Recently on my social media I threw out a question to my followers on whether we should do away with the blind bidding process.
Let’s start with the basics… What is Blind Bidding?
Blind bidding is it's this kind of terminology or phrase that we've developed around multiple offer situations. In fact I think it's been more news media that has popularized the term more so than the actual real estate industry.
If you're a buyer trying to buy a property a lot of the time at least in this recent market you are going to be competing against other buyers that also want to buy that property, and there's multiple offers going in on the property. The reality of that is that you have no idea what the other offers are as it relates to price or terms and conditions, closing date, or any of those details. All you know is that there are other offers. You know the number of other offers but that is it, and you have to put your best foot forward in order to get that property.
So as I mentioned I put out a survey to some of my followers. And I don't necessarily have thousands upon thousands of folks that follow me on social media but I do have enough. And 60% of those that took part in that survey said that we should do away with the blind bidding process. I mean, just looking at some of the news articles that have been published even within the last month or two here in the Canadian real estate market or Ontario in particular… I mean one headline that catches my attention here is ‘Toronto Real Estate Expert Calls for an End to Blind Bidding and Deception’.
So there's this inherent belief that I think folks have that blind bidding is what's really hurting a lot of Ontarian and Canadians when it comes to real estate values and being priced out of the market. And no doubt rising real estate values are hurting some buyers. The question is…
Is it blind bidding that is to blame?
Let's say we did do away with blind bidding. Let's say that we made everybody aware of what the other buyer was offering. You know this would be kind of a new idea in the real estate industry, and maybe it would really help us get away from these huge prices that we're seeing. But wait… I think we might already have that. And I believe they're called auctions.
Yes, I'm saying that sarcastically, but essentially that is what people are asking for. It's not something new that we have to wrap our head around. We call for this end to blind bidding in the assumption that it will end this huge run-up in prices.
In theory let’s say you have a property up for sale. You have 3+ offers that come in. If you have folks that know where the other buyers are like you would in an auction there's always going to be somebody that is willing to go a little bit higher than the other party, and it could quickly escalate.
Putting the shoe on the other foot.
Looking at some of the comments in my last video, there are a lot of folks that think it's the Realtor's fault that these prices are growing so fast. They under-price properties and then people pay way over for them. But you have to remember that that is literally my job. When you call me to sell your house one of the key criteria that you have for me is help me get the most amount of money for my house as possible.
So let's say that we do implement this open bidding process. Let's call it that as opposed to an auction where all the buyers know exactly what the house or what the other offers are on the property. It would be my attempt if trying to get the seller the most amount of money is that I would continually be pushing buyers against one another to try and see if any of them would go higher.
In the London area that I serve, there's quite a bit of structure and framework that we've put around this whole bidding process so that it doesn't just become this runaway train for people where they continually have to go higher and higher. In fact, we say listen offers are due at 5:00 PM today. At that time we will let every party involved know how many offers there are. Based on that information you can revise your offer if you want. We will give you a window of time. Let's say two hours. And I'm going to then meet with the sellers at 7:30 to present all offers the way that they are.
I would say nine times out of 10 those offers are taken in, reviewed and one is chosen. It's not like we go back and say alright the seller wasn't happy with any of them. You all need to do better. Who's willing to give me a higher offer?
It's not like there's this process that we continually just push buyers to go higher and higher and higher. That framework is very much laid out by Realtors prior to even putting the house on the market. We walk through that process and explain it to sellers. I've been sitting across the table from sellers at time who want to just go say well can we go back and ask for more? Is there a possibility of that? And the only time that I really will implement that is if you have two offers that are at the top or let's say even three offers that are virtually the same. Then I will go back and I will say to those buyers listen there's your offer as well as two other offers or one offer whatever it is that are largely indistinguishable to the seller. And it makes it very difficult for them to choose one over the other. Are you willing to improve your offer? I don't tell them if it's based on price. I don't tell them if it's based on closing date or conditions or whatever it is. I just say listen you're basically the same as another offer. Will you improve your offer? Sometimes they will. And sometimes they won't. And sometimes the seller ends up with a little bit more money or better conditions, or maybe they're left with the tough choice of choosing one of those three offers that works best for them even though they are virtually the same.
Protecting the process
So I think there's already a lot of framework there to somewhat protect the process and not let it become this auction mentality that you want. If anything the sellers I think would love an open bidding process where the buyers know exactly what the other offers are. Are there situations where a house may sell for less than if it were a closed bidding process? I think there likely is. But I also think that there is a good chance that houses may actually sell for more in that open bidding process.
It’s all theoretical right now
We will never fully know until we kind of run that experiment. I think a lot of it comes from the frustration that buyers are experiencing where they watch these houses go higher and higher and higher. But we do have a framework around it. I understand that the frustration sometimes it can be pointed at realtors and the process that's implemented there. There is just simply not enough houses on the market right now for the demand that is in the market.
You can learn more about the current market in this video I did.
If you want to solve the problem, provide more housing
That way, you will have more houses out there to meet the buyer demand. And houses won't become this hot commodity that everybody wants that people are willing to pay up and up and up for. You know you'll read some of these headlines where folks say people are paying way over what this house is worth. And the reality is is that's very subjective as well.
People want to say there's a huge bubble. It's gonna pop. We call a house worth whatever a buyer is willing to pay for it. And if some buyer is willing to pay $200,000 more than what we have it listed for then that's what we deem the value is, at least at that snapshot of time. That may change and as I write this we are starting to see the real estate market plateau and flatten out. Not everybody is getting multiple offers. Not every home is selling with no conditions. And not every home is selling for over asking price.
So it is not this continual process that just keeps going on forever and forever and forever. It does plateau at a certain point which we're starting to see. However going back let's say we have this same market next spring where we're seeing the same thing. I do not think an open bidding process will solve the problem.