Multiple offers on homes listed for sale have been common in the Toronto and Vancouver markets for some time, but during the unprecedented real estate boom during the pandemic, bidding wars are taking place across the country.
That’s been great news for sellers, who in some cases are getting more for their homes than they ever dreamed they would. For buyers, sometimes it has meant paying more than they can afford. Offers that are conditional on financing or the completion of a home inspection are less likely to succeed in a bidding war, creating risk for eager buyers.
While Realtors are often blamed for under-pricing homes to create a bidding war, that direction often comes from the seller who understandably wants to get top dollar for their home. A constant aggravation for buyers is the “blind bidding” process that does not allow Realtors to share the terms and conditions of offers with the other bidders. The result is a lot of unhappy would-be homeowners who don’t get the home they wanted.
Many in the real estate industry are now calling for changes to the multiple offer process. In Ontario, the government has already passed a new real estate bill to address some of these issues, but the process of consulting on the new regulations and declaring them law is expected to take some time.
“Many of the industry’s own recognize that the practice of below-market-value listing strategies to spark bidding wars or enforcing blind bidding competitions are counter to helping clients engage in legitimate and affordable listings,” says a statement by Christopher Alexander, EVP of Re/Max Ontario-Atlantic Canada and Elton Ash, regional EVP of Re/Max of Western Canada.
“Such practices also hinder a buyer’s capacity to make informed risk mitigation decisions about the transaction, such as the conditions they should include in the offer. A lack of transparency at the offer stage also increases the risk of buyers putting themselves in unnecessary financial jeopardy. If there was a time to make concrete updates to the practice of professional real estate, it’s now.”
The Re/Max executives are calling on provincial regulatory authorities to “put this on their agendas immediately to ensure that consumers are protected from unscrupulous activities within the industry.”
Others from outside the real estate business are also demanding changes. Beata Caranci, chief economist at TD Economics, says, “A review of local market practices should occur to ensure that a sellers’ market doesn’t turn into a runaway market due to practices that can jawbone buyers, like price-baiting or gaming the lack of transparency on a bid process.”
At BMO Economics, senior economist Robert Kavcic and director Benjamin Reitzes are calling for a different offer system to eliminate blind bidding. “This could use open bidding among agents and/or standardized escalation clauses for the price component of offers,” they wrote in a recent report. “This would keep the sale price from settling well above the price of the next willing buyer and keep the comparable more appropriate for the next property to list in that location. While this won’t cool the market on its own, it would limit the ballooning that we are now seeing in a very tight market.”
Others say that agents should be allowed to disclose the terms and conditions of the best offer to other competing bidders, so they know what they are up against and can make an informed decision about increasing their bid or walking away. And still others point to Australia, where open auctions commonly take place at the home. There are real estate auction companies in Canada but the idea has never caught on here in a big way.
Tim Hudak, CEO of the Ontario Real Estate Association (OREA), says, “In jurisdictions where auctions are common, prices have actually risen as ‘auction fever’ leads to higher bids.”
Hudak says bringing transparency to the bidding process comes with a downside – the privacy of the bidders. “Potential buyers may not want to share some of their most personal, private information (such as a need to sell their own home to finance the purchase of another or how much they can afford for a down payment) with a collection of strangers around a table. Government should not force them to do so.”
He says OREA believes that “buyers and sellers should be able to choose if they want to use the traditional offer process or an auction.”
Re/Max executives Alexander and Ash say that a new standard of Realtor professionalism must be adopted to protect buyers and sellers. “This should include industry regulations on the under-pricing of homes to eliminate overzealous bidding wars, as well as adding mandatory conditions to offers that make the purchase conditional on receiving legal approval,” they write.
“It means the creation of a national set of standards and ethics to operate as a Realtor, in order to help prospective clients better vet their credentials and professionalism. It means ensuring that buyers and sellers have the information, knowledge and necessary disclosures to both hire a reputable full-time professional Realtor, and by extension, engage in and complete Canadian real estate transactions that are within their means and levels of risk tolerance.”
Hudak says, “All levels of government need to work together and make it easier for first-time buyers to own a home, through increasing housing supply, eliminating unnecessary government red tape, addressing affordability and giving both buyers and sellers a choice in how they engage in the offer process.”
