BLIND BIDDING
There’s been a lot of chatter in the media about the escalating prices in the real estate market. Some are even calling for government intervention of some sort. Not surprisingly, the various levels of government have floated ideas like a speculation tax, or a vacant home tax to help ”cool” the market.
Most recently, the finger has been pointed at the blind bidding process, and at the Realtors that employ this sales tactic.
There’s no doubt that the blind bidding process, or as it’s known as “holding offers” has played a large role in driving prices this past year. It’s not the root cause of the price increases we’ve been witnessing, but a supporting role most definitely.
The root cause being supply and demand. Basic economics. We’ve written about the supply issues extensively in this space, that’s the Gordian knot in the real estate market.
Today, we’ll focus on the blind bidding process.
As the name suggests, offers will be reviewed on a specific date and time, and are required to submit their bid (offer) without knowing what they are competing with – only who. The current legislation in Ontario states that when using this sales tactic, Realtors must disclose to all interested parties the number of offers being presented and reviewed. Realtors are also obligated to disclose any multiple representations (brokerages representing both seller and buyers) and if there are any special commission arrangements (usually commission reductions, because an agent is representing both sides). The intent is to keep the playing field as level as possible. What isn’t shared are the price details or conditions in any of the offers. The reason? The Real Estate and Business Brokers Act in Ontario specifically states that Realtors are prohibited from disclosing the substance of competing offers:
Competing offers
26. (1) If a brokerage that has a seller as a client receives a competing written offer, the brokerage shall disclose the number of competing written offers to every person who is making one of the competing offers, but shall not disclose the substance of the competing offers. O. Reg. 580/05, s. 26 (1).
In a seller’s market such as today’s, the blind bidding tactic works well – for the homeowner. Sellers are extremely happy to see multiple buyers offering on their property, and that means there’s no negotiating needed. Buyers, of course, dread this process because it requires them to compete, and make price decisions based upon a lack of information.
One solution to this problem is to open up the bidding process to make it more transparent. In other words, all people offering on the home would know what the other offers contain, and can decide whether or not they want to improve their offer. This process would certainly ensure that the final sale price is not an extreme amount over the second place bidder – something that happens on occasion in our market, particularly as agents and buyers from other markets seek to enter ours without a firm grasp on home values.
If you’ve ever been to an auction sale, this is the process people would prefer to see. However, it’s not always about the price. One of the challenges would be addressing the terms of a purchase such as conditions, dates, inclusions or exclusions. Problems that, with a clear process, can likely be sorted out.
Moving to a more transparent bidding process would require the current legislation being changed to reflect this move. Changing the legislation and improving the bidding process – especially in the digital age – would be a smart move, and take a lot of the emotion and angst out of the home buying process.
Just don’t expect the government to change this overnight.
The current real estate market, like our weather, is constantly changing. Market conditions will change, and we will likely see a more balanced market soon enough – although some have called for a drastic swing to a buyers market, much like we experienced in the early 90’s. That was a period where buyers far outnumbered the amount of listings on the market. Sellers then were desperate to sell, and were offering incentives to encourage buyers to choose their home. Many were offering to buy down mortgage rates, give credits for improvements, and other desperate moves to stand out in a market flooded with listings.
Sound familiar?
Like the current market conditions, this too shall pass. It might pass like a kidney stone, but it will pass.
Thanks for being part of our journey.
IN CASE YOU MISSED IT
Find our full APRIL 2021 MARKET REPORT below:
This monthly report includes:
Sales stats for all Guelph home types
Price breakdowns for all 18 Guelph neighbourhoods
Township comparisons: Puslinch, Guelph/Eramosa, and Centre Wellington
Freehold & condo breakdowns for Guelph, Kitchener, Waterloo & Cambridge
THE PAST WEEK IN THE GUELPH REAL ESTATE MARKET
This past week in our local market, 63 homes were sold. The ‘median home’ this week was notably larger and so we saw a higher median sale price. Also, notice that the number of homes sold this week last year is beginning to rebound (44 homes as of the second week of May 2020, up from 26, 23, 29 and just 6 sales recorded in the prior 4 weeks). See the full key-week comparison below.
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