Before getting into the ban of blind bidding in Canada let us first understand what we mean by blind bidding.
What does a blind bid mean?
Blind bidding is a method of bidding for a property without knowing the size of opposing bids. When a property is listed and an offer date is set, a blind offer is made. On the offer date, all interested parties gather at the property or at the brokerage of the listing agent to make their best offer. You'll add the price you're willing to pay as well as any conditions you have or are willing to eliminate in your offer (such as the home inspection or financing). Because no one knows how much the other potential buyers are offering, it's dubbed a 'blind offer.' As a result, you only have one chance to determine what it will take to 'win' the property. Thus some say it's one of the factors contributing to skyrocketing property prices.
How is it different from normal bidding?
In most other bidding wars, you'll have the chance to go back and forth a few times to try to outbid the other possible purchasers. However, there is no transparency with a blind offer. It's like high-stakes poker, but with real estate as the stakes. You have no idea what your competitors will offer, thus you have no notion where you stand with your own proposal
The main disadvantage of blind bidding
Because there is no disclosure of what others may be proposing, the 'winning' offer maybe thousands of dollars higher than it has to be due to a lack of transparency. For instance, Buyer A might offer $15,000 more than the asking price, Buyer B might offer $18,000 more, and Buyer C might offer $40,000 more. Instead, Buyer C could have won by offering just $18,001 more than the asking price, putting them out $21,999. As a result of the lack of transparency, Buyer C felt compelled to make a hyper-offer in order to win the bidding war. Thus in Canada where blind bidding is more common, the Government is looking to ban this system to protect its buyers.
The issue of blind bidding in Canada
Bidding wars, particularly blind bidding, have recently come under scrutiny as Canadians become increasingly disillusioned with the home-buying process. The blind bidding method, according to critics in the real estate market, allows for manipulation by bad faith realtors as well as out-of-control bidding situations that push up prices. Finally, they claim that blind bidding is not in the consumer's best interests. These opponents frequently advocate for the implementation of a more transparent open bidding mechanism.
The Canadian government is considering prohibiting blind bidding. The proposed restriction would put an end to the practice of blind bidding across Canada's provinces and territory. The purpose, according to the government, is to promote openness in the real estate acquisition process, prohibit buyers from overpaying excessively, and keep home prices from soaring.
So why are some industries skeptical about this actually becoming the rule?
According to a recent analysis, proponents of blind bidding think that this type of bidding does not lead to price increases in residential real estate, however moving to open bidding in a hot real estate market could worsen price escalation. Housing prices have risen quicker in some nations where open bidding or open discussions are permitted, such as Australia, New Zealand, and Sweden, than in Canada, according to the analysis. According to the paper, "it is difficult to establish that blind bidding is connected with higher residential real-estate values" based on recent price fluctuations. While Canada has seen some of the fastest real-estate price increases in the world, open bidding for homes in New Zealand has seen an even faster rise.
If numerous purchasers pay more than necessary for homes for a while based on the sale prices of similar properties, demand will eventually be satisfied, and the remaining buyers in the market will either refuse to pay or will be unable to pay prices at the current level. By definition, market value exists when there are enough buyers willing to pay the newly raised prices, and the market is operating freely and properly. When prices grow to the point that no one can or will buy a home, prices begin to plummet. This form of market overheating is just momentary.
Only a small percentage of properties receive offers that far outnumber all other competing offers. It is a large percentage in some places during hot sellers' markets, but it is statistically a small minority and thus not a major driver of rising housing values over time.
We don't always have a strong seller's market. Even if prohibiting blind bidding had some effect on home values, it would do so only during the few times when the bulk of homes receives competitive offers. For long periods of time in various Canadian cities, severe sellers' markets have persisted. But now in most Canadian local markets, intense sellers' markets, in which supply falls well short of demand, are uncommon. But the strongest argument given by the proponents is the seller's right to choose how their property should get sold.
Why are open offers not the solutions?
When purchasers don't know what other bidders are offering (as is the case in the blind bidding system), they just make their best offer. Today, there are no bidding wars as in reality, now there is no bidding. Based on the level of competition, buyers make their best offer. When there's nothing to bid against, you can't bid. Buyers compete against one another in open offers. Open offers, by definition, generate an auction and lead to bidding wars.
