Bidding Wars vs Auctions in the Toronto Real Estate Market

The Low Down:

Over the past couple years, we’ve gone through a couple periods where Toronto’s housing and condo market is such that there are not enough properties and too many buyers. Under these circumstances, virtually everything — even the most drab of properties — receive multiple offers.

Debate has been ignited as to whether more parties would benefit from an open auction system, rather than the current blind bidding process. And while each side has its pros and cons, we’re leaning toward the blind bidding side of the debate.

The Terminology:

Blind Bidding Process: the norm in Canada — but not necessarily elsewhere — whereby prospective buyers place bids without prior knowledge of what other bids may be. These are therefore based on what a buyer thinks others are bidding, or hopefully, what they think the property is actually worth. Note that what buyers do know with absolute certainty, are the total number of registered offers.

Open Auction Process: Exactly what it sounds like — this is a typical auction process, simply applied to real estate. All parties are aware of every bid, and while this is not as common in Canada, it is in fact extremely popular in other parts of the world, such as Australia.

Phantom Bids: a scam whereby realtors insinuate competing bids to prospective buyers in order to drive prices upwards, and a debate point for those advocating the open auction process. Thankfully, as of 2015, bylaws were introduced in order to purge the blind bidding process of these cons: even hinting at the existence of other offers must now be backed up by written evidence.

The Debate:

Those in favour of the open auction process liken blind bidding to gambling, with sellers and real estate agents bestowed with more power to swell prices and pocket the difference.

Buyers determine what they feel the property is worth, put their best foot (the offer) forward, and they secure the property or they don’t.

When offering a rebuttal, those in favour of blind bidding remind us that this process was actually developed in order to protect buyers. With blind bidding, logic takes the forefront: prospective buyers are forced to judge for themselves what they believe a home is worth, rather than react in a frenzied auction environment, where poor decision making is encouraged.

Blind bidding advocates would go on to explain that open auctions are truly more competitive in nature, and even favour the seller above all else. Simply put, we want what we can’t have. When it seems like someone else is going to win, we only want it more. Foolish actions ensue. All of this often leads to overbidding and therefore overpaying.

Does the same occur with the Blind Bidding Process? Of course, but in my view at least, to a lesser degree. Buyers determine what they feel the property is worth, put their best foot (the offer) forward, and they secure the property or they don’t. Among the two options, I’d trust myself better in a blind bidding scenario, rather than an auction.