LACKIE: More transparency would improve trust in real estate industry – Toronto Sun

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Ever the hot topic, it’s virtually impossible to discuss Toronto’s real estate market without people getting riled up.

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With prices rising at an alarming velocity a full two years into a global pandemic, the eternal questions seem to be why is it like this and how will this end?

And those are great questions.

The current state of things can most simply be understood as the culmination of low supply meeting high demand, buoyed by cheap borrowing costs that are fuelling speculation, and lifestyle shifts brought on by COVID.

The situation is nuanced, obviously, but simply put — we find ourselves facing a confluence of factors that have resulted in would-be buyers having no choice but to battle it out against one another for the limited number of houses and condos currently on the market.

One of the most widely scorned aspects of our current market is the central role blind bidding seems to play in the offer process. Between the seemingly endless demand for properties and the industry penchant for pricing below market value to drive multiple offers, nine times out of ten buyers will find themselves in competition.

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With strict rules restricting a listing agent from even intimating the content or nature of a competing offer, the buyer is then left to decide on their own what their bid should be based on recent comparable sales and their own personal opinion of value. Save for disclosure of the number of competing offers, it is an otherwise opaque process.

The perception is that as a result of the blind bid process, buyers routinely pay substantially more in an attempt to outbid their competition than they actually need to.

An open auction format like they have in Australia has been put forward as a sensible alternative.

While I can understand the desire to shine a light and level the playing field, I’m not sure that eliminating blind bidding will do much to curb prices if that’s the goal. The open auction format is criticized on the basis that it drives bidders into a competitive frenzy — Australia has a market just as on fire as ours.

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The main benefit to cleaning up the way multiple offer situations are run would be adding transparency to the process. Added transparency will certainly infuse some more trust to an industry that could use some serious help with its PR.

But the reality is that getting rid of blind bidding still won’t eliminate the competition that’s driving today’s prices. Let’s say a typical offer night brings eight offers — even if four of the eight decide to sit it out once they realize they can’t compete, that still leaves four buyers to battle it out, and in my experience all it takes is two motivated people to push prices to record levels.

The idea that there is one bid way out ahead of the competition is simply not the norm. Yes, it can happen, but in my experience there are almost always groups within the offers: a few at asking price, a few conservatively higher than asking but still restrained, and then a few more that are aggressive and immediately out front. The notion that the prices we are witnessing are the outcome of one person bidding against their self is simply not the case.

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But prices are undeniably wild right now and it’s important to understand why. Once upon a time the price a home fetched on offer night was almost always in line with the comparable sales, give or take, no matter how sizeable the lift between list and sale price may have been. The eye-popping prices are more of a recent phenomenon and are indicative of a broader market environment.

The Feds promised to do away with blind bidding in the lead up to the last election. But once the process is cleaned up, what then? Blind bidding may feel frustrating and unsavoury, but it is absolutely not why the market is bananas.

If you ask me, low interest rates coupled with lending policies that encourage pulling equity out of existing homes to fund second investment properties are having much more of an impact on prices.

So yes, feel free to rail against blind bidding — I get it — but if your concern is how to keep housing accessible to people who actually need somewhere to live, it might be worth looking little closer at the other market forces currently at play, particularly the role speculation is playing and the policies empowering that segment of the market.

@brynnlackie