Artificially low list prices, bully bids, and blind bidding is real estate realities that exacerbate purchasers' irritation and even desperation in a housing market already skewed in favour of sellers. Realtors maintain that these are just sales tactics, but some feel that the lack of transparency in real estate transactions is really driving up to Toronto area home prices, which in February averaged $1.33 million for a house or condo. When they campaigned on a Home Purchasers' Bill of Rights, which included a prohibition on blind bidding so that buyers bidding on a house would know what the competition was offering, the federal Liberals implied as much.
Others argue that these practices are a symptom of the market's overheating, rather than a cause, and that inadequate supply is the primary cause of rising prices. The difficulty is exemplified by two recent Toronto sales. A house with more than 70 showings got four bids, three of which were around $50,000 of one other. Unaware of the competition, the victorious buyer paid more than $100,000 more than the next lowest bidder. In another situation, a house advertised for $1.7 million got no offers on the appointed evening despite the sellers' expectations.
Buyers' agents told the listing agent that their clients were concerned that they wouldn't be able to afford the house and that they would have to spend an extra $200,000 or $300,000. It eventually sold for the asking amount, but it took several phone calls between brokers to explain the seller's expectations. Homes in the GTA sold for an average of 113% of the asking price in January. That's a few percentage points higher than the previous record-setting period for house sales and prices, which occurred in 2016 and early 2017. When the market began to soften in Spring 2017, selling prices fell slightly below the asking price.
Ben Rabidoux of market research firm North Cove Advisors suggests that “underpricing to create a bidding war is symptomatic of an overpriced market. It is not the cause of it.” He claims that data from the Toronto Regional Real Estate Board demonstrates a clear link between a hot market and house sales prices that are higher than the list price. Buyers will offer more over list price if the competition is fierce. Re/Max Hallmark Desmond Brown, a real estate agent, says he attempts to advertise houses at a reasonable price. Even realtors, though, maybe astonished by the outcome of the subsequent bidding battles. Would successful purchasers give a lower price if they were aware of rival bids? That, he said, is the key question “Some would because they really want the property and some would feel they overpaid,” said Brown. “When I’m a listing agent it’s my job to protect my seller and I will never disclose the next highest offer to the winning offer,” he said.
While the first buyers may not grasp the now-common sales technique of selling a property at less than the predicted sale price, they soon learn what a home may expect to fetch by looking at recent comparable sales that give them an idea of what to offer through their real estate agent. “For the most part, the buyers have not had a problem with (underpricing) because they do their homework before,” said Brown. Buyers are growing tired of bidding battles and the low prices that feed that competitiveness, according to Jared Gardner of Re/Max Professionals.
“I would love a system where there are better rules and regulations that get rid of some of the underpricing. There is nothing I despise more than having to consistently tell my buyers that you cannot afford a home — because it’s listed at that price doesn’t mean it’s going to sell at that price,” he said. Gardner says that when it comes to his clients who are selling, he is just as culpable as the next agent in assisting in the price-setting process. “I would love if we didn’t have offer dates and I’m just as guilty of doing offer dates. I’m just as guilty of listing a little undervalue because if you don’t, unfortunately, in this type of market, you may scare off buyers — as funny as that is,” he said.
Housing affordability remains a goal for the Liberal government, according to a representative for federal Finance Minister Chrystia Freeland, although the topic of blind bidding was not directly addressed.“As we have said before, we will take further action in the upcoming budget,” said Adrienne Vaupshas. Meanwhile, the Ontario Progressive Conservative government is working on the new guidelines as part of its Trust in Real Estate Services Act, which would permit homeowners to authorize their broker to provide details of competing offers without revealing any personal or identifying details. Tim Hudak, CEO of the Ontario Real Estate Association, says it's unfortunate that too many families are losing their chance to purchase a house. The fundamental issue, though, is a shortage of supplies.
“The best way to solve that is to increase housing supply dramatically,” he said. “That will actually put more power in the hands of buyers.” Real estate offers, according to Hudak, contain sensitive information such as the buyer's willingness to pay, as well as the down payment, financing, and other terms.“The home is somebody’s most precious and valuable asset and they should determine how they go about selling. I think most Ontarians would agree that the government should not be telling Ontarians they can only sell their home one way,” said Hudak.
Homeowners in Ontario may already sell their homes at open auctions, according to him. In Australia, for example, auctions are the norm, with bidders gathering outside of a house to place bids. Of course, when auction fever sets in, Hudak says, auctions may push up prices even more. “The number using auctions has actually increased because home sellers feel they can get a bigger price for their home by triggering that kind of auction fever,” he said. “Auctions tend to get you to the same spot or even higher. It’s just there’s a lot more incremental (bidding) on the way.”
