Maybe I’m stuck on this theme as of late, but I feel that after Wednesday’s blog about “the government’s” role in the rental market, and after Monday’s blog about how the government, in Australia, will punish those who advertise homes for sale at list prices below their fair market value, we should continue the conversation for one more day.
I mentioned “gazumping” briefly in Monday’s blog, which is, in my opinion, the absolute worst feature or practice in any market, anywhere on planet earth.
Last year, there were calls among the UK public for the government to “ban” gazumping, and it begs the question: what role, if any, should the government have in the Toronto market?
If you were so inclined, you might make a list of all the things that bother you in the Toronto real estate market.
Your list may or may not include features or practices that are, by all accounts, totally fair in a free market.
It all depends on how “free” you believe the market should be, how much government intervention you would like, and on what the government can and should intervene.
On Monday, just for fun, I showed you how the Australian auction market works, and how it is illegal to advertise a property for sale at a price that is lower than either what the seller will accept, what the seller has already turned down, or what the agent believes fair market value is.
There are pros and cons to this approach.
But with my lead-in to Monday’s post, I talked about how Toronto agents will market their “sale-to-list” statistic as though it’s something to be proud of, so we could then have a discussion about how meaningless the “list price” is in today’s market.
It’s a practice that people absolutely hate, and I don’t blame them.
And while I don’t want to be “that guy” who, whenever somebody makes a point, tries to make a bigger point, I do want to suggest that while our market here in Toronto can be frustrating, it’s nothing compared to what goes on in Jolly ‘Ole England.
Here’s an article about “gazumping,” which is the practice of beating somebody else’s bid, for a firm deal – something we would never think could, ever, ever, ever happen in Toronto.
The article, written ten months ago, suggests that the government is finally going to step in and ban the practice, which wreaks chaos on the British market.
Have a read:
Relief For Home Buyers As The Government May Ban “Gazumping”
May 9th, 2016
Gazumping could be banned by the Government, as it has emerged that officials have held private meetings with industry to discuss bringing forward the point at which house sales become legal, in line with Scotland.
The radical move would prevent millions of British housing sales falling through as 18pc, or around 200,000 transactions collapse each year.
A major reason is a plague of buyers outbidding others who have already put down an offer, a practice commonly known as “gazumping”.
It causes frustration and disappointment for buyers who think they have secured their dream home, only to find they lose it overnight to someone with more cash. It also routinely leaves frustrated would-be-buyers paying for bills for surveying and legal fees which can run into thousands of pounds, providing a further kick in the teeth.
Last week policymakers at the Department for Business Innovation and Skills (BIS) held a private meeting with senior figures at the National Association of Estate Agents, the Telegraph can disclose, in which it floated plans to put an end to Britain’s gazumping problem.
This came ahead of a “call for evidence” into how the Government could make it quicker and cheaper to buy homes in England and Wales, which BIS will launch in the coming weeks.
The meeting was used in part to discuss the idea of introducing the system which already exists in Scotland and in other countries in Europe, under which property sales are legally binding at the point where an offer is accepted by the buyer.
At present deals made in England and Wales are only binding once the contracts have been exchanged, giving buyers with big deposits ample chance to “gazump”.
While this Scottish-style system could make life much easier for buyers of English homes, experts predicted it would be very unpopular with sellers and could even put them off moving house.
This is because they may have to take on the cost of legal and survey fees currently borne by buyers, which typically exceed £1,000 per sale.
In the Budget in March, the Government signaled plans to solve the problem, saying: “We will publish a call for evidence on how to make the process better value for money and more consumer friendly.
Mark Hayward, managing director at the National Association of Estate Agents, said: “The English system for buying and selling property dates back to the 1920s and has not been updated for nearly 100 years. It is an archaic system which doesn’t allow for modern technology. It needs updating to allow for as much work to be done before the point of offer as possible.”
David Hollingworth, a spokesman at London and Country, a mortgage broker, said: “Bringing more security to the buying process through more upfront information would give welcome clarity to potential buyers while also retaining flexibility. Of course, that will raise the questions of who pays for the upfront costs like surveys and legal fees, and that could put some homeowners off marketing their property altogether.”
Did you see that statistic?
That’s 18% of ALL SALES that fall through, as a result of gazumping.
How about this line, which I find almost comical:
“The meeting was used in part to discuss the idea of introducing the system which already exists in Scotland and in other countries in Europe, under which property sales are legally binding at the point where an offer is accepted by the buyer.”
It’s so foreign to us!
It’s like saying, “A group of scientists got together to discuss whether or not eating food and drinking water would help humans live longer.”
Isn’t it insane?
To suggest that property sales should be “legally binding at the point where an offer is accepted?”
I loved the note about how the English system “has not been updated for 100 years” and might be out of date.
It’s like our friends down south, who rely on a set of principles written by men 250 years ago, when a “gun” was a single shot of lead that took a full minute to load into a gun and fire, who believe that this somehow translates into the “right” to own machine guns and keep them in their kitchen.
Then again, British police officers don’t carry guns at all! Can you believe that?
Topic for another day, I know…
In any event, it’s been almost a year, and nothing has been done by the British government to “ban” gazumping.
So if you think we have it bad here in Toronto, I’d hate to be “that guy,” but this is evidence that it could always be worse.
Now I’m going to be incredibly hypocritical, partly for effect, and partly because I believe in what I’m about to say. And I’m going to suggest that while I think it’s totally fair for the British government to step in and ban gazumping, because is a flaw in the basic fundamentals of contract law, I don’t think the government of Canada should step in to our real estate market, and change things around just because our market is red-hot.
In the past couple of weeks, both on this blog and in the media, there has been massive talk of rent controls, restrictions or bans on foreign ownership, and taxation of different classes of real estate owners.
So I’ll pose two questions to you guys:
1) Just how “free” do you believe a free market is? Should the government oversee, or regulate, the Canadian real estate market?
2) If you believe the government’s role is to regulate the market, what would you have them do tomorrow?
The second question is open-ended, but we could come up with a massive list!
In fact, why don’t we?
The possibilities are endless, and if this is an exercise, and if people are frustrated enough, they might come up with outlandish ideas.
Then again, define “outlandish” anyways!
In some countries, it would be outlandish to outbid a buyer of a home who has already accepted the deal!
In other countries, it would be outlandish to suggest that every teacher in an elementary school should not be equipped with a machine gun, you know, to make the school more safe.
See what I mean?
So let me start off with a few ideas:
1) Ban foreign ownership of Canadian real estate.
2) Tax foreign owners at a higher rate – tax at purchase, property tax, disposition tax, capital gains tax.
3) Tax domestic “investors” or owners of multiple properties at higher rate (same options as above).
4) Eliminate or reduce land transfer tax at municipal and/or provincial levels.
5) Establish rent controls on condominiums.
6) Oversee education, licensing, and discipline of Realtors.
7) Control the purchase and sale of real estate (they do it with alcohol – think LCBO or Beer Store!)
8) Eliminate the CMHC.
Do any of these ideas make sense?
Do all of them, in a vacuum?
Or do we simply let the free market be free – so long as there’s no gazumping going on?