The last several months around Toronto have been unquestionably a seller's market - with the demand for single dwellings in the suburbs of Toronto far exceeding supply. Once again, multiple offer scenarios and pre-emptive (or bully) offers are more common than ever.  So with sellers firmly in the driver's seat, you might ask yourself: what can go wrong?  Plenty based on an experience I had early last week.

When I decided to list my investment property last week, I did my best to keep expectations low.  It was the second time in my 50 years that I was selling a property.  Considering how infrequently we sell real estate, it's easy to see how things can go wrong - or that things can go very differently from what we are hoping and expecting.  But because we have so little experience individually, we surround ourselves with Real Estate agents and Lawyers, and we are expected to trust the process.  With little to no alternative, we do exactly that - we trust the process and hope for the best.

We listed our semi-detached property in Pickering on a Thursday afternoon, and by the time we began accepting offers on the Tuesday, 30 people had visited the property.   While I kept seeing properties in the neighbourhood selling for 10% to 20% over asking, I tried to keep my expectations in check - because I've been sorely disappointed in the only other real estate sale I had ever been a part of.  In that experience, I had to eventually decrease the selling price by $40,000 just to move the property.  20 years ago, $40,000 represented 10% of the selling price.

Around Tuesday evening at 6pm, 12 offers were submitted - all of them well above asking price.  4 were really good, but one was so far ahead of the others, with no conditions, that it was a no brainer.  We picked the highest bidder at 21% over asking with no conditions.  My wife believed that the offer was too good to be true - but what could go wrong I asked?

The next morning started with a call from my real estate agent: "Steve, we seem to have a problem. The potential buyers don't seem to have the deposit and they now feel like they've overpaid."  My immediate reaction was: I understand that they offered a lot, but we have a signed agreement of purchase and sale - so how can they possibly get out of this commitment?

While different lawyers may have differing opinions, the guidance I've been given is that a real estate contract is only a binding contract if all of the legal requirements are executed.  Like most real estate offers these days, the potential buyer submits a deposit "upon acceptance" - so once the offer is accepted, the buyer has 24 hours (or however long is stipulated in the offer) to submit the deposit and bind the contract.  If the buyer fails to, or decides not to, submit the deposit, the offer falls apart because the signed contract without the deposit was never a fully executed agreement to begin with. The contract didn't materialize completely by just the two parties signing. 

Not only did my deal fall apart, but I also found out that I had no recourse against the highest bidder because there was no binding contract to begin with.

Digging back into my memory banks, I seem to remember that when offers were made back in the day (before fax machines and electronic signatures) that deposit cheques were accompanied by the offer as a show of good faith and to show the sellers that you were a committed buyer.  So I asked my Real Estate Agent - whatever happened to that practice?  He mentioned that once fax machine became the primary method of submitting offers, the practice of submitting deposit cheques has pretty much died.  Digital signatures have made the notion of submitting a deposit cheque even less likely and COVID-19 has made it even worse.  Add to that an incredibly hot real estate market and a dozen offers at a time and the conditions are ripe for an over-zealous buyer to throw caution to the wind and to outbid everyone else - and then simply walk away. No recourse.  No accountability.

I find the buying and selling of real estate a very strange transaction.  Complete strangers bid on a property that they've seen for 30 minutes and they will spend the next 25 years paying for it.  As a seller, I don't know anything about any of the potential buyers, and I certainly don't know a thing about their credit history and their ability to afford the house I'm trying to sell.  By comparison - as a landlord - I meet potential tenants, check credit reports and call landlords for references before I would ever think to rent to a tenant.  But you want to buy my house for almost $1M and I don't know anything about you - no problem.  How is this even possible?

Is there anything you or your Real Estate agent can do to protect yourselves as sellers?  My real estate agent submits a picture of the deposit cheque with the digital offer when he represents someone buying a property.  But short of going back to submitting deposit cheques with the offers, there's really not much you can do.  Sending a picture of the deposit cheque is probably the least you can do.  But even asking the real estate agent and the buyers with the best offer if they are good for the deposit, won't guarantee anything. 

I was lucky - there was enough interest in the property that my real estate agent was able to make several calls to some of the slightly lower bids and secure a solid bid.  But we still left $25,000 on the table.  I hope this experience helps at least one other person - we buy and sell real estate so infrequently that very few people actually become good at it.  But given the magnitude of these transaction and the emotions that are riding so high in such a hot market, you could end up accepting an offer that goes up in smoke 24 hours after the documents have been signed.