Should Ontario get rid of Blind Bidding?

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.

Questions? Get in touch.

Real Estate Predictions for 2021

Real Estate Values are going up. Here’s why.

I think real estate values are going to go up in 2021 here in London, Ontario, but also across Canada in general. Here are three reasons why I think real estate values will go up and it is going to start with something that we have talked about a lot, and that is

1. Supply and Demand

The reality is is that the supply just isn't enough to meet the demand. If we look back over the numbers, we actually see that on average we were selling about 830 houses a month here in the London and St. Thomas board. If we take some time and look at what the average number of listings, it's around 1,100 listings.

A ‘Healthy’ Market

One of the ways that we measure the health of a market is we look at the months of inventory that we have. Typically what we will say is if it's a seller's market it means that there's less than five months of inventory, and if it's a buyer's market it means there's more than seven months worth of inventory. If it's somewhere in between, we call that a balanced market, where there's equal opportunity for both the buyer and the seller.

We have a long, long way to go.

Definitely in the last couple of years it's been a strong, strong seller's market. And when we start to look at those numbers we actually see that we only had about 1.3 months worth of inventory on the market if we use that average number of listings. So, what would need to happen to our supply in order for prices to stabilize or potentially even decrease? Well, to hit that mark of five months worth of inventory, we would need to see our supply literally quadruple on average, if sales were to remain the way that they were in 2020.

So that would just bring us to about five months worth of inventory, and even there, it just means that prices are probably going to stabilize to hit that seven month mark and potentially see prices start to decrease a little bit. We have a long, long way to go.

Low supply going into 2021

So, I said that average number was actually around 1,100 homes per month that were active on the market, while actually at the end of December, that number was 430. So we're starting off the year very, very low heading into 2021, and as long as supply continues to stay that low versus our demand, the number of sales that we're seeing on average, then we are gonna continue to see prices climbing because we're gonna see buyers competing for the same property over and over and over again.

2. Historically Low Interest Rates

Part of this comes down from the government or the bank of Canada and its overnight lending rate which is passed along to the banks. At certain points we can find interest rates below 2% on a five year fixed-rate mortgage, which is just kind of crazy. The cost of borrowing is so low to borrow money. It's not free, but it's getting pretty darn close.

Cheap money adds to the frenzy

So when we have a market where demand is already high and then you couple it with cheap money, it just adds to the frenzy a little bit. By supporting the bank with low interest rates, the government can make sure that Canadians continue to borrow and continue to put money into the economy to try and support it, and that is why we continue to see more and more Canadians taking on more and more debt.

I'm not saying that's a good thing, but one of the things they're doing is they're taking on mortgages and buying houses because the interest is so, so low.

3. Monetary Policy

So the last point that I'm going to touch on, and it's a point that I saved to the end, because it's the point that I fully understand the least - the monetary policy coming down from the Bank of Canada. Even though I took a macroeconomics course in university, this is something that I feel like I hadn't had my head fully wrapped around.

Where is this money coming from?

If you were like me when the pandemic hit and you saw the government begin to dole out massive amounts of money, I started to question, where's this money coming from, and how are we ever going to pay it back? One of the folks that I've found online that has done such an exceptional job of explaining that and educating me is actually a fellow realtor out in Vancouver, British Columbia. His name is Steve Saretsky. You can check out his videos here. He does such a wonderful job of helping Canadians understand what the government is doing with your tax dollars and the money that they are borrowing, and how that affects the real economy.

How this impacts real estate values

The reality is that the government of Canada at the beginning of the pandemic made decisions to pump a bunch of money into the economy and essentially also increase the money supply - so the amount of money in circulation in our economy to try and keep the economy afloat. But their whole concern was obviously, as we saw, with our GDP contracting and people losing jobs, they didn't want our economy to really, really suffer, and potentially get to a spot where it took so long to recover from a huge recession or head into a deflationary market.

So what they did is they put all this money out into the economy, whether it was through CERB, or CEWS, or loans that were partially forgivable. Those are all measures that they took, but it came at an incredibly high cost because they are borrowing massive amounts of money.

Money is worth less

One of the things that happened is the Bank of Canada came in on the backend and bought government secured bonds. They're basically buying the debt off the government. So it's kind of like the left hand giving to the right hand, which I know sounds funny and takes a bit to wrap your mind around, but at the end of the day they have put a ton of money into the economy. And what happens when we increase the supply of money, each dollar slowly becomes worth less and less because there's more of it out there.

So we have a lot of folks out there that are looking at their dollars that are potentially sitting in savings accounts, or sitting in bonds or GICs and that are now returning less and less and less. They're looking at other asset classes that they can invest in that are more secure and are gonna appreciate more, and one of those asset classes is real estate.

This only adds to the already high demand out there, and when we couple that all with the low supply and low borrowing rates that we are seeing, it's kind of creating a perfect storm in the real estate market to see values continue to rise. I think that obviously we are gonna continue to see real estate values, not only in London, but on the whole across Canada, on average, values are going to continue to grow. We're predicting here in London that we could see anywhere from 8 to 12 or 15% increase in prices again, here in 2021. Last year those values came in around 18 to 20%.

There you have it, folks.

That is what I'm expecting for the 2021 real estate market. If you found that helpful, I'd invite you to hit that like button. I would also invite you to leave a comment down below, especially if you disagree with me. I shot a video like this a couple months ago and I certainly had a fair share of people leave comments that said it was a very self-serving video on my part. And the reality is is I want prices to stabilize just like everybody else does, I'm out there trying to buy real estate as well. That's it for me, and until next time, take care.

Questions?