Realtors in Ontario are calling for a ban on “bully offers” made during the homebuying process, which they argue give some homebuyers an unfair advantage.
The recommendation was one of 28 made by the Ontario Real Estate Association (OREA), which is made up of 78,000 real estate brokers and salespeople. The OREA is asking the Ontario government to bar the practice of bully offers as part of its review of the Real Estate and Business Brokers Act.
“If a home listing includes an offer date, that’s the date on which all offers should be considered; an offer made before that date, which is known as a pre-emptive, or ‘bully offers’, should not be allowed,” said Karen Cox, President of the OREA in a news release on Monday.
In Ontario, when houses are put up for sale, realtors often show the property and hold open houses before a date is set to accept formal offers. The hope is there will be several bids on offer night from which the seller can choose from. Bully bids occur when a buyer side steps this process and makes an offer earlier, often for far more than asking to try and spur the seller to sell to them.
OREA makes other recommendations, including granting greater powers to the Real Estate Council of Ontario, a regulatory body for realtors and banning escalation clauses in buying offers, which allow potential buyers to drown out competing bids by saying they will pay up to X amount of dollars above the next highest offer up to a certain limit.
“A clause that allows a buyer to automatically bump all other offers out of the running in a multiple offer situation makes for a very uneven playing field,” said Cox.
“Further, for the escalation clause to kick-in, a REALTOR® must reveal private financial information such as the highest offer on a home to the buyer using the clause, which violates the REALTOR® Code of Ethics. Eliminating contradictory rules like this will strengthen consumer confidence in the Province’s real estate market.”
Amending the Real Estate and Business Brokers Act has been a hot topic as of late.
In February, the OREA also made calls to do away with bidding wars — a multiple offer situation where potential buyers have no idea what other offers are on the table and, as a result, often blindly submit a higher-than-they-planned-on bid in hopes that they’ll beat out the competition.
Ontario has launched a consultation on eliminating bidding wars and is considering allowing realtors to share competing offers with other potential buyers, effectively eliminating bidding wars.
The OREA is confident that the recommendation to ban bully offers will make the homebuying process less stressful and unfair.
“This will ensure that all interested buyers of a particular home get a fair shot at making an offer,” said Cox. “For sellers, it means they will have a chance to work with their REALTOR® to carefully and thoughtfully consider all offers without feeling like they are in a pressure cooker.”