One of Canada’s largest real estate associations was less polished than usual.. Earlier today, the ruling Liberal Party of Canada (Liberals) announced their housing platform for the election. Amongst the new proposed tools to tackle soaring home prices was a ban on blind-bidding.
The Ontario Real Estate Association (OREA), a lobby group for Realtors in the province, is not a huge fan of that plan. The proposal involves changing the criminal code, which they feel is extreme. In an email, they said the strategy would bring a “new meaning to house arrest.” Further, they argue the alternative proposal of transparent auctions would turn Canada’s real estate market into a circus.
OREA Says The Liberals Will Give A “New Meaning To House Arrest,” By Regulating Selling Methods
OREA is upset the Liberals have proposed regulating the home selling process. In an email titled “Liberal Housing Plan To Criminalize Hardworking Families,” the industry claims the Liberals will send you to jail if you don’t sell your home as directed. This is in regards to a proposal to ban blind bidding wars. To enforce the restrictions, they plan to use the criminal code to outlaw opaque bidding.
They also allege the party believes homes “should be done entirely through auctions.” Similar to Australia, where OREA claims it’s the norm. Adding, “action fever creates a three-ring circus on front lawns, as hopeful buyers crowd in front of a home with a live auctioneer, or online, and the bidding begins.” Sounds fun, but not exactly what the proposal is, which would more than likely go to the industry for polishing first.
Canada’s Liberals Plan To Make Bidding Wars Transparent
The Liberals have proposed a right to home inspection and a ban on blind bidding. In hot markets, buyers often skip the home inspection as a way of sweetening the offer. This helps sellers avoid having their home fail an inspection, for whatever reason. Preventing a failed inspection means not having your home sale fall through. It impacts buyer’s in an obvious way, but it’s not clear to what extent this problem exists.
The second issue is a ban on blind bidding, and it’s a very big issue for some agents. Blind bidding is when more than one buyer places an offer, and none of them know what the other is bidding. In most situations, the seller’s agent can’t disclose the contents of another buyer’s offer. Buyers have to guess what will beat the other person’s bid.
The buyer often just gets one shot to guess what everyone else is offering, and then add a premium to win. This can mean a buyer will pay thousands, sometimes hundreds of thousands, more than the next bid. In some cases, the other buyer may have offered less than the asking price, but the seller landed more cash than they could hope for. Exuberant buyers often just max out their budget, which is ever-inflating due to rates.
Transparent Auctions Won’t Turn Canadian Real Estate Into A Circus, It Already Is One
The auction process in Australia isn’t exactly how they described it. It’s typically only seen in major cities, and even so — only in hot markets. It does exist though, and they’re often 3-ring circuses.
Auctions have become popular recently, after the pandemic surge in sales. Sydney, for example, saw 78.4% of its home sales in Q2 2021 conducted by auction. This was the highest rate since 2018, with the number of auctions falling with home sale volumes. It might also be one of the few places more expensive than Canada.
Similarly, not all home buying in Canada is done by blind bidding. Even in heated markets like the recent one, only a small number of homes are sold by this process. If they were forced to be transparent auctions, it would likely only serve as a direct substitute. The argument that it turns blind bidding into a 3-ring circus ignores that offer nights are also 3-ring circuses.
Does blind bidding lead to higher home prices? Sure, in markets with substantial demand. Just because an agent is holding offers, doesn’t necessarily mean they’ll get any. Ontario is currently seeing fewer and fewer blind bidding wars.
Can eliminating blind bidding and adopting transparent auctions send prices higher? Once again, sure. Only in markets with strong demand though. In reality, these are direct replacements for each other, that don’t necessarily stimulate any more demand. If no one is showing up to blind-bid offers, they won’t show up to an auction. At the same time, it saves only a few buyers cash. Although there’s something to be said about the influence of a marginal buyer on comp prices.
Most importantly, the Liberals aren’t proposing to criminalize all methods of selling homes. Listing and selling a house, like the majority of home sales are conducted, would still be legal.
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