Tag: blind bidding

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Cottage Life

Realtor.ca launches open offers in an effort to curb bidding wars and inflated property prices

Photo by Michael Vi/Shutterstock

Blind bidding has been the way of the Canadian real estate market for a long time now, but with skyrocketing property prices creating a housing market that many middle-class Canadians are unable to break into, there has been a push to make the market more hospitable to first time-buyers.

In 2022, the federal government released its budget where Minister of Housing, Ahmed Hussen, was tasked with creating a Home Buyers’ Bill of Rights. A major goal of the bill was to end blind bidding and make housing more affordable. Shortly after, the Ontario government announced it would be creating an “open offer” alternative as part of a reform to the Trust in Real Estate Services Act, 2020 (TRESA) blind bidding practice.

On April 1, 2023, realtor.ca officially launched the Canada-wide rollout of the open offer option.

Since real estate is regulated provincially in Canada, regulations differ across the country. This means the information provided in an open offer will look different from province to province, depending on local rules.

Realtor.ca explains the new option: “In certain parts of the country, you may see specific offer details, like the price on the listing page. In other regions, you may only see the number of offers presented.”

Openn, the company in charge of rolling out transparent bidding on realtor.ca, notes that the process in Canada is unique compared to how Australia and the U.S. run open offers.

“The agent selects the transparency settings based on what is applicable in their province,” says Becky Madden, the head of marketing at Openn. “Transparency settings can include the number of offers, the timeline of the offers, offer values, the number of people watching the property, and unconditional offer flags. They must comply with appropriate regulations and the sellers’ choice.”

While sellers might not like the sound of offer transparency, for now at least, open offers are an option—not a requirement. “Sellers must opt in, and based on my experience working with numerous sellers, there isn’t a compelling incentive for them to,” said Ivan Lobo, a real estate consultant at Made in CA.

“Sellers may still favor the blind bidding system, as it grants them a competitive edge by instilling a sense of urgency or scarcity among potential buyers,” says Lobo.

Critics of the blind-bidding system agree, noting that an optional transparent system does nothing to help buyers. The blind system creates a sometimes-false sense of urgency, driving buyers to place offers well above the offer actually needed to secure the bid.

A transparent bidding system therefore removes the obvious advantage sellers have in driving up the offers made on their home. “They could receive lower or fewer offers compared to what they would get under blind bidding, since buyers might become more cautious or conservative when they can see other bids,” Lobo says.

“This could eventually lead to a more balanced market with fewer bidding wars and less inflated prices.”

There is still no word from Hussen’s office on when the Home Buyers’ Bill of Rights will actually come into law, so until sellers’ hands are forced to show their cards, optional transparent offers are likely to remain a rarity.

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Cottage Life

CREA announces pilot project that will show buyers bids in real-time

Photo by Shutterstock/Elena Berd

The Canadian Real Estate Association (CREA) is launching a pilot project that will allow buyers to see registered offers placed on a property as they are submitted.

In partnership with Australian software company Openn Negotiation, CREA, which is in charge of setting national standards for Canadian realtors, has created Openn Offers; a management software that will track real estate offers in real-time, displaying them on a property’s REALTOR.ca listing.

The goal of Openn Offers is to increase transparency and provide buyers with more information when purchasing a property, says Pierre Leduc, media relations spokesperson for CREA. The project is still in the planning process, but Leduc says the association’s aim is to test Openn Offers in select markets across Canada this summer.

Which markets will be selected is still up in the air. Since Canadian real estate is governed at a provincial level each province has its own rules around how a real estate transaction is conducted and what information is allowed to be disclosed. CREA is currently in talks with 11 real estate regulators across the country to determine how Openn Offers will operate in each province.

“Our first step is to define the provincial [regulations] that actually allow this project to be more transparent,” Leduc says. “Then it’s finding boards within the province that are willing to host.”

If Ontario is selected as a host, Leduc says that at a minimum, Openn Offers will show buyers how many offers have been made on a property and what the highest offer is. A recent announcement made by the Ontario government could expand these parameters, though. As of April 1, 2023, sellers in Ontario will have the option to disclose offer amounts in a multi-offer scenario. This option will be voluntary, but it could give buyers a sense of where they rank among the bids and ensure they don’t overpay for the property. This feature wouldn’t kick in on Openn Offers until next year.

Leduc adds that for an offer to be recognized by Open Offers, the buyer needs to be working with a licensed realtor who can process their bid through the system.

CREA’s announcement came only a week after the federal government released its 2022 Budget, in which the feds pledged to eliminate blind bidding from real estate transactions in an effort to make housing prices more affordable.

Blind bidding is the default practice used by real estate agents across Canada in multi-offer scenarios. It requires buyers to bid for a property without knowing the amout of competing offers—a common scenario seen in Ontario’s cottage country over the last two years. The crackdown on blind bidding comes after some critics have pointed to it as a culprit in driving up real estate prices. But Katie Steinfeld, broker of record for real estate agency On The Block, disagrees.

“There are situations where one buyer will significantly overpay versus everybody else, and in those situations, I would say for sure that will not help decrease prices.” But this tends to be an exception, Steinfeld says. On The Block operates its own auction platform, providing similar information to what Openn Offers plans to disclose. When the size of competing bids are disclosed in auctions, Steinfeld says she found that prices jumped higher.

“A lot of buyers, their argument is when they’re in a blind bidding situation, they don’t want to go up any higher because they don’t know what the next highest offer is. They don’t want to overpay,” she says. “But if they know what they need to pay in order to get the home, that can push them up even higher.”

Steinfeld says she doesn’t believe eliminating blind bidding will suddenly tame Ontario’s runaway real estate prices, but she does think that CREA’s attempt to provide buyers with more information is a step in the right direction.

“I don’t think this will have an immediate impact. I think opening things up and making things more transparent is going to be a process. But I think it will start helping [the market] out and bring more opportunities and options to buyers and sellers,” she says. “Having more information at their disposal is always a good thing.”

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Cottage Life

Critics of Ontario’s new open bidding policy say it will do little to curb prices

Photo Courtesy of Shutterstock/Michael Vi

Ontario’s soaring cottage real estate prices may finally see some friction. The province’s Ministry of Government and Consumer Services is rolling out new regulations that will allow people selling their properties to disclose the details of competing offers.

Currently, the Trust in Real Estate Services Act, 2020 (TRESA), forces buyers in a multi-offer scenario to submit a bid without knowing how much competitors are offering, otherwise known as blind bidding. This practice forces buyers to guess what they should offer; in some cases paying thousands of dollars more than the next highest bid.

Over the last two years, multi-offer scenarios have become common in cottage country fueled by high demand being driven by low mortgage rates and an urban exodus during the pandemic. The new TRESA regulations give sellers the option to opt-in for an “open-offer” process, disclosing details of competing bids.

“Sellers will no longer be limited to selling their property through a closed or traditional offer system,” said minister of government and consumer services, Ross Romano, in a statement.

Ontario Real Estate Association (OREA) CEO, Tim Hudak, voiced his approval of the new regulations, saying in a statement that it will make the buying process more transparent while giving homeowners a choice of how they want to sell their properties.

Some critics, however, are saying that by empowering the sellers with the choice to disclose offer details, the new regulations will do little to curb prices. “Home sellers shouldn’t be able to pick and choose when the bidding process is transparent and when it is blind. That defeats the purpose of ending blind bidding since it’s in sellers’ best interest to keep buyers in the dark,” said Ontario’s Green Party leader Mike Schreiner in a statement.

“A consistently transparent bidding process will help bring down the skyrocketing price of houses, and along with other key policies, like expanding zoning and investing in affordable rentals, will help us build an Ontario where everyone has an affordable place to call home.”

The Ontario government announced its “open-offer” alternative just a few weeks after the federal government released its 2022 Budget, which tasked minister of housing, Ahmed Hussen, with creating a Home Buyers’ Bill of Rights. As part of the bill of rights, Hussen will work with each province and territory to end blind bidding and make housing more affordable. It’s uncertain whether Ontario’s new TRESA regulations will meet the bill of rights’ requirements.

The new TRESA regulations are set to take effect on April 1, 2023. On top of providing the “open-offer” alternative to blind bidding, the government is also introducing a new code of ethics for real estate brokerages, brokers, and salespersons, improving professionalism and disclosure obligations.

As part of this process, the Real Estate Council of Ontario (RECO), which is in charge of regulating real estate professionals on behalf of the provincial government, will provide buyers and sellers with a fact-based information guide detailing their rights and options. The government is also expanding RECO’s disciplinary scope to encompass all aspects of the TRESA.

“By giving RECO these powers, we’re streamlining and speeding up the process needed to resolve issues and ensure real consequences for those acting in bad faith,” Romano said.

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Cottage Life

How the federal government’s affordable housing strategies will affect buyers and sellers

Photo by Shutterstock/Colin Temple

On April 7, the federal government released its 2022 budget, which included strategies designed to tackle Canada’s housing crisis, including the lack of affordable housing. Low inventory combined with high demand has driven up housing prices across the country, says a Royal LePage report. In the first quarter of 2022, the price of a single-family home in Canada increased by 25.1 per cent to $856,900.

The cottage market has seen similar effects. In 2021, the national aggregate price of a single-family waterfront home jumped 21.5 per cent to $976,000, according to a Royal LePage report.

“Young people cannot imagine being able to afford the house they grew up in,” reads the 2022 budget. “Foreign investors and speculators are buying up homes that should be for Canadians to own. Rents in our major cities continue to climb, pushing people further and further away from where they work.”

To fill the housing demand, Finance Canada and the Canada Mortgage and Housing Corporation estimate that the country will need to build 3.5 million new homes by 2031. To achieve this goal, the federal government has committed $72 billion in financial support over the next six years towards its affordable housing plan.

The plan’s strategies range from a Home Buyers’ Bill of Rights to tax credits for first-time home buyers. But not everyone’s convinced these strategies will accomplish the federal government’s goal of making housing more affordable.

“[The plan] will not lower housing prices,” says Frank Clayton, a professor at the Toronto Metropolitan University’s Centre for Urban Research and Land Development, in an email. “The best they can do is to slow down price growth over a longer term.”

Clayton does, however, say that he thinks the budget’s Housing Accelerator Fund could be effective. The fund commits $4 billion over the next five years to support the housing development needs of municipalities. How municipalities use the money is flexible, but the goal of the fund is to create 100,000 new housing units over the next five years.

The budget includes a long list of other strategies. To get a better understanding of how the government’s plan will affect buyers and sellers, here’s a breakdown of the key strategies:

A tax-free first home savings account

The budget will introduce a tax-free savings account to help Canadians with the down payment on their first home and ultimately create a more affordable housing strategy. The account will function similar to an RRSP with tax-deductible contributions, and, similar to a TFSA, withdrawals will be non-taxable.

Prospective first-time home buyers will be able to save up to $40,000, with an $8,000 maximum annual deposit. The federal government says it plans to launch the Tax-Free First Home Savings Account in 2023.

Doubling the First-Time Home Buyers’ Tax Credit

On top of the tax-free savings account, the federal government has doubled the First-Time Home Buyers’ Tax Credit to $10,000 in an effort to assist with the significant closing costs associated with buying a home. The tax credit applies to homes bought on or after January 1, 2022.

Creating a Home Buyers’ Bill of Rights

The federal government has pledged to create a Home Buyers’ Bill of Rights to eliminate real estate practices it feels are driving up prices. This includes cottage real estate, not just homes. The two practices the government is targeting are buyers having to forgo property inspections to make their offers more desirable and blind bidding.

The federal government says it will work with provinces and territories to make home inspections a legal right while phasing out blind bidding altogether. Blind bidding is the default practice real estate agents use across Canada when they engage in a multi-offer scenario. It requires buyers to bid for a property without knowing the size of competing offers. In certain circumstances, it can cause a buyer to significantly overbid, inflating the property’s selling price.

But Katie Steinfeld, broker of record for real estate agency On The Block, says that eliminating blind bidding might actually drive up real estate prices. “A lot of buyers, their argument is when they’re in a blind bidding situation, they don’t want to go up any higher because they don’t know what the next highest offer is. They don’t want to overpay,” she says. “But if they know what they need to pay in order to get the home, that can push them up even higher.”

Steinfeld sides with professor Frank Clayton, saying that many of the federal government’s housing policies don’t speak to one another. If Canada wants to see affordable housing, it needs a lot more new inventory than what was proposed in the 2022 budget, she says, especially since the government has opened up its immigration policy and is planning to welcome over 400,000 new immigrants each year.

A two-year ban on foreign investment in Canadian housing

While foreign investment doesn’t play a major role in cottage country, the federal government has argued that it is pricing Canadians out of homes in urban centres, such as Vancouver and Toronto. That’s why the 2022 budget proposes a regulation that would prohibit all foreign commercial enterprises and non-permanent residents from buying residential property for two years. It has yet to be announced when this regulation would go into effect.

Steinfeld, however, argues that the federal government is aiming its restrictions at the wrong group. According to the Canadian Housing Statistics Program, 2.2 per cent of residential properties in Ontario were owned by non-residents in 2020, and 3.1 per cent in B.C. Whereas multiple-property owning Canadians made up 31 per cent of Ontario’s residential real estate market in 2020 and 29 per cent in B.C., with many of the properties used as rentals.

“That is much more significant than the foreign investment piece,” Steinfeld says. “I think that if they would have created policies to require increased down payment from [multiple-property owning Canadians], perhaps that might have had more of an impact versus just banning foreign buyers altogether.”