Sep 20, 2024
One of the most dreaded aspects of any housing search has got to be the potential for a bidding war. In a seller’s market (which Ontario — and all of Canada — was experiencing throughout much of the last decade until interest rates started to rise precipitously) bidding wars are common due to high demand, low interest rates and limited supply.
The fear of losing out and the pressure to get a house in a hot market (especially in high-demand real estate markets such as Toronto and Vancouver) often leads to bidding wars. This scenario usually means that homes will sell quickly at prices well above the asking price, leaving buyers scrambling to compete with multiple offers and offer higher bids. Because bidding is closed (meaning potential buyers do not know what the other is bidding) a fearful buyer may submit a very high bid to prevent losing out on a house, leaving sellers to reap record-high profits on the sale of their property.
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In response to the challenges of a seller's market, in 2023, Ontario introduced a new real estate law allowing for open bidding as part of the updated Trust in Real Estate Services Act (TRESA). The new rules allow sellers to disclose the bid prices submitted by potential buyers to everyone bidding on the house.
What does this mean for potential buyers and sellers? Will this Ontario real estate law about open bidding really impact the real estate market in the province?
What is open bidding in real estate?
Open bidding in real estate is when sellers let prospective buyers know the details of competing offers on a property. This means that everyone bidding on a house is given vital information, such as the purchase price, financing terms and some of the conditions that potential buyers may put on their offer.
Unlike closed bidding (sometimes called blind bidding), which is when buyers submit offers without any knowledge about competing bids, open bidding provides a transparent, and thus more level, playing field where all participants are aware of each other's offers. Note that the buyer’s names and whether the offer is contingent on the sale of their home would still remain confidential.
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What does opening bidding mean for buyers and sellers?
There is some speculation that the new Ontario real estate law regarding open bidding won’t have much of an impact because the rules give sellers the power to decide whether or not to disclose bid information and most sellers benefit more from keeping bids closed (and thereby driving up the bidding).
It could, however, possibly help sellers in slower markets where homes aren’t moving fast. In such markets, open bidding might attract more potential buyers who feel reassured by the transparency of the process, knowing they can see what others are offering and adjust their bids accordingly. It will most certainly comfort bidders to know they aren’t offering more than they need to and are getting a fair price.
Some things to keep in mind:
- Buyers who have made an offer on a property are entitled to know how many offers they are competing against
- It’s up to sellers to decide how much additional information, if any, they wish to disclose about each offer they receive from prospective buyers. Aside from how many offers they received, they aren’t required to give potential bidders any other information
- Sellers don’t have to share details about the content of the offers, and realtors representing sellers are prohibited from telling bidders about other people’s offers unless instructed to do so by the seller
Impact on real estate in Ontario
The new Ontario regulations aim to improve transparency and fairness in the housing market by providing a clear and open process for making offers on a home. Because the amendment to the Trust in Real Estate Act only came into effect on December 1, 2023, it’s difficult to yet know what the changes to the Ontario regulations for open bidding will mean for buyers and sellers in Ontario and whether it will really have any impact on the real estate market.
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Ideally, if a seller allows open bidding, then bidding wars would be much more transparent and anchored to realistic property values rather than fear of losing out on a home sale. Bidding wars would be less “war” and more “negotiation.” It could make the real estate market a more egalitarian playing field, especially for buyers, such as young families, who may be entering the market for the first time.
Over time, this transparent approach could foster a more balanced and predictable real estate landscape, potentially leading to fairer pricing and reduced market volatility. That being said, the seller still retains all the power because it’s up to them to decide whether to make the bidding process open or not. A seller may, understandably, be much more interested in getting the highest price possible for their home than in promoting a more equitable and open real estate market.
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Pros and cons of open bidding
Here are some of the pros and cons of the new real estate law about open bidding in Ontario.
Pros
- Transparency: Knowing what other potential buyers are bidding would make the buying process much more fair and reduce stress
- Market rates: Prospective buyers would be much less likely to overbid (for fear of losing out on a home) and would be unlikely to offer more than a home is really worth, which would decrease home inflation and market volatility
- Flexibility: Sellers would have the flexibility to open details about the bidding process
Cons
- As the Ontario real estate law for open bidding is presently written, it’s up to the seller to decide whether or not to have open bidding, thus increasing power for home sellers without a commensurate increase in power for buyers
- The new rules regarding open bidding may be confusing for some sellers and cause them to postpone entering the market until the new law’s effects are better understood
- As it is up to each province and territory to regulate real estate, the new law only impacts Ontario, so bidding wars may continue to grow in the rest of Canada
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Sandra MacGregor has been writing about finance and travel for nearly a decade. Her work has appeared in a variety of publications like the New York Times, the UK Telegraph, the Washington Post, Forbes.com and the Toronto Star.
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