Up until now, the rules have been fair for Sellers, but not particularly for Buyers. With some small changes we could probably level the playing field somewhat.
The Listing Agent could draft up a standard Offer, specifying exactly what the Seller would like: closing date, appliances included, amount of deposit etc. Everything would be the same except the price. That would be left blank. Effectively, we have one variable.
The Seller may prefer all the bidders to have some evidence of qualification before the bid, or to be submitted with the bid.
Open for 4 Hours
All bids are to be submitted and be open for acceptance until, for example, 10:00 pm.
Registration of Bids/Offers
Registration may take place at any time prior to 6:00 pm on the bid/offer date. Registration is to take place by email, text, fax or hand delivered notice.
Order of Registration
The Order will be maintained. It will be published on a website and updated as required. All bidders will have the same information which is maintained on the website.
Numbers will be assigned to the bidders. Identities will be concealed. This information will be updated round to round.
Submission of Offers
Offers will be submitted AFTER 6:00 pm by email, document management system, by fax, or by personal delivery.
The Offers will all be received by an independent third party who has no interest in the success of any bidder. This could be the Listing Agent, or a Manager at the office, or even a third party at another Brokerage or Law Office.
Presentation in the Presence of Bidders
Each bidder will have an opportunity to submit his bid to the Seller. Essentially, all of the submissions will be placed in sealed envelopes and opened one by one, in the order of registration. Each bidder will be entitled to have their own representative present during the opening of the bids.
The “Price” will be announced to all bidders. All bidders will be aware of all other bids, but not the identity of the bidders.
In this way, each bidder will know whether to go back to the drawing board, come up with a good deal more money, or simply not proceed with further improvements.
No one’s Offer will actually be rejected and they may not be withdrawn once submitted.
The Seller may select one Offer and accept it. So, we could actually have a “deal” here.
Everyone who bid shall be afforded the opportunity to improve. No one will be able to withdraw their first Offer. It’s still on the table for acceptance.
Everyone will know how much they have to move in order to be successful. The only thing that won’t be known is how much others are prepared to move.
We should have a narrower field at this point, if there is no clear winner, the rounds could be extended. Each bidder makes his own decision as to whether or not he wishes to raise the price or “fold”.
Advantage of the System
This is in effect an open bidding system. Everyone knows where everyone else stands. There are no secrets.
It does eliminate the possibility of a bidder “bidding against himself”, believing that there is someone else out there with a higher bid. But, that’s simply a false sense of security until Round 2 when the real bidding begins.
With knowledge of the competition, the prospective Buyer has a somewhat better idea as to the valuation placed upon the property by others. This should eliminate the high bidders who in some cases were 20%, 25% or even 30% higher than everyone else. Now, often they didn’t get financing and were unable to close. This caused havoc for everyone including the Sellers.
The Sellers who want that, would be best to avoid this open bidding system.
Chances of Seriously Overpaying are Eliminated
The chances of seriously overpaying are substantially eliminated in this open-bidding system. It’s like a silent auction. The price is usually right at the end of the evening.
Let’s eliminate the risks associated with the home inspection and something being profoundly the matter with the property. The Listing Agent will secure a Report from a reputable inspector and have it available for all to read. It will be subsequently acquired for a small fee by the successful bidder.
In addition, the draft contract will permit the Buyer to have another inspection at his own expense within 3 days and will have to accept all matters with respect to structural issues, contamination issues, mould issues, etc. (all to be specified) which can be remedied at a cost of less than $25,000.00, or such other number as may be appropriate bin the circumstances. For a Buyer to be able to walk away, this will have to be a very serious matter. This should also encourage Buyers to up their bids by being somewhat comforted by this Condition. In fact, everyone should have that condition, it’s only fair!
If one is to be included, it should be short, 2 or 3 days at most. All bidders should already have been pre-qualified.
Open Bidding System
I think this system would work well. It will eliminate perhaps some wild and crazy bids, but offers a great deal of protection to the Buyers participating in the process.
It has worked well in the construction industry.
Listing Agent’s Role
The Listing Agent will act for the Seller. There should be no bias. It’s an open bidding system, so, everyone will know the others’ bids.
Listing Agent with an Offer
The Listing Agent may have a role with the Buyer, but will not communicate with the Seller.
The Brokerage will have designated someone to assist the Seller in the evaluation process. Designated agency is presumed to be in force in Ontario.
Co-operating Brokerage’s Commission
Whatever was posted on the MLS system will be protected. No one may “accept less”, thereby giving their own bid some sort of advantage in the process.
Buyer Represented by a Lawyer
As you know, only Brokerages may collect commissions. If the Buyer were separately represented by a lawyer, such that, no co-operating commission were to be paid out, then this would benefit the Seller. That would not be fair to anyone else.
If the Seller were still to pay, but the entire commission were to be taken by the Listing Brokerage, this would still encourage the Listing Brokerage to “cheer for” that Buyer.
In order to eliminate this advantage, the co-operating commission plus HST should be paid by the Seller to the Listing Brokerage. That sum in its entirety should be transferred to a registered charity of the parties’ choice without the claim for a “donation receipt” which would otherwise have had monetary value to the Brokerage.
Documentation and Communication
All bidders will be kept “in the loop” and up to date at all times. There will be no surprises.
This new open bidding system ends up recognizing the valuable contribution that Buyers make to the process while protecting their rights as consumers.
Brian Madigan LL.B., Broker