Homes for sale and blind bidding are hot topics. Real estate has remained strong throughout the pandemic and we have seen significant interest in the process of offers and just how blind bidding works. In Ontario, as in other areas, the process of blind bidding has landed under the microscope and from our perspective, this is not necessarily a bad thing. You may remember that even in the recent federal election, blind bidding was a main topic of discussion with each party having their own take on the future of this process.
Sellers have a definite edge when it comes to Canadian real estate and house selling. The lack of supply and high demand for homes in many areas has caused blind bidding to become much more common. Many believe that this process has been a factor in artificially driving up the affordability of housing.
What exactly is blind bidding?
When you hear that there is an “offer date”, or a date set for the seller to review offers, think “blind bidding”. Blind bidding is the process of submitting an offer (a bid) without any knowledge of what the other potential buyers are offering (bidding).
As an example: A house is listed at $999,000 and there are three offers on the selected offers date. The first offer is $1,000,000, the second offer is $1,010,000 and the third offer is $1,200,000. The seller can choose which offer to accept. The client with the third offer, without knowing what the other bids are, would be paying much more than was required to buy the house. This is how the blind bidding process can feed an already overheated real estate market and drive prices higher.
Many people are concerned that this practice has become far too common place in Canadian real estate and that blind bidding is fueling the problem of unaffordable housing and is creating an unsustainable housing boom. Some people believe blind bidding is unethical and they are demanding government intervention to remove the blind bidding process from the Canadian market altogether.
When did this become a problem?
The Canadian Real Estate Association (CREA) states that the average house price in Canada has steadily climbed upward over the past 15+ years due to low interest rates and a limited supply. Bidding wars, bully offers, offer dates and blind bidding were commonplace in major cities such as Vancouver and Toronto prior to the pandemic. Since the COVID-19 health crisis, there has been a shift in real estate. Buyers have begun flocking to rural areas and small towns and some are even leaving the provinces where they have lived for a more affordable and quiet life. This exodus from urban areas has caused a shift in the bidding process. As a result, blind bidding has become much more common in rural centres right across the country.
Some believe that it is necessary to change the blind bidding process to an open auction process where all bids are transparent. This is very appealing to many buyers and much less appealing to sellers who are hoping for a lottery win on offer day.
There is concern that some real estate agents ignore the restriction that buyers are not allowed to be informed of the contents of other offers. Instead, some listing agents try to guide the buyers’ agents with the competing offers “suggesting” that they are all above a certain price, which leads the buyers to believe they need to offer more in order to “win”. This is causing people to ask for a change to the system.
Many contend that dismantling the blind bidding process would not cool down the housing market because it is not the blind bidding practice that is actually fueling the market. Cheap lending rates and much greater demand than supply is what is truly fueling this housing frenzy. And so, dismantling the blind bidding process will not cool things down.
What’s a buyer to do?
The reality is that many home sellers are also home buyers and the sellers need to get every penny they can so that they can buy their next home. Therefore, buyers can expect to encounter the blind bidding process for some time to come.
The good news is that the according to CREA, the housing market is currently cruising between pre and peak pandemic levels. Actual activity was down 14% on a year over year basis in August and the number of newly listed properties is up 1.2% from July to August of this year.
Our best advice is to work with your real estate superhero. Do your homework. If you are faced with a blind bidding situation, be cautious and don’t allow yourself to become emotionally attached to the outcome. Rely on your realtor for guidance on value and market conditions. After all, that’s what we are here for.