In a recent blog I outlined what proposed changes to the blind bidding process could mean to the real estate market. It is always important to look at proposed policy changes objectively to understand the pros and cons those changes present. So while blind bidding policy changes could help create level ground between buyers and sellers when it comes to negotiations, it’s important to also look at how the current policy actually impacts the real estate market. Here’s an objective look at the blind bidding process to explore whether it is a good thing or a terrible mistake.
Current Regulations on the Bidding Process
In Ontario, the Real Estate Brokers Act regulates the bidding process. It is currently illegal for Realtors to disclose the dollar amount of competing bids, hence the term “blind bidding.” Most would say that buyers are at a disadvantage because they have nothing to base their own bids on. It is this disadvantage that has Trudeau’s Liberals considering a change to the blind bidding policy, especially since we are in a sellers’ market where sellers already have a huge advantage over buyers.
Blind Bidding As a Control
Although it might seem that blind bidding is responsible for increasing housing prices, this is actually a misconception. In fact, according to a study by the Smart Prosperity Institute (SPI) at the University of Ottawa, if buyers know how much their fellow bidders are willing to pay, that’s far more likely to drive prices upwards. Right now buyers are aggressive, yet also remain cautious under the guidance of their Realtors. Their Realtors base offers on what the market can bear, and of course their clients’ budgets. However, if a buyer sees how high other buyers are bidding, they might feel pressured to put in far more money than they would have in a blind bidding scenario.
Open Bidding Price Escalations
The SPI looked at other markets currently using open bidding. In countries such as Australia, New Zealand, and Sweden, the housing markets have seen prices rise at a much more alarming rate than what we are seeing here in Canada. The authors of the study point out that it becomes difficult to say open bidding will actually make a difference if these other markets are showing the same, if not worse challenges with escalating prices. Despite Canada seeing some of the highest prices globally, New Zealand, which has an open bid policy, is seeing much faster growth.
Other Factors to Consider
Of course, the bidding process is not the only factor to consider when it comes to escalating prices. A major challenge in Canada and New Zealand is supply. The rule of supply and demand always supersedes anything else in influencing prices. The author of the SPI study recommends the government focus on increasing supply as opposed to making changes to the bidding process. And of course, multiple bid scenarios occur when supply is limited, bringing us back to supply and demand.
The bottom line is that although in theory blind bidding puts sellers at an advantage, open bidding could contribute to a more frenzied bidding process as buyers become more competitive with their bids. If we take our cues from the SPI report, it makes more sense for the government to focus on increasing housing construction in Canada to help balance out supply to meet demand.
If you are shopping for a home in Toronto and want trusted advice, I can ensure you use a safe bidding strategy so that you pay a fair price. Let’s chat. If you want to learn more about the blind bidding process check out this blog.
Photo by Ryoji Iwata on Unsplash
