In recent years, there’s been a very public conversation about the buying and selling of real estate. The subject is open bidding, an offer process that proponents say leads to greater transparency and fairness. Some even believe it’s good for the market (since it can, in theory, prevent excessive price escalation). Having said that, there are also skeptics—on both the buyer’s and seller’s side. Do you know where you stand on this important real estate issue?
When it comes to open bidding in home transactions, here’s what you should know…
What is open bidding
Let’s start by delving into how things work now. As it stands, any buyer who makes an offer on a home is notified when a competing bid is made. However, they aren’t made privy to the details. From the dollar amount to the closing date, elements of the new offer are kept under wraps. This puts buyers who wish to stay in the running in an uncertain position. When they think about how to amend their bid, they’re essentially in the dark.
In October of 2018, the Ontario Real Estate Association (OREA) made some recommendations to the province. The organization suggested that all elements of offers made on a home be disclosed, so long as everyone involved in the transaction agrees. If this process became commonplace, here’s what the implications might be.
What it would mean for buyers
For buyers, an open-bidding process can lead to more informed decisions. With all the details on the table, purchasers can choose to up their bids or bow out—and do so based on more than speculation. Since they’ll know which number they have to beat, they can also avoid vastly overpaying when they’re eager to win their dream home.
A more transparent process could also be more pleasant for buyers. As anyone who’s been in a bidding war will tell you, it can be stressful at times. When you’re not approaching the situation blind, you’ll have fewer headaches to contend with (and a less time-consuming back and forth).
While the benefits of open bidding are clear to most buyers, there are those who have raised privacy concerns. Fortunately, since all parties would have to agree, these potential issues could be avoided.
What it would mean for sellers
On the other side of the transaction, some sellers feel that agreeing to an open-bidding process means giving up leverage. They reason that when buyers don’t know the contents of other offers, they’re more likely to put forth their highest bids. That may be true in some cases, but it’s not always.
An auction-style offer process, whereby buyers bid against one another openly, has the potential to lead to intense competition. That could work out in a seller’s favour. It could also attract buyers who tend to shy away from traditional bidding wars, which often leave them wondering if they ever stood a chance. The result? More offers on the table for sellers—a clear advantage.
The bottom line
The conversation surrounding open bidding has yet to be resolved. It’s true that it may not be the ideal solution for every buyer and seller, but it’s another potential option—one that’s attractive to many. Chances are that this issue will pick up steam in the years ahead, so make sure you stay in the know!
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