A for sale sign is displayed outside a home in Toronto, Ontario in Toronto, Ontario, Canada December 13, 2021.CARLOS OSORIO/Reuters
An Ottawa startup says it wants to bring more transparency to the home-sales process through online auctions, hoping to reduce the blind-bidding rounds and bully bids that have been widely criticized in Canadian housing markets.
Unreserved Inc. has already hosted nearly 80 auctions for properties in and around Ottawa, where it is based, since last July. The company announced Thursday that it had raised $33.85-million from a group of investors including the merchant bank Intercap Equity Inc., former Brookfield Real Estate Services Ltd. chief executive officer Simon Dean, an unnamed group of real estate industry investors and others.
Canadian housing is fraught with record high prices in many markets. Some experts say skyrocketing prices have been fuelled partly by blind-bidding wars, where buyers compete without knowing the amount of others’ bids. Though the federal Liberals promised to introduce greater transparency in the home-buying process ahead of last year’s election, including by outlawing blind bidding, the government has not yet followed through on its pledge.
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Unreserved began pitching itself last year as a private-sector solution to this problem. “Our job is to create a fair bidding environment,” Ryan O’Connor, Unreserved’s founder and chief executive officer, said in an interview. Through auctions on the company’s website, buyers and their agents can see the latest bids on a home effectively in real-time, which Mr. O’Connor said should help prevent wild overbidding.
“What really hurts the market is when someone makes a mistake and pays $100,000 over what they should have paid. That now becomes a comparable [for the value of similar properties], which drives up the prices even further.”
Christopher Alexander, the president of Re/Max Canada, said Thursday that “the state of the market is really ripe for an entrant like” Unreserved. He added that Mr. Dean, who is also the company’s chair and a former CEO of Royal LePage Real Estate Services Ltd., will bring critical industry knowledge to the company.
Re/Max’s Mr. Alexander said he was unsure if a company such as Unreserved would be effective in a buyer’s market, when there is less competition for homes. But Mr. O’Connor said that even with a surplus of supply, “we feel our auction will then perform at its best” as the auction process draws interest from potential buyers.
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Open auctions for property are commonplace in some markets, such as Australia. While many moved online there during the pandemic, a large proportion have remained in-person when it is safe to do so.
Unreserved charges a 1-per-cent auction fee to sellers, taking the role of a listing agent and charging less than the traditional real estate commission of about 5 per cent. In one auction that closed Thursday for a detached two-storey home in Barrhaven, in suburban Ottawa, more than 2,700 people watched the final moments in real-time – some of them cheering on bidders from an active comments section.
After 85 bids, many of them in the minimum increment of $2,500, the winning bid came in at $857,500 – up 32 per cent from the starting price of $650,000.
Mr. O’Connor took a rather roundabout journey to home auctions. After owning a used-car business in his 20s, he pleaded guilty to fraud charges in 2009 after the RCMP alleged that the company input misleading or incorrect information on car-loan applications. He now says there was an issue with the loan-approval system, but that he was “willfully blind to what was going on in my stores” and that “I took responsibility for everything that happened.”
Mr. O’Connor helped found and run E Automotive Inc. last decade, extending his used-car expertise into the world of online vehicle auctions. The company went public on the Toronto Stock Exchange in November, and was valued at more than $1-billion before shares fell in recent weeks to value it at about $760-million. But by the time of the initial public offering, Mr. O’Connor had exited the company – bringing with him the relationship he’d formed with Jason Chapnik, E Automotive’s chair and Intercap’s CEO.
Intercap led the financing round that Unreserved announced Thursday, while Mr. O’Connor says he put up $10-million of his own money into the round. (None of the company’s other investors were available for interviews Thursday.)
Unreserved describes itself as a “full-service” company, taking care of staging and home-condition reports, and offers a guaranteed price for sellers based on the sale prices of recent comparable homes. “Ninety-five per cent of the time, we exceed the guarantees,” Mr. O’Connor said. He expects to spend the company’s new capital on hiring, building out the company’s software and expanding its staging division.
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Josh O’Kane