Bidding wars in Ontario real estate are an emotional issue and everyone in the market has heard stories of horror or triumphs against all odds. At the heart of all those stories is a core of uncertainty: did I pay too much? Did I sell for too little? Were those other bids real? That’s because these bids are blind, submitted only to the seller who is the single party who sees all the bids.
But there are some who’d like to try it another way. On April 10, Daniel Steinfield, a realtor and CEO of On The Block Realty Inc., will offer for sale a detached house in Mississauga on 1105 Saginaw Cres. where all the bids can be viewed by other hopeful bidders, all managed in real-time by his open online auction site getontheblock.com.
“We’re trying to make something that’s more palatable than what people have been used to,” says Mr. Steinfeld, who also operates a traditional non-auction real estate company with his wife, Katie Steinfeld (who is the On The Block’s co-founder and broker of record). The couple has been working on the site since early 2017, but Saginaw is only the second property the company has attempted to auction. “We’re trying to prove the concept on a case-by-case basis, if the industry isn’t comfortable with it we fail right out of the gate,” Mr. Steinfeld says.
Interested buyers have to preregister with his site, offer up an uncharged deposit (only to be used in the event of a sale or refusal to complete the transaction after a winning bid) and if a bidder wins they are sent the traditional Ontario Real Estate Association (OREA) offer form within 15 minutes.
The site’s first property was a condo near Yonge and Eglinton, and when bidding started in mid-November, 2017 at first it seemed as though months of planning and building might have been all for naught. Though 17 bidders registered, the first bids finally came in just five minutes before the auction was scheduled to end. On The Block does not reward the fastest click though, the auction extends the deadline if there are late bids coming in (sellers can set the variable, but essentially 10-15 minutes is added onto the auction after each late bid). After four bids, the condo sold above the buyer’s asking price.
Getontheblock.com essentially sets three prices for a home: an opening number that in the Saginaw case is $1.25-million, an unlisted reserve price below which the buyer reserves the right to not sell the property, and a buy-now bully offer price that preempts other bids, which is listed at $1.43-million. If in the course of bidding the buyers get close to the buy-now number, that option is removed (so that a buyer is unable to prematurely end an active auction).
What the Steinfelds are trying to fix is the situation where a buyer and a seller both miss out on a deal that could have worked if only they knew what the other parties were thinking. “I’ve had lots of buyers see the sale price and say ‘If only I knew I had to pay $5,000 more I would have bought the place,’ ” Mr. Steinfeld says, adding that this also hurts a seller who could have reaped more cash in the sale as well.
In February, the OREA published a white paper on ethics that in part addressed the issues around multiple offers, going so far as to lay out proposed changes the 2002 Real Estate and Business Brokers Act (known as REBBA) to allow for more open system of bidding.
“Under the current system, registrants are not permitted to disclose the contents of any offer to any other party apart from the seller. Bidding blind can create suspicion and mistrust, especially if the listing agent has their own offer. In the end, the winning buyer may feel they ‘overpaid’ because they were the successful offer,” according to the Pursuing the Highest Standards of Professionalism and Ethics in Real Estate white paper. “The unsuccessful buyers often feel they didn’t have a fair chance and could have bid higher if they had known what they were up against. If the parties [buyers or sellers] want a transparent multiple offer process, the Act and Code should allow for that with the consent of all parties.”
Open bidding essentially answers most of those questions, and according to Mr. Steinfeld his site is not in violation of the act because each of the auction participants registers with his site and agrees to waive offer privacy.
“The rule in the industry is the realtor is not allowed to disclose the substance of a competing offer. We are doing that, I’m not glossing over that,” he says. “When we did speak to RECO what they did say is that as long as everybody agrees to it, that’s the caveat to the rule.”
To make the auction work buyers must also agree to a standard set of conditions: Mr. Steinfeld mandated a financing clause and is not allowing for an independent home inspection (though the company has posted its own). That does remove some of the non-cash haggling that can accompany bidding wars in Ontario, over closing dates and other issues.
The model is closest to one Australia employs, where on a given weekend there can be thousands of houses sold at auction. In that market houses that fail to meet the reserve price are pulled from auction, but sometimes buyer and prospective bidders may continue to negotiate, something Mr. Steinfeld says the company might also attempt if it came to that.
So far though, selling a detached house in an online auction is still new in Ontario, and while the company has a number of intrigued sellers lining up (and some preregistered bidders for Saginaw) a lot is riding on the success of the Saginaw house.
“I would not go so far, yet, to say we’re disruptive,” Mr. Steinfeld says. “We just want people to feel like they have a choice.”