Sunday, July 21, 2013

Phony Real Estate Bidding Wars - Change the Game

I recently read Fight Back: 81 Ways to Help You Save Money and Protect Yourself from Corporate Trickery by Ellen Roseman, a Toronto Star Personal Finance columnist. The title is a little inflammatory, but the book has quite a few good sections on dealing with banks, telecom companies and car dealers. Chapter 71 has a nightmare story of someone who leased a Mini Cooper, returned it and received a $3,725 bill for excessive "wear and tear charges" on a now 3 year old car only "worth around $18,000".

The section I found most interesting, relates to phony real estate bidding wars. Sadly, in the overheated Toronto real estate market, phony bids do appear to exist, and the head of the Toronto Real Estate Board has come out against them. The book cites one outrageous example, (which was also written about in The Toronto Star) where a buyer bid $90,000 over the asking price with no other bidders.

This is truly outrageous, but how do you protect yourself from this?

Mark Weisleder, who wrote the chapter on avoiding this problem, lists a bidding war clause that can protect you from this.
This offer is being submitted on the basis that it is part of multiple offers. If the seller receives no other offer by 10:00 p.m., the seller will notify the buyer's agent and the buyer will have one hour to revise or revoke their offer. If the seller accepts the buyer's offer, the seller will provide the name, address and phone number of the agent and brokerage company that submitted the competing offer.
This simple clause, let's you change the nature of the game, eliminate loses from a one-man bidding war, and reduce one source of stress when buying a home.

Mr. Weisleder's advice is:
Use a bidding war clause if you suspect that the seller really does not have another offer.
By using this clause, you have assurance that if your offer is accepted, the seller will have to prove that he indeed did have at least one

Why not always do this?

I'd love to hear from laywers / agents in the real estate industry, but why shouldn't this clause always be used? How are you to really know whether there are other real offers or not? If you always apply this clause, then the game is changed and you can never be tricked into a phony bidding war.


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