Offers are due on a set date, you don't know what anyone else is offering, and you're asked to decide quickly. Knowing how multiple offers work in BC won't guarantee you the home, but it will help you make a strong offer you're comfortable with.
What happens when there are multiple offers
BCFSA's guidance is that all written offers must be presented to the seller (unless the seller has given written instructions not to present certain types of offers), and that they should be presented in the order received. Unless the seller instructs otherwise, the listing professional should let the other buyers' representatives know there will be competing offers.
What else you learn depends on the seller. The terms of one buyer's offer can't be shared with another buyer without the seller's prior consent, but a seller can choose to share information such as how many offers there are or the highest price. A clause in your own offer asking the seller to keep your price private doesn't bind the seller unless they accept and sign your offer.
The seller then decides. They don't have to accept the highest offer, or any offer at all. They can accept one, counter one, or reject them all.
Why escalation clauses are a bad idea in BC
An escalation clause promises to beat the best competing offer by a set amount. BCFSA calls these referential offers risky, notes they could lead to litigation, and points to a BC Court of Appeal decision that found such an offer invalid. The safer approach is a firm price you've chosen in advance (see the FAQ on escalation clauses).
Your price: set your limit early
It's easy to get caught up in competition. Before offer day, decide on the most you'd be comfortable paying, and check what that means for your mortgage payment. BCFSA also notes that if you pay more than market value, the home may appraise for less than you paid, which can affect your financing.
Subjects and subject-free offers
Subjects, or conditions, protect you. Financing, inspection and strata document reviews give you a chance to back out if something goes wrong. In competition, some buyers drop their subjects to make their offer stand out. BCFSA warns that this removes your ability to do due diligence, and once a subject-free offer is accepted, you must complete the purchase or risk a lawsuit.
If you're thinking about it, do the work first: line up your financing, have the home checked for defects, and read the strata documents for a condo or townhouse.
One more safeguard to know about: for most residential purchases in BC, buyers have a three-business-day rescission period after an offer is accepted, even a subject-free one. Rescinding costs 0.25% of the price and must be done by written notice, and the right can't be waived. It's a last resort, not a substitute for doing your homework before you write.
Pros and cons of competing in a multiple-offer situation
Pros
- Competition can tell you something about how the market values the home, though not that it's worth more than you'd pay.
- A clean, well-prepared offer can give you a real chance, since sellers aren't required to accept the highest offer.
Cons
- Time pressure can push you to decide faster than you'd like.
- Paying more than market value can lead to an appraisal shortfall.
- Dropping subjects shifts risk to you.
- You may still lose out, even with a strong offer.
A checklist for offer day
- Get your financing lined up before you write (see getting mortgage-ready).
- Decide your maximum price, and stick to it.
- Put a firm price in your offer, not an escalation clause.
- Decide which subjects you need, and don't drop one you haven't covered another way.
- Have your deposit ready to pay on time (see the FAQ on deposits).
- Remember that, for most residential purchases, BC's three-business-day rescission period still applies after acceptance, with a fee of 0.25% of the price if you rescind.
The bottom line
Multiple offers reward preparation, not panic. Know your budget, keep your offer clear, and protect yourself with the subjects you need.
Buying in Vernon or the North Okanagan and expecting competition? Call or text Sean Phillips, REALTOR® with Coldwell Banker Executives Realty, at 236-599-5898. The buyer's guide walks through the whole process.
This article is general information, not legal or financial advice.