Real Estate Talk:
Multiple offers and open bidding

Changing the rules to allow open bidding is not a good idea

By Joseph Marovitch

September 15, 2021

A buyer makes an offer on a residential property close to, or at the asking price, due to the fact there are few properties for sale but several buyers. The listing broker, the broker representing the property, receives several offers for the same property. Each time the listing broker receives an offer, the broker contacts all interested parties and states another offer has been received, do the interested parties want to enhance their offers?

Some buyers increase their offers, others reduce the conditions, and some stay put, thinking either they are at their financial limit, or they are betting their offer is good enough. This is blind bidding, much like a poker game. In this situation, there is an end game for each buyer. The property may sell for more than asking but within range of the property value.

The idea is that somehow open bidding will stabilize the market. Open bidding will do the opposite. Open bidding will turn real estate transactions into an auction.

Some of the parties of Canada running for office on September 20 want to change the rules to allow open bidding. This means each buyer will be permitted to know what the offer amounts of other buyers are. The idea is that somehow open bidding will stabilize the market. Open bidding will do the opposite. Open bidding will turn real estate transactions into an auction. Residential real estate is a very emotional business for buyers.

When a buyer finds a property that suits their needs, in the right location, with the style they like, buyers sometimes do not know when to stop bidding. This will cause prices to rise much faster than during the pandemic.

‘There will still be a housing shortage but there are other solutions…’

The reason for so many multiple offers this past year is a lack of homes for sale due to fear of infection. With supply reduced but demand steady and growing, prices rose. Currently, the pandemic in Canada is somewhat under control. A majority of the population is fully vaccinated, and vaccine passports will help to keep the rest of the population from causing further damage to the economy. Therefore, at some point, we will see inventory rise and prices stabilize.

There will still be a housing shortage but there are other solutions such as subsidizing the creation of more homes, designating certain properties for development, tax incentives and subsidies for first-time home buyers, capping rents to the consumer price index and closing the loophole that allows renovictions, etc. However, open bidding ‘auctions’ will increase the price of property very quickly, causing the purchase of a home to be out of reach permanently for some.

‘Open bidding ‘auctions’ will increase the price of property very quickly, causing the purchase of a home to be out of reach permanently for some.’

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Next article: The real estate market and passports

State of the market

The real estate market is still robust in terms of pricing and bidding wars. In the upcoming election, the real estate market is a key issue being discussed by the party leaders. In discussions, real estate brokers are being blamed for rising prices and multiple offers. Talk of extremely low interest rates does not seem to be on the table very much though a rise in interest rates would likely play a big part in curbing the demand and stabilizing both the economy and rising home prices.

In a CBC article written by John Pittus on September 14, it is stated that Tiff Macklem, the Bank of Canada governor, is planning to take a hand in the real estate market by raising interest rates very soon. Based on the upcoming data report this Wednesday from the Canadian Real Estate Association (CREA), the decision to raise interest rates will be made.

‘In a CBC article written by John Pittus on September 14, it is stated that Tiff Macklem, the Bank of Canada governor, is planning to take a hand in the real estate market by raising interest rates very soon.’

Many buyers over the past year have invested in the real estate market either in the form of a home or income property, using money they borrowed, credit they had, or life savings they are gambling with. For those who invested due to low-interest rates on the assumption prices will rise, be careful and watch closely for rate hikes.

For those with the funds to purchase property, buy now and/or lock in an interest rate quickly. Buyers who lock in a rate now will save a good amount once interest rates start up again.

Have a great week!

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Feature image: Public Domain

Other articles by Joseph Marovitch