An End to Blind Bidding?
The end to blind bidding as we know it??
One of the hottest topics in Real Estate right now is how the government plans to make blind bidding ‘optional’ for Sellers in April 2023.
The Current Method:
Currently it is popular to ‘hold back’ offers, which means the Sellers have decided to not entertain offers until a specific set date. This became a popular tactic to ensure the house had enough exposure on market and offered enough days for interested Buyers to view. Additionally, Sellers would reduce the price in order to increase the interest and the amount of viewings for the property. Over the last few years, had this method not been used, most homes would have been sold within a day or two while only having a handful of people with the opportunity to view. On the selected offer day, the Seller would likely receive multiple offers from different Buyers. The Seller’s Agent would continue to update all interested parties as to how many offers are registered.
For Example:
12:00pm: We currently have 1 offer registered.
2:00pm: we currently have 4 offers registered.
Final Update: We have 7 offers total and will be chatting with the Sellers shortly.
This is the only information that is allowed to be shared.
This could all come to an end in April 2022
Why?
What many perceive to be the problem with this method is that Buyers have no idea what the offer is that they need to beat - there are large jumps in values. Looking at the offer example above, 6 out of the 7 offers could be between 600k and 700k in price while the 8th could be 800k. Obviously the Seller will choose the 800k to work with. The other 7 offer amounts remain private information between the Seller and the Seller’s Agent. So now, when a neighbour's home sells, and Buyers are looking for a comparable home to base their price off, all they see is the home that sold for 800k - and thus the cycle continues. The proposed change would aim to end this or at least give the Sellers the opportunity to disclose the amounts of each offer. It's still not clear how they plan to implement this but I would have to assume the Seller would be required to disclose what type of bidding war it is prior to the bids being submitted. The Buyers would need to know prior to open or close.
A Couple Questions Arise:
Let’s say this tactic is proven to reduce the rise of home prices. Sellers have the option to participate or not. Why would the Seller participate in a strategy proven to get less money?
Will Buyers avoid homes with closed bidding vs open bidding?
At the rate inventory is increasing in the current market, will bidding even be a thing by April 2023?
Will This Work?
There are different thoughts on whether this will or will not work. According to the report, the country of Sweden, which does not permit blind bidding, has experienced “an even faster home price growth during the pandemic than Canada.” While the goal is to lower housing costs and prevent homes from selling far above the asking price, a report released last year by Smart Prosperity Institute suggests that making competing offers visible could have the opposite effect. Studies examining real-estate transactions in New Zealand, Australia, and Ireland, as well as studies examining land sales in Singapore and the United States, have found increased bid transparency associated with higher, rather than lower, prices, particularly in overheated markets.”
So the question remains, is this a good idea or not?
What are your thoughts, as a Buyer or as a Seller are you pro open bidding or rather see it stay the same?
To read the full report, click here
