In the ever-evolving landscape of real estate, change is the only constant.
On December 1, 2023, Ontario ushered in a significant transformation with the implementation of the Trust in Real Estate Services Act (TRESA). Aimed at elevating transparency, promoting ethical behaviour, and mitigating conflicts of interest and fraud, TRESA has implications that reach far beyond the desks of real estate agents.
One of the biggest changes to home buyers and sellers that TRESA brought was open bidding. Open bidding was introduced in Ontario at the beginning of December as part of the latest update to Ontario’s realtor legislation, the Trust in Real Estate Services Act. The legislation gives sellers the option to disclose submitted bid prices to potential buyers, an important caveat (i.e. the option) to this plan to ensure fairness among both buyers and sellers.
However, the biggest thing that the new legislation may have missed is that open bidding hasn't been made mandatory. It is up to the seller whether they would want to opt into the program, which in turn, opens up an unprecedented view to any potential buyers. Under open bidding, potential buyers (or bidders) will now be able to see key aspects such as the number of offers registered on a property, as well as offer amounts.
Understanding Blind Bidding
Traditionally, when a seller received multiple offers, they were bound by the constraints of blind bidding. This practice restricted sellers from revealing the details of competing offers to potential buyers.
Blind bidding created a scenario where buyers, guided by their agents and financial considerations, made offers without insight into the competition. The lack of transparency often led to uncertainties, as buyers found themselves in the dark about the value of other bids. In a competitive market, this could result in escalating prices, fueled by aggressive bidding strategies.
For example, if Freddy puts in an offer of $600K on property, under the blind bidding model, he would not know what the other highest offer is. This can lead to Freddy overpaying for the property as he gets caught up in a bidding war.
What changes with Open Bidding?
Ontario's response to the clamor for transparency in real estate transactions was the introduction of open offers through TRESA. Unlike blind bidding, where offers remained concealed, open offers provide sellers with the option to disclose competing bids to potential buyers. A potential buyer would be able to see key data such as how many offers have been registered, and the value of these offers. National platforms such as Realtor.ca have already taken bold steps to incorporate Open Bidding functionality into your home search.
How Open Bidding Work
- Sellers have the autonomy to decide whether they want to embrace open bidding.
- Buyers gain visibility into the offers they are competing against, fostering a more informed decision-making process.
Pros and Cons: Navigating the Impact
Advantages for Sellers
The introduction of open offers brings forth a nuanced landscape for sellers. While the market dynamics and individual preferences will play a significant role in shaping seller decisions, there are notable advantages to adopting transparency.
Market Influence: The prevailing market conditions will influence seller choices. In a hot market, blind bidding might resurface as the preferred method, driven by competitive dynamics.
Buyer Engagement: Open offers enable sellers to showcase the competitive landscape. When buyers can gauge the competitive field, they are less likely to walk away prematurely, fearing an exorbitant final price.
Despite advantages for sellers, given that most Canadian markets are still facing massive supply shortages, most sellers would be disadvantaged to choose open bidding. Not only does the blind bidding dynamic favour sellers, but in the case that the property does not sell, the information produced through the open bidding process can be used as leverage for the buyers, should the property be relisted for sale at a later date.
Over two months in, the number of listed properties in Ontario that support open bidding is slim to none.
Open Offers: Unveiling the Seller's Hand
One compelling argument in favour of open offers is the potential to avoid missed opportunities and maximize returns.
Consider this scenario: a buyer, made an offer on a highly sought-after property in the Beaches, with several competing bidders. Unfortunately, I lost the bid, only to later discover that the winning offer surpassed mine by a mere $25,000. Had I known, I might have been inclined to stay in the game, potentially driving up the price further.
Looking to the Future: Unraveling the Impact
The implementation of open offers is a bold stride toward transparency in Ontario's real estate sector. However, its true impact, the adoption rate among sellers, and the perception of buyers are aspects that will only be revealed with time. So far, it's been a very slow start.