Bidding Wars For Canadian Real Estate Are A Drain On The Economy, Here’s Why

At the risk of sounding melodramatic, I honestly believe that bidding wars are among the greatest economic inefficiencies ever produced by the real estate market.

In 2017, we saw a pretty wild market, with real-time price discovery being the greatest challenge of buyers, sellers, and realtors alike. As a result, we saw the arbitrary underpricing of properties that led to even more arbitrary firm offers being submitted. Ultimately, this created risk for buyers, sellers, and lenders as we approached a massive correction in Q2 2017. 

During that time, it was not uncommon to see buyers walk away from deals that lost market value prior to closing. It was equally common to see lenders reject the deals based on the comparative market appraisals being unsubstantiated. This phenomena was especially true for properties that sold over 110% of asking price.

It appears we learned only one thing from 2017: that if you price a property well below market value, you don’t really have to do anything to get offers.

This strategy has become so common, in fact, that it’s even becoming apparent in the data for two of the GTA’s hottest real estate markets:

In a rising price environment, you’re seeing asking prices actually decrease. Asking prices have been effectively replaced with “starting prices” in all too many cases. The challenge is that even as a starting price, the seller’s expected price is absolutely arbitrary. The market’s willingness to pay is equally arbitrary, due to the closed-bid process used by our market.

I’ve had some good exchanges on Twitter about this topic. It’s led me to evaluate my position on the matter. In many cases, people are applying the caveat emptor (buyer beware) philosophy. Why don’t buyers give up? Why don’t they adapt their search to account for the difference?

Honestly, they’re great questions – and the answer is just as simple as the their recommendations. Properties are still selling near asking price in a variety of price ranges. Given that information, buyers still feel compelled to look at everything that appears affordable – as it’s their right.

So, what’s the problem here?

The problem is that during that process, hundreds of hours are being wasted on viewings that don’t ultimately translate into a sale. I’m not a rocket surgeon, but I’m pretty sure that would qualify as an economic inefficiency. I’m also not a philosopher, but I suspect this may go beyond the relative moral violation of the pandemic guidelines, while pricing to attract hundreds of property tours. I’m not remotely qualified to talk about moral relativism. So instead, let’s try to quantify the economic inefficiency of one underpriced listing:

Net cost to economy = people x viewings x wage

Let’s make a couple of conservative assumptions here:

  • If a property sells over 110%, it likely has about 10+ offers.
  • If a property has 10+ offers, it likely has had 70+ viewings
  • A viewing has an average of 3 people present (1 agent, 2 buyers)
  • Each viewing is about an hour in total length (including driving time)
  • At a minimum, people buying homes today would earn a wage of about $30/hr.
  • Average real estate agents likely make around the same, at about $30/hr.

Net cost to economy = 3 x 70 x $30 = $6,300

In order for one person to purchase an underpriced, over-toured listing, it costs the economy a minimum of $6,300. Not a big deal, right?

Let’s think about offers now. If we just assume that the offer process takes 10 of the buyer/agent teams one hour per person – you can include another $900 of inefficiency.

Still not a big deal, right?

I’d generally agree on an individual basis. The problem is that this is not happening on an individual basis – it’s systemic.In York Region alone, the share of properties that sold over asking price increased from 42% in the first week of the year to 76% in the most recent week.

In Durham Region, the same metric increased from 64% in the first week of the year to 89% in the most recent week.

That’s just the buyer’s issue though, right?

It’s not like sellers aren’t price discovering, right?

It’s not like the market would deliberately underprice listings to simplify the valuation and marketing of their property and defer that accountability to the buyer… right?

Caveat Emptor

And so we’ve arrived at where we are today. We are literally watching listing prices fall while sale prices rise. What’s worse, the total percentage over-asking is still increasing, while the listing prices decrease. The idea of an “asking price” has been all but replaced by a “starting price”. We’ve turned our real estate market into a silent auction. Have fun, folks.

In York Region alone, 1,138 listings have sold over 110% so far in 2021 (headline chart).

If you use our prior example of a minimum $6,300 net time cost and $900 net offer time cost per 110% listing:

So far, underpricing has cost York Region homebuyers a minimum of $8,193,600 in wasted hours.

Keep in mind, this is using an average hourly wage of $30. I’d guess that the average hourly wage of purchasers in the GTA is well above that.

Since the beginning of the year, 3,874 GTA listings have sold over 110% of asking price.

This has cost $8,135,400 in wage-time spent on viewings.

It has added a likely unnecessary 267,306 GTA home tours during a global pandemic.

The Closed Bid

I got a lot of good feedback from this article on LinkedIn and Twtter, and I figured it was worth adding a discussion here. I ignorantly presumed that it was evident that the root cause of this inefficiency is the closed-bid process used by Canadian real estate. To my knowledge – this process exists because The Privacy Act protects the contents of individuals’ contracts as private information.

The closed bid isn’t directly responsible for the inefficiency. The real estate brokerage is built on asymmetrical information – and a closed bid protects that. This asymmetry is being exploited by the market to create the inefficiency, causing more viewings and confusion than is necessary.

This exacerbates the arbitrary nature of pricing in the market – a vagueness which originates with the closed bid.Yeah, I’m obviously sensationalizing this whole phenomena a little bit, but I think it’s worth being aware of for one specific reason:

In the OREA code of ethics, there are a few references that could make sense here:

Best interests

4. A registrant shall promote and protect the best interests of the registrant’s clients. O. Reg. 580/05, s. 4.

Does getting 75% more viewing activity during a global pandemic accomplish this goal – especially when >50% of viewings are by hopefully buyers who can’t afford the real expected price?

Conscientious and competent service, etc.

5. A registrant shall provide conscientious service to the registrant’s clients and customers and shall demonstrate reasonable knowledge, skill, judgment and competence in providing those services. O. Reg. 580/05, s. 5.

Inaccurate representations

37. (1) A registrant shall not knowingly make an inaccurate representation in respect of a trade in real estate. O. Reg. 580/05, s. 37 (1).

CREA’s take:

3.2 A REALTOR® shall not intentionally mislead anyone as to any matters pertaining to a property.

3.9 “Dealing fairly” means acting honestly and professionally. The obligation to deal fairly does not in any way reduce a REALTOR®’s obligation to fulfill his or her fiduciary duties to a Client and follow the Client’s lawful instructions.

I guess I’ve managed to digress this internal dialogue from an economic inefficiency into a moral quandary. And for that reason, I’m out.



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  • Liam 3 years ago

    If the Privacy Act is an excuse, isn’t the Advertising Act also one? They should be required to have a unit at the price they advertise, or be forced to provide an alternative. Let’s get into the nitty gritty, technical details.

    • Lou Chao 3 years ago

      Just so we’re clear, the Privacy Act is only a screen when there needs to be. If the system required an open bidding process, the details of the privacy act wouldn’t need to be discussed.

      Housing auctions happen all of the time for high end properties in BC. They just don’t in the City, because the laws are different. *wink*

    • Ethan Wu 3 years ago

      Imagine the stock market saying you can’t see the spread between the bid and ask, because of the privacy contract? haha.

    • Stephanie Daye 3 years ago

      LOL don’t give up. You were doing so well… Part of buying a home is that “high” you get but you’ve touched on something… the mania behind it… and tying it mathematically is… AWESOME!!
      Nice brain… keep going.

  • Matthew Chappatta 3 years ago

    That’s not a great way to calculate the cost, since most people will place bids and view things in their spare time. Some people do it recreationally, with no intent on buying. Especially during the pandemic.

    • Ethan Wu 3 years ago

      May not be a great way to estimate the cost, but your reasoning might be balanced out by the fact he only used $30/hr and that’s not enough to buy a house in Toronto.

    • Toronto Investor 3 years ago

      Not many are viewing as recreation during a pandemic. That is a ridiculous assumption.
      The in-person viewings are for those trying to get into the market with borrowing rates at historic lows and the fact that if they buy today, in 6 months the increase is better than what you can get on any other investment.

      • LK 3 years ago

        When open houses were allowed pre-winter lockdown, there was a lot of people without agents just browsing.

        You can also tell if someone if viewing with their agent, but the other properties they show are way lower in price range. i.e. why are you viewing this $2 million property, if next you’re visiting a $700k one-bedroom afterwards? Budgets aren’t that flexible.

        • Toronto Investor 3 years ago

          Budgets *are* that flexible. I viewed a 2.8M house in Toronto – we were beat out by another offer. Across the street was a 900k house that we would gladly buy and rebuild and would be valued at 2.5M in 12 months. We are also looking a securing a condo unit for later in life. It’s called getting creative because money is CHEAP.

          “budgets are not flexible” that is a simpleton way of looking at today’s insane market. Perspective is flexible and trouble shooting is flexible. There is money to be made in several ways at several price points in today’s Toronto market.

  • Trader Jim 3 years ago

    My issue has always been you don’t know if you’re overbidding by a $1 or $500,000. This isn’t price discovery, it’s max out your budget.

    I know people don’t usually borrow 100% of the mortgage budget they’re given, but if they borrow 85% of it and credit is flowing for a positive expansion, you’ve basically learned to capture the whole budget.

    • Lou Chao 3 years ago

      They have open auctions for high end properties in BC all of the time. They say it’s an issue when it’s not to do exactly what you’re saying.

    • Mortgage Guy 3 years ago

      Correct. Borrowers set a psychological limit on what the amount of budget they’re willing to use. It’s always something like, “I’m only going to use 80% of the max.”

      The max can change to whatever, because they don’t actually think about it. They just know the bank says this is 100%, and I only want less than that.

  • Toronto Investor 3 years ago

    This is a great article on a topic not published about but discussed often. Imagine realtors were paid commission on whatever the LIST price was? They would list realistically. The realtor profession in Toronto right now is a sad state. Uneducated, folks who have never even purchased their own home, anyone off the street can become a realtor. These are the gatekeepers of an industry that fuels the economy. The undercutting, side deals and the fact RECO is incredibly hard to get through to and is backlogged with thousands of complaints is telling.

    The number of times I have heard ‘we listed low to cause action/interest” – is that not predatory?

    Offer nights are just the wild west right now. The issue is just like in 2017 there are an overwhelming amount of speculators not those who actually REQUIRE housing driving up the market.

    • Cottage seeking 3 years ago

      You address the problem perfectly. Agent gets paid on the listing price. If the property sells for more then no more commission is paid and if the property sells for less then both parties take a hit. All for this approach. I also like the open auction method. Can anyone give pros or cons?

    • Bob Walter 3 years ago

      It’s not rocket science, most realtors are not there for their clients, they are there to max out their commission. Which means selling a house to you at the highest price you (think you) can afford.

      Banks role is to lend you the max amount of money they can.
      The only one who has your own interest at heart in the process is yourself. But too many people are blinded by mania right now (scarcity perspective combined with banks that want to create credit at any cost)

    • Paul 3 years ago

      Toronto investor,

      Uneducated, folks require better punctuation.

      Most of us would prefer if people didn’t borrow to the “hilt” to secure a home to live in. If you want to do this to make money please go ahead but don’t act like it’s a proper course of action for families to buy.

  • Cottage seeking 3 years ago

    I live in Toronto and in the last month have driven to see several cottages. I have submitted offers on two properties. One sold for 90% over “starting price” the other 40%. Also have watched several sell for over 30% . I knew going in that these prices were set too low. I don’t even want to estimate the cost to me and my agent. My frustration is with the lack of rules or enforcement by the regulators to at least have properties listed closer to market values. Yes no cottage is the same unlike certain homes or condos in Toronto but to flagrantly price low and waste so time for so many people is wrong. Al Sinclair on cp24 show Hot Property said he was evolved with 70 cottage bidders for his client. This is crazy and I do point my finger at those listing agents and regulators. This needs to be addressed.

  • V 3 years ago

    Many of these realtors are con men and con women.
    Some of these people pretend there’s offers when there’s none.
    Some of these realtors are crooks and tell you they won’t charge you hst, but the head office does anyway. Some of these realtors will sell you properties with stop work orders from the city but will not disclose.
    Some of these Realtors are just idiots.
    Why are people falling for these realtors tricks. No one should pay over the asking price…..period.
    These realtors go so far as to want to hide the previous purchase price like TREBB. Doesn’t this say enough.
    People need to wake up and stop using realtors.
    All you need is a lawyer to draw up paperwork and you can get your property listed on MLS yourself.
    Don’t be another fool and let these shady realtors play you like a fiddle! Time to rise up!

  • Concerned Citizen 3 years ago

    Thanks for this thoughtful article and analysis. The deviation between list price and closing price is very evident the practices are poor. Real Estate overall is a really frustrating state, I’m lucky to have bought in 2018 but looking at comparables now, I’d be priced out or stretched thin.

    Why are Realtors being paid (%) of sale value rather than a fixed rate ($2,000 – $3,000) like the lawyers do? The cost of finding a home does not change in lockstep with the value of the homes does it?

    Regardless, these articles are great and the insights are helpful. At the end of the day, tools to cool this are limited and the ones that are on the table like you mention, policy makers will be reluctant to use. The only real way forward is increasing supply and that is a bureaucratic problem.


  • Axel McLion 3 years ago

    “The problem is that during that process, hundreds of hours are being wasted on viewings that don’t ultimately translate into a sale.”

    Good! Make realtors do a bit of work for their money.

  • FedUpWithTheSystem 3 years ago

    I despise TREBB and RECO. 11 years ago I purchased an income property. It had been on the market for about a year. The night I made an offer, miraculously another offer came in! There was no PROOF that this was the case, but this is what I was told. It could have been totally bogus, or a real offer but at a ridiculously low price, solicited by the seller’s agent just to stir me up. I found the entire experience to be totally unprofessional and manipulative. When I complained to the authorities… including the Minister of Consumer and Corporate Affairs, all I got was obfuscation, blame-shifting, and hiding behind privacy laws… essentially to protect realtors and the industry. Buyer beware is an understatement.

    The fact that the government has allowed the industry to bamboozle the public for so long is disgusting. This really is a story for The Fifth Estate or Marketplace.

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