As you read this, we hope that you’re all healthy, happy and well.
In the past month, the real estate market had some respite, due to the increase in inventory and the commencement of yet another provincial lockdown. “Buyer fatigue” also became a factor, since most buyers would have to offer on many homes to finally be successful and have the “winning bid”. As many more listings became available, increasing inventory, and with the latest provincial lockdown in place, many buyers took a break from searching for their next home. This allowed us to find many of our buyers a home, and we were actually able to negotiate with the seller for a price that represented market value. More recently (within the past week), buyer activity has increased sharply again. Most listings that are not overpriced are again experiencing multiple offers. Sellers are happy, but has prices continue to rise, and home ownership seems like an increasingly unattainable dream for first-time home buyers.
Coupled with these challenges, is a real estate bidding process in Ontario that presents another problem altogether. Read on.
In Ontario, when a Realtor submits an offer on behalf of their buyer, the listing Realtor may not disclose any details of any of the offers submitted to any other buyer. For example, Buyer Smith submits a firm offer for $700,000 on 123 Main Street. Buyer Jones, knowing that there is one other offer already submitted, writes and submits an offer for $701,000. The Listing Realtor will notify Smith’s Realtor that a second offer has been submitted, giving them the opportunity to improve their offer, but no details of Jones’ offer may be disclosed. Buyer Smith agrees to amend their offer to $720,000, in the hopes that they will be successful. Suddenly, a third offer comes in from Buyer Johnson. Buyer Johnson has already offered on 10 other homes, unsuccessfully, so in a desperate attempt to be the winning bid, they offer $751,000, hoping that this is much higher than the other two offers. Before all of the offers are presented, three other offers come in, all between $700,000 and $719,000. Buyer Johnson has the best offer, and the Sellers happily accept the $751,000 offer.
Clearly, in this example, the Seller will be elated. They’ve just sold their home to a buyer that was willing to pay $30,000 more than the next highest offer. Because of the way Ontario real estate law prevents any buyer from knowing the details of their buying competitor’s offer(s), Buyer Johnson will never know that they paid $30,000 more than the 2nd place offer. In our experience, this happens on most of our listings that go into competition. One buyer always pays much more than the rest of the buyers that submit an offer, leaving tens of thousands of dollars on the table. Furthermore, “market value” is driven higher and higher by the desperate 5% of buyers that grossly overbid on properties.
We would love to see the law change to allow Realtors to share details of the other offers with other buyers, in order that Buyers can bid on a property, knowing how much they have to bid in order to successfully buy the home. In the example above, if Buyer Johnson knew that Buyer Smith bid $720,000, they likely wouldn’t have signed an offer for $751,000. Instead, they probably would have bid $725,000, and if successful, they would have saved themselves $26,000, which would pay for their land transfer tax and the bathroom renovation that they wanted to do on their new home.
If Ontario amended the law to allow for open bids on real estate, we wouldn’t be pioneering this process. Australia has long perfected this process, and all real estate bidding there is open, each bidding buyer knowing the details of the competing offers, much like any other auction.
Would you like to see the law change in Ontario? Would you like bids on real estate to be open, similar to any other auction? Let us know! We’d love to advocate for change, and we’d be happy to spearhead an initiative like this in Ontario. We want all of real estate to be equitable for both the buyers and the sellers. In the long run, this can only favour the real estate market. Let us know what you think!
In the meantime, enjoy the springing of Spring and if you have any questions at all regarding anything real estate related, please don’t hesitate to reach out!