TORONTO -- Open bidding may lead to higher increases in home prices compared to blind bidding, according to a new study, but one realtor argues more transparency would be better for both buyers and sellers.
A report published by the Smart Prosperity Institute, a policy think tank based at the University of Ottawa, stated there is some evidence that suggests open bidding would lead to even higher prices in a hot real estate market.
The study was funded by the Canadian Real Estate Association, which represents over 130,000 real estate brokers, agents and salespeople across the country.
It looked at countries such as Sweden, where real estate bids are required to be open, and New Zealand, where open bidding in real estate auctions is common. Sweden experienced a faster home price growth (17.2 per cent) than Canada (16 per cent) over the course of one year during the pandemic. Over the past 20 years, when adjusted for inflation, New Zealand home prices (181 per cent) have grown faster than any country around the world, followed by Canada (159 per cent) and Sweden (142 per cent).
Blind bidding often occurs when a home for sale attracts multiple offers. It is the practice of accepting bids from prospective buyers who are unaware of dollar amount and terms of anybody else's bid. Once the initial bids are in, buyers might be given an impression of how much interest there is in the property and then the opportunity to bid again.
It invites the possibility of a prospective buyer submitting a bid far higher than necessary, or possibly even outbidding themselves.
The study admits that while it's plausible a blind bidding system causes home prices to increase, the argument against it "overlooks the fact that, in an open bidding system, lower-ranked bidders are likely to continue to raise their bids if they can observe the amounts being offered by the leading bidder."
It adds: "This form of one-upmanship, which is available in an open auction, can lead to prices being higher than they otherwise would have been."
Some experts are skeptical of the study's findings.
"Was there any evidence that actually came from these countries that suggests their open bidding processes was a factor of their price growth?" Philip Kocev, broker and managing partner at iPro Realty in Toronto, told CTVNews.ca on Thursday.
He cited things like "higher incomes, population, immigration growth, low interest rates, restrictive planning, increased building costs," from these countries as possible elements affecting their real estate markets. "Similar things that we, of course, are challenged with here."
The study also seems to support the traditional stance taken by some real estate associations, Kocev said, which are not in favour of changing the traditional way of doing things.
It won't solve the issue of surging housing prices, Kocev said, but providing more transparency in the homebuying process could result in a less frustrating experience for buyers and help owners achieve bids that are more in line with their selling terms. Only certain tweaks would need to be made to the buying process, he said.
"Let [competing bidders] know only what the top terms are of the offer as deemed by the seller, which isn't always price, and then allow buyers to decide, do they want to try to improve their offer or do they want to walk away?" he said.
Transparency is an issue that has caught the attention of the federal government.
The study itself was prompted by an item in the Liberal Party's election platform during this summer's campaign, which proposed a ban on blind bidding for potential homebuyers.
Some real estate associations have stated their opposition to such legislation, and while Kocev is in favour of reform, he cautions against making open bidding mandatory. Instead, he says it should be optional.
"At the end of the day, our job is to service consumers and to protect their interests," he said. "If we're not doing that, then we're not we're not doing our jobs."
