“No conveyance of offers prior to <time of day> on <specific date>.”
“Offers presented at <time of day> on <specific date>; however, the seller reserves the right to review and may accept pre-emptive offers.”
ICON_PLACEHOLDEREstimated reading time: 13 minutes
If you followed or participated in the real estate market in Ottawa in 2020 you will have noticed one of these two phrases appearing in almost every new property description.
Variations of these phrases have been in use for many years, but recently (since mid-2020) you will find every listing with a set offer date uses one of these specific phrases. The second half of the second phrase: “…the seller reserves the right to review and may accept pre-emptive offers” is something you probably never saw before.
So what’s going on? Have the rules changed? Have the laws changed? The short answer is that no rules or regulations or laws governing the handling of delayed offers or multiple offers (“bidding wars”) have changed. The only thing that’s changed are the Ottawa Real Estate Board’s MLS listing rules.
The change was made in an effort to clarify for the public how the offer process works, specifically with regard to the consideration of pre-emptive offers when the seller initially plans to delay the consideration of offers until a specific date and time.
I’ll explain how the new listing rules intended to be helpful, the unintended changes in behaviour that have resulted, and provide some tips for handling things from either side of the table: as a Buyer or Seller in these circumstances.
Let’s start with an explanation of the rules and regulations governing the handling of offers. These have not changed in many years. You might expect on long list of laws, but there are really only three fundamental directives:
- The Seller’s agent must present each and every offer she receives, to her client, the Seller, at the earliest practical opportunity.
- The Seller’s agent must ensure that all “interested parties” are treated fairly.
- The Seller must put the interests of his client above all other considerations. This includes following his client’s legal instructions.
There is a fourth rule to keep in mind: all offers on property must be made in writing. Verbal offers are never valid. I list this rule separately because there is no opportunity for misunderstanding or interpretation associated with it. The first three rules drive buyer, seller, and agent behaviour. Behaviour has been all over the map over the years, mostly due to lack of understanding, and in rare cases due to malfeasance.
The Real Estate Cardinal Sin
Breaking Rule 3 – duty to client – is real estate’s cardinal sin. In my experience, it is broken very frequently, but in subtle ways that the client (seller) does not usually recognize and crucially, the seller’s agent in most cases does not realize either. In the media you occasionally see stories about nefarious behaviour by a very small portion of the Realtor population – blatantly illegal actions or gross examples of putting their own interest before their client’s interest. The reality is these cases are rare, usually discovered, and universally punished when they are.
More insidious are the small actions taken by many Realtors who think they are doing the right thing, but have not applied critical thinking to the situation and simply take the path of least resistance or follow the crowd implementing the latest trend (see my article about the “Coming Soon” fad).
In hiring a real estate agent, your first consideration should be that their prime directive is serving and protecting your best interests in every aspect of their work for you.
Before The New Listing Rules
Next, let’s look at common behaviour prior to the Ottawa Real Estate Board instituting their new MLS Listing Description rules.
Directive number 3 above (seller’s agent putting the seller’s interests first) has always led better agents to consider market conditions in advising the seller on offer management strategy. In a seller’s market or for any property likely to attract a lot of interest, this means recommending a method of ensuring an opportunity for multiple buyers to make offers before signing an agreement to sell.
While this objective is sound, the methodology often is not. In the Ottawa market, the most prevalent “strategy” has been to indicate in the listing that the seller requires a 24 hour irrevocable on all offers. I’ve written about this in the past – see this article on Offer Irrevocables. The idea is that if any received offer has a 24 hour irrevocable, it gives the agent 24 hours to try to drum up more offers by contacting other “interested parties” before the seller has to respond to the first offer with the 24 hour time limit.
I don’t mean to go into depth about this method of handling offers in this article, but in summary, it is a poor strategy for several reasons; the two main ones being:
- Rule number 1 mandates that the seller’s agent present to the seller any offers she receives. This means if an offer is submitted with an irrevocable shorter than 24 hours, it still has to be presented to the seller, who in all likelihood will want to deal with it if it is a good offer, regardless of the irrevocable time.
- 24 hours is typically not enough time to ensure that all, or even most “interested parties” have an opportunity to bring an offer.
With the advent of an intense seller’s market in Ottawa in 2020, agents began migrating away from the 24 hour irrevocable strategy, to something better: delaying the consideration of offers. This is not a new strategy, but market conditions in 2020 made point 2 above self-evident, and therefore agents migrated to near universal use of set offer dates.
However, the language used in MLS listings to effect the delay of offer presentations varied wildly, and the handling of offers in practice was fraught with problems. Here are some examples:
A property lists on July 10 and the listing states “offers presented July 14, 2020 at 6:00 p.m.” but an offer is received July 11; many agents have booked showings for July 11 – 14. The seller decides to accept or counter the early offer. Agreement is reached and all the buyers’ agents with scheduled showings see the property go “sold” or “conditionally sold” on MLS. This is not fair to all of the other buyers.
It most likely results in a lower selling price than could have been achieved with more offers on the table.
The seller’s agent has broken Rule 2 and Rule 3.
A property lists on July 10 and the listing states “no conveyance of offers until 6:00 p.m. on July 14.” A buyer’s agent who has a showing booked for July 12 receives a phone call from the seller’s agent. The seller’s agent says that an offer has been received and the seller wishes to deal with it now – the seller’s agent asks if the buyer’s agent would like to bring a competing offer from her client.
The buyer’s agent may rightly ask: if there was no conveyance of offers to the seller, how do they know about this offer let alone want to consider it before the time set for presentation (conveyance) of offers?
The seller’s agent is making an effort not to break Rule 2 by informing the second buyer’s agent and providing an opportunity to bring a competing offer. However, because the listing stated that there would be no conveyance of offers until July 14, the second buyer felt assured they could view the property on the 12th or 13th and still have time to consider an offer. Now they are suddenly and very unexpectedly under time pressure, and may well not have an opportunity to view the property before bringing an offer.
The seller’s agent has arguably broken Rule 2. He has certainly again broken Rule 3, committing the cardinal sin of not working in his client’s best interest, which would have been served by maximizing the opportunity for multiple buyers to bring offers in competition.
The New Listing Description Rules
If agents all clearly understood the rules and regulations governing the handling of offers, there would have been no need for the Ottawa Real Estate Board to create new listing rules.
Seller’s agents were using many different phrases to explain delayed offer procedures, but in many cases did not manage the process according to their own description, and in other cases may have done so but failed to keep all “interested parties” informed when the seller’s instructions changed.
Let’s revisit Rule 3 for a moment:
Rule 3: The Seller must put the interests of his client above all other considerations. This includes following his client’s legal instructions.
The last part of this rule, in italics above, means that it is the seller’s choice how she wishes to deal with offers on her property. At the foundation of real estate practice, common sense prevails. It is the seller’s property – they can do what they want with offers and negotiations.
Real estate agents, however, have to follow the rules. Real estate agents provide a service to their clients but also to the public. Their duty is to their client but they must deal fairly with the public and other real estate agents.
That phrase: “…following his client’s legal instructions” means that the seller can change her mind, give new instructions at any time, and her agent must follow those instructions. Problems arise when the seller’s agent does follow his client’s instructions, but does not do so in a way that is fair to the public and other real estate agents. And as discussed, not being fair to other parties often inadvertently means not working fully in their own client’s best interest, even if they were following their client’s instruction.
The new mandatory offer presentation descriptions described at the top of this article are designed to eliminate the possibility of misinterpretation and incorrect implementation of offer procedures. Behind the scenes, there are documented guidelines for use of these descriptions and for managing the handling of offers and communications with all “interested parties”.
These new guidelines have helped a lot. When a listing indicates “no conveyance of offers” you can now be assured that there are written instructions from the seller to the seller’s agent stating that offers are not to be delivered to the seller until the stated time. Note there can be exceptions built into this instruction; for example: no conveyance of offers unless they contain certain terms, like a minimum price. If there are exceptions, the description in the listing must state that there are exceptions. It is not mandatory to state what the exceptions are.
In situations where the seller has not instructed the seller’s agent in writing to withhold offers, the phrase “…however the seller reserves the right to review and may accept pre-emptive offers” must appear in the description.
If everyone had been following the Rules all along, delayed offers would have been managed exactly as these mandatory descriptions and guidelines direct. But as described in this article, very often agents did not follow the Rules properly – not because they wanted to break rules, but simply because they didn’t understand them.
If Nothing Has Changed, What’s Changed?
Fundamentally – nothing has changed. The new descriptions simply attempt to communicate offer handling intent in accordance with the rules that have been in place all along.
Behaviour in the market, however, has changed a lot! The new descriptions have had unintended consequences. And this is the crux of the story.
Prior to the intense seller’s market of 2020, it was a small percentage of properties with set offer dates that would receive a pre-emptive offer. You’ve heard the term “bully offer” – a bully offer is a pre-emptive offer – an offer that is submitted, received, and has an expiry time earlier than the time and date set for the seller to consider offers.
In 2020, with buyers becoming frustrated making offers on many properties and being out-bid every time, pre-emptive offers became a little more common. Common enough to lead to scenarios like the two described above, and myriad other confusing and unfair situations much more frequently than in past years.
While pre-emptive offers became more common in 2020, they were still the minority case – most properties with a set offer date would not receive a pre-emptive offer. Until the Real Estate Board instituted the new rules.
Prior to the new rules, most buyers assumed the seller was serious about the set offer date and wouldn’t want to seem pushy or presumptuous; they would politely hold off until the offer date and then submit their offer, likely facing competition.
But the new description, “…however, the seller reserves the right to review and may accept pre-emptive offers…” seems to be an invitation, in the eyes of many buyers. As a result, pre-emptive offers have become very common. Some weeks it feels like 50% of properties with set offer dates, without the “no conveyance” direction, receive pre-emptive offers.
It’s crucial to note that pre-emptive offers do not have to upset the apple cart and send every buyer into a tailspin. The problem is that many seller’s agents are not strong enough to advise their clients to stick to their guns. Anecdotally, it seems there are more agents who cave to pre-emptive offers than there are agents who stay the course. You might feel I am being too critical in ascribing this behaviour to the agents, because after all, it is the seller’s decision and agents must obey their client’s instructions. This is true. However, the #1 job of a real estate agent is to advise and protect their client’s best interests. A strong agent fully prepares their client for these situations and gives the client the confidence necessary to maximize results.
Anecdotally, 9 out of 10 times the seller is better served by sticking to their original plan. I have not yet witnessed a case where the pre-emptive offer turned out to be the best offer. I’m not saying it never happens – I’m guessing that about 10% of the time it does. But if you’re playing the odds as a seller, you wait to give every buyer a fair shot. Usually the pre-emptive buyer re-appears on offer day. Often they do not bring the highest offer even if they improve upon their original pre-emptive offer.
Advice for Buyers
What does this mean for you, as a Buyer in this market? If agents and sellers stuck to their guns, it wouldn’t make much difference; however, with so many sellers abandoning their original offer date plans, you cannot as a buyer expect a property to be available on the offer date. This means if a property looks promising, you should get out to see it as quickly as possible even if offers are not being considered for a week.
It also means that you needn’t be bashful about bringing a pre-emptive offer. It will have to be a very good offer, over asking price and in most cases without conditions. However, it may not need to be as high as it will have to be on the set offer date. It’s worth a try. By rights, if you start submitting pre-emptive offers, most should be declined. But many sellers are accepting them, to the chagrin of all your would-be competitors.
Advice For Sellers
Sellers have two decisions to make:
- Should you delay offers; that is, set a time and date for the review of offers?
- If you delay offers, should you instruct your agent in writing not to forward offers to you until the set date, or should you state up front that you are open to considering pre-emptive offers?
The answer to the first question in current market conditions is almost always “yes”. In fact, there is no reason not to set an offer date for your property in almost any market. In a slower or buyer’s market, it is always possible there are buyers interested in your property who just cannot logistically arrange to see it right away and make an offer immediately.
How often is there a buyer who wants to make an offer on your property, but only if they can do so right away, and cannot wait a few days until your set offer date? It’s pretty rare. You may argue that buyers on a house hunting trip are often under considerable time pressure and you could miss one of these buyers if you make them wait a week to submit an offer. In reality, the buyer’s timing and your timing aligning badly enough to cause a missed sale is unlikely, but not impossible. There are ways to accommodate buyers in this situation. But it is possible, and this is why you play the odds, but allow yourself flexibility.
Allowing yourself flexibility is paramount. This leads to my advice for decision #2. I recommend you do not ask your agent to withhold offers. Your agent will have provided you with detailed market data and an accounting of current interest in your property. You can make an informed decision with the best information available. In most cases you will want to maintain a strong negotiating position – stay the course with your planned offer date.
If a pre-emptive offer is surprisingly strong, it’s time to assess the level of interest in the property and carefully go over the most recent market data again to help you make an informed decision.