MARKET INSIGHT FOR THE WEEK ENDING DECEMBER 8th
Ontario gives home sellers the option to share bid details with other buyers.
The blind bidding war has been a fixture of Canadian real estate for a generation, but even with new rules in Canada’s largest real estate market that will allow realtors to part the veil of secrecy, industry experts don’t believe an era of open auctions is upon us.
On Dec. 1, the latest update to Ontario’s realtor legislation, the Trust in Real Estate Services Act (TRESA), came into force, allowing sellers for the first time to direct their agents to share details of buyer bids with other buyers.
Blind bidding is a hot topic when the market is soaring, and the practice was mentioned in the April 2022, federal budget when the governing Liberals promised to create a “Home Buyers’ Bill of Rights” that would ban the practice nationwide. Almost two years later there’s no sign of a ban and Ontario’s new rules only open bidding voluntary.
There’s little public data on how often bidding wars happen. For example, the country’s largest association – the Toronto Regional Real Estate Board – doesn’t collect the information and doesn’t make bidding wars a searchable category for online brokerages. What can be tracked is how often properties sell “over asking,” which, while imprecise, does offer signs that a property was bid up.
“I think it’s actually going to be worse,” said John Pasalis, president and broker of record with Realosophy Realty Inc. “If this was a pure open offer system, where it is transparent, that’s completely different. That is not what this is. This is the Wild West. It’s worse for the buyer and probably better for the seller; the seller has more tools at their disposal to maximize sale price.”
New homebuyers have often been frustrated at the unfairness of the bidding war system as it was previously constituted, where sellers could host an offer night and receive multiple bids, but the only information allowed to be passed on to other bidders was the number of other offers. Blind bidding could extend into multiple rounds and buyers sometimes raised their bids even if they were already in the lead. At the end of the day people want more transparency – this is opening the door to that.
Reform of blind bidding was sometimes pitched as an affordability measure; though because of a lack of data collection around secret bids, it’s never been clear how much the practice might have increased prices. The Ontario government continues to promote approaches that encourage consumer choice in the real estate trade process.
Industry veterans also warn that the new rules leave a lot up to the seller, and there will likely be as many ways to run an open or closed bidding war as there are realtors in the province.
The new rules don’t provide a road map to how an open offer day would differ from a closed one, and the different approaches realtors have used for purely closed bidding wars can already make the practice chaotic.
As for the federal promise of open bidding, Housing Minister spokesperson Micaal Ahmed said that since real estate generally falls under provincial and territorial jurisdictions, the federal government continues to consult with stakeholders to make a home buyers’ bill of rights.
The work is well underway and nearing completion, he said.
Here are the top 5 trending stories of the week:
- Interest rates are coming down … soon: Benjamin Tal | “Canada is essentially in recession and, combined with several other factors, that will “defeat” inflation and allow the Bank of Canada to begin cutting interest rates next summer, according to CIBC Capital Markets managing director and deputy chief economist Benjamin Tal.”
- Renters at disadvantage amid high interest rates: experts | “The Bank of Canada’s decision to hold interest rates at five per cent will likely keep the country’s real estate market on pause, but tenants – particularly those in non-rent controlled buildings – are at a disadvantage amid high costs, experts say. Tenants have felt the brunt of rising rent costs as landlords respond to higher interest rates and related rising mortgage costs.”
- ‘Build more homes, faster,’ says Trudeau — how land transactions, housing supply and project feasibility factor | “Over the last few months, Prime Minister Justin Trudeau spoke repeatedly about a Canadian housing crisis and the need to “build more homes, faster”. The removal of GST on purpose-built rental buildings was a good step, and a tangible manifestation of the political impetus to increase the supply of housing.“
- Bank of Canada Interest Rate Announcement (December 6, 2023) | “The Bank of Canada maintained the overnight rate at 5.0%, while stating that it will continue with Quantitative Tightening (QT). The Bank highlighted the slowing in economic momentum stating, “economic growth stalled through the middle quarters of 2023 (and that) higher interest rates are clearly restraining spending”. The Bank also noted that the labour market has cooled, as “job creation has been slower than labour force growth, job vacancies have declined further, and the unemployment rate has risen modestly.”
- Canadian Real Estate Arson May Rise As Economy Slows, Warns Insurer | “The only bond stronger than a mother and its baby is the one between rising interest rates and the arson of new homes under construction. Commercial insurer Northbridge Insurance is warning home builders to look out for arsonists.”
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