Who Is Minding Your Real Estate Wallet? Part Two

Note: The opinions and positions herein are the sole personal expressed opinion and perspective of the author and in no way represent the views of his Brokerage® or his local, provincial, or federal associations or affiliates.

This whole matter really comes from what is known as Form 244: Seller Direction. In the past and prior to the existing technology impacting the real estate trade, Form 244 was created because the sellers could not be physically reached or contacted for various reasons such as vacations or illness. Otherwise, all offers registered were to be presented within a period of time set by an irrevocable date and time; however, this form morphed from “not available” to “holding all offers” until a certain date/time. Although the Form 244 is part of the listing documentation and must be acknowledged by the signatures by all parties involved in the transaction, it is used by some sellers and Realtors® for the benefit of the seller to get the best and highest price for the home. Just a few years back, this Form was amended to clarify its intent – but it still was being used to get the maximum dollar for a home. Many professional Realtors® considered the exaggerated use of Form 244 as an abuse to fair and timely free-market negotiating – as a form of “auction”. On the other hand, any kind of multiple offer, regardless of the proposed regulation, is still a form of “auction” – but with full disclosure, it would no longer be a “silent auction” so to speak. It could also backfire on a Seller and/or an Agent® and create not only selling concerns but relationship issues between the two if it does not do what is intended – get a maximum selling price. What if the list price was lower than fair market value to attract multiple buyers – and no offers came in at the date/time? This is another topic as well.

Many Buyers should only entertain a multiple offer scenario with good Realtor® advice. Buyers who absolutely love a home or had limited locale choices could “jump in”. How are they properly advised? When 2 offers are involved, some buyers would receive certain advice, like “give them what they are asking for”; however, when up to 5-15 offers are involved, the options and advice are endless – even to the point of dropping such conditions as financing or inspections. Such a successful sale at a price well above fair market value can lead to serious financial duress and/or can lead to further complications like a home in poor physical condition because an inspection was not done.

Let us create a multiple offer case study in which a couple buying privately negotiated without a Realtor®. In wanting the home so much, they dropped the finance and insurance clause and paid $35,000 more than list price. This was clearly a “heart-over-head” decision. They signed off to waive the conditions without doing their due diligence and soon discovered they could not get the mortgage or insurance they thought. Why? They paid an exaggerated price for the home! Added mortgage finances had to be sought from a 3rd party and the new owners would have to pay their own costs above the insurance coverage if property damages were to happen. All because they did not know the amounts of the other offers and perhaps they proceeded without a Realtor®. This brings up another question? Does the proposed legislation also impact For Sale By Owners (FSBO)? If there are no regulations, liability insurance, or ethical standards in FSBO’s in the trade of property, should it? Or do we have faith in the ethics, objectivity, and expertise of the “do-it-yourself professional” in a multiple offer? Is that possible if even a minority of Realtors® are reported to RECO? If the legislation governs private sales by owners and private purchases by buyers, how will that be handled to assure validity and credibility?

Here is another question. Is this just another way in which “big brother” controls the spending on housing by Canadians? Shouldn’t we all have the liberty to act without such rules and regulations? Is RECO also joining in the government’s “big brother” role? Why not just change the existing regulations and better enforce the Realtor® profession instead? Why not let capitalism principles operate freely as with FSBO? Would this not be in line with competition as it should be?

Canada has indicators that regulations can help alleviate housing financial concerns. First, recall when the Bank of Canada (BOC) regulated the mortgage rates stringently in 2008. This was the year the housing market in the United States went into turmoil because of a lack of mortgage regulations. The ripple effect touched not only Canada economy but the world’s markets. The BOC regulations protected Canadian Home Owners and mortgagors. Second, some say that the average person cannot control his/her finances. There is even a movement that states we should implement a compulsory credit in senior high school on financial survivor and basic skills. I invite you to look at some points and recent news that may support such regulations:

❖ With our growing household debt, Canadians owe $1.68 for every dollar of disposable income. [1] This real estate regulation may help alleviate that by having buyers submit more realistic market value offers and thereby reduce the household debt.

❖ Affordable housing may come to greater fruition if accelerating price increases caused by multiple offers are kept at bay for all housing. As it is, affordable housing is limited in every community.

❖ Stress Tests helped keep housing costs down by acting as a preventative measure of first-time buyers overpaying for a home. This was put in place “……aimed at limiting the amount of debt that Canadians and financial institutions take on”.[2] Add this to the disclosure and we have a “double” preventative measure to curb over-spending for purchases.

❖ Recent interest rate hikes were used to prevent any potential “bubble” or over-pricing.

❖ Regulations such as this could give hope to those who dream of home ownership and/or upsizing since such regulations would help control price accelerations.

❖ Realtors® would, under the new legislation, advise their sellers and buyers about the dollar amounts so that appropriate, fair and financially feasible decisions can be made.

❖ Politicians like this because it can become part of an “affordable housing” or other housing platform.

So, who would be against such proposed legislation?

❏ Home sellers who will not get the “highest” amount for their home. To some homeowners, “fair market value” is not enough. “My house is worth a lot more than that!”

❏ No matter the size of the home being sold on the market, multiple offers and the potential to make a large income via multiple offers is very appealing; hence, sellers would oppose it.

❏ Realtors® who may gain added commission amounts by advising the recent use of Form 244 would be disappointed if it passed.

❏ Those who believe that capitalism should not be regulated in a free enterprise society would not like this proposal.

❏ People who want more de-regulation and less “big brother” would vote against it.

❏ Some anti-socialists would disagree with any intervention

❏ Those who do not empathize with the state of another’s financial status are not in favour.

❏ FSBO and some who buy without a Realtor® would oppose if the legislation applies to them.

I have just touched upon some points of debate on this proposed legislation and in limited depth. Will the legislation go even further and permit the disclosure beyond offer prices and ask for disclosure on conditions as well to really “even the playing field”? If so, how would that be handled? The debate and consultation continue as you try to personally mind your real estate wallet.

Reminder: The provincial government and RECO are asking for input the general public and from Realtors® on the following topic: allowing full disclosure of prices in real estate bidding wars, otherwise known as multiple offers.

See the government’s consultation paper by clicking here

Written submissions are due no later than March 15, 2019.

Regardless of your position, please exercise your right for input into this proposed legislation.

[1] Erica Alini, Global News, June 14, 2018

[2] Erica Alini, Global News, Dec. 10, 2017

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