With the ever-changing landscape of the real estate industry, it’s important to stay informed on the latest developments and regulations. One such change is the introduction of “open bidding” in Ontario, which has left many hopeful and also doubtful.
The new real estate law update allows for more transparency in the bidding process, which could potentially lead to fairer pricing and better outcomes for both buyers and sellers. However, there are also concerns about the potential for bidding wars and rising costs.
An Overview of the Updated Law
The government has introduced open bidding as a way to curb blind bidding during real estate transactions. By giving home sellers the option to disclose all bids, terms, and conditions of a prospective buyer’s offer to other potential buyers—something sellers had previously been banned from doing—the government is hoping to reduce overbidding on properties and help reduce prices.
The new legislation also mandates that financial lenders are required to disclose all available financial choices and that mortgage deferrals can be extended for six months in the event of a significant life event.
Economic and market analysts are expecting 2024 to see a steady increase in market prices, depending on employment, inflation, and interest rates. As economic stability is not a guarantee, buyers and sellers need to adapt to the ever-changing housing market.
The open bidding law is designed to help both buyers and sellers navigate the sale process by offering transparency and choice.
What Was the Current Blind Bidding Process?
Traditionally, real estate transactions involved a process known as closed bidding or blind bidding. In this situation, each potential buyer would submit a “sealed” offer for the seller’s eyes only. The other potential buyers would not know whether there were other offers on the table and/or what the other offers entailed.
Blind bidding only allowed real estate firms to disclose the number of bids or offers submitted but no other details to prospective buyers. Agents could not give buyers any information about the other bids, potential contract clauses, or if their initial bid was lower or higher than the other offers.
Blind bidding has led to buyers offering more than market value for a home in an attempt to “win” the bid. Not knowing other bids has ultimately driven up home prices. This form of bidding has also resulted in a large amount of time and money spent on communication between the buyer and the seller as negotiations are in place.
Open Bidding vs. Blind Bidding
Ultimately, the goal of the new legislation is to curb the soaring prices of the current housing market in Ontario. With an open bid, all parties involved are privy to the number of interested buyers and their offers.
A blind bidding process does not allow the potential buyer to know the number of offers nor the value or terms of the bid. This leaves the buyer to blindly make an offer based on the expected value others may submit as an offer. Open bidding changes all of that with complete transparency of all potential purchase and sale information being available to the buyer.
Advocates for open bidding say this can reduce negotiation time periods, the risk of closing issues, and speed up the sale of the property. The transparency of the process allows the seller and buyer to have equal footing in terms of the sale and price expectations of both sides.
The Impact of Open Bidding on House Prices and Potential Drawbacks for Sellers
What this new law means for the future housing market remains to be seen but some real estate experts suggest a mandated open or transparent “bidding war” could see housing prices increase significantly while others believe the opposite.
Sellers using the open bid law to disclose all offers to every potential buyer could see their plan to entice higher bids backfire. Without this option, sellers can use the undisclosed bids as a form of leverage to get a higher price for their home.
This law may prevent buyers from overbidding, which is what has become common during the blind bidding process. Open bidding allows buyers to make informed decisions based on the market value rather than making emotional and rash decisions in an attempt to “beat out the competition”.
Register Joseph Richer from the Real Estate Council of Ontario (RECO) says as a law, it can result in an adverse outcome for many sellers. In a recent interview, Richer stated, “In every transaction, there’s a buyer and a seller, and that whatever you mandate for one, might be, and probably is at the detriment of the other.”
Protect Your Real Estate Transactions with the Help of Zinati Kay
The legal team at Zinati Kay – Real Estate Lawyers understands the new real estate laws and can help you navigate the buying or selling process. We’ve helped countless clients purchase their dream homes using our extensive legal resources and knowledge. Our team offers a range of real estate legal services with more than 25,000 closings over the past 25 years.
Our award-winning and affordable services are the reason that we’ve been designated among the best real estate lawyers in Toronto. If you’re looking for an experienced lawyer to refinance your mortgage in Toronto, we can help! Contact us today to get a quote from a Toronto real estate lawyer.