Bidding Wars in Toronto and the GTA

Bidding wars in Toronto
A trend of bidding wars in Toronto. First-time buyers and investors are driving sales sky-high because of the perfect storm of low rental, vacancy rates and rising rents. When you add the Bank of Canada’s move to cut interest rates in January, you get a lot of buyers choosing to enter the market right now.

To date, Toronto still has over 50,000 condo units under construction and the pre-sold units will take some years yet to complete. There are plenty of units to go around, so why the bidding wars?

The market is so aggressive right now and any available single family units are priced so high that many are taking a second look at condos. Many people are feeling that there is no end in sight to the upward price trend and that it might be better to get on the housing ladder by hook or by crook.

Before you go bidding over listing price for a property you’re not absolutely in love with, let’s look at this trend a little more closely.

If you’ve ever been in a bidding war for a property you know how frustrating and confusing it can be. You immediately feel threatened and trapped and that you must act fast. If there are so many potential buyers there must be a desperate shortage, right?

Recent research suggests that it might be all smoke and mirrors. Toronto economists Lu Han and William Strange looked at the housing market in Washington, D.C., before and after its housing bubble. They found that bidding wars are not necessarily a true reflection of a hot housing market. Bidding wars are just a super high-pressure selling tactic that inflates prices in an auction type fashion; furthermore, in Washington, D.C., bidding wars didn’t go away when the bubble burst.

How Do Sellers Start a Bidding War?

It’s painfully simple: list the house you’re selling at too low a price. This is so common in Toronto now. Realtors sometimes choose to advise clients to list their homes below market value in order to start a bidding war.

Some folks are getting suspicious though, and there have been reports of realtors inventing fake bidding wars to drive up the price of a property.

The Ontario government is finally taking notice of these duplicitous and dubious tactics.  The Real Estate Council of Ontario, a not-for-profit corporation responsible for enforcing the province’s real estate laws, is planning to implement new rules in July designed to enhance transparency.

According to the Globe and Mail, the proposed legislation would require realtors to keep records of all winning bids for six years, and records of all losing bids for one year. It would also be illegal to claim that an offer has been made on a property unless the realtor had one in writing.

These new regulations will be great for buyers and sellers alike and should help buyers make informed decisions. Bidding wars, however, may be here to stay. Bidding wars in Toronto may just be the hard reality in a city with fewer and fewer single family homes. Also, a steady influx of people who want to live here.

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