How to fix the blind auction process in door-to-door sales instead of banning it completely

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Liberal plan to outright ban blind auctions is rather blunt and suggests federal overshoot in provincial case

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The Liberals’ proposal to ban blind auctions on residential properties has sparked an exciting debate in Canada, as many frustrated buyers who have lost auction wars have expressed their displeasure with the practice. while the real estate industry vehemently opposes any change in status. quo.

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Real estate agent trading groups believe that any ban on blind auctions will limit the choices of home sellers. They argue that sellers should be free to choose their property’s sales channel, whether it’s a negotiated sale or taking sealed offers submitted within a specified time frame.

Others believe blind auctions worsen housing affordability, especially when demand far outstrips supply and potential buyers, motivated by fear of missing out, bid much higher than they are. would not have done if the system was transparent.

Some real estate experts also believe blind auctions could contribute to rapid house price inflation in local markets, while others believe the practice may not be a significant contributor.

Some have questioned whether blind auctions are even legal. The answer depends on the respective province, as real estate practices are governed by provincial legislation. In Ontario, for example, blind auctions are legal for residential sales.

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But questions about the impact of blind auctions on housing affordability are not easy to answer, given the lack of information on how many homes are sold through blind auctions and how much. winning bidder paid above the second highest bid.

Signs sold displayed outside homes in Whitby, Ontario.
Signs sold displayed outside homes in Whitby, Ontario. Photo by Mark Sommerfeld / Bloomberg Files

Current real estate regulations do not require individual brokers to register offers in a central repository, which could help determine the effect, if any, of blind auctions on housing affordability. Regulators are also unaware of the extent to which practice follows existing regulations.

But housing affordability and blind auctions could have a strong correlation in times of high demand. For example, the Toronto Regional Real Estate Board found that the average selling price of homes traded in the first six months of 2021 was 6% higher in the Toronto area than the average list price. In Oshawa and Whitby, the average selling price was at least 13% higher than the list price.

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Other data suggests that nearly 75 percent of freehold residential real estate deals in the Toronto area have been sold above asking price, suggesting the prevalence of blind auctions.

However, the real issue with blind auctions is not one of legality or affordability, but of fairness and governance.

Ontario’s industry regulator, the Real Estate Council of Ontario (RECO), administers the law relating to the real estate practice. Other provinces have similar regulatory bodies. RECO believes that current law prohibits the listing brokerage from “sharing the content of offers with other competing buyers”.

As a result, the listing brokerage cannot disclose who the other bidders are and how much they have bid, even when potential buyers compete against each other and revise their bids ever higher.

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RECO’s position works in theory. However, the practice is somewhat different. Many frustrated or successful homebuyers in the recent past have much higher bids than they would otherwise have. The listing brokerage would notify potential buyers that they were in the top two or three bidders, and then implicitly or explicitly recommend that potential buyers consider revising their bids upwards to complete the deal.

For a potential buyer whose bid was already well above the second highest bid, a call from the listing brokerage advising him to sharpen his pencil could mean he’ll bid even more, lest he lose. Their answer would certainly be different if they knew their bid is much higher than the second best bid.

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But the Liberal plan to outright ban blind auctions is rather blunt and suggests federal overshoot in a provincial matter.

It would be preferable to set up a commission involving representatives of industry, real estate experts and consumer groups to determine whether current provincial laws protect the rights of buyers and sellers, while improving transparency and confidence in real estate practice.

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Content of the article

The real estate industry represents the interests of buyers and sellers. Today’s sellers will be tomorrow’s buyers. Therefore, prolonging the status quo that favors sellers and possibly discriminates against buyers is not necessarily a prudent strategy.

Technological solutions already allow sellers to use auctions to sell their goods. Using technology would save everyone the spectacle of buyers crowding a street shouting their offers in front of a house with a sign for sale. Automated technology would protect the identity of bidders, but reveal bid amounts so that interested buyers can make informed choices.

In order for submissions to be fair and transparent, provincial legislation must be amended. But the federal government should help begin an informed dialogue with stakeholders without having to amend the Criminal Code to ban blind auctions.

Murtaza Haider is Professor of Property Management at Ryerson University. Stephen Moranis is a real estate industry veteran. They can be contacted on the Haider-Moranis Bulletin website, www.hmbulletin.com.

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