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04/10/2019 10:49 EDT | Updated 04/10/2019 10:51 EDT

Banning Bully Offers Won't Make Ontario Real Estate Any More Fair

Realtors have called for an end to pre-emptive bids, but a ban won't address the root of the problem.

By Penelope Graham, Zoocasa

It's no secret that Ontario's real-estate market has transformed dramatically since the rules that govern it — the Real Estate and Business Brokers Act (REBBA) — were first established in 2002. Not only has the technology behind transactions changed from fax machines to online contracts, but unprecedented price growth and supply issues in the real-estate markets in Toronto and the surrounding GTA have bred unscrupulous and anti-competitive practices.

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Buyers who lose to bully offers can feel they've been shut out of the competition before it even started.

For example, the double-ending of transactions, where an agent represents both the buyer and seller, and collects a commission on both deals, has come under particular fire for taking advantage of clients in a hot market. So has the method of pricing listings artificially low to spur interest and incite bidding wars.

The industry and the Province of Ontario have been working to address these issues in the modernization of REBBA 2002. The first phase cracked down on double-ended deals, and proposed to strengthen the Real Estate Council of Ontario's (RECO) disciplinary powers and increase maximum fines for unethical agents. This is all a step in the right direction to better protect buyers and sellers.

However, other proposals for REBBA's revamping unfortunately miss the mark — namely a recent call from the Ontario Real Estate Association to ban "bully," or pre-emptive, offers. While the proposal has the noblest of intentions in "levelling the playing field" for home buyers, such a measure would only restrict choice and agency for home sellers, while overlooking a key compliance gap that has remained prevalent in the market.

Accepting a bully offer is up to the seller

A bully offer is a bid to purchase a property before the designated offer date indicated on the listing. These offers are typically aggressive, coming in at asking price or higher, without conditions, and usually with a short expiry window. While the size of an average bully can range depending on market factors and home type, they're meant to be large enough to sway the seller to forgo their offer night, hedging on the chance they won't receive one or more additional offers that are more attractive. A successful bully buyer is then saved the trouble of having to potentially compete in a stressful bidding war, and the seller spared the hassle of keeping the home on the market longer than they have to.

This shouldn't be the case if listing agents are doing their jobs.

Making, or accepting, a bully offer isn't without its controversies. Anecdotal experience from Zoocasa real-estate agents suggests sellers in hot markets who eschew bullies and hold out for offer night are more likely to benefit from a bidding war, netting a higher selling price. As per OREA's argument, they're also a point of frustration for buyers, who may feel they've been shut out of the competition before it even started.

Therein lies the rub — this shouldn't be the case if listing agents are doing their jobs.

Listing agents have a job to do

The existing REBBA 2002 makes it crystal clear the steps listing agents must make when receiving pre-emptive offers: should they receive a bully offer their clients are willing to work with, they must notify in writing anyone else who had expressed any interest in the property.

In a bulletin issued on Feb. 21, 2017, RECO spells out:

"An expression of interest includes parties that have booked viewing appointments, have viewed the property, have informed the brokerage or the listing representative that they will be submitting an offer on the property, or have submitted an offer or an offer summary sheet on the property."

As they are ethically bound to always act in their client's best interest, listing agents are obliged to ensure their sellers have every opportunity to consider all possible offers available to them — and you should expect any agent worth their salt to frantically hit the phones once a bully comes in. Unfortunately, not all agents will do this due diligence, either because they have their own vested interest in the outcome of the transaction, or they simply don't wish to do the legwork.

This became especially prevalent during the market's peak in early 2017, when some agents went as far as to explicitly state in listings they would reserve the right to accept bully offers without providing notice. This is in breach of REBBA 2002, and prompted a requisite warning from RECO.

This lies bare the true issue of compliance in the real-estate industry, and the need to give RECO the teeth and resources it needs to actually enforce the issue. While incorrect offer handling makes up the bulk of RECO's complaint list, it can take months — or even years — under the current system to achieve any recourse. It is here that efforts to improve the system should be focused, rather than removing sellers' autonomy to work with any offer they choose, regardless of when they receive it.

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Penelope Graham is the managing editor of Zoocasa.com, a real-estate website that combines online search tools and a full-service brokerage to let Canadians purchase or sell their homes faster, easier and more successfully. Home buyers and sellers can browse listings across the nation, including the Vancouver, Calgary, and Toronto real estate markets on the site, or with Zoocasa's free iOs app.

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