If the rules are changed, it certainly is not the first time in recent memory. The new mortgage rules, introduced in January 2018, approached the changing real estate market in its own fashion. In its case, stricter rules regarding who qualifies for a mortgage – and the amount of that mortgage – were introduced, and we continue to see the effects of this change playing out.
The relevant legislation that includes rules on bidding dates back to the halcyon days of 2002: The Real Estate and Business Brokers Act. Of course, the overall systems and policies in place that govern the real estate market here in Ontario have been evolving for years, and draw upon the past as much as they look towards the future, but this specific piece of legislation is a good place to look to further understand the context of this particular issue. Next, let’s take a deeper look at the issue itself.
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Many Bidders Bidding
At present, many commentators describe the current real estate conditions in Kitchener-Waterloo (and most other large urban areas in the province) as a “seller’s market.” There is more demand for houses – particularly houses on the lower end of the price range, those around the overall average, and those in popular areas – than there is supply, and this makes it easier for a seller to get a higher price on their house. This also means that there will often be a bidding process, with several potential buyers bidding on the same property.
Bearing in mind that bidding on properties can often be a reality in Kitchener-Waterloo, the next thing to note is that the bidding process in Ontario is not transparent. Any prospective buyer cannot see what any other prospective buyer has bid, much like a silent auction. They can know how many bids there are, but not what the amounts are.
If a prospective buyer’s bid comes close to the top, they are given a chance to increase the amount… but there aren’t clear guidelines in place as to what qualifies as ‘close,’ and it doesn’t solve the problem of buyers facing pressure to aim for the highest amount in the first place. It can lead to increased pressure when a buyer is set on a particular property, and this can in turn lead to overbidding.
The conversations between realtors representing each party will often become a cumbersome dance of wanting to find out the most for their client while not breaching the rules. Things become even murkier when the same realtor is representing both the seller and one of the prospective buyers: they must know, and not know, the competing offers. In short, there’s a fair amount of gray area.
The Times Have Changed
It’s important to have real estate legislation that keeps pace with the needs of the day. And with an Ontario housing market in which the bidding process has become increasingly prevalent, the importance of fair, rational policy regarding the bids themselves has become all the more important. Multi-offer ‘bidding wars’ take place regularly on homes in Kitchener-Waterloo (not to mention Toronto). Is the current system fair and rational?
While there are alternatives like real estate auctions, many prospective buyers have found themselves (and unless a change comes, many more will find themselves) in a bidding war. The market itself is controlled by supply and demand, but to some, the lack of transparency to the bidding process favours sellers even more in a market that already favours them.
We find ourselves back at the underlying question: will there be transparent bidding in Ontario real estate? The short (and perhaps not entirely satisfactory) answer is that it’s too early to tell. And of course, there are arguments on both side: in favour of more transparent bidding, and in favour of the existing model.
Advocates for transparency suggest that the current model makes a situation that is already challenging for buyers even more challenging, particularly for first-time buyers. Critics of change suggest that because some of the current batch of sellers had to buy under the current rules, it would be unfair to them to change now. Some also argue against change as a privacy issue: the seller’s offers are private information.
The People with the Power to Effect Change
What seems certain, though, is that there are changes in Ontario real estate on the horizon. As noted earlier, the Real Estate and Business Brokers Act dates back to 2002. Ontario’s current Minister of Government and Consumer Services, Bill Walker, has highlighted the fact that the current real estate market is vastly different than that in the early 2000s, and thus there is a need to overhaul and modernize legislation.
The Ministry of Government and Consumer Services oversees the Real Estate Council of Ontario (RECO), which regulates real estate trade in Ontario. It presently enforces the rules and regulations enumerated in the Real Estate and Business Brokers Act, and would almost certainly continue to do so should any new legislation be introduced.
Another group to consider is the Ontario Real Estate Association (OREA). In contrast to the Ministry of Government and Consumer Services, which is a department of the provincial government run by an elected official, the OREA is comprised of real estate brokers and salespeople. Indeed, the OREA’s present membership totals nearly 70,000, spread out over 39 real estate boards across Ontario. In short, the OREA is an independent, professional association that represents realtors and brokers.
They, too, have spoken out about the need to reassess and ultimately revamp the 17-year-old legislation. In addition to conducting a year-long review of the Real Estate and Business Brokers Act and compiling a list of 37 recommendations going forward, the Ontario Real Estate Association’s CEO, Tim Hudak, has called the legislation out of date. One of the targeted aspects for change is, indeed, the bidding process.
In contrast to the current legislation, which results in primarily blind bidding scenarios, the OREA report suggests that the option for full transparency might be more in line with the current market. Sellers should have the option to allow their realtor to disclose bidding information to the bidders, so prospective buyers can have more certainty in what they can and should bid, and sellers can be more certain they’re receiving the best offer.
As you can see, there is certainly the possibility for transparent bidding on Ontario real estate on the horizon. Both the Ministry of Government and Consumer Services and the Ontario Real Estate Association have highlighted the growing need to modernize outdated legislation, with the latter specifically highlighting the bidding process as something in need of reform. It’s worth noting that Tim Hudak, CEO of the OREA, was previously leader of the Progressive Conservative Party of Ontario – the party currently in power.
What do you think? Is transparency a good thing for bids on real estate – for the market in general? It is fairly clear that some changes are on the way to real estate legislation in Ontario; will this aspect undergo reform, too? As always, don’t hesitate to contact us if you’ve got any questions – we’re always happy to help.
Written by Will Kummer