The End of Blind Bidding?

The rapid increase of housing prices in the last two years attracted a lot of scrutiny and calls for change. Because multiple offers became the norm, many people called for the end blind bidding in hopes that it would help slow the rising costs of houses and make the process more transparent. Blind bidding is the process of submitting an offer without any knowledge of what the other potential buyers are offering. Recently, CREA’s (Canadian Real Estate Association) announced a pilot program testing open bidding in certain markets this summer. What does this mean?

While the exact details of the program have not been released (we don’t know where this is being tested, or for how long), we can infer a good bit. CREA has partnered with Openn Negotiations (an Australian App) and Realtor.ca for this program. It appears that the public will be able to see on Realtor.ca how many buyers/offers are on a property and what the current offer price is. This sounds like a huge win for transparency, but there are pros & cons to this. 

Let’s start with the good. Buyers will be able to see the current highest offer and decide whether or not to proceed with making an offer. For some buyers, they will have to offer on fewer houses knowing they have already been priced out of certain properties. Additionally I believe buyers will appreciate some amount of transparency this could bring. If the only good thing that comes out of open bidding is that buyers feel better about the process, that is a huge win. I have always believed that knowledge is power, anything that empowers buyers to feel more confident navigating the market has some merit. However, I don’t think that open bidding will do much to decrease housing prices, or make the process more fair. 

A study conducted by the Smart Prosperity Institute shows that open and auction style bidding do not help to slow real estate markets or prevent prices from rapidly increasing. The study finds that In hot real estate markets open bidding may actually lead to higher, not lower home prices. 

Let’s imagine the process for a moment. A house is listed for $799,000, all offers have to be in by 6PM, initial offers come in throughout the day and the current highest offer as seen on Realtor.ca is for the full list price of $799,000.  As we approach the deadline we essentially revert back to blind bidding. The buyers who are still interested have to guess if other buyers will still submit an offer, and if so how much higher over the current price are others willing to go? We don’t know, and we won’t get to know until after, as strategically, the remaining buyers will be submitting their final offer in the final moments of the process.

I also have some concerns that agents will wait until bidding is closed, and submit an offer they know is the highest, as it is clearly now displayed on Realtor.ca. Claiming their client has computer issues, or they just got off of work, a meeting etc. What rules and regulations will be in place to prevent this?

To further complicate the issue, price is not the only deciding factor for sellers. Deposit, closing dates, clauses and conditions all factor into a seller’s decision when accepting an offer. Maybe the highest offer has a 6 month closing that does not meet the seller’s needs. How do we account for this, because now some buyers will have walked away not knowing the sellers would be unable to accept the conditions of the current highest offer. 

Unfortunately, this program is coming at a time when prices are already starting to fall and more importantly competition is decreasing. In order to see the true impact this change could have, it would have been ideal to see it tested during the stronger, more competitive markets we saw in 2020, and 2021.

Ultimately, I don’t think a change to open bidding will help with rising house prices, nor does it  help to address some of the issues we are facing, such as the lack of home inspections, properties listed well below recent sales prices, and inadequate supply. But like I stated earlier, if at the very least open bidding makes buyers feel better about the process, that is a big win.

The federal government has been working on ‘The Home Buyer's Bill of Rights’ which includes a promise to end blind bidding. The provincial government meanwhile believes that seller’s should decide how they wish to sell their home. I encourage you to share with us your thoughts as buyers and sellers. 

We will follow this story closely and provide updates as more information becomes available.