If you’ve taken part in a Toronto multiple offer situation (“bidding war”) in the past, you can very likely relate to the frustration that many buyers feel when blindly bidding on a home while competing with other offers.
The method of listing low and holding an offer date without disclosing the details of multiples offers during a “bidding war” has played a part in driving up home prices throughout Toronto and the GTA for well over a decade. You may or may not recall, but there was once a time when properties were listed at what was perceived to be their fair market value with it being common for offers to include several conditions which we have seen less of over the recent years. However, the list low and keep everything secret method isn’t the only factor that has driven up prices, a lack of supply and a long stretch of historically low interest rates has also contributed significantly.
When buyers are not aware of how much the other parties are offering in a bidding war, they can easily spend much more than they need to in order to secure the property. In many cases, buyers have unnecessarily thrown away many thousands of dollars above the market value of a property just to get their offer accepted. In addition to the financial risks that come along with blind bidding, buyers have often only visited the property once in person for a 30-60 minute window of time, and many find themselves waiving all conditions and representations and warranties in their offers in order to compete against other offers. This can amount to the buyer taking on a significant amount of risk if there ends up being any major structural, mechanical, appliance, legal or property boundary issues relating to the property being bought.
With all of this being said, in most cases, buyers unfortunately haven’t had a choice but to participate in a multiple offer situation over the past decade as the majority of listings have been listing below market value and holding an offer date. Additionally, as stated above, the historically low rates and lack of supply hav have pretty much ensured that there would be multiple offers on the offer date.
Due to the lack of transparency in the multiple offer process, TRESA has recently implemented a new rule which, as of April 1, 2023, will allow sellers to disclose all details within an offer such as the price, deposit, closing date, conditions, etc. to all other parties who are competing for the same property should the seller direct the listing agent to disclose such information. The only information that is not permitted to be shared is personal information about each bidder, such as their names, etc.
This new rule has been implemented in hopes of introducing more transparency to the bidding process. However, it’s important to remember that buyers are not entitled to this information unless the seller directs their agent to provide such information.
At a quick glance, this news may be exciting for buyers, but an important question to consider is: will this actually make a difference if there is no upside for a seller?
Historically, a seller has always wanted to achieve the highest sale price for their home and a buyer has always wanted to secure a property for the lowest price possible, and this isn’t likely to change. If keeping the offer prices private from the bidders provides the seller with the upper hand, why would the seller want to limit their return on investment by disclosing this information?
When living in a city such as Toronto where home prices have continued to skyrocket, mainly due to a lack of supply, combined with historically low interest rates in addition to substantial and constant demand and in a city where household incomes haven’t been able to keep up with the average sale price, it’s unlikely that sellers will choose to voluntarily take a hit to their return on investment. Toronto (and Canada more broadly) are constantly growing and home prices are becoming even more unaffordable for the average Toronto citizen, so it’s likely that sellers are counting on their return on investment to assist their children with securing their very own home one day in the future, paying for university tuition or paying off other debts, among many other valid financial reasons.
Not only is it unlikely that sellers will want to voluntarily disclose the details of an offer, but based on the way the new rules are currently written at the time of this blog post, it would be logistically challenging in a multiple offer situation if a seller changes their disclosure directions in the middle of an offer presentation.
Due to the potential complexity of disclosing such details of the offers such as price, deposits, conditions, reps and warranties, closing dates, irrevocable dates and times (deadline to accept) etc, and there being no real benefit to the seller for sharing such information about the offers, it’s unlikely for listing agents to recommend disclosing this information, resulting in potentially no change to the way offer presentations take place. Unless the entire offer presentation process is re-designed (which may be possible as it’s not set in stone), we will likely continue to see the same offer presentation structure.
Although it’s completely understandable for buyers to be frustrated with the lack of transparency during a multiple offer situation, the irony is that those same buyers who may be feeling frustrated today would likely have a different outlook on the situation should they purchase a property and later be required to disclose the offer prices to potential buyers when the time comes to sell as this could potentially negatively effect their return on investment.
With all of this being said, even if more transparency isn’t created from this new optional disclosure rule, as long as buyers continue to work with experienced Toronto real estate agents who actually know the Toronto real estate market extremely well, buyers will be making market based decisions when it comes to the amount that they are willing to offer on an offer date. When preparing for an offer date, your Toronto real estate agent should be able to provide you with statistical information and an approximate market value for the home that you are bidding on so that you aren’t going in to the offer presentation blindly and so that you can pre-set your limits in regards to how much you are willing to offer.
Are you thinking about buying or selling or do you have questions about the current market?
Contact me any time with your questions or to discuss your real estate questions. I’m always happy and here to help.
