Managing pre-emptive offers
This Registrar’s Bulletin explains the seller representative’s obligations under the Real Estate and Business Brokers Act, 2002 (REBBA) when managing a pre-emptive offer, commonly referred to as a bully offer. A pre-emptive offer is one where a buyer does not comply with the process outlined by the seller to delay the presentation of offers or other process conditions.
It is essential that registrants establish a fair and transparent offer process before receiving pre-emptive offers. This bulletin will explain the process step-by-step.
Bulletin overview and summary
A seller’s representative must have specific instructions from the seller on how to manage pre-emptive offers. The instructions must be in writing, commonly referred to as written directions. Pre-emptive offers will often stem from a delayed offer strategy, but there may be other offer conditions that can result in a pre-emptive offer. Discussions with the seller should outline all possible options for handling any pre-emptive offers and the benefits and risks of each option. The representative is encouraged to document the disclosures made during the discussion. The seller is then able to make an informed decision of the process and provide a clear and specific written direction to their representative.
Sellers may change their instructions by issuing a new written direction, and they should do so only with a complete understanding of the benefits and risks.
Legal obligation to convey offers
The law is clear that a registrant must convey an offer to the seller as soon as possible. The only exception to this requirement is if the client (seller, buyer, etc.) has given clear and detailed written directions to do otherwise.
Written directions key steps
A registrant must follow their client’s lawful instructions, so it is crucial that a seller is able to make informed decisions that are documented in a clear, specific written direction. A registrant is expected to advise and inform a seller of the benefits and risks of delaying the presentation of offers or applying other offer conditions, and options for managing offers that do not comply with the seller’s written and express conditions.
Pre-emptive offers most often arise when a seller delays the offer presentation to a later date but could arise with other process conditions. The following are the key steps to follow when managing pre-emptive offers.
Step 1: Explain the concept of pre-emptive offers
A seller representative is expected to outline specifically, how, when and why a pre-emptive offer might arrive, and that they often include a particularly short irrevocable period in an effort to avoid, or pre-empt, the seller’s offer process and having to compete with other buyers.
Step 2: Written directions to include pre-emptive offer instructions
In addition to the conditions applied to the process, seller’s written directions must also explicitly outline how the registrant is to manage pre-emptive offers. A registrant must help the seller understand the options for handling pre-emptive offers so the seller may make an informed decision about the direction they will provide.
Here are some sample questions a registrant can ask the seller when seeking instructions before proceeding with conditions on the process:
- If a pre-emptive offer came in and you were not told about it, how would you feel?
- How committed are you to the original tactic of delaying offers (or the other conditions applied to the process) or is there an offer price or term threshold that will cause you to change your mind?
- If we receive a pre-emptive offer, do you want to:
- wait until the offer presentation date and not be informed about any pre-emptive offers at all?
- be notified of a pre-emptive offer without seeing the details?
- see only offers that are above a certain price or be free of conditions (for example, no inspection or financing conditions)?
While this list is not all-inclusive and all possible options should be explored based on the seller’s specific requirements, these are some of the key points necessary to help a seller to make an informed decision about their instructions on how to manage pre-emptive offers. If the seller is having difficulty deciding, discussion should continue until the seller can provide clear instructions.
Note: See RECO’s bulletin, Managing a delayed offer presentation process.
Step 3: Document the seller’s instructions with clearly written directions
Once the seller understands their options and is ready to provide informed instructions, the registrant will summarize the instructions in a clear and detailed written direction for the seller to confirm. The written direction must clearly outline all the instructions the seller has provided with respect to various pre-emptive offer scenarios and how they are to be handled. This allows the registrant and seller to proceed with confidence and reduces the risk of misunderstandings.
Caution: Having the seller sign brief general directions that they do not wish to view any offers until a specified date and inserting a statement in the listing notes “seller reserves the right to view pre-emptive offers without notice” is NOT sufficient to meet a registrant’s obligations. This does not relieve registrants of their obligations to notify all interested parties. Having specific written instructions from the seller allows the registrant and seller to proceed with confidence and reduces the risk of misunderstandings, which could lead to complaints and disciplinary action.
Note: Refer to RECO’s bulletin, Managing a delayed offer presentation process.
Change in seller directions
The seller can change their written directions at any time, but the new instructions must be documented in a new written direction. For example, if a seller who previously directed that they did not want to see pre-emptive offers decides they do now want to consider offers, a new written direction needs to be made to override the previous direction.
Seller’s representatives must treat buyers and their representatives fairly, which means informing them of the changes to the seller’s direction, particularly if the seller’s representative is the one bringing forward a pre-emptive offer. A seller’s representative who has a buyer client making a pre-emptive offer must apprise other interested parties of this fact as soon as possible. This results in multiple representation, which must be disclosed to all prospective buyers.
There is also an obligation to notify all interested parties of the change to the offer presentation date as a result of the pre-emptive offer now being considered by the seller. Refer to the examples in the chart below.
Note: See RECO’s bulletin, Managing a delayed offer presentation process.
- The seller signs a written direction stating they do not want to be made aware of or review any pre-emptive offers under any circumstances.
- The seller signs a written direction indicating they only want to review pre-emptive offers above $600,000. You receive an offer for $595,000.
Do not notify the seller of the pre-emptive offer.
Keep in mind that this would only apply if the direction received was detailed and outlined the exact instructions received from the seller. Simply having them initial a clause on a pre-printed form would not be adequate as a direction.
- The seller signs a written direction indicating they only want to review pre-emptive offers above $600,000. You receive an offer for $605,000.
- The seller sets a future presentation date by way of written direction but indicates they want to be made aware of any pre-emptive offers. A pre-emptive offer is received.
The seller must be made aware of the pre-emptive offer and, if they are interested in reviewing the offer, the registrant must take the following steps:
- Notify, in writing, anyone who has expressed an interest in the property of the change to the offer presentation date and time.
- An expression of interest (interested parties) includes parties who have:
- booked upcoming appointments
- viewed the property (showing or open house)
- informed the brokerage or the listing representative that they will be submitting an offer on the property
- submitted an offer
Note: Why is notifying prospective buyers necessary? The aim of delaying offers is often to generate interest in the property. This is why it’s in the client’s best interest to inform buyers who have shown interest in the property of any change to the offer presentation date or process so they may deliver their offers on time. It is in the seller’s interest to have a fair and transparent offer process to ensure that as many buyers as possible have an opportunity to submit offers.
Complaints about pre-emptive offers
When RECO receives complaints about an alleged unfair process that involved a pre-emptive offer, we look for clear and up-to-date written directions and request copies of all offers (or summary documents) received for the property to determine if the offer process was conducted fairly and transparently. We also check if the most up-to-date directions were included in all listing notes – print and online, and whether the pre-emptive offer process was conducted properly if multiple representation emerged and prompted the change in directions.
Relevant legislative sections
Code of Ethics: Section 3, 4, 5, 24, 37, 38, 39