Should We Do Away With Blind Bidding?

When it comes to real estate purchasing in Ontario, placing an offer on a property against competing offers means that you don’t know what you’re up against. This is due to the blind bidding process that is the standard in Ontario real estate. With rapid increases in home prices across the province, there needs to be action. Doing away with the blind bidding process may be the exact solution needed to create some normality.

Blind Bidding Scenario

As a Seller, blind bidding works for your benefit, however, as a Buyer, it’s quite the opposite.  Picture this, you’ve found your dream home and it’s within your budget. The date comes where all the offers are due and suddenly you’re up against five other offers. Your pre-approval is for $50,000.00 above where it’s listed, however, do you really need to go to your max budget? Without knowing the other offer prices, you’re left in the dark. That means your offer could be $20,000.00 over the next best offer, now setting the standard for all homeowners in the community.

Open Bidding Scenario

Now let’s consider this, you’re the buyer and offer prices are disclosed to the home buyers. The Seller, understanding this decides to list their property at a price point where they would consider selling and not to create a bidding war. There is a set offer date, and instead of five offers, you’re now only up against one other offer. You’ve decided to submit your offer at the asking price and the second offer came in $2,000.00 above. Knowing this information, you’ve decided to improve your offer up to $3,000.00 and the second offer remains the same.

In a typical situation, you would likely submit a new at your maximum budget to secure your position, giving the Seller an extra $7,000.00. The sale price then becomes the highest in the neighbourhood, setting the standard for all other listings. Going forward, buyers are now going to use this as a comparable sale, naturally inflating the prices.

Why Open Bidding is Necessary

As under-listed properties continue to flood the market, there needs to be more accountability and fewer advantages given to underpricing. As it currently stands, buyers are willing to take their shot, even if their offer is at the asking price with twenty competing offers. This ends up inflating the price to extreme levels with one buyer willing to mac out their approval.

Open bidding will force Sellers and Realtors to list their properties more along the lines of where they would hope to sell, meaning that buyers can shop in their actual budget. It reduces the over-inflation of housing prices with consistent benchmark pricing. Finally, when it comes to bank appraisals, showcasing the other offer prices will give banks the confidence to fund the mortgage.

What do you think? Should open bidding become a standard to help cool down the real estate market? Check out how New Zealand is handling the bidding process by clicking here.