blind bidding

Realtors scrutinize proposed blind bidding ban 

Unaffordable market is ultimately issue of supply and other causes many concur
Wednesday, September 1, 2021
By Rebecca Melnyk

Home buyers looking for a perfect home in markets with slim pickings are facing a deluge of election proposals that promise more affordable choices. One of the more contentious policies to surface over the past week is a subscribed end to blind bidding.

Last week, the Liberal government committed to criminalizing the process that blocks bidders from officially knowing specific details of other competing offers, but associations representing realtors disagree with the move.

The Canadian Real Estate Association said a ban is no magic bullet for affordability and would take away liberties for homeowners to sell the way they want. A response from TREBB echoes the sentiment, stating: “Punishing home buyers and sellers for wanting to keep their financial decisions private for the largest transaction of their lives is a substantial overreach of the government.”

David Oikle, president of the Ontario Real Estate Association, rebutted that the current reality of bidding wars is ultimately an issue of supply and the plan would have the opposite effect — “negatively impacting Canada’s housing market and making home ownership even more unaffordable.”

Contrary to popular belief, a ban wouldn’t necessarily equate to a cooler market, adds John Lusink, president of  Right at Home Realty. As he says, blind binding doesn’t create or impact the housing demand that already exists.

“It is a function of supply-side shortage and an increased demand, which is fueled by low interest rates, higher degree of savings, the continuing influx of foreign capital, and the “pandemic effect,” he says. “A major trend we are observing is that consumers are looking to move, whether it be to upgrade, downsize or take advantage of the current price points.”

Christopher Alexander, the EVP and regional director at RE/MAX, agreed, in a statement, that rising prices attributed to low supply and high demand have given sellers the advantage.

“While RE/MAX has advocated for a fair bidding process for all, the proposal to ban blind bidding with an amendment to the criminal code is concerning,” he said. “It pits homebuyer against seller and may even intensify the housing supply shortage, by putting sellers at a disadvantage and discouraging them from listing their home, creating even more competition in the market.

“In order to improve the affordability crisis, a newly appointed federal government needs to lead a collaborative national housing strategy across all levels of government, to create more homes for Canadians.”

Canada has the lowest number of housing units per 1,000 residents of any G7 country, a recent report from Scotiabank finds. This number has been declining since 2016 as the population intensifies. Richard Lyall, president of the Residential Construction Council of Ontario, recently said a “dire shortage” like this needs immediate attention or else it will derail economic recovery.

“There is a lot that could be improved at the local municipal levels such as reducing the red tape and the costs to develop new builds,” says Lusink. “It takes years to go from land acquisition through to actual construction and it requires an increasingly larger upfront investment.

“In some areas, municipal services and infrastructure have not been maintained or upgraded to the point where development is at a standstill due to lack of capacity. York Region is a perfect example. “[It] needs more sewage capacity to handle the current growth trends and ensure developments can continue in the coming years.”

Other key issues said to rock the housing market are speculation and foreign capital money laundering. Lusink points out that the Canada Revenue Agency, Financial Transactions and Reports Analysis Centre and Real Estate Council of Ontario have legislation in place that could  support action on the matter, but have been “woefully inactive” and are “a major reason” these issues are pervading.

On the blind bidding front, when it comes to large-scale actions like a ban, the industry flags urgent gaps. Alexander states that federal candidates should reach out to localized real estate experts to gather a deeper understanding of how to remedy the affordability crisis.

Lusink says the Real Estate and Business Brokers Act Code of ethics has several rules to help the buying process unfold in a more clear manner; they just need to be better enforced and adapted to require agents to be more transparent. He points to a section of the code on  “conveying offers,” which gives direction on how that process is supposed to occur.

“There are many tools agents are now using to assist in this process, but the challenge is that the consumer is often unaware and uninformed as to how this is supposed to be handled according to law,” he says. “This is where RECO has fallen well short both in their education of realtors as well as providing clarity and/or forcing agents to provide their clients with a clear and comprehensive overview of the rules and process.”

One outcome that would occur with a ban are open auctions, or what would become “a three-ring circus on front lawns,” as OREA President David Oikle suggested in his statement. He added that open offers are the norm in Australia and New Zealand—where competition can be rife with rush decisions and prices are still rising despite the regulation.

In Canada, open auctions of properties are already available and real estate agents already have the means to conduct open bidding, says Lusink.

“The issues that make this challenging are the current rules requiring all buyers and the seller to agree to sharing the terms of their offers,” he says. “Another approach that many brokerages already take is to have a manager handle the offer process, especially if the listing salesperson has their own buyer for the property as well. Government could provide some extra guidance around how multiple offers are managed by adding to or amending the existing legislation to beef up these procedural rules.”

How would a ban affect buyers and sellers of condos?

Foreign investors are flocking back to the new condo market where ownership is rising again in cities like Toronto, and even more in Vancouver.

“Students are returning to school; employers are calling their staff back to the office and this means the condo market is rebounding fast,” says Lusink. “There are also many developers who offer “turnkey” condo investments. This means they sell the new condo to a foreign or local investor who has never physically seen the property and they manage the rental process for a fee.”

That said, he notes that changing the blind bidding process isn’t going to impact this segment of the condo market; rather, it will affect only existing inventory on MLS.

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