We’ve all heard the Canadian real estate stories, especially in Greater Toronto. An agent lists a property below market value, and dozens of offers pour in. It eventually sells much higher than the asking price, and sometimes even higher than the comps. Just one issue. How much did everyone below the winning offer bid? Did they win by a dollar or a mile? That’s something that’s rarely revealed in Ontario, and it turns out, some people are unwittingly paying a lot more than they need to.
Ontario’s Opaque Real Estate Bidding Process
Bidding wars in Ontario are unique from other parts of the world, due to its blind offer process. A seller typically sets an “offer by” date, when all bids need to be presented by, in writing. The agents can’t disclose what other buyers are willing to pay, so all buyers just need to guess how much that is. The industry argues this is due to privacy concerns, restricting agents from sharing.
The process is great if you’re selling a home. Buyers have to guess how much any other bidders are willing to pay. Agents representing buyers sometimes casually drop their strategy to me. They tell their buyers off the bat to bid at least $200,000 over ask, or they risk not getting the home. Even if another bid never comes in, or it’s significantly lower, the buyer commits to paying that price. The buyer never finds out what the other bid was.
The situation is less than ideal if you’re the buyer, for pretty much the exact same reason it’s great for sellers. If you have to guess what the other buyer is bidding, you don’t know if you need to bid $1 or $300,000 more to win. Armed with the advice of an agent whose reward increases as you pay more, the odds are against you. The buyer is guessing entirely based on how hot they think the market is. Perception is everything.
Buyers Have No Idea If They “Win” By $1 or $200,000
If you perceive the market to be hotter than it is, you can be stuck paying a lot more than needed. That’s what’s been happening recently, where buyers are bidding against fewer people. Ben Rabidoux, an analyst who has battled it out with the real estate industry a few times, shared one example. A Realtor friend of his had “received two bids, one on the house, one at ask price and one $175k or almost 10% above ask.”
Rough. Bidding wars were supposed to mean everyone was going to bid way more. The buyer likely thought this was going to be a heated battle to get this house. They had no idea they would be paying $175,000 more than the other person was willing to pay. They probably never will.
In this case, it’s probably a good thing they don’t tell you afterwards, how much you won by. At this price point, the buyer likely paid more than 3 years of household net income more than needed. Imagine finding out you need to work 3 more years to pay off a home, because you misread the market? It’s like working for free.
Some Listings Are Getting No Bids. Sometimes It’s Just One Person
Everyone assumes every property in Southern Ontario can list low, and attract a ton of bids. Not exactly the case. Hamilton real estate broker Donna Bacher recently shared, “We’ve got 2 real estate universes happening now. Some listings going to the moon on frothy competition and others joining the lonely heart club on offer night. A few prices that have come thru from competition last night are completely off the map & I mean, right off the map.”
There’s some data to support certain buyers are pumped a lot more to enter bidding wars than others. Tracking 124 February listings in the GTA that held “offer by” dates, only 61 closed. Those that did were able to score 11.91% over the asking price. The rest don’t appear to be so lucky, but not all were losers.
In the set of listings tracked, 63 didn’t close — which one assumes means they didn’t get satisfactory offers. Of those, 8 relisted — half with higher asking prices, and half with lower prices. Only three of them have since closed, two with higher list prices, and one with a lower price.
The opaque bidding process is a bit of a gamble for buyers, and exploits an exuberant market. When agents hold bids for a property, a buyer placing an offer needs to guess how much others are paying. If the other buyer offers the ask, or below, you may have voluntarily paid years of income. On the upside, you’ll never find out if you overpaid. That kind of stuff eats people up inside.
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