Why I Think The Open Offer Process Is Going to Fail.
As a seller, think long and hard before you agree to an open offer process.
Be careful what you wish for. I think whoever coined that phrase is a genius. We all wish for different things. Winning the lottery, a big house, a raise, a new job...But whatever you wish for, when you ultimately get it, there are almost always unintended consequences. The universe has a cruel sense of humour that way.
When it comes to real estate, specifically in Toronto, the one thing buyers have been wishing for is what's known as "open offers". In short, buyers want to know what other buyers are offering on a house or condo when they are in competition so they know what they have to beat. Well, here you go. As of December 1st, 2023, Ontario will now allow the contents of offers to be disclosed to other competing buyers, if the seller permits it. In theory, sure sounds great for buyers! But there are unintended consequences, as there always are when governments get involved and tinker with something they aren't actually involved in, day-to-day. Here we go:
1 - The seller now gets to decide what, if any, content of an offer is shared with other competing buyers. That's right, it's the seller's choice if they want to allow for an open offer process on their listing. Not the buyers. And I would have to agree with this protocol. Sellers should have the right to decide how and when they want to sell their properties, and if they would prefer a blind bidding process because it suits their ultimate goals, then they should have that right. And they still do.
2 - Continuing on #1, the seller gets to decide exactly what content is actually shared with buyers. They can choose just to share the offer price, or just the conditions, or the deposit, or whatever they want and in any combination. Imagine being in a multiple offer situation as a buyer and the seller (via the listing agent) says "I'm only going to share the price of all competing offers. Nothing else". Does this really put you, as a buyer, at any sort of advantage? Imagine if the "top" offer on a $999k listed house is $1,100,000 but it's conditional on a home inspection, financing, the sale of the buyer's house, has a 180 day closing, with a mere $5k deposit. And the seller knows there is zero chance they will actually accept this, they can still choose to say "the highest offer is $1,100,000. And that's all I'm sharing." So you, as a solid buyer who has a firm offer, with a $100k deposit, the closing date the seller wants, and an offer price of $1,090,000, what would you do with the information you received? Does knowing that the "highest" offer is $1,100,000 give you any sort of advantage at all? I don't think it does. The seller still has every advantage. So what's the point of pushing to get this information? In fact, you actually have the "best" offer, but you wouldn't know it. The seller doesn't have to disclose what they consider to be the "best" offer.
3 - As a seller, you will absolutely be leaving money on the table with an open offer process. I can't think of a single reason why any seller would give up the opportunity to have a buyer "blow away the competition" on offer night by choosing to implement an open offer process. If you've ever tried to buy a house or condo in Toronto in a hot market, you know how it usually goes. There are 10 offers, 4 of which usually have no chance, 3-4 of them are solid offers but not quite strong enough, and there are typically 1-2 buyers who are in the lead and are willing to pay more than the rest. And more often than not, that gap is significant. With an open offer process, what incentive is there for those top 1-2 offers to come out and blow everyone away? If I were a buyer, I'd want to make sure I win by the smallest margin possible. If I know what I'm competing against, I can just edge out the competition, rather than blow them away. That benefits me, as a buyer, not the seller. As a seller, the goal is to fish out that one buyer who is willing to pay more than anyone else. And ideally, much more. This is only possible with blind bidding. So why would a seller want to give up that opportunity? Open offers, in almost all circumstances, removes that possibility for a seller.
4 - The seller can change their mind, at any time. This is the part that doesn't sit well with me. A seller can choose to partake in an open offer process, then change their mind and go back to blind bidding, at any time. Even after offers have already been submitted. This is going to cause chaos because as a buyer's agent, I want to know what process I'm dealing with on offer night so I can advise my clients accordingly. If the goal posts keep moving, people will cry foul and it will be a mess. This is what happens when people who don't actually trade in real estate every single day make rules that affect the rest of us who are just trying to serve our clients ethically and professionally. Thanks Mr. Government.
5 - Buyers can, and will, insert confidentiality clauses into their offers. This will be a classic case of having your cake and eating it too. Buyer agents have already started crafting clauses to insert into their offers that would attempt to prevent the contents of their offers from being shared. Imagine that - a buyer wants to know what other offers they are competing against are, but they're not willing to share the contents of their own. This alone could cause the entire system to fall apart. There is already a lot of chatter about how a clause like this could be actually be enforced, if a seller can refuse to review an offer with this clause, what happens if the contents of that confidential offer are released, if that confidential offer gets the privilege of knowing what the other offers are but not vice versa, and the logistics surrounding all this hoopla. But I think the main question is why a seller would ever want to reject an offer with this confidentiality clause inserted to begin with. I mean, why would you ever want to turn away any offer? Imagine that a seller decides to run an "open" offer night but they say "we won't review any offers with a confidentiality clause". That's just shooting yourself in the foot as a seller. That "confidential" offer could very well be the highest and best offer you'll ever see, but you don't actually want to see it?? That's when sellers will start changing their minds on the fly and one real situation where chaos will ensue. Plus, does that confidential offer get the benefit of seeing everyone else's offer, but those other offers don't get to see theirs? My brain is already spinning with trying to see how this will play out in the real world.
6 - The open offer system can be gamed. Here me out, because I've been thinking about this one for a while. If a seller chooses to partake in an open offer process, the presumption is that all buyers will be given the opportunity to improve their offers until there is an ultimate "winner". Otherwise, what's the point? I mean, if the seller isn't going to allow everyone to improve their initial offer, then we're just back to one-shot blind bidding, right? So as a buyer, if you know you are going to be given a chance to improve your initial offer, and you are going to find out what the other buyers are offering, why would any buyer offer more than $1 to start? I'm serious. If I knew I was going to see all the other offers and then decide what I wanted to do with my own, why would I want to be the highest offer out of the gate? I'd want to be the absolute lowest offer, so I knew what my competition was doing, and then make a move. I think there are a lot of savvy agents out there who are thinking along these same lines. In fact, if my buyer clients are going to be making offers on properties that will be conducting an open offer process, I'm going to advise them to do just that. Offer $1 to start, then wait and see what you're up against. I can already see the offer process blowing up when buyers all use the same tactic and refusing to increase their offer until the other buyers do, resulting in a stalemate that could last all night. It'll happen. Trust me.
7 - How are open offers any different than an auction? RECO has been very careful about clarifying that the open offer process is not an auction. But I see no difference. That being said, I'm assuming you hired your skilled listing agent based on their ability to sell your property, and for the most money possible. A strong listing agent will act on your behalf and do whatever it takes to get you the highest price possible. That's their job. I can't tell you how many times I've said one comment, or made one argument, or read a situation so perfectly as a listing agent that has netted my seller clients $5k, $20k, and even $50k more on the sale of their property than they would have otherwise. I believe that with all my heart. That's why good agents exist. To negotiate on your behalf. With an open offer process, what's the point of using a listing agent? I'm not saying this as a means to try and keep my job but to stress the fact that I know, with every fiber of my being, that a good agent will get you more money for your house by sticking to a blind bidding multiple offer situation, versus simply letting every buyer know what the other offers are and letting them figure it out for themselves. You don't need any negotiating skills to sell property with an open offer process. Maybe that's why some agents are actually in favour it ;)
8 - Open offers was created to benefit buyers, not sellers. I've attended several training session over the past few weeks about this new open offer process to understand not only the mechanics, but the rationale as to why they are being permitted. I've heard time and time again from non-practicing broker managers who say "this open offer process will help ensure buyers don't pay more than what a property is worth". That made me almost want to scream out in laughter! Why the heck would a seller want to make sure a buyer doesn't pay too much!?!?! That logic alone discredited the whole idea of open offers to me. As a seller (and as a listing agent) my goal is to get you as much money as possible for your house. Period. And if that means a buyer pays more than we think the house is worth, why is that our problem? Buyer beware. Do your homework. Work with an experienced buyer agent who will educate and guide you. It's not the seller's responsibility to ensure you don't pay too much more than any other buyers are willing to pay. Not. The. Sellers. Problem. In fact, the sellers and buyers are at the opposing ends of the spectrum as to the motivation of whether to use blind bidding or open offers. If open offers benefits anyone at all, it's buyers. So why would a seller agree to use it?
I could literally keep going for hours on this topic because I feel so strongly that a) this will end up being such a boondoggle over the next several months because the process will be butchered over and over without a solid set of rules and guidelines, and b) I will never, ever, recommend that a seller use an open offer process, and I can come up with even more reasons why it would not be in your best interest as a seller. To be clear, blind bidding is not banned. So choosing an open offer process on your listing is 100% up to you, as the seller. But choose wisely. And be careful what you wish for.
I can't wait to see how this actually plays out in 2024. And you know I'll be writing about it again when things go awry ;)
Have you checked out my previous blog posts?
If you have a comment, feel free to leave it below. And remember, if you haven't already, please "like" my Facebook page, follow me on Instagram and check back regularly!
Your Toronto condo lover,
Adil Dharssi
Sales Representative
iPro Realty Ltd, Brokerage
Direct: 647-223-1679 (call/text)
Email: Adil@AdilKnowsCondos.com
