As of December 1, 2023, the legislation governing the activities of registered real estate companies and their agents engaged in the selling of real estate in Ontario has changed. The prior legislation, REBBA, has been replaced with the Trust in Real Estate Services Act, or TRESA.
There are a number of changes under the new legislation and we’re taking the opportunity to discuss certain changes in detail that are important to anyone looking to buy or sell real estate.
One key change is that it is now possible to have an open offer process – well, sort of open.
If you bought or sold real estate with a real estate agent in Ontario in the last twenty years, you would have most likely been part of a closed offer process, where if there were multiple parties bidding on a property, only the selling side knew the details of those offers. If you were successful in your bid, did you “overpay” by a little or a lot compared to the other offers? You likely didn’t know the answer to that question and you hoped you managed to get it for just a buck more than the other people.
Let’s review how under TRESA, sellers now have the option of following an open offer process or at least a slightly more open offer process.
Open up!
Let’s start with the basics, namely what is an open offer process?
As the name implies, it means that the Seller can choose to share contents of an offer, as opposed to how it was under the previous legislation, where a Seller (and their agent) were prohibited from sharing the contents of an offer with anyone else. Real estate agents often got into hot water by violating this rule and it no doubt contributed to the perception of unfairness in the offer process.
Here’s the specific provisions in the new legislation (TRESA) about competing offers.
22.7.
(1) If a brokerage that has a seller as a client receives a competing written offer, the brokerage shall,
(a) communicate the number of competing written offers to every person who is making one of the offers; and
(b) if the seller directs, share the substance of the competing written offers with every person who is making one of the offers.
(2) For the purposes of clause (1) (b), a seller may direct that only parts of the competing written offers be shared.
(3) Information shared under clause (1) (b) must not include any personal information of the person making the offer or any other information that would identify the person making the offer.
Let’s break that down shall we?
The bit in Section 1A is the same as it has been for the past twenty years, where the listing brokerage has to notify the number of competing offers to everyone who is part of the bidding war. To be clear, this doesn’t mean to everyone regardless of if they have submitted an offer. While listing brokerages often notify every agent who has shown the property when offers are received, that is more about trying to drum up competition and not a legislative requirement. The only real requirement is that anyone who has submitted an offer is kept in the loop about the number of other competing offers.
It is the wording in Section 1B that is new, where if a seller decides to do so, they can share the substance of the competing offers with everyone who has made an offer.
Section 2 further clarifies that the seller can chose to share only parts of the offers and isn’t obligated to share the full offer or even specifically mandated aspects, such as price, closing date or conditions.
Section 3 then adds in that regardless of what a Seller chooses to share, they can’t share anything that would identify the name of the person making the offer. This also would mean they can’t share anything in the offer that would allow the other parties to figure out who the buyer is, such a condition on the sale of the purchaser’s property located at X address.
So, it’s more open, but maybe not fully open?
The lack of specifics around what may be shared means that we will absolutely see differences between sellers as to what they want to share with the bidding buyers on their home.
One seller may decide he’s only sharing the amount being offered, another seller may decide she wants to share the amount and closing date and another seller may decide they want to share which offers have conditions and which don’t, but that’s it.
Ok, but it’s either closed or open and I’ll know which one, right?
One interesting quirk in this new ability to share some or all parts of competing offers is that there is no actual requirement for the Seller to decide upon and stick with this approach.
A Seller may direct their agent to start with a closed offer process and then change their mind and tell their agent they want to do an open offer and share X aspects of each offer, then change their mind again and say actually they only want to share Y aspects now.
If that sounds confusing, it’s because it is confusing.
Basically, if you’re on the buy side of a deal, you need to be prepared for the seller to choose an offer process that best suits the situation and for it to potentially change.
Consider a situation where the seller notifies buyer agents it will be an open offer process with price and closing date to be shared with all competing buyers.
On offer day, the seller gets three offers and one is a lot more than the other two, so they decide to switch to a closed offer process and give everyone the opportunity to make changes to their offer but not disclose the substance of any of the offers.
Or perhaps one of the offers is firm and the other two are conditional upon financing and the seller decides to switch to a partially open process and rather than sharing the price and closing date, they will not share either of those facts, but they will share that one is firm and two are conditional, in the hopes that the conditional offers decide to remove their conditions or increase their price.
We anticipate that multiple offer situations will be a lot more complicated with these new options and the current lack of specifics for what will be shared amongst competing buyers.
Is there any benefit to buyers?
If the above makes it seem like this is good for sellers but even worse for buyers, it’s not 100% bad news. Some sellers who dislike the blind bidding system and who simply want a “fair” price for their home may reveal all relevant information and allow buyers to make an informed choice.
Buyers who hate the idea of overpaying for a home and effectively bidding against themselves due to not knowing the substance of other offers may choose to only bid on homes where the offer process is open. We have often had buyer clients who refuse to participate in multiple offer situations because they dislike the blind bidding process, so the new legislation at least gives us a slightly expanded pool of properties where they would feel comfortable submitting an offer.
Is this change a good thing?
We’ve largely been in favour of the changes put in place with TRESA, but we’re not sure about this one. It allows sellers to pick and choose between which approach best suits their situation and to change the approach depending on what happens.
The offer process was already a stressful and difficult situation for many buyers and sellers, but at least the rules were clear and a good real estate agent could help get you mentally prepared for what would take place.
Under the new legislation, we’re going to have go through lot more possible scenarios with our clients on both the buy and sell side. While we’re confident we can navigate it to get the best results, it does seem likely that it will cause additional confusion and stress for the parties involved.
If you’re considering buying or selling real estate and want to work with agents who know how the new rules work – and how to protect your best interests – then get in touch!
