What does this campaign promise mean in practice?
Lee Quaile & Erik Erwin
Broker of Record & Sales Representative,
Chestnut Park West
With the announcement of this year’s impending Federal Election on September 20th, Canada’s six major political parties have all scrambled into campaign mode. And aside from perennial top-of-the-ticket issues such as health care, unemployment, foreign policy and budgetary concerns, there’s a new worry atop the minds of many Canadians according to the latest polling data – housing prices.
This isn’t a big surprise, as nearly everyone will by now be aware of the unprecedented growth in average sale prices across much of the country since the pandemic began last spring. Frustrated homebuyers have been calling for government action to regulate a market which they feel is leaving them behind and, in response, plans to legislate a solution have been written into most party platforms over the past several weeks. Key to the currently-governing Liberal strategy is a proposal to end the practice of ‘blind-bidding’ when competing parties are offering on the same property.
So, what exactly is ‘blind-bidding’ in the context of a real estate transaction? Blind-bidding takes place when independently-competing buyers are unaware of the details of the other party or parties’ offer on the same property. As Realtors, we are professionally obligated to be very cautious in our wording when communicating details about other offers. We are held to a duty of care to our clients, and are under contract to act in their best interest to the exclusion of all others. For example, when we represent a seller in a multiple offer scenario, we are obligated to disclose when an offer has been received to all other potentially interested parties, along with how many offers have been received, and exactly when the seller plans to review the offer/s. This is done to generate the maximum interest possible in the property, thereby affording our client the best possible return on their investment. We act in the interest of our client while ensuring that all parties with a potential interest in purchasing the property have an opportunity to place a bid fairly.
On the other hand, we are obligated to keep the specific details of any offer strictly confidential in order to ensure that no single bidder has an unfair advantage over the others. Details such as the amount of money being offered, the size of the deposit being provided on the purchase, the proposed closing date, and the specific clauses and conditions written into the offer itself are not to be disclosed.
This election cycle, the Liberal Party of Canada has stated that, should they be elected again, they will make the practice of blind-bidding illegal under the Criminal Code – a mechanism by which they can gain control over what has traditionally been the domain of individual provinces. Their proposal would replace the current system with that of an open auction – similar to what is already in use in Australia. The Liberals assert that this will make the process of homebuying more transparent and affordable – something we’re not convinced will be the actual outcome, but more on that later.
As things stand here at CPW, in a typical blind-bid scenario, we will take every measure to determine with our clients what they’re comfortable spending on any given property. We will review up-to-date market statistics and comparable sales in the neighbourhood to ensure that they’re aware of the true value of the property they’re interested in. In the event that information is limited (few recent sales), we’ll work to provide a range to our clients in terms of what we think the property would actually be worth if there weren’t any competing offers, as well as a ‘high-point’ where they could reasonably expect to attain the property in a multiple offer scenario without running into problems on appraisal.
We understand that losing out on a home again and again can be very frustrating, especially when there’s no way of knowing how close you were until after the fact. You could lose out by just a couple thousand dollars and not have the opportunity to improve your bid. Or, conversely, you could win on your bid but not be aware that you were $20,000 beyond the next closest offer. On the winning side, we just don’t know – details of the other losing offers are never made public. Does the blind-bid process ultimately make the market more expensive? Perhaps in the short term. But when we turn to look at how the auction system has worked out in Australia, where the rate of price increases has actually increased since that change was brought about, we need to retain a healthy degree of skepticism.
When it comes to affordability – which is ultimately what this proposal is intended to address – everyone is in agreement that increases in average sale prices since 2016 (when bidding wars first became prevalent in Ontario) are simply not sustainable in the long run. If you’re operating as a buyer in today’s market, odds are you’d probably like to see blind-bidding banned. But if you’re a seller, you’d probably like to see the good times continue to roll. Fundamentally, we believe what we have now is a supply and demand issue. There is a shortage of housing in our province, and in Kitchener-Waterloo specifically. What are the root causes of this shortage?
- Cheap Money – the cost of borrowing is historically low right now, often under 2% and below the inflation rate. More people have access to more money than ever before, and this is driving record-setting sale prices.
- Migration – The Liberal plan calls for up to 400,000 immigrants to move to Canada each year for the next four years. That’s 1.6M new Canadians. The desire of people to move to Canada is what makes our country so great, but these people will need housing in an already-tight market. Add this to the influx of intra-provincial migration to Kitchener-Waterloo over the past 18 months and we have a very tight situation indeed.
- Low Unemployment – People in Kitchener-Waterloo generally have well paying jobs and the capacity to afford a home. This helps to move the real estate market and there isn’t an end in sight to the circumstances that make our region a desirable place to live. Supply is being dramatically outpaced by demand.
Erik’s Thoughts
Overall, I’m not yet certain if I’m for or against this proposed legislation. It can help buyers in the short term, as we’ve already mentioned, but also has the potential to unduly affect the sale price of a seller’s home. The Liberals are trying to implement this for one main reason – to make housing more affordable – but I don’t see that happening. Just take a look at Australia, where the open auction style of selling real estate is commonplace. Australian housing prices have increased significantly (up by over 18% in 2021 in Sydney) and at a higher rate since the practice of open auction bidding has been in place. Limiting ways a home owner can sell their most prized asset to “bring down” the value of real estate just doesn’t seem like a realistic scenario. The backlash by homeowners would be immense.
