It’s been in the news for a few years and now it’s finally here. Open bidding.
Rather like…an auction in slow motion.
In an auction, however, everyone in the room hears the new bid whether they are participating or not. In real estate, by contrast, the information is only disclosed to buyers who have submitted written offers. A verbal submission or one that has not arrived yet, these don’t count (so these potential buyers are out of the loop).
Here we will look at circumstances that may lend themselves to an open bidding situation, what a seller needs to know, and how a buyer can best prepare themselves.
Open Bidding: The Scenario
The most likely scenario for open bidding to occur is in a bidding war. That is, two or more buyers competing for the same home.
Competition usually develops because of a lower-than-market listing price. The highly attractive price stimulates interest, and buyers of all budgets line up to view the home.
A presentation date is set, and these same buyers get ready to compete.
Under the old legislation, content of competing offers could not be shared; all information was kept strictly confidential.
Starting December 1st, however, the door is now open for home sellers to share all or any part of bids they have received, if they wish.
The method is designed to create transparency. Buyers might be made aware of the highest price on the table, for example, and could then make an informed decision about whether they wanted to increase their number.
What Information Can Sellers Share?
Sellers can reveal select terms and not others. It need not be full disclosure, but it could be. Sellers can also share nothing at all; they are under no obligation to do so. It will depend on the seller’s individual circumstances and what strategy is expected to work best in that situation.
One seller might opt to share offer amounts, while another might decide to share only conditions of the competing bids. Perhaps a seller wants to share closing dates in the hopes of obtaining an early closing and finalizing the transaction more quickly.
A seller’s goal in the open bidding process will be the same as it was before the legislation changed: to negotiate the best possible terms of sale.
Once a seller decides which information they wish to share among the buyers, if any, they authorize their instructions in writing, so their agent knows how to proceed. This is true even if a seller declines sharing the information.
If a seller opts to reveal information, the seller’s agent must then share that material with every buyer who is making an offer. If a bid has not yet arrived but is expected, the information will not be disclosed until it arrives. If a verbal submission is received, the buyer will be asked to put it on paper before the competing bid information is shared.
A few key caveats, here.
One, a seller has the right to change their mind – as long as it’s in writing. If at first a seller wishes not to socialize competing offer information among buyers and decides later that they want to (like, for example, after the bids have arrived), this is perfectly fine.
Two, no personal information about buyers will ever be shared.
And three, a seller is under no obligation to provide advance notice of which direction they plan to go. This means that buyers in competition will need to be ready for anything.
How Can A Buyer Prepare for Open Bidding?
Because a seller can change their mind at any time, it’s best to anticipate that your offer information will be shared regardless of current instructions and plan accordingly.
First, consider your limits before offer day. This way, you have time to rationally consider your budget and other important terms beforehand.
If you have competed for a home in the past, you know that offer day can be very stressful. Deciding on your boundaries in advance can help you stay true to the best deal for you as a buyer.
Second, consider adding a confidentiality clause to your offer. This type of clause would render your offer void should a seller decide to share the contents of offers.
While this would not prevent a seller from sharing the contents of your bid with others, the expected consequences of doing so (i.e. losing you as a buyer) might be an effective deterrent. Depending on how compelling your offer is, this same seller may then decide not to disclose the contents of offers at all.
Third, get professional advice. Your REALTOR® is critical to your success; they can guide you on comparable prices of homes in the neighbourhood and educate you on different strategies you can use to negotiate the best deal.
There are many scenarios possible as we enter the world of open bidding. If you have not yet decided who you will be working with on your sale or purchase, get in touch with us today.***