Quite often lately buyers find themselves competing for a home with multiple other buyers, when a home is competitively priced, thus creating a “bidding war”. Several offers for the same home are submitted, each trying to outdo the others. Buyers participate in a blind bidding process where they submit an offer hoping they are not outbid. Sometimes they are asked to raise their bid without any details about the alternate offers. Some buyers remove conditions from their offer that are designed to protect them, hoping to make their offer more attractive to the seller.
Currently the system to present multiple offers is deeply flawed and not nearly transparent enough. The winning buyer rarely knows how much more their bid was compared to the other offers. As well losing bidders do not know where they stood in comparison to other losing bidders .This makes for a very “murky’ process, sometimes leading to emotional over paying for a property. Emotional overpaying then causes unsubstantiated price increases in neighbouring homes, with no clear justification of the sale price other than fear or hype. I’m not advocating that there should be no competing offers, just simply a more transparent process. In all winning circumstances there are valid reasons for a winning offer. However, when it is purely a guessing game by the buyer or their representative, mistakes can be made that result in a gross over payment. If the buyer and their representative have done their home work, the offers should be close in price to each other. Yet often one offer is substantially more , sometimes many thousands of dollars over any realistic value. Buyers are left wondering why someone would pay so much, and the winning buyer could be upset should they discover a large discrepancy between prices.
A better way, would be a cross from the current offer system and a bidding system similar to an auction. All offers and bidders representatives are present to see each others offers and know the price and conditions submitted. That way everyone can make an educated, rational decision on price or price adjustments. Of course in the case of a rich out of town buyer, recent lottery winner, or new inheritance, some buyers will always pay substantially more, but at least the loser will know the real reasons. This will also provide background information for when similar houses come on the market, rather than sellers simply stating that “the last house sold for this, so my house must be worth this”.
The Ontario Real Estate Association is making recommendations to the provincial government to update the rules and allow a more open bidding process for buyers and sellers. The changes would permit realtors to disclose details about a competing offer to another bidder if all sides agree. This would include price, closing dates & any conditions. The result being a more transparent multi-offer process giving buyers information to make their best offer, and sellers the knowledge they have received the best offer for their property.
As always you are better off to choose a full time experienced real estate broker, especially when dealing with multiple offers on under-priced or rare properties.