TorontoRealtyBlog

“I felt like destroying something beautiful”
                             ~Tyler Durden, Fight Club

Well, that sure was an interesting blog post on Monday, wasn’t it?

Y’all hardly took interest, geez!

Some forty-plus comments and counting.  Who would have thought there’d be such a reaction to an election campaign fake news politics blog, right?

As I explained to A Grant in a reply in the comments section, I surely could have refined my points to be more future-forward and help explain my mistrust of this potential legislation, but even then, I still think the same number of readers would have disagreed.

I guess sometimes, you just want to light a fire to see it glow…

We’re no strangers to fire here in the real estate industry.  In fact, we often let fires rage on before we address them.

Then other times, the fires don’t really exist, and yet the calls to douse water on them roar lounder and louder!

Let me take you back to a time when things were different: 2015.

There was no Tik Tok, the average home price in Toronto was just over $600,000, and the Toronto Maple Leafs were less than a half-decade removed from their last Stanley Cup victory.

Back in 2015, when there was an “offer night” on a property listed for sale, you would find out how many registered offers were on a property by calling the listing Agent.

“Hi Jed, this is David Fleming calling from Bosley Real Estate.  How many offers are registered on 456 Olivia Way?” I would ask.

“There are seven offers,” Jed would answer.

And that would be that.

But how did I know for sure?

I suppose, in theory, I didn’t.

I was taking Jed’s word for it.

But did Jed have seven registered offers?

Wait…….what is a registered offer?

Back in 2015, a “registered offer” wasn’t tangible.  It was an idea.

“Hello, this is David Fleming calling from Bosley Real Estate and I’d like to register an offer on 789 Saunders Crescent,” I would say when I called the listing brokerage.

The receptionist would ask for my phone number, and I would provide it.

And that would be that.

What would the receptionist then do?

She might page the Listing Agent, or she might “log it in the system,” or she might scratch one more tally on her Post-It note.  But the point is, every brokerage and every listing agent tracked “registered offers” differently.

But didn’t every brokerage and listing agent define a “registered offer” differently?

“I’m going to have an offer for you tonight at 6:00pm.”

“I’m calling to register an offer, please and thanks.”

Are these two situations different?

It’s semantics, but I can’t tell you how many times an agent says, “I’m going to have an offer for you,” and then does not in the end.

So if a buyer agent called a listing agent back in 2015 and said, “I’m calling to register an offer,” then the listing agent could officially register that offer.  But if another buyer agent called the listing agent and said, “I’m going to have an offer for you tonight,” would the listing agent register an offer?  Could they?

In theory, the listing agent could do anything they want, back in 2015.

And back in 2015, you would know how many registered offers were on a property by calling the listing brokerage’s front desk.

“Hi, it’s David Fleming calling from Bosley Real Estate, can you tell me how many offers are registered on 123 Furey Lane?”

The receptionist would check “their system” and then respond accordingly.

But again, how accurate was all of this?

And was there potential to abuse the system?

Let’s assume the worst, for a moment.  Based on Monday’s blog post, you know I’m very, very good at that…

A listing agent is reviewing offers on a property at 7:00pm on Wednesday evening and he is in receipt of five offers.

But he decides, because there’s nothing really stopping him, aside from his ethics, conscience, and desire to keep his real estate license, to tell the five agents with offers that there are ten.

Those five agents advise their respective buyer clients that they should submit offers that reflect ten offers instead of five, and thus most of the offers are for much higher prices.

In theory, this could have happened back in 2015.

I’m sure it did.  Not frequently, but I won’t say that it never happened.

Those agents don’t last long, and they typically attract equal counterparts, so I was never all that afraid of running into a scenario like that.  What I eventually grew afraid of was the agent who said there were two offers competing against me when there was actually only one.

And I’m not saying that this was deliberate on that agent’s part, but rather before we had an offer registration system, we simply took an agent’s phone call, and voila!

So for an inexperienced listing agent who is told by a buyer agent, “Okay, my clients are running late, I’ll have my offer to you in a bit, just trying to chat with them and see what they want to do,” there’s often little to stop that listing agent from registering an offer or simply telling buyer agents that this offer exists, when it doesn’t.

This wasn’t conveyed in the media, however.

The media ran with this for years as a worst-case scenario with no real proof.

May 7th, 2014: “The Realtors Of Oz: Bidding Wars Are Unnecessarily Sleazy”

In the article, the author laments the technique of “under-pricing” and calls it sleazy, but also calls for an open bidding system.

“All bidders should see all other bids,” says my friend Dave

I’m not the friend Dave, in case there’s any confusion.

The author has a friend named Dave, and he thinks bidders should see other bids, which is, apparently, reason enough to include a section on transparency in this article.

But here’s the section in the article about phantom bids:

Either fake bids don’t happen much, or buyers are too worn out after they’ve finally got themselves a house to launch a complaint. Since 2002, only four phantom offer cases have been prosecuted out of the four million real estate deals that took place in Ontario. (Penalties for convicted agents range from a written warning, to a fine of up to $25,000, to a revoked license). Making the buying process more transparent is a worthy goal, but phantom bids aren’t nearly as loathed as more common bidding war scenarios.

So is four cases out of four million transactions enough to cause concern?

Yes.

Because people were scared of the unknown.

Soon after, the government stepped in and, through the Real Estate Council of Ontario, introduced new legislation and new processes for real estate agents.

June 5th, 2015: “Phantom Real Estate Bids Are Enough Of A Problem That Ontario Is Cracking Down”

From the article:

Starting July 1, the Real Estate Council of Ontario will be enforcing new rules that place strict criteria on what constitutes a bid on a residential property.

The goal is to crack down on the elusive phantom bid, which some homebuyers suspect occur in bidding wars, but are unable to prove.

The scam involves a sales agent hinting to prospective buyers there are other bids as a way to coax them to bid higher. “You say, ‘We’re expecting another offer. I do have another offer. You may want to go back to your client and make sure this is their best offer’,” says said Joseph Richer, registrar of RECO. “You are suggesting there might be competing offers when there may or may not be.”

With the new rules, “You cannot suggest or even imply that you have an offer unless you have one in writing, signed sealed and ready to be delivered,” said Richer, while adding there have been very few formal complaints about phantom bidding over the years.

Richer doesn’t say fake bids are not part of the real estate landscape. Instead, he suggests they might be a bigger problem in some municipalities than others. “When I have been out at different boards and associations, some have said, ‘It’s not an issue, but it does happen every now and then,’” he said.

The problem with this quote from Joe Richer is that he says, “You may want to go back to your client and make sure this is your best offer” in conjunction with the concept of a phantom bid, but asking a buyer agent to improve his or her offer isn’t illegal.  It’s illegal to say, “I have two other offers, you may want to go back to your client and make sure this is their best offer” when you do not have two other offers.

Regardless, the new legislation gave us “Form 801: Offer Summary Document” which man of us simply refer to as the “Offer Registration Form.”

The form itself isn’t anything novel.

Fill out the date, the property address, the name of the buyers, the time that the offer was submitted (or is going to be submitted, since most 801’s are provided well in advance of the actual offer), and then is signed by the buyers.

This form isn’t actually an offer.

It’s an indication that you will be submitting an offer.

It’s essentially a letter of intent, if you will, but the purpose is twofold.

First, the purpose is to help agents avoid keeping a fully copy of the actual offer itself.  Because the new legislation in 2015 required agents to keep a copy of the offer or the Form 801, in case the legitimacy of the offer(s) were called into question and RECO would require the listing agent to produce them.

Second, and what I think is equally as important, the purpose is to allow buyer agents to officially register an offer, well in advance of submitting the offer itself.

Why is this important?

To legitimize the offer “registration.”

Calling the listing brokerage and saying, “Hello, I’d like to register an offer please,” worked for a long time, but there were holes in that process.

Telling the listing agent, “I think I’ll have an offer for you tonight” opened the door to inexperience and confusion running amuck, as well as the potential for a sleazy agent to use this as a so-called phantom bid.

But “Form 801” allowed us to have make the “registration” tangible, and that was so important.

This also helps the process move along through “offer day” which can be very stressful and confusing to buyers.

With offers being reviewed at 7:00pm, it was up to the buyer agent to consistently call the listing brokerage, every hour or so, and ask, “How many offers are registered?”

But with the advent of BrokerBay several years ago, which every reputable real estate brokerage now uses, these “registered offers” are tracked in the best system and piece of software I’ve seen in all my time in this business, and more importantly, an email is sent out to all buyer agents every time an offer is registered.

Your phone will buzz and you’ll see, “NEW REGISTERED OFFER: 987 Bradford Avenue.”

Then an hour later, “NEW REGISTERED OFFER (2 TOTAL): 987 Bradford Avenue.”

Then the next email: “NEW REGISTERED OFFER (3 TOTAL): 987 Bradford Avenue.”

And so on, and so on, every time an offer is registered.

There are shortfalls, however.

Certain settings in the back-end of the software might prohibit these emails from being sent out, ie. if the listing agent doesn’t “verify” the offer registration, but the point is that this is a better system than we’ve ever had.

Is it perfect?

No, not even close.

And buyers will usually point to three regular annoyances:

1) Offer registration times mean nothing.

2) Many agents don’t actually register and just send an offer.

3) There is no deadline.

Let’s look at all of these individually.

I don’t know what the original intended purpose of the offer registration “time” was, but I can tell you that from my view, it’s simply to make things less chaotic.

Once upon a time, a listing agent would receive offers by fax or email and physically print the offers, then drive over to his client’s house to present them.  So if offers were to be reviewed at 7:00pm, you’d say, “Offers Registered By 6:00pm” to allow the agent time to prepare.

But even as technology has gained in the past few years, making the previous decades’ trials and tribulations redundant, having offers registered by a certain time avoids the chaos.

I can’t tell you how frustrating it is, as a listing agent, to say, “Offers Reviewed By 6:00pm” only to sit there at 6:05pm with three offers, and yet have eight by 7:00pm.  How do you, as a listing agent, advise your client?  And how do you, as a listing agent, avoid looking like an idiot when you tell the client there’s a time for offers to be registered by, only to have most people register after that time?

The one purpose of the offer registration time that most people overlook is, in many cases, the most important, and that’s to help buyer agents feel out the market.

If offers are to be submitted and reviewed by 7:00pm and offers are to be registered by 6:00pm, the idea is that if there are, say, five offers registered by 6:00pm, then the five buyer agents are all informed and they all have a full hour to consult with their clients.  In a perfect world, they would submit their offers by 7:00pm, with their price representing the four competing offers, and that would be that.

But in reality, when there are three offers registered by 6:00pm and there are eight by the time presentation time rolls around, it means every agent wants a chance to improve his or her offer.  The public hates this idea of listing agents “sending back” buyer agents to improve, but many buyer agents have based their offers on incorrect information about the level of competition and therefore they want and are asking for the opportunity to improve.

Sadly, offer registration times mean nothing.

I routinely see maybe 30-40% of offers registered “on time” and I’d be laughed at if I ever took a buyer agent to task for not registering.

The second point on my list explains why, however: many agents don’t register at all.

Last week, we had six offers on a listing, whereby offers were to be reviewed at 7:00pm, to be registered by 6:00pm, and yet somebody emailed us an offer at 8:15pm, without registering, or ever speaking to us.

Now it’s incumbent upon us to register the offer for the agent, and the other six agents get pissed because somebody submitted an offer over an hour after they’re supposed to be submitted.

But even if or when agents do submit offers before your scheduled “offer review time,” many still don’t register.  They just email the offer, and that’s that.

Even though it’s their job to register, they either assume the listing agent will do it for them, or they don’t know the process.

And the last point on our list – that there is no deadline, works for both offer registrations and offers.

If I put on a listing, “Offers Must Be Registered By 6:00pm, No Exceptions,” it’s meaningless.  It’s completely hollow.

There is no “must.”  If an agent submits an offer, registration or not, I have a duty to present it to my seller.

If offers “must” be registered by 6:00pm, and they are to be presented by 7:00pm, so long as I haven’t had my seller accept and sign an offer, any agent can still register or submit.

I can’t refuse to present an offer, even if I stipulate in the listing, “Late Offers Will Not Be Presented.”

In the end, the benefits to the “offer registration” system are only felt if the participants work together and abide by accepted practices.

Since most do not, then much of the benefits are never gained.

The one benefit that was gained, however, by the new system is accountability.  No longer could, in theory, or in practice, a listing agent exaggerate the number of offers on a listing, since they have to be registered.

I suppose that agent could “accidentally” register two agents twice each, thereby sending out emails to all parties doubling the number of offers, but I’m catastrophizing here.

And for brokerages that don’t use BrokerBay, then we’re pretty much back to the honour system.

I guess I can always poke holes.  I’m good at that.

But if you’re a buyer or a seller in this market, you need to understand what the offer registration system does, why we have it, who benefits – and how, and you should probably know how we got to this place.  Who doesn’t enjoy the odd history lesson, right?

The post What’s The Purpose Of The “Offer Registration Form?” appeared first on Toronto Realty Blog.