How the Blind Offer is Hurting the Canadian Housing Market

How the Blind Offer is Hurting the Canadian Housing Market
By Andrew Harrild,

We’re in the middle of a busy real estate season right now. In certain cities across the country, the inventory of single-family homes is becoming increasingly limited, as more and more condos go up and the number of hopeful house buyers continues to grow. Unfortunately for buyers in these areas, that means being stuck in a seller’s market, which leads to offers over asking prices, and potentially even bidding wars.

In Toronto, we’re used to seeing bidding wars this time of year. However, there’s one kind of bidding war that not only hurts buyers, it affects the housing market as a whole – it’s the blind offer. And not to scare anyone, but if we continue to allow this type of bidding war system to be used, then I could see why we’d end up in a housing bubble. Here’s why:

What is a blind offer?
A blind offer begins when a new listing goes up and an offer date is set on it. On the offer date, all interested buyers and their agents meet at either the property itself or at the listing agent’s brokerage, to make their best offer. Offers include the highest price a buyer is willing to pay, as well as any conditions they have or are willing to remove (such as a home inspection or financing). It’s called a “blind offer” because no one knows how much the other potential buyers will offer, so you only get one shot to make your best guess as to what it’ll take for you to “win” the property.

How is a blind offer different from other bidding wars?
With other bidding wars, you usually have the opportunity to go back and forth a couple times, in order to try and outbid the other potential buyers. With a blind offer, however, there is zero transparency. It’s the ultimate form of high stakes poker but in real estate. You have no idea what your competitors are going to offer and, therefore, you have no idea where you stand with your own offer.

What’s wrong with the blind offer system?
Because of the lack of transparency, the “winning” offer may be thousands and thousands of dollars more than it needs to be. For example, Buyer A could offer $15,000 over the listing price, Buyer B could offer $18,000 over and Buyer C could offer $40,000 over; these numbers aren’t unrealistic, we see them all the time in Toronto! Instead, Buyer C could’ve offered just $18,001 over the listing price and still won – which puts them out $21,999 – but the lack of transparency meant they felt the need to make a hyper offer.

Overall, the blind offer system – which only helps sellers and hurts buyers – sets our housing market up for disaster. If people continue to pay dozens, and even hundreds, of thousands of dollars over listing prices, the value of our real estate could eventually reach an unsustainable level – and then decline.

What other system could we use instead?
Personally, I’d like to see a more open system used, such as an auction. Like any other auction, you’d have all the interested buyers and their agents in one room, armed with their max budget and ready to bid up to that amount. The seller would still walk away with more than their asking price, but buyers wouldn’t need to blindly offer more than they need to, in order to purchase the home. Of course, this rarely happens – at least in the Toronto condo market – but I can’t think of any strong argument as to why we shouldn’t change to this type of system.