scenario, the selling agent is not allowed to receive and review any other offers. This is to prevent the selling agent from ‘whispering’ the amounts of the other offers into the ear of the unrepresented buyer, who then can bid a few hundred dollars more to get the home, while the selling agent happily can collect double the commission. In this case, all offers are forwarded to the broker, who presents the offers to the seller, discusses and advises, after which the seller can make an informed decision about which offer to entertain.
How do you know that multiple offers are not a scam?
Any good buying agent will ask the selling agent for the names of the other competing agents and follow up with them to ask if they, indeed, submitted an offer on the property. This is just a cross reference check to make sure that the selling agent is not lying. Because, unfortunately, that happens, and it happened to us, as well.
This selling agent indicated he had 4 offers on the table. When Tanja called these 4 other agents to confirm this, it appeared none of these agents had submitted an offer at that time. As a matter of fact, one of the agents had not even yet shown the property to his buyers! Our clients were ready to increase their offer with a considerable amount, but walked away from the property all together, after it became clear that they were not competing, and this selling agent lied about having 4 offers. In fact, he had as yet had zero offers.
Tanja was a crown prosecutor in the Netherlands. So, with confidence and very strong proof of these lies, she filed this matter with the RECA. It resulted in a very lengthy battle, and this agent walked away with a very small fine and a ‘slap on the wrist’. RECA’s verdict was that this agent did not lie intentionally but was just ‘sloppy’. As for the sellers, they will never know; they could have sold their house for at least $10,000 more to our clients.
Disclaimer: The above is general information and not considered legal advice. We do our best to write informative articles about real estate in Calgary, Alberta. If you have any questions or concerns about our comments, please feel free to contact us or speak to your legal advisor.