Multiple (or Competing) Offers in Alberta
As we are hearing of more and more competing offers on homes in the Calgary market every day, it is worthwhile to review the current regulations on them and how the offers are handled. I still see a number of local real estate agents still quoting an old rule from our real estate board which is now obsolete
: "The existence of multiple offers must be disclosed to all Buyer agents."
From the Real Estate Council of Alberta's (RECA) website:
"All offers must be communicated to the seller as soon as they are received. However, there are no rules as to the order in which the seller responds to them; nor is the seller obliged to accept the highest offer. The seller decides which offer, if any, will be accepted, countered, or rejected. The seller and the seller’s industry member are under no obligation to disclose to a buyer that other buyers have also made offers for the home. However, if your industry member learns of competing offers and any details of the offers, it must be disclosed to you. Your industry member should explain your options in a multiple offer situation."
So what does this mean to you as a buyer? And why the change?
Previously, the Calgary Real Estate Board Co-operative (CREB®) required that the Seller and the Listing Agent had to disclose the existence of competing offers. The hope was that the Buyers and Buyers' Agents would improve their offers and the Seller could potentially net more money than if there were no competing offers - often going above asking price and with few conditions. However, our provincial licensing body - RECA - has taken the strong position that disclosing the existense of competing offers is, in fact, NOT always in the best interest of the Seller. Because the Seller has engaged the services of a REALTOR® that is member of the Calgary Real Estate Board, then the REALTOR® must also follow the board's rules to which they have contractually agreed to follow at all times. The current rule for CREB® which must be followed is: competing offers MUST be disclosed to all Buyers' Agents unless the Seller provides contrary direction in writing to their Listing Agent.
NOTE: Other Alberta real estate boards have their own set of real estate rules which may or may not be in alignment with the Calgary Board. The set of rules which must be followed is dependent upon which board the home is listed with.
We agree whole heartedly with this new CREB® rule.
Why do they feel this way? Well, having worked with hundreds of Buyer clients I can tell you first hand that at the first whiff of competing offers, over 90% of the time my buyers have either did submit their offer or formally withdrew their offer that has already been submitted. Clearly, that was not in the best interest of the Seller - especially if ALL the potential buyers withdraw their offers.
Likewise, the Seller is under no obligation to follow our rules and may disclose the existence of any offers - or even the price and terms of any offers - to the potential buyers that are in competition with other Buyers. If they wish to take the gamble on disclosing competing offers, it should be one of their options.
As a result of this rule, as a Buyer, you will seldom know if another offer has already been submitted, but if the Seller seems that they aren't engaging your offer within a few hours, that they may indeed be looking at another offer.
So for the Buyer, a piece of advice is to keep your offer period short. That will require the Seller to contemplate your offer in first priority if it's at all close to being acceptable. Always keep your offer as clean as possible without significant barriers being thrown up to give the Seller reason consider another offer in priority over yours. A Seller can only counter one offer at a time -- so that they don't unintentionally create two enforcable and binding Purchase Contracts. However, they could counter more than one offer if they simply place a term in the second one stating that there is another offer being considered and your offer would serve as a "back up" offer.
Accepting back up offers can be quite common in this day and age now that mortgage approvals seem to be turned down somewhat frequently (even in the case where there isn't competing offers). With the frequency of deals falling apart due to these financing approval being withheld by lenders, you may even write an offer on a home that already has a conditional offer already accepted on it. If that is the case, you would be notified on the first counter offer by the Seller of the existence of the first offer and should it collapse, your offer would be in full force. If the first purchase contract gets firmed up (i.e. all the conditions removed) - then it could be that your offer will then be formally rejected.