Currently in Ontario, the process of blind bidding is thought to be the culprit behind inflated prices and properties being sold for way above the listed asking price. Sellers can choose to set an offer date – typically after a week of marketing and showing their property for sale – and all interested buyers must submit their offer by the set date/time without knowing what price or terms other prospective buyers have offered.
Starting April 1, 2023, sellers can opt for an open offer process, as per new real estate regulations put into place by the Ontario government as part of the Trust in Real Estate Services Act (TRESA). The 2022 Federal Budget aims to make this a reality nationwide. What does this really mean, and will it truly impact real estate prices?
With the real estate market being as hot as it has been post-COVID, blind bidding and often resulting bidding wars have been a major source of frustration for buyers. Hopeful buyers feel that the increased transparency will protect them from potentially “over-bidding” for a property. In an open bidding process, buyers could see what other potential buyers have offered, and then adjust their bids according to how their offer ranks as compared to the others. In addition to price, terms of the offer like closing date or conditions will also be disclosed. However, for confidentiality reasons, the names of the bidders will remain private.
In a blind bidding system, as an example, if there are 8 offers on a property, but perhaps 3 top contenders that have offers that are relatively comparable to each other in terms of price, closing date, deposit and conditions, these top 3 bidders may be given the opportunity to improve their offer. Without knowing what (and if) the other bidders have improved their offers by, the difference between the top winning bid and the 2nd best offer could be significant. If bidders all continued to improve their offers by a similar amount, multiple rounds of bidding could result, until one offer is clearly better than the others.
In a closed setting, an emotionally-charged potential buyer might submit a bid much higher than the rest in the hopes of beating out the competition, but there would be no need to if all of the bids were disclosed. What would be the incentive for sellers to reveal all of the offer prices? The only situation that may be beneficial for the seller would be if the top improved offers were all very similar, if knowing that an additional $10,000 will beat out the competition, a buyer could raise their bid one last time, resulting in a higher selling price for the seller. However, this defeats the purpose of implementing the open system – the hope is that with additional transparency, prices will no longer be soaring.
The bottom line is, sellers still have the choice and will likely choose whichever system benefits them. No details have been released as to when sellers have to decide whether they’re using the new open system, or the traditional blind bidding format. Also to keep in mind, for years, Australia has been selling properties via open auction, without any dampening of real estate prices, so the jury is out on whether we will see any price effects with this change. The open bidding option will not take effect until next year, with many properties already choosing to forego the strategy of delaying offers until a set time/date in today’s slowing market due to interest rate increases.
If you are looking to sell your home next year, would you be willing to open up the bidding process? Or would you prefer the current blind bidding system?
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