In certain cities across the county, house buyers are finding that they are trapped in a seller's market. The number of single family homes available for purchase is decreasing rapidly as developers concentrate on constructing more and more condos. Although this is great news if you have a house to sell, for those looking to buy, it means inflated prices and may even result in a bidding war.
The Toronto housing market usually sees its fair share of bidding wars at this time of year, so that is nothing unusual. However, there is one type of bidding war that has the potential to cause major problems if it is allowed to continue - the blind offer.
So What Is A Blind Offer?
A blind offer is a situation when you only have one chance to make a successful offer for a property. A property will be listed for sale and a specific date will be given on which all offers will be submitted. On the given day, everyone interested in the house will submit their final offer stating the maximum that they will be prepared to pay and any conditions that they require or are prepared to remove. None of the interested parties will be aware of how much anyone else is offering, so the result is pure guesswork as to who will have a successful outcome.
How Is This Unusual?
In the case of a regular bidding war, there is a certain degree of transparency when it comes to offer and acceptance. Interested parties are aware of what other potential buyers are offering and can use that information to outbid them. A blind offer is simply a gamble - you have no basis on which to make an educated guess as to whether your offer is likely to be accepted.
Why Is This A Problem?
Because nobody has any idea what the ballpark for offers is, they may offer thousands, and even in some cases ten of thousands over the asking price needlessly. Buyers are often so desperate to purchase a property that they will aim for a much higher figure to try to be certain of winning. This means that buyers are artificially inflating the price of a property well beyond what is reasonable. With a more transparent system, this would not happen. Should the blind offer system continue, eventually the housing market will become unsustainable with these artificially high values on real estate, and then it will inevitably enter a period of decline.
How Could We Solve This Problem?
A better solution would be to hold a real estate auction with all interested parties in the same place at the same time, prepared to bid until they reach their maximum amount. Sellers would still make a profit over their asking price but buyers would not have to spend tens of thousands more than required simply to win the home of their choice.