Thursday, March 28, 2013

Holding Offers: House Wars in Toronto!

I previously wrote about my family’s search for a resale home on The Huffington Post, in Is This the Year The Toronto Housing Market Deflates?   In brief, the article discussed how we “lost” a home we loved in November 2010, due to an irrevocable deposit clause that we wouldn’t accept.  We’ve now been hunting for a home for 28 months in the Toronto housing bubble!  However, last night was the first time we placed an offer in over 2 years—and was the first time ever we participated in a home bidding war!

Whether you’re in Ontario or in a different province, you’ve likely heard about Toronto and GTA housing prices.  Simply stated, it’s not uncommon to pay $850,000 or higher for a typical family home.  I’m not joking when I say that a fixer-upper in a great area of the city is sometimes fetching over a million dollars!  And this has been the way of the road for the past few years.

And with inflated housing prices as stated, would you believe that many real estate agents are also “holding offers”.  In essence, holding offers means that all potential buyers (through their agents) present written offers on the same  specified time and date.  So envision this: oodles of agents and their clients—and cars—descending on the same street at the very same time, fighting over the very same house!  Sheer insanity!

The Object of "Holding Offers" Is To Greatly Increase the House's Final Selling Price 

We’re very cautious with our money, and had avoided house bidding wars for years.  The logic is simple: housing prices are already outrageous to begin with, so why add to the madness by competing with other potential buyers, and pushing prices further upwards?  After all, the object of “holding offers” is to greatly increase the house’s final selling price—and ultimately to receive well above asking.  Therefore, “holding offers” and resulting bidding wars only benefit the seller and not the buyer.

There’s also a popular real estate tactic to price a home well below market value, thus creating hype and mass hysteria regarding the property.  Without fail, this strategy creates a multi-offer frenzy and the home in question usually sells for well over fair market value.  Some properties can sell for hundred-thousands above asking!

Anyhow, we’d avoided participating in bidding wars for over 2 years.  As we already own a home and moving is not an urgency, we were able to delay the perhaps inevitable.  Until last night.  A humble family home presented itself within walking distance to our kids’ school.  It was a little bit more spacious than our current abode, but you wouldn’t call it luxurious.

We Put In a Fair Offer

We asked our agent to put in a fair offer on the home, but then she uttered the dreaded words: “holding offers”.  This would mean that we’d not be able to make an offer on the home until a specified date and time.  This also meant lots and lots of competition from eager buyers, as the home was priced fairly.  The situation worsened when a lawn sign was erected in front of the house, advertising a weekend-long open house.  Lots of house traffic to generate lots of interest!
Next, the listing agent upped his game and offered a house inspection report of the property in question, for review by all prospective buyers.  The report was not perfect, but the home was rated “above average” in most respects.  This was clearly a strategy for all bidders to put their best offers forward, and possibly waive the essential housing inspection clause.  This strategy worked.

It was the morning of offer presentations and we consulted again with our agent.  All offers were to be registered by 5:00pm, and there was already 1 offer on the home.  Our contract was signed and ready with a more-than-generous security deposit and above-asking offer of purchase.  It was a very clean offer, even agreeing to the seller’s closing date of “120 days”. 

My husband and I felt good about the offer, until our agent received a text message asking for a certified cheque for the security deposit--upon presentation of offer.   We couldn’t fulfill this condition on such short notice—nor did we wish to.  As the day wore on, there were a total of 4 contesting registered offers.  My heart grew heavy.

Potential Buyers & Their Agents Lined the Street Outside Our Prospective Home

The night they were accepting offers, my husband and I sat in front of our prospective home.  10 cars lined the street belonging to the 5 real estate agents and the 5 families placing bids.  It truly was a spectacle, as we all sat in the dark, freezing for hours in our cars. 

As we sat out in the cold, our agent received a text message from the selling agent.  There would be 2 rounds of offers allowed for all bidders—and in both cases, we would not know if we were the high or low bidder, as per Canadian law.  All bidders would be in the exact same boat.  Our agent presented our offer inside the house, and then returned to our car saying that the other agent hadn't provided any feedback, so we were bidding blind. 

Given the favourable home inspection report, my husband and I decided to remove the house inspection clause.  After the first round of bidding, we could see lights turning on in the agents’ cars as the same clause was also being crossed out.  Before the second round of offers, the listing agent came outside to our car and asked for some minor revisions to our offer.  We asked how our offer looked compared to the others, and the agent stated “somewhere in the middle”.  This was the feedback we’d been seeking.

Our Agent Received a Text Message With the News...

An hour later, it was time to present our second offer.  Our real estate agent went into the home with the paperwork and returned quickly.  There was nothing to do now but to wait.  Suddenly, some of the competing bidders and their agents drove off the street and left!  The listing agent was texting those whose offers had been rejected.  We were beginning to feel hopeful!  Shortly after, our agent received a text message from the listing agent with the news: our offer had not been accepted.  The house had sold for more than $40,000 above asking price.

Although we were disappointed to have “lost” the house, another decent property turned up today in the real estate listings!  There are already 3 offers on it, so I think we’ll pass this time…

What do you think of the Toronto and GTA housing situation?  What advice would you give to prospective buyers?

16 comments:

  1. Ah! I lived in Toronto for 4 years. I only rented though. My parents lived in Scarborough and had a stunning house that sold within days of being on the market. I think the new owners got a great deal and my parents did well too. Then again, this was back in 2004. I haven't lived in Toronto for years!

    You'll find the right house for your family and when you do, it'll be home :)

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  2. Wow, that's crazy but awesome for the seller! I have been trying to sell my house for almost a year now and no luck. We have reduced it so much where we are going to come out even. It's so frustrating, especially when we now live 18 hours away.

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    1. Randa, I'm so sorry to hear that! I can't imagine how hard it would be with prospective buyers constantly coming through the house for one entire year!

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  3. Wow! I've been following along with your housing woes and I am constantly amazed at the speed these houses are sold! And the prices--- I don't know how some of my friends are doing it. ;)

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  4. I cannot believe that holding bids is an allowed practice. It seems like almost emotional kidnapping in a sense....trying to play on people's emotions and impulsiveness. I cannot imagine trying to buy a house in such a market. How very frustrating. Good luck in your search for a house Jenna! I hope you find something! Have a wonderful weekend and Happy Easter! Angie xo

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    1. Angie, I agree with you. The irony is that they cannot disclose the amount of the high bid, but prospective buyers are allowed to bid blindly. So, you could be upping your offer--when you're already the high bidder!

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  5. holy hannah that is craziness, like buying and selling a house wasn't stressful enough!!!

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  6. Wow..this is crazyness! I had never heard about the practice of holding bids. We are coming up on a year that we have been house hunting out here in Northern BC and I was thinking that was a long time as people keep wondering why we haven't bought yet. We have put one offer in but someone else did also right before us and it was higher. We are looking for something within walking distance of the kid's current schools too. Currently we are renting and can see both schools from out our window so want to stay relatively close to the schools. Good luck in your continued search!

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    1. Tara, holding offers is such a common practise in Toronto. It has now been 31 months since we've been hunting for a home, and it's getting tired. I also wish you good luck in your house hunt!

      Jenna

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  7. I had friends in Toronto who were invited with all bidders to submit the highest single bid on the house they were interested in, and then the highest of those would be chosen. I'm pretty sure that one went for $100,000 over list (not to them). Nutty.

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  8. I hope I never have to go through a bidding war on a house. It just sounds so terrible and stressful! My sister and brother in law sold their house a few summers ago in Winnipeg, and there was a bidding war on it. Sucked for all the people who wanted it, but it ended up being really good for my sister and brother in law. Hope you guys have found your house now :)

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  9. wow! Crazyness! I dont think I would have put a offer in seeing as there were so many other ppl i nterested. But I guess the more offers you put in the more likely someone will like your offer.

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    1. Amy, we could only hold out for some long before we had to participate in a bidding war--if we wanted to purchase a home in the Toronto or GTA areas. The only solution would have been to buy elsewhere, buy a new (not resale) home, or hold out until the situation blew over (the real estate market has been this way for almost 4 years now.

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  10. It is my understanding that listing agents can only hold offers for days or even weeks with the written consent of the seller. This written consent would need to appear in the listing agreement and would be initialed by the seller and would need to stipulate exactly the date and time that offers are to be presented.

    It is also my understanding that if a listing agent receives a registered offer and holds on to it and does not present it to the seller in a reasonable amount of time then the listing agent is in violation of their professional code of conduct governed by the Real Estate Council of Ontario and their license would be in jeopardy.

    Any input would be greatly appreciated.

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    1. Yes, I'm not sure of the legality of holding offers, and if consent to hold offers is required from the client. I know that when we sold our home, there was only a verbal discussion with our agent, and not a written contractual one about receiving all offers on a set date and time.

      Yes, all registered offers must be presented to the seller or there is indeed a penalty. Surprisingly, it was only fairly recently that an agent had to show proof of competitive offers to the purchasing agent, in the case of a bidding war. This was wide open to deception, and purchasers bidding against themselves (and increasing the purchasing price), when there was in fact no additional buyer(s).

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