Calls to examine bidding process and 'multiple offers' in B.C. real estate deals
Low interest rates have fuelled a hot housing market. Now, there is scrutiny on the bidding process and how it might be changed to temper crazy price gains.
Low interest rates are fuelling a frenzied property market where the new normal is multiple offers and selling prices far above what sellers are asking.
And there are now discussions about how the bidding process for buying properties in Canada could be changed to help temper the escalation in prices.
B.C. has a relatively opaque system where homebuyers rely solely on the seller’s agent for information on how many other offers there might be.
“You literally have no idea, and an unscrupulous realtor — and I’m not saying that this happens often — but it certainly opens up the possibility that someone could say, ‘Well, we’re expecting competition on this,’ or ‘You know, we’ve had four or five people that are telling us they will submit an offer,'” said Ben Rabidoux, the president of research firm North Cove Advisors, which looks at housing and credit trends for institutional investors.
“You never really know how many (offers) are being submitted.”
In Ontario, sellers have to file offers to a public registry so a buyer can see how many offers there are, even though the price and terms in each offer are not revealed.
Rabidoux suggests the use of an “automatic step-up clause,” a simple mechanism found on most online auction sites. A buyer submits a maximum bid, but the bidding happens in set increments. This could temper the blind bidding up of prices that is happening when buyers increasingly have fewer indicators to guide what they should pay in an environment where it is cheap for all buyers to borrow money.
“More transparency around the multiple offer process is needed, and I think many in the industry would agree,” said Vancouver real estate agent Steve Saretsky.
There are some absurd examples.
Rabidoux recently tweeted about a Vancouver realtor friend whose client only got two bids. One was at the asking price and the other a whopping $175,000 over the asking.
“I don’t understand why we can’t have a (system) here in Canada so, for example, my maximum bid on this property is $900,000, but the increments are $5,000 above the next bid. So if the next bid comes in at $850,000, then the winning bid is $855,000.”
Instead of gradual price increases, one Fraser Valley appraiser previously described the market looking “like a staircase” with larger jumps.
Rabidoux emphasized changes like this wouldn’t be “a silver bullet by any means.”
In Australia, properties are sold in a very open, auction style, and still that “market is very hot as well.”
Vancouver real estate agent Muzda Stenner said, “You have to take (a seller’s agent) word for it” when they say they have a certain number of multiple offers.
She is finding that even if sellers were to fudge the number of bids to create demand, there are other signs. Once there is a winning bid, the unsuccessful bidders “all go back into the pond and everyone sees each other again at the next house.”
Stenner said sellers are increasingly expecting to get higher and higher prices for their properties. So when agents are working for a buyer, they prefer transparency in the bidding process. But when they are working for a seller, the situation reverses.
Rabidoux’s reply is that changing the process helps everyone, since eventually a seller has to go back into the market and become a buyer.
The Real Estate Council of B.C. says a “buyer or buyer’s agent is free to inquire about the number of offers, or how their offer compared to other offers in a multiple bid situation.”
“Brokerages have an obligation to maintain records related to each submitted offer, which can be verified in the course of an audit or investigation.”