At the top of last yr, changes were made to Ontario’s real estate laws, the Law on trust in real estate services (TRESA) got here into force, making open tenders legal in Ontario. (Real estate is usually regulated on the provincial level, so these changes currently only apply to Ontario.) It was big news on the time, but has it had a big effect? Here’s what this laws means for buyers and sellers within the province, and the way it could affect the true estate market.
What is open bidding in real estate?
With open bidding in real estate, the small print of all registered offers on a property are shared openly between potential buyers. This signifies that if 4 different offers are registered on a house, the 4 potential buyers can see the small print of all competing offers, including the acquisition price, down payment, closing date and other terms. The name of everyone making a proposal is kept confidential, and if the acquisition is contingent on the sale of one other property, that information can also be confidential.
Unlike a closed bidding process – also known as blind bidding – with open bidding, every potential buyer knows exactly how their offer compares to the competition. This also means they will adjust their offer based on this information (inside a certain timeframe). Open bidding takes plenty of the guesswork out of creating a proposal on a house and is designed to maximise transparency between buyers and sellers.
What impact has open tendering had on the true estate market in Ontario?
In 2022, the Federal Government announced the implementation of a Homebuyer’s Bill of Rights. One of the goals of the Act was to make housing cheaper by ending blind bidding, and it appears to have influenced the changes to TRESA. However, blind bidding isn’t currently prohibited in Ontario or anywhere else in Canada. Because this latest laws makes open bidding optional relatively than mandatory, blind bidding continues to be common in Ontario.
“Open bidding provides more transparency in the buying process,” says Doug Vukasovic, a Toronto real estate agent. However, he doesn’t see open bidding being widely adopted yet: He has only represented one buyer in an open bidding process, and none of his clients have opted for open bidding up to now. “It’s not something people tend to do.”
Based on what he’s observing in Toronto, Vukasovic doesn’t think open bidding can have an impact on home prices. Changes out there will come from rates of interest, he says, noting that after a slight slowdown in some regions, demand for homes should regularly increase as mortgage loan costs proceed to fall. In other words, affordability is the larger factor. “We need lower interest rates so people are willing to make an offer,” he says.
How can sellers determine if open bidding is true for them?
Once you’ve got shared the small print of your offer with potential buyers, there is not any turning back – but you’ll be able to change the bidding process from closed to open relatively easily. “A seller can change from closed to open bidding at any time during the bidding war,” Vukasovic explains. “All they need to do is give the agent their written consent” and communicate the change to buyers.
According to Vukasovic, it isn’t useful for a seller to start out with open bidding, but it may well be helpful if multiple bids have been placed on the property. For example, if the three highest bids on a house valued at over 1,000,000 dollars differ by not more than $20,000, a seller can open the bidding process to encourage each of those potential buyers to make their best and final bid. In this example, buyers profit from greater price transparency, and the vendor wins if any of the bidders decides to extend their bid.
However, if the 2 highest bids for a property are further apart—say, by $100,000 or more—it’s unlikely that the vendor would wish to inform potential buyers through open bidding, as the very best bidder could withdraw their offer to avoid paying an excessive amount of for the property. This scenario is way less common than the one described above. “Someone has to go out on a limb a little, but paying hundreds of thousands over [the next best offer] is rare,” says Vukasovic.
