Understanding the Blind Bidding Process in Ontario

Multiple offers have long been a joy for sellers and bane for buyers in any real estate market. In multiple offer situations, buyers place “bids” on the same home. Buyers have no idea what current bids are on the table – they only know how many other buyers are competing for the home. The Real Estate Brokers Act in Ontario regulates the bidding process, making it illegal for Realtors to disclose the dollar amount of competing bids. This creates a blind bidding process, putting buyers at a great disadvantage because they have nothing to weigh their own bids against. As a result, buyers desperate to win the bidding process often put in sky-high offers in the hopes of out-bidding their competition. Here I look at the blind bidding process and how the federal government’s plans to change legislation could help make the process more transparent.

The Issue of Blind Bidding

The main issue with blind bidding is sellers have an unfair advantage. This creates a domino effect on home prices because each home that sells over asking pushes the average price for a home in Toronto ever higher. However, there is another issue with blind bidding. Unfortunately, there are some buyers’ agents out there using blind bidding to their advantage. They advise their clients to put in high-ball offers to increase their commission. This could be in cases where the highest offer is far lower than the agent lets on, or even in cases where there aren’t multiple offers at all. In the worst case scenario, the buyer ends up overpaying for a home, ruining their equity potential.

A Ban to Blind Bidding

During the election, the Liberals said they’d ban the blind bidding process to help control housing prices. According to a recent CBC poll, 52% of Canadians were all for a ban on blind bidding. The ban would create a transparent process where buyers would a) Know where to start their offers and b) Whether they want to continue the process as they see other bids come in. While sellers might feel they are missing out, they still sell over asking. The benefit is the process becomes fair.

Transparent Bidding

The only way buyers can participate in a transparent bidding process in Ontario right now is either by buying directly from the seller, or going the auction route. For auctions, buyers participate in open bids, often online. They can watch other offers in real time and can choose to offer a higher bid or bow out. This puts buyers and sellers on more of an equal playing field, although buyers still end up paying over asking. Where they lose out is they don’t necessarily have the benefit of market advice for an agent to know when the pricing is fair.

Ultimately, new legislature banning blind bidding aims to provide a fair bidding process for both buyers and sellers. By creating a transparent process, buyers will know what they should be offering, and sellers still get the best possible price. Unfortunately there is some research to indicate that this may actually have the opposite effect. The ISP Institute of Smart Prosperity (A University of Ottawa think tank) released a study indicating that eliminating the blind bidding was connected with other highly inflated markets in areas like New Zealand, Sweden, and Australia. Given the lack of research and clear data, it seems logical that more investigation should be conducted before any policy changes. However, it’s unlikely this will happen before the new legislation is implemented.