As home prices have set new records this year, increased scrutiny on the impact of bidding wars on affordability has raised questions about the loose regulations that govern them.
“I don’t ever recall a time where it’s been at this level, where there’s 35 offers on a property. There is no real stats to this, but I just don’t think we’ve had it at this capacity in the past,” said Lisa Patel, president of The Toronto Regional Real Estate Board (TRREB).
Bidding wars in Canadian real estate typically involve a blind-bidding process where only the seller knows what the competing offers are. They have been criticized for driving prices higher by economists at The Bank of Montreal, among others.
In Ontario, there’s just a one-line regulation that governs competing bids that stipulates: “the brokerage shall disclose the number of competing written offers to every person who is making one of the competing offers, but shall not disclose the substance of the competing offers.”
Other than blocking buyers from knowing what they are up against, the law provides no guidance for how real estate professionals should negotiate common methods of blind bidding, such as an offer day where all offers are considered at once.
“By taking the power out of the hands out of the buyers and sellers, they have created an environment where secrecy is the norm,” Nicole Koteff, a lawyer with Brauti Thorning LLP as well as former counsel with Real Estate Council of Ontario (RECO) and TRREB.
The province suggested it was listening to these concerns in 2019 when Lisa Thompson, the Minister of Government and Consumer Services, introduced the Trust in Real Estate Services Act in 2019. Ms. Thompson said in the legislature that the bill “would also enable regulatory changes to give consumers more choice in the purchase and sale process by permitting real estate professionals and brokerages to disclose details of competing offers at the seller’s choosing. This is very important. Again, it shows how we’re listening and how we’re understanding the direction that this market has to go in.”
The act was passed into law in March, 2020. Since then, real estate prices have soared and despite raising the issue of more open bidding the ministry has not yet even begun the consultation phase that would lead to rewriting that regulation. According to ministry spokesperson Matteo Guinci: “the government intends to undertake future consultations that may include: Allowing a real estate brokerage that represents a seller … to disclose details about competing offers to those who have submitted an offer in writing in multiple offer situations. Potential buyers could choose whether to participate in this more open process.”
Tim Hudak, CEO of the Ontario Real Estate Association (OREA), notes that the last time the government re-wrote real estate regulations the process took almost five years across two governments. He would know: the former Progressive Conservative MPP and party leader was the minister in charge of passing the Real Estate and Business Brokers Act (REBBA) in 2001-2002, when he served in the cabinet of former Premier Mike Harris.
“I’ve been in that chair and doing the regulatory process … particularly around something as sacred to Canadians and as expensive as your home you need to make judicious decisions,” he said. OREA lobbied the government to change the bidding rules in 2019. One white paper from his organization was firm: “Bidding blind can create suspicion and mistrust. … In the end, the winning buyer may feel they ‘overpaid’ because they were the successful offer.”
Today, Mr. Hudak is more circumspect, raising concerns about the whether sharing bids violates the privacy of buyers and insisting that buyers must also consent to an open bidding process; one hypothetical complication is how a seller should deal with a bid from a hopeful buyer who refused permission to share their offer with the other bidders. “A government is always going to be wary of creating new red tape. … There’s nothing as permanent as a temporary government program so you need to be careful out of the gate when you’re start something new,” he said.
Regulators and real estate lobbyist are also operating in a data vacuum, reliant on buyer and seller anecdotes as there is no way to know how often bidding wars even happen, or what the average price per bid is. The only data Ontario realtors are required to collect under the regulations is a record of how many registered bids there were, nothing about the price or conditions in those bids.
“TRREB wouldn’t have that data, that’s an individual agent’s business, the agent themselves would have that information,” Ms. Patel said. “Nobody has created an app or done the data or research to really signify how many [times there are bidding wars] … the thing is our market changes, it’s not like our market is constantly bidding wars.”
A proxy for how often there are bidding wars is the “sold over asking” statistics tracked by real estate boards such as TRREB. In March, 2017, 81 per cent of “freehold” homes (detached or semi-detached houses) sold for more than their asking price in Toronto – the highest share in the past decade. In March, 2021, 74 per cent of freeholds sold over asking in Toronto, 12 per cent higher than in 2020 and well above a seven-year average tracked by Scott Ingram, with Century 21 Regal Realty Inc.
“The part I hate is the second round [of a blind offer day], where you are told you are ‘close’ and you don’t know what close is,” Mr. Ingram said. A buyer who doesn’t know they had the highest offer may resubmit and go higher still. “You may be bidding against yourself. Even if 90 per cent of agents are on the straight and narrow, and wouldn’t let you bid against yourself, why allow the bad actors to operate?”
RECO is the body in charge of discipline for the industry, and according to Brian Buchan, director of external relations, when markets heat up so does the volume of complaints from the public.
“Our complaints for Q1 2021 are up 38 per cent year over year vs. Q1 2020. This is the highest Q1 volume we have seen in recent memory,” he said. He warned only about five to 10 per cent of RECO complaints end up translating into disciplinary action. “We get very few complaints about bidding practices per se but instead receive complaints about general offer handling, mostly from unsuccessful bidders. These can sometimes be very speculative.”
When the bidding is blind and the buyer doesn’t know how they lost, speculation may be all that’s available to frustrated buyers.