Caught in a bidding war? Know the rules



{{GA_Asset.Images.Alttext$}}Aaron Harris/Toronto Star

Multiple offers or bidding wars continue to happen all over the GTA. Buyers, sellers and real estate agents need to be aware of what to expect. The rules may be different, depending on whether you are selling your home through a real estate agent, or privately.

I have been asked a range of questions on this subject: “Why can there not be a silent auction when a house is sold?” “What does registering an offer mean?” “How did the house sell last night when the seller said offers were not to be delivered for three days?”

To create the atmosphere for multiple offers, it may indicate on the MLS listing that interested offers are to be submitted in three days. The seller hopes this will give many buyers the opportunity to visit the property during the three-day period and that this will result in multiple offers.

However, there is nothing stopping someone from delivering an offer immediately. The seller’s agent is under an ethical obligation to bring every offer to the seller’s attention. The seller then has the right to deal with the offer, if they want to.

Most sellers will instruct their agent to tell this anxious buyer to wait until the proper time period. However, if the seller wants to consider the offer, their agent will then change the information on the MLS listing immediately to notify every other agent that the rules have changed, and that offers can be submitted that evening. The agent will also likely call every other agent who has expressed an interest in the property to tell them personally that offers can now be brought immediately.

When a buyer agent has a signed offer, they will usually call the listing agent office to register their offer verbally. There is a protocol that has been established in Toronto that if you were the first to register your offer, you will be given the first opportunity to present it to the seller in person, if there is more than one offer. This is just a protocol, and does not have to be followed by every real estate firm.

However, an offer is not completed unless it is communicated to the seller or seller’s agent, either by personal delivery, fax or email. Therefore, a buyer can still cancel their offer at any time before it is communicated. That is why an offer might be registered but never delivered. The buyer changed his or her mind.

Why can’t we have a silent auction? When buyers make offers through an agent, the agent has an ethical obligation not to disclose the contents of any offer to any of the other buyers. A seller agent can only tell all other bidders how many offers were received. They cannot tell the price or identity associated with any of the offers. However, a private seller could take one buyer offer and just show it to another bidder. This is one of the main reasons private sellers have trouble creating bidding wars.

I think it was a lawyer who created the “sharp bid clause.” An example would be “I agree to pay $5,000 more than any other offer.” This clause would require the seller to tell the buyer what the other bids were so they could bid $5,000 more. An agent cannot do this based on their code of ethics. However, you could give this to a private seller in a bidding war, where the rules are different. If you are thinking of using this clause, I would caution you to add something like “not to exceed $X or a maximum price,” so you do not end up paying more than you can afford.

By understanding the bidding war rules, buyers and sellers can be better prepared for this extremely stressful negotiation.

 Mark Weisleder

If you have a partner, you need a contract



{{GA_Asset.Images.Alttext$}}Teco Rodriguez

Benjamin Franklin once wrote, “An ounce of prevention is worth a pound of cure.”

Although this is often referred to in the context of maintaining good health, it applies equally in business and personal relationships. If you plan on investing or living with someone else, think about having a contract done first.

Real-estate investments usually start with friends or business colleagues getting together to invest when they don’t have the money to do it alone. The goal is to find the right property, fix it up a little, select good tenants, develop positive cash flow and then sell down the road for a profit.

But what happens if one of the owners wants to sell and the other doesn’t? Or one of the tenants moves out and you have difficulty carrying the place? Or one of the owners loses their job?

There is no easy answer. Usually, lawyers and courts sort it out — and there go all the profits you hoped to make.

That is why having a partnership or joint-venture agreement in advance can assist you in preparing for unforeseen events.

Most lawyers will recommend a form of buy-sell agreement should problems arise. If one partner wants to sell and the other doesn’t, then one can offer to buy out their partner at a price. The partner can then accept the offer or buy out the other partner at the same price. Alternatively, the one who doesn’t want to sell agrees to buy out their partner at the property’s fair market value, to be determined by an independent appraiser.

When it comes to not paying your fair share, a formula can be included so the non-defaulting partner can either pay the share of their partner and collect interest on the payment, or be permitted to buy out the defaulting partner at, for example, 80 per cent of fair market value.

The same principles apply to young couples who are thinking of getting married or even moving in together. Recent Supreme Court of Canada decisions have increased the rights of common-law couples to claim a share in their partner’s assets upon separation.

In order to avoid having to go to lawyers if you break up, it is worth considering a similar kind of partnership agreement. This is called a marriage contract if you are getting married or a cohabitation agreement if you are moving in together. In the United States, it’s called a pre-nuptial agreement.

The main issues are about property that you bring into the relationship, property you accumulate during the relationship and the degree in which you support your partner. If you agree in advance on how your property will be split if you break up, you won’t have to spend all your money on lawyers.

When you are in love, even raising these contracts can be distasteful because they imply things are going to break down. As a result, some parents will attach “strings” to gifts in order to protect their children when no contract is signed. The most common gift is the down-payment for a home. When no marriage contract is to be signed, the parents can ask for a mortgage to be placed on title to secure their down-payment gift; if the relationship breaks down, the parents get paid back first and the kids share the rest of the equity.

It is always hoped that real-estate and personal relationships that start positively will end the same way. Still, it is better to be prepared so if things do break down, it will be less painful financially for everyone.