The Pros and Cons of Blind Bidding

Over the last couple of years, blind bidding has become one of the more controversial practices emanating from the Canadian real estate market.

This is a practice where homebuyers bid on a residential property listing without knowing what the competing offers are. While it is most common in the major urban centres, blind bidding has migrated into Canada’s smaller markets as well.

For example, suppose five hopeful homebuyers are presenting blind offers. Each bidder has no idea what amount or conditions their counterparts have proposed. The sellers will approach two bidders and ask if they would be willing to increase their offers. They then make a higher bid with the hope of their offer being accepted to complete the transaction. At the end of the day, the winning bidder could be offering $100,000 more than the other bidder, and perhaps well over the asking price.

Critics purport that this has measure contributed to the meteoric rise in home prices, particularly when demand outpaces supply. They add that blind bidding has eroded transparency, making it more challenging for anyone to enter into home ownership. But defenders of blind bidding argue that blind bidding is a development that was born out of the open market during the COVID-19 pandemic.

What’s the truth? Here are the pros and cons of blind bidding in the Canadian real estate market.

The Pros and Cons of Blind Bidding

PROS

#1 Saves Time for Both Sides

Buying a home can be a long and stressful process. As a buyer or seller, you want the deal done as soon as possible. Blind bidding can help streamline the entire affair because the owner will review all the offers at one time without additional changes, meaning fewer appointments. Sellers can merely eliminate lowball offers. This can be helpful in a myriad of ways for both parties.

#2 Second Thoughts?

When you are blind bidding, you can essentially back out of the home-buying process if you decide again buying. This, of course, primarily applies to Ontario since the provincial government recently made changes to the rules and regulations. Still, the same idea applies: if you do not like the home, you can walk away.

#3 Buyers Can Win Immediately If They Have the Cash

Indeed, the person with the highest offer will secure the home. This is beneficial to a bidder who possesses the capital or borrowing amount to place a bid as high as possible for their dream home. Whether the home is being listed for $405,000 or $4.05 million, if a higher bid is within your budget, your odds of winning the property will increase immediately.

#4 Bidders Don’t Share Too Much Information

One of the advantages of blind bidding is that bidders do not share too much information, especially since additional details might force the seller to reconsider your offer based on your circumstances. Blind bidding allows you to make an offer and then wait for the thumbs up or thumbs down.

CONS

#1 Removal of Purchase Conditions

Unfortunately, too many people have eased their conditions in today’s red-hot real estate market. In other words, in a desperate attempt to buy the home, bidders will abandon a home inspection or appraisal. They are willing to make the most significant investment decision of their lives without determining if the home they are acquiring is a money pit that has damage to the foundation or mould in the walls.

#2 Buying and Selling Turns Into an Auction

When blind bidding is removed from the equation, the bidding process will turn into an open auction, with all the interested parties engaging in a potentially bitter dispute to buy.

#3 Lots of Speculation

Blind bidding can fuel speculation. When bidders are aware that this is a prevalent phenomenon and understand that offers will be made well above the asking price, prospective homebuyers might make the mistake of automatically making an extremely high bid. This highlights the fact that every bidder can benefit from working with a real estate agent!

Is Blind Bidding Coming to an End?

Time will tell if the practice of blind bidding will be eliminated. For now, it is still an integral part of the Canadian real estate market. While it does have its disadvantages in today’s chaotic real estate market, blind bidding may moderate into something more rational, conservative and beneficial once the market calms down and buyers are less susceptible to the fear of missing out. Like everything else, blind bidding has its pros and cons, but it will be left up to the people to engage in this practice.

Originally published on the RE/MAX Canada Blog.