Is our blind bidding system the reason why housing prices have gotten out of control?
Would you prefer an open auction system to buy and sell real estate?
Canada currently has a blind bidding format when it comes to offers.
Only the seller can see what offers look like. In multiple offer situations, buyers don’t know what other offers are, and many feel like this system is the reason why housing prices have gotten out of control. The Ontario government is giving sellers a choice if they want an open bid or keep it as it currently is, a closed traditional offer system, aka blind bidding.
The rules of the game are changing. At least the government of Ontario is giving sellers the choice of how they want the game to be played. The pressure behind all of this was on the notion that blind bidding is the reason why housing prices have gone up so much.
But if you’ve been following us, we’ve been talking about this for a while now, Canada is having historic immigration rates and that is driving up the demand and a shortage of supply with low rates of building that is causing the price growth.
There are other countries that give sellers the choice to sell their homes at an open auction like the UK, Australia and New Zealand.
I’m a real estate nerd and yes, when I was travelling in Australia in 2013 to visit a friend, she happened to be house hunting and obviously, I wanted to go! There were a few things that blew my mind. I saw some house auctions LIVE. Agents were all set up and hyping up the house like no tomorrow, explained how everything is going to work and then started the auction.
Over 10 families were huddled around the house around the street and buyers didn’t have any representation, no buyer agents to help advise or help protect their interests. They were just bidding on the street for their own family.
How are buyers being protected?
Questions started to jump at me. How are buyers being protected? Do they get home inspections? How do they know they will be approved for financing for the winning price from the auction? How do you know what price to bid and when to stop? Do closing dates matter to either party?
How it works is that the highest bidder gets the exclusive right to go into the house to work out all those details with the seller. This feels like the negotiating power goes back to the buyer and more incentive for the seller to cooperate with the buyer. I’m not sure how I feel about that.
I think an open auction gives closure to buyers to know how much they won or lost the house by. Whether you win or lose, you can sleep easier at night knowing. Buyers can also know exactly how much they need to bid to win.
If you’ve ever seen an auction for a hot item, how many last-second bids are there? All the bidding strategies and ultimately, when emotions and competitive juices get going, how likely are people to overspend? Usually, the buyers with the deepest pockets slug it out until the end.
How does open bidding compare to blind bidding?
It’s kind of similar to blind bidding, it usually comes down to the top 2 or 3 buyers going toe to toe until the last person standing. But in a blind bidding format, you’re at the mercy of the listing agent. If the listing agent gives you another chance you can improve your offer.
I can’t count the number of times I had buyer agents beg me for another chance to improve even though we gave everyone the same opportunity to improve their offer and they still came short.
I’ve also had many buyers who, if they had known what the winning bid actually was, would’ve paid more if the listing agent gave us another chance. If the listing agent just picks the best offer, this leaves out any possibility of improving.
The good part about the blind system is you could still have conditions and better closing dates that work for you, there are other strategies and parts of the offer you can compete on like having a deposit cheque on hand or other strategies to try and win aside from just price alone. We’ve had plenty of buyers win their bidding wars and we weren’t the highest priced offer.
My thoughts?
The bottom line is both systems work, the question is about transparency and protection. In a blind bid system, there is no transparency and there is more protection for the buyer and seller. In an open auction there is more transparency but there is less protection for the buyer and seller. Either way, the market will pay what the market will pay based on supply and demand.
Will either system bring the market values down? No. Whether you’re a buyer or seller, in an open bid or a blind bid it’s more important than ever that you hire the right agent to help you win, or….auctioneer…?