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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It clear that is FOMO. What is scary it is on the country level and it will destroy country eventually and people lives.
Biddings wars happening over cottages outside of Peterborough. A lot of regrets might be coming.
lol. Now this is some funny stuff. Brave to be the first offer in a bidding war.
This bidding nonsense has to stop. Real estate agents should be ashamed of themselves. It’s pure greed. They know this market is not sustainable and at the end people will really regret having paid such an unrealistic price. Some of these buyers will never be able to recover from this. Where is the government in all this. They need to pass a law against this practice. Even if as a buyer you get a great price, you will need to purchase yourself unless you are moving way out of this market. I’m all for capitalism but when the music stops there will be a lot of people in financial straights. Disgusting practice…agents taking advantage of buyers who don’t know better. Risking effecting our entire economy for their own wallet.
For the umpteenth time, the real estate industry in Canada, least of all these blind bidding scams, has absolutely nothing to do with capitalism.
Totally agree.
Stephen, you seem to know people in high places. Why is nobody proposing to end this practice or even talking about it? Why isn’t the Ontario NDP even mentioning it? This can’t be out of fear of the wrath of voters since almost nobody would be opposed to ending blind auctions except realtors and perhaps exceptionally greedy sellers who never plan to buy again. This seems like a 90/10 issue (support/opposition). So what is preventing the much-needed reform of this activity? Is it corruption (realtor campaign contributions)?
Yes it’s corruption.
The old saying, you reap what you sow, will be well remembered when this central bank government driving frantic real estate market is over. It is a shame that one more time, no one will go to jail and the taxpayers will pick up the tab.
Someone once told to me which I find so true, in Canada you don’t find corruption in public offices, you find corruption in your bills. This situation exactly fits that. When house prices and incomes are in such imbalance, someone has created the situation for their exclusive benefit – guess is easy who could do so.
I will keep it in mind “in Canada you don’t find corruption in public offices, you find corruption in your bills”
Realtors are ” White-Collar” CRIMINALS! Of course they want you to over bid 200k. That way they make 5k extra at 2.5% of commission. Just listen to the scam artist Al Sinclair from Remax, he tells people to “Come in High and come in Hard”. Is it any wonder people are over paying taking advice from this white-collar criminal. This guy is a fn clown and anyone listening to him has to be dumber than a brick!
Don’t worry… once the majority of boomers have sold their houses the government will enact an open bidding policy with a ban on closed auctions.
Wow, this conversation really worries me. If this is the intellectual capacity of our country, we are in big trouble. Blaming the realtors? You must be kidding? If the realtors were smart enough to manipulate housing prices, man, that would be something. The realtors do not control the supply or the demand of real estate. That falls squarely on the shoulders of the federal, provincial, and local governments. They have the ability to control or influence the inputs into the building process, the taxes that are charged, the interest rates, and the quantity of new dwellings being build through the issuance of building and development permits and rezoning. Just think about what you are saying.
Canada is completing 2 homes per person the population grows by. It’s almost 3x the supply needed and prices are going up. You have no idea what you’re talking about.
Please go back to tricking your clients into paying you higher commissions, or selling used cars if that’s slowed down.
We build 200,000 housing units, give or take, in 2019. We “welcomed” over 300,000 new immigrants and almost 60,000 refugees. Stats Can shows our population increased by 570,000 people that year.
How is that 2 homes per person?
Let’s ignore 2020 and 2021 data, because it’s not helpful for the narrative. Thanks everyone!
You sound like a house sales person Simon.
I do agree with you , realtors are not smart, crafty yes. Smart ? not the ones I have met. Also propose government oversight of the RE industry, is needed more than ever to ensure above
board actions . And yes governments are giddy happy with the current largesse flowing into their coffers. That will end, then what?
Realtors by way of their organizations have been responsible for a lot of damage. Data that has no attachment to reality, always spun as “a good time to buy/sell”, “Benchmark and Median Pricing is a joke to manipulate the numbers. Outrageous commissions, The 10 YEAR TREB/Competition Bureau fight over allowing sales data to be made public was fought tooth and nail with laughable assertions that were NOT EVEN HEARD BY THE SC of Canada. TREB lost but is still sanctioning 3rd party data providers. Closed auctions are anticompetitive. Your friendly neighborhood Realtor(aka House Sales Person) relies on commissions, consequently they are happy if you are forced to pay MORE. So yes we need government: to set clear unambiguous guidelines with harsh penalties for transgressors.
Governments are lobbied hard by the RE industry Associations to maintain the status quo, Here in BC they finally took over oversight from the BCREA due to numerous egregious acts . The inmates should never be in charge of the asylum. The Money Laundering road show here in BC is now shifting to RE transactions and already its looking bad for the players in the RE industry. The popularity of RE Sales is akin to used car sales, which essentially they are….bottom feeders
Yea Realtors are Saints, it’s the government causing the problem, I would suggest they both add to the complete mess we find ourselves in where housing is the manna and upward mobility by way of housing is now completely gone if you are on the sidelines.
When foreign money-launderers are allowed to parasitize our housing market and snap up whole floors of condos sight unseen and then leave them empty, no amount of new supply will help the situation.
Though you’re right that government is ultimately responsible for this situation. I question what is preventing them from banning blind auctions?
Again, you don’t have to be a rocket scientist to understand that blind auctions are a symptom, not the problem. I personally live in a community where housing prices have gone up 50% in the last two years and there are lots of blind auctions going on. However, there are no foreign buyers buying up units that are for sale nor have there ever been in our community. Interest rates remain low because the federal government need to prop up the economy through housing. Lumber and copper prices are skyrocketing and these are also within the reach of government to manage. Our local government doesn’t want to support development, so they won’t allow any new subdivisions and that chokes supply.
“For no real reason” key words. I have bought 2 houses in the last ten years and paid under asking both times. It’s the buyers who are setting the price.
When the floor falls out, I’d be going into hiding if I was one of those realturd shysters. People will be looking for them.
I believe the culprit here is the media. When houses go for large sums over asking, headlines are splashed all over and the average Joe gets all excited. No mention that the realtor low balled the price in the first place to generate bids. Also, when they do a story on the housing market, who do they interview almost exclusively? A realtor. Moving real estate is their living. Do you honestly think they would say they expect sales to drop? Again whipping Joe public into a frenzy.
Looks like Simon is oblivious to Realtors pretending there’s offers when in fact there are not. Looks like Simon needs to gain some intelligence on Realtors practices.
Things are crazy here in Vancouver. Lost out early in a bidding war for an 800-sqft condo in east Van built in 1981. It went for >$300k over assessed value and about $125k over asking! Completely ridiculous. I don’t understand how banks are lending to these people.
The realtors are the real problem here and when it comes down to it there blue collar criminals. There should be a open HONEST bidding system in place and if anyone should be pushing for this is the banks!!! Buyers are paying one to two yrs of yearly income in over paying on these homes when instead it could be thousand instead of 10’s of thousands. Stop this by having a open and transparent system or cap the realtors commission at the asking price and not the the over asking price.
Well, here is a case of $600+K over asking … insane or what:
https://www.theglobeandmail.com/real-estate/toronto/article-north-york-house-goes-for-612000-over-asking-after-17-bids/
Obviously Canadians along with their government have developed the attitude that debt will never be paid off so borrow money without any consequences. There is also the assumption that real estate will never decrease in value. If either of these two beliefs turn out to be false there will be a serious reckoning. Until then I guess get while the gettings good.
Transparent bidding is not the answer to all of the market’s problems, but it is certainly an option that is a breath of fresh air to many buyers and sellers. We have been doing open real estate auctions in the GTA for the last couple of years as an option for sellers, and they have been an amazing alternative to the blind bidding wars.
Very important to note that open bidding in no way has an affordability impact, but rather addresses the problem of transparency that leads buyers to throw darts, as well as sellers to have no real way of knowing if would-be buyers could have improve (notwithstanding the fact that blind offers also create questions of the value of offers that factor in things like varying closing dates, conditions, and deposit amounts.