Over the past decade, bidding wars have been so popular in the Toronto real estate market.
Multiple buyers would be fighting for the same property and the seller would get to pick the best offer, typically the highest price and without any financing or home inspection conditions.
Traditionally, the buyers would only know how many competing offers are on the table, no other details would be disclosed.
That’s why it is called blind bidding.
It is possible that the winning bid is significantly higher than the one who came second.
It is also possible that the bids are just one thousand dollars apart and if the buyer who came second knew about it, they would definitely pay more to outbid the winner.
Buyers are often very emotional after a bidding war.
If they won, they worry that they have overpaid the seller.
If they lost, they feel frustrated and question if they should have paid more.
Some people think that the blind bidding process is responsible for pushing housing prices up and if we get rid of that, prices would come down.
So the government made a new rule.
Effective December 1, 2023, the Ontario government has allowed open bidding in trading real estate.
The theory is that open bidding would help cool down the real estate market.
Under the new law, the seller may choose to disclose some or all of the details in the offers.
For example, the seller can just disclose the price but not the conditions.
The seller can still choose blind bidding if they prefer.
So it is purely a decision on the seller’s end, open bidding, how open they want to be, or blind bidding.
This is a very interesting concept.
During the offer negotiation process, the two parties have conflicting interests.
Buyers want to buy low, sellers want to sell high, very natural.
Let’s assume that open bidding is better for the buyers, which I don’t think is always true.
When offers are close to each other, buyers can keep outbidding each other just to win, that can push price up too.
But let’s just assume that it is better for the buyers.
The decision on open bidding actually lies with the sellers.
If you were the seller, would you choose something that’s better for the buyer?
Unless you are in a situation where you believe open bidding is actually better for you as a seller, right?
Comment below and let me know your thoughts.
The new law has been in place for more than half a year now, how many sellers actually choose open bidding?
There are many new online platforms that were born out of this.
You can go online, see how many offers a property has and watch the bidding war, very much like those car trading platforms.
I tried a couple of these platforms and I was only able to find one property within the downtown Toronto area where the seller has opted in for open bidding.
In the current market, there are not that many bidding wars to begin with.
Last week, my client had his eyes on a townhouse in Vaughan.
It was set up for a bidding war with a listing price of only $999,000.
We put in an offer with a fair market value of $1.15 million dollars.
It turned out that we were the only offer on the table.
The buyer thought that since there’s no other competition, that’s the final price, take it or leave it.
The seller wanted at least $1.2 million and did not wish to sell for anything under.
So no deal was made.
The seller will continue to wait, in the end, the final price will be dictated by the supply and demand on the market, open or blind bidding doesn’t play that much of a role.
There was one story in the Toronto Star where a couple was struggling for months to sell their Etobicoke condo.
They were desperate and decided to give open bidding a shot.
They sold it in just over a week with a price that’s only a few thousand dollars below their expectation.
This could be luck, could be coincidence or open bidding actually works.
The property couldn’t sell without open bidding.
But the open bidding system sold it with a price that the seller was happy with.
If anything this is an example of how open bidding can drive up real estate prices.
That was a comment from a reader of the article.
That’s very true.
Do you think open bidding is good or bad for housing prices?
I would say it doesn’t matter.
The bidding process, open or blind, plays a minimal role in determining housing prices.
It may skew the end price a little bit one way or the other in a particular transaction, but in the end, housing prices are going to be determined by market supply and demand.
The process is just a process used for negotiation.
Economics 101, the price of a thing is determined by the supply and demand of the thing.
So I don’t think this new open bidding rule is going to change much in the real estate market at all.
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