The Plan To Ban Blind Bidding

For the Ontario Real Estate Association, it was as if the sky had fallen.

Early Tuesday afternoon, a photo of two hands clutching the bars of a prison cell emblazoned the realtor group’s website, the headline underneath reading: “Liberal Housing Plan to Criminalize Hardworking Families.”

The dramatic news release came in response to an announcement the Liberals made earlier that morning, promising an end to a controversial practice in Canada’s real estate market: blind bidding. The party said it would amend the country’s Criminal Code to prohibit the practice and force the asking prices for real estate to be made public should they be re-elected in September.

The lofty proposal, one of many in a vast “Bill of Rights” for home buyers geared at bolstering consumer protection, reignited a fierce debate in the world of real estate that has pitted realtor associations against housing reform advocates, and what the industry sees as “overreaching” policy decisions.

The ban would give a whole “new meaning to house arrest,” OREA exclaimed in a tweet on Tuesday, accompanied by a photo of a person in handcuffs. The Toronto Regional Real Estate Board similarly called the Liberals’ plan a “substantial overreach of the government” that amounts to “punishing home buyers and sellers for wanting to keep their financial decisions private.”

Advocates for industry reform, however, say the ban is long overdue, pointing to the toll blind bidding takes on home buyers — and noting how countries like Australia have stronger consumer protections and greater access to pricing data.

In blind bidding, home buyers submit a bid without knowing the counter-offers, meaning the victorious buyer could wind up paying far more than what was needed simply to outdo the second-highest offers.

Murtaza Haider, a professor at Ryerson University and research director at the Urban Analytics Institute, argues the practice “artificially inflates the price of housing,” prompting buyers to pay more for their properties than they would have otherwise.

“I know instances where people have bid $200,000 more than the second-highest bid without knowing it, and they were still being encouraged by the realtor, who’s asking them ‘Are you sure this is your final offer? Would you like to improve on it?’” said Haider.

The system is a boon for sellers and realtors, who reap the rewards of a big sale, but it has also been blamed for driving up property values at a frenzied pace. The value of a house is typically derived based on the value of its surrounding homes; when a neighbour sells at a price above the neighbourhoods’ average, the surrounding property values grow.

Realtor associations have defended blind bidding as a way for buyers and sellers to protect their privacy. Buyers shouldn’t have to publicize their bids for all to see; they should instead be allowed to “consent to the disclosure of personal information,” said TRREB president Kevin Crigger.

The associations also argue that an open bidding process would encourage live-auction scenarios, sometimes used in Australia, where buyers stand on the lawn of a home they want to buy and exchange competing offers until it’s sold. This method “creates a three-ring circus” that — far from making homes more affordable — can push buyers to make rushed decisions involving tens of thousands of dollars in minutes, said the OREA.

Haider thinks that scenario is unlikely in Canada and added, “There’s surely technology can allow us to implement a scenario where we can anonymize the identities of the bidders but make the amount of the bids public.”

“There are many very talented individuals at the helm of the real estate industry, and I hope they have the time to reflect on their position.”

Even some in the real estate industry came out in opposition to their associations’ statements protecting blind bidding.

“I was honestly dumbfounded by (OREA’s) statement,” said Daniel Foch, a broker at Foch Family Real Estate. “That’s an organization that’s supposed to be speaking for me and I don’t think they represented this issue properly.”

Philip Kocev, a broker and managing partner at iPro Realty Ltd. in Toronto, said the Liberals’ proposal was a positive step for the industry — “to no avail of our associations (namely OREA & TRREB), who have spent most of their efforts resisting the idea of allowing or even discussing the notion of offer transparency, and instead instilling fear by comparing it to a scenario akin to a wild-west auction style where people stand on the street ignorantly bidding against each other without any rules.”

The good news for the realtor associations is that a ban on blind-bidding is far from guaranteed. Real estate law falls under subnational jurisdiction, leaving most housing legislation to the provinces and territories, so it is not obvious the federal government is able to ban the practice by themselves.

The Liberals did not provide any other details than to say it would amend the Criminal Code to ban blind bidding. When the Star asked the Conservative Party of Canada whether it would match the Liberals’ promise, a spokesperson responded: “As this falls under provincial jurisdiction, Canadians are left wondering how the Liberals will actually implement this promise.”

Real estate agent and president of Realosophy John Pasalis noted that the ban on blind bidding, while a useful measure to improve transparency, also won’t help the Liberals’ professed goal of making housing more affordable. Australia’s bidding may be more transparent, “but home prices are just as high there as they are in Canada,” he said.

Courtesy of the Toronto Star – Aug 28

Harris Bundy
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