Why Toronto Needs to Get Rid of the Blind Offer System
Toronto is in the middle of yet another busy summer real estate season. There are an extremely limited number of single-family semi-detached homes on the market. Yet the number of hopeful buyers out there only seems to grow.
High demand for these homes with limited availability results in a seller’s market, which is unfortunate for buyers as it often leads to bidding wars.
Bidding wars are not uncommon in Toronto. In fact, if you’ve put even one offer on a single-family semi-detached home, you’ve probably found yourself in one. However, there is one type of bidding war that doesn’t just hurt buyers, it actually hurts the housing market as a whole – it’s the blind offer. If we continue to allow this system to be used in Toronto, then I could see a real risk of a housing bubble. Here’s why:
What is a blind offer?
A blind offer starts when a listing goes up and there is an offer date set on it. When the offer date arrives, all interested buyers and their agents meet at either the property itself or at the listing agent’s brokerage and make their best offer. The reason it’s called a “blind offer” is because no one knows how much the other interested buyers are offering. You essentially have to guess what the property will sell for and try to place that bid yourself.
How does a blind offer differ from other bidding wars?
In a regular bidding war, there’s usually some opportunity to go back and forth with the seller on your offer. With a blind offer, however, you only have one chance to “win” – so you have to go all in. It’s the ultimate form of high stakes poker in real estate.
What are the problems with the blind offer system?
First, when the time comes for all parties involved to make their offers, the lack of transparency means the “winning” offer may be thousands of dollars more. For example, Buyer 1 may offer $10,000 over the asking price, Buyer 2 may offer $20,000 over and Buyer 3 may decide to offer $50,000 over. These numbers aren’t unrealistic, but we see them all the time in Toronto. So, technically, Buyer 3 could’ve offered just $20,001 over the asking price and still won. Because of the lack of transparency in this blind offer system, they felt the need to make a hyper offer and are out $29,999.
Overall, this lack of transparency – which only helps the seller and hurts buyers – sets the Toronto housing market up for disaster. If people continue using this blind offer system and paying dozens, and even hundreds, of thousands of dollars over listing prices. The value of Toronto real estate could reach an unsustainable level – and then drastically decline.
What alternative system could we use?
I’d rather see a more transparent system used, such as an auction. Like a regular auction, you’d have all the interested buyers in a room, armed with their max budget and ready to bid. The seller will still get more than their asking price, but buyers wouldn’t need to blindly offer more than they have to, in order to win the bidding war. Of course, auctions are rarely used in Toronto today. But I can’t think of any strong argument as to why we shouldn’t switch to this type of system.
Keep in mind that you only really see bidding wars when we are experiencing a seller’s market. Which we currently are in the single-family semi-detached home category. However, I’m happy to say that these problems in the housing market don’t extend to the Toronto condo market. Sure, there are a few unique condos that will go to a blind offer. Although, it’s not nearly as common as in the housing market. Which is all the more reason to check out some of the condos for sale in Toronto.
By Andrew Harrild, Condos.ca