We were involved in competing bids on a home and lost out, but the seller accepted an offer that was lower than ours. Doesn’t the seller have to accept the highest offer?

This can happen for a variety of reasons, but the simple answer is “no.”

In real estate transactions, the seller can choose the offer they want and there is no obligation to accept the offer with the highest price. In fact, the seller is not obligated to accept any offer.

It’s tempting to think that there’s something fishy going on when this happens, but the sale price is only one of a number of factors influencing the seller’s decision making.

In your situation, while a competing offer might have included a lower price, it could be more attractive for other reasons. For example, the seller might prefer to choose an offer that doesn’t include a financing condition, or other conditions around inspections or the sale of the buyer’s home. Sometimes commission rates are adjusted, which can also affect the bottom line for a seller.

Another common differentiator is the closing date: the offer they choose might have a closing date that works better for them than the one you were offering. Timing can be everything.

As price is just one factor for the seller to consider, it may be enticing for you, the buyer, to start eliminating conditions that are designed to protect you. If, for instance, there’s no financing condition, you could lose your deposit or, possibly worse, incur financial penalties if you can’t get the funds to complete the deal. And without a home inspection condition, you could be on the hook for costly repairs down the road.

These are serious risks, and you should make sure that you understand the trade-offs before you leave these conditions out. It is best to discuss these with your real estate professional to consider your risk tolerance.
It may also be helpful to consider what the transaction looks like from a seller’s perspective.

A seller contemplating competing offers has to consider how they want to deal with the situation. The seller can decide to accept the best offer, negotiate with one or a few buyers or reject all other offers.

This means that even if your initial offer was higher, the seller could have chosen to start negotiations with another offer that includes more favourable terms.

Negotiations can be tricky. Even in a competing-offer situation, a buyer has other options and may choose not to continue to participate. A seller may attempt to negotiate, only to find out that it was the best offer the buyer could submit. In the meantime, other buyers have moved on to other properties they are interested in.

With the weather warming and the market showing no signs of cooling, it’s a good idea to engage a real estate professional who can provide advice and guidance to help you understand the options available to you and the obligations that may come with each of them.

If you have a question for Joe about the home buying or selling process, please email information@reco.on.ca.

Joseph Richer is Registrar of the Real Estate Council of Ontario (RECO). He is in charge of the administration and enforcement of all rules that govern real estate professionals in Ontario. You can find more tips at reco.on.ca, follow on Twitter @RECOhelps or on YouTube at http://www.youtube.com/RECOhelps.

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