If you’re paying attention at all these days, you might have, just maybe, noticed that the local real estate market in Peterborough is a wee bit hot right now. Ok, it’s a little more than that…if we compare it to something that’s really hot, say some kind of natural disaster, we might say it’s positively volcanic! Think inexorable lava and pyroclastic flows that can’t be stopped or outrun. I’ve been in this business for over 20 years and I’ve never seen anything like it.
A pyroclastic flow (also known scientifically as a pyroclastic density current) is a fast-moving current of hot gas and rock (collectively known as tephra), which reaches speeds moving away from a volcano of up to 700 km/h (450 mph). The gas can reach temperatures of about 1,000 °C (1,830 °F). Pyroclastic flows normally hug the ground and travel downhill, or spread laterally under gravity. Their speed depends upon the density of the current, the volcanic output rate, and the gradient of the slope. They are a common and devastating result of certain explosive volcanic eruptions.
These are the kinds of explosive eruptions that kill thousands...
So, we’re running along, trying to keep ahead of this density current, this hyper-active market. We’re seeing properties, that are priced properly, sell in hours or days instead of weeks or months as is more traditional. Yes, hours. It has become commonplace to see multiple offers on property within mere hours of listing.
What does this mean for buyers that are trying to get into the market? People moving to Peterborough or just buying their first home?
It means that some buyers feel that they need to make snap judgments, make offers with very few conditions (dangerous at times!), and offer to pay top dollar to ensure that they have a fighting chance of winning their bids. Statistically, they’re right: Listing inventory is down on the order of 40% or more vs. this time last year and something like 75% of all listings are selling right now, when in a more balanced market that number is much lower, closer to 50%, meaning that the supply is so low that buyers are picking up properties that they would have previously passed over in hopes of finding something else. It’s a recipe for short tempers and disappointment.
Dicey. Not fun. Potentially heartbreaking for our buyer clients. Managing the process on behalf of sellers is equally hard – you’re the guy walking through a gauntlet of starving pitbulls with a big juicy steak in your hand and none of the dogs are wearing a muzzle or a leash. Run! Contrary to popularist belief, we REALTORS® do NOT enjoy this kind of market. It has the appearance of being easy money – properties selling in hours and we get paid too much. Or so the thought goes…
One of the tools that has become popular recently as a result of this frenetic activity, is ‘Holding Offers’. The public sees this on listings worded something like, ‘No offers until June 25th,’ or some such language. So what does this mean, what’s happening here, and how does it affect the parties involved?
Basically, as a tool to slow the process, sales reps and brokers are discussing with their seller clients a way to keep co-operating reps and brokers from submitting offers for a short period of time. This has a number of side-effects:
- It provides time for more buyers to be exposed to the property
- It creates a sense of urgency, almost an auction atmosphere
- It often encourages multiple offers and ‘bidding wars’
This isn’t always a bad thing! Really, there are more benign reasons to hold offers in this market:
- Perhaps the sellers are out of town and unavailable for a short time – this allows buyers to see the property and prepare offers that will be presented later
- The market really is so hot, holding offers actually lets more buyers see the house before it’s gone. We had a listing recently that had showings lined up every half hour for 12 hours straight on the first day! Not only that, but there was a list of very frustrated reps with buyers that insisted that they be given an opportunity to see the house before it sold – they just wanted a chance to compete for it.
Don’t forget something very important here; we have a fiduciary duty to get the highest price for properties on behalf of our seller clients. That sometimes means creating an environment for bidding wars. It’s not fun, but there it is. If we DIDN’T do this, and the seller could prove that we could have received multiple or higher offers, then we clearly didn’t do our job and we could quite rightly be held liable for any shortfall incurred by the seller.
From RECO, March 19, 2015:
“First, if you are a client, the brokerage has an important obligation to you, called fiduciary duty, and must promote and protect your best interests in the real estate transaction.” Joseph Richer , Registrar of the Real Estate Council of Ontario (RECO)
How does this tool work?
At the time of listing a property, the representative will have a discussion about the act of holding offers and what it means. If the seller believes that this is appropriate and they indicate that they’d like to use this tool, then the representative must reduce the seller’s instruction to writing. The correct way to do this is to use OREA Form 244: Seller’s Direction re: Property/Offers. The form has two sections that are important to fill out, other than the standard property identifiers etc. The first indicates no presentation of offers until a specific date and time. The second is blank and this is where the prudent rep adds some additional language. The clause that is entered here should indicate, clearly and unambiguously, that the seller is directing the listing brokerage NOT to inform them of offers until the time set for offer presentation.
Without a clear direction to withhold even the existence of offers until the specified date, there is still an opportunity for confusion through what are called pre-emptive or ‘bully’ offers. This is an offer with an irrevocable period (the time in which the offer must be addressed by the seller) that is shorter than the time set out for offer presentation at a later date. In effect, the buyer’s rep is ‘bullying’ their way in to present an offer regardless of the seller’s direction. Believe it or not, in the absence of written direction to the contrary, the listing brokerage has a legal obligation to present all offers at the earliest practical opportunity. This is why it is so important to discuss the pros and cons of this tool before listing a property and to have this written direction to keep the seller in the dark with respect to offers made prior to the date set for presentation. It’s a confusing process and one that, if done incorrectly, creates a host of complications.
So, are you confused yet? You can see why this hot market has everyone hopping. We’re learning a new set of tools and doing our very best to be proactive in a market that is constantly accelerating and changing while keeping foremost in mind our fiduciary duties.
It’s exciting, I’ll give you that ;)