I squealed with delight when I read the headlines that Ontario will allow open bidding in real estate. Hooray! No more will buyers feel like they are bidding against themselves. No more will buyers feel like the real estate market is rigged against them.
And then I read the article. It turns out that open bidding will be available only if the seller opts for it. Ah. There’s the rub. This is a toothless announcement that will not change the game at all.
So what’s the story?
Currently, it is against privacy laws for the seller or the listing agent to disclose the contents of a buyer’s offer to competing buyers. When multiple buyers are offering on the same house simultaneously, we call this a bidding war.
Sellers create bidding wars by intentionally underpricing their homes and setting a specific date for when they will review offers. The sellers must disclose how many competing offers there are, but they are not allowed to disclose the terms of those other offers, such as price, conditions, closing, or the deposit amount.
➤ Want to learn about the impact of some other recent government announcements that relate to housing? Take a look at this post: How the 2022 Federal Budget Will Help Home Buyers.
This system means that buyers need to decide how much over the list price they’re going to offer, and they never know if their offer is low or high compared to other offers. Buyers should know the property’s value because they will have reviewed the comparable sold properties with their real estate agent before offering (hopefully!), so they know the value, but they don’t know the other offers.
This leads to heartbreak when the house sells for a price that the buyer would have been willing to pay. It also makes buyers feel crushing panic when they win an offer because they’re convinced they overpaid.
So-called “blind bidding” is not in the buyer’s best interest, but it is in the best interest of the seller.
➤ Want to learn more about selling your home? Take a look at these posts:
- A Guide to Preparing Your Home For Sale
- How To Sell Your House To A Millennial
- How Our Team Help’s Sellers: Selling a Home in Toronto
- Ready to Sell Your Home?
Why is open bidding bad for sellers? There’s a chance that they’ll make less money on the night. Sometimes buyers will offer significantly over market value for a property because there are many offers on offer night, and they don’t want to miss out. We’ve been involved in enough bidding wars to know that this happens less than people think. Often, the winning offers are very close, and houses sell for pretty close to the market value.
However, the frenzy of a bidding war will be lost in open bidding. Open bidding at the discretion of the seller is a non-starter. Very few sellers will opt for this kind of process because they’ll worry about leaving money on the table.
It’s a great idea in theory. But sellers should not be the gatekeepers to a policy that benefits buyers.
This announcement sounds excellent. Who doesn’t want more transparency in real estate? But it doesn’t achieve anything.
Good luck out there! And stay safe.
As always, stay safe. — Robyn Vander Vennen.
