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After his “umpteenth” blind bid was rejected, Jack Mull says he had enough. Suspecting that there were some listing agents in Toronto who were providing incomplete information about competing bids in an effort to drive up house prices, the fortysomething carpenter recently lodged a complaint with the Real Estate Council of Ontario (RECO), which enforces the rules that real estate salespeople, brokers and brokerages must follow.
“It’s ridiculous that I have to rely on guesswork when trying to make the biggest purchase of my life,” says Mull, who was looking to purchase a single-family home and convert it to a duplex.
Like many house hunters, Mull’s frustration stems from blind bidding, the default practice in Ontario when a home attracts multiple offers. While provincial law states that real estate brokerages representing sellers must disclose the number of written bids, the amounts of competing bids are not shared with prospective buyers. This lack of price transparency has been blamed for causing bidding wars that have pushed the residential market to record levels in recent months.
In less than a year, however, open bidding will become available as a sales tool. But as with so many aspects of the home-selling process, opinion is divided over the change.
According to a 2021 poll commissioned by the CBC, 52 percent of respondents supported eliminating blind bidding. This sentiment was reflected in the 2022 federal budget, which confirmed that over the next year the government will work with provinces and territories to “bring forward a national plan to end blind bidding,” which is making home-buying “even more stressful for too many Canadians.”
Less than two weeks later, the Ontario provincial government jumped into the fray by introducing new regulations that give home sellers the option to disclose the details of competing offers. As of April 1, 2023, “sellers will no longer be limited to selling their property through a closed or traditional offer system,” stated Ross Romano, Minister of Government and Consumer Affairs.
This new open bidding sales tactic is part of broader regulatory changes to the Trust in Real Estate Services Act (TRESA) that include a new code of ethics for real estate agents, simpler standardized forms and more enforcement powers for RECO.
Critics of the new rules wasted no time in pointing out that home sellers are unlikely to embrace open bidding when the current system has helped push Ontario house prices to all-time highs. “Home sellers shouldn’t be able to pick and choose when the bidding process is transparent and when it is blind,” Ontario Green Party leader Mike Schreiner said in a statement. “That defeats the purpose of ending blind bidding since it’s in sellers’ best interest to keep buyers in the dark. A consistently transparent bidding process will help bring down the skyrocketing price of houses.”
Supporters of the new rules counter that they are not actually designed to cool house prices. “This legislation should not be confused as doing anything more than regulating the conduct of agents,” says RECO registrar Joe Richer. “A lack of housing supply, not blind bidding, has been driving up prices, but we’re already starting to see things cool with fewer buyers getting into the market.”
William Strange, a professor of economic analysis and policy at the University of Toronto’s Rotman School of Management, says that even if the new rules are successful in improving transparency, they will do little to address the far more pressing issues of housing availability and affordability. “I don’t know if anyone was really asking for more transparency. What people are generally asking for is more affordable housing. It’s like the government is trying to show that they’re doing something when they don’t really want to do anything. If they could pull a lever, and house prices would suddenly go back down to where they were pre-COVID, how many Ontarians would support that? I don’t think it would be enough for that government to get elected.”
Canada’s real estate industry, for its part, has been consistently opposed to open bidding. The Canadian Real Estate Association (CREA), for instance, funded a 2021 report by the Ottawa-based Smart Prosperity Institute that concluded, “open bidding in a hot real-estate market may lead to higher, rather than lower, home prices…If the federal government wishes to ensure climate-friendly housing is available and attainable for all Canadian families, it must focus on Canada’s lack of supply.”
The report’s conclusion is based on home sales in countries that do not permit blind bidding. “Studies examining real estate transactions in New Zealand, Australia and Ireland, as well as studies examining land sales in Singapore and the United States, have found increased bid transparency associated with higher, rather than lower, prices, particularly in overheated markets,” it states. “This could be due to several factors, including public bids creating a signal that a property is particularly valuable, in a way that less transparent bids do not.”
Others in the industry think open bidding will be especially hard on the first-time buyers who have generally been hardest hit by soaring prices. “With a closed bid, a first-time buyer at least has a shot at outbidding someone with deeper pockets,” says Rob Golfi of RE/MAX Escarpment Golfi Realty Inc. “But with open bidding, the wealthy buyer is always going to outbid the one who has just barely enough for the down payment and closing costs.”
While it’s not yet clear what sellers will be allowed to disclose under the new regulations, or how this disclosure will be made, Strange says there are scenarios in which open bidding could benefit them. If there are multiple similar offers, for instance, open bidding could provide the information needed for a successful bid to emerge. In a sluggish market, meanwhile, open bidding could act as a kind of incentive, or could be introduced after initial offers have been made.
No matter how the new rules play out, prospective buyers will be at a disadvantage as long as the Ontario market continues to boom, Strange says. “It’s crazy to think that home sellers and agents will do anything except try to get the highest possible prices. A housing shortage isn’t their problem.”