The process of entering the real estate market has been left relatively unchanged for decades. Buyers work with a realtor to find the right property; sellers work with a realtor to ensure they’re getting the most out of the sale of their property, and in the end, the two come together to make a deal.
We’ve seen a drastic increase in ‘bidding wars’ or properties that have received multiple offers over the last few years. This has become so common that most listings indicate an offer date on which they will be accepting all offers on their property.
The current system is known as a blind bidding system, which means that the content of offers & identities of buyers cannot be disclosed to competitors. The lack of transparency for buyers has some believing that this current system is what’s helping real estate prices soar.
The logic for soaring prices in a blind bidding system is as follows:
Potential buyers are putting in offers on homes that are thousands of dollars above asking & above the next highest bid. Especially in the current market, we’re seeing fatigued buyers throwing everything they’ve got at properties just in hopes of winning, not necessarily keeping market value in mind. This creates a new benchmark price, potentially thousands of dollars more than the actual market value. This cycle continues as buyers who lost out on properties get more and more fatigued and throw more money into their next bid, on the next property.
But is there a way to stop this from happening?
Welcome the newest model that’s working its way through Ottawa: Open Bidding. In this system, competing offers are placed auction-style, with all interested buyers present and aware of the other offers and their values.
Spearheading this bidding system in Ottawa is a start-up company, Unreserved. Founded by Ryan O’Connor, an entrepreneur known for his car auction company Eblock, Unreserved takes the same approach of car auctions to real estate.
The idea behind Unreserved is simple: transparency will save buyers from overpaying on properties & will help reduce the rate at which real estate prices are rising.
When you bid through an open bidding, auction-style model, you can see what the highest offer is & choose to continue to compete. There are many nuances to this system, but baseline, it allows buyers to know exactly where they stand in the competition.
But, does this bidding style actually work to reduce prices & the rate of price increases?
The open bidding system provides the same opportunity for price inflation as closed bidding. In the heat of the moment, the adrenaline of bidding coupled with the ease of just clicking a button can lead to an environment that favours bidders with deeper pockets, even more so than the blind process does.
Taking a quick glance at the Unreserved ‘recently sold’ listings, you can see that properties have anywhere from 2 to 15 unique bidders. Some properties garner over 100 unique bids (unique bids refer to the number of changes/new offers from unique bidders). These numbers far surpass that of your typical blind offer situation.
Using the blind offer model, you would see similar numbers in unique bidders, but sellers would typically only allow for one round of revisions, usually an opportunity only given to the top 3 bids, and a winner would be chosen from there.
Only time will tell the true benefits and pitfalls of the open bidding model. Whether you compete in a blind or open bidding war, you’re still going to face fierce competition as a buyer throughout 2022. With inventory remaining low & prices still on the rise, it’s unlikely that either model will provide any relief in the near future.
What are your thoughts on the open bidding model? Comment below!