Government Apparently Set To “End Bidding Wars”

Note my use of the word “apparently.”

In case the cynicism isn’t already…….wait for it…..apparent, let’s talk today about what a bidding war is, why they happen, how they happen, and whether or not the government should “end” them, let alone could end them.

For those of you hoping that “something” would happen to help you afford a home, you have a greater chance that God will help you, than the good ole’ government…

BiddingWar2

 

Define “bidding war,” if you can.

Maybe we all have our own definitions.

No, wait, not maybe.  Definitely.

My definition of a “bidding war” is far different than yours, but I believe, in my humble opinion, that I’m in a better position to define the term, since I work in the real estate industry, and you shop for a home once every ten years.

The media, and a lot of the general public, would define a bidding war as:

“Ten offers on a $399,900 condo listing.”

But that’s not a bidding war, folks.

That’s simply ten offers on a $399,900 condo listing.

A better term to describe that would be “reality.”

Or perhaps to use one of my favourite expressions, “It’s just Thursday.”

This is one of my favourite sayings, which is meant to drive home the point that something is unremarkable, unspectacular, or not in any way unique.

If somebody remarked, “I can’t believe that condo received fifteen offers!”  I might respond, “Soooo…..it was basically just your average Thursday?”

And in real estate, the saying rings even more true.  Because literally every night in the city of Toronto, there are dozens of properties that are receiving 5, 10, or 15 offers.

This is the reality of the Toronto marketplace in 2017.

So back to the definition of “bidding war.”

Do you think that ten offers on a condo satisfies the definition of “bidding war?”

Because in my opinion, a bidding war is as follows…

There are twelve offers on a house.

The offers are reviewed, and the listing agent gives it the ole’ “We’re giving everybody a chance to improve their offer.”

All twelve offers, even the ones at the bottom, that have no hope in hell of being in the mix.

Four of the buyers walk away, and eight of the buyers improve.

The listing agent then takes the three at the top and says, “You’re all still really, really close, I mean, like, wow, like within a couple hairs,” or some other synonym that means “close” but avoids using a term like “hundred” or “thousand.”

The three buyers improve, and then the listing agent takes the top two and says, “We’re going to accept the higher of the two, unless you want another shot to improve.  I’m not telling you to improve, but you might want to.”

Both buyers then go back and improve.

Then before either offer can be accepted, one of the buyers improves, again, unsolicited.

The other buyer agent, upon seeing this agent walk out into the parking lot of the brokerage, and have his or her client sign a piece of paper, then calls his buyer, and tells them they need to improve, again, because the other buyer did as well.

By the time the ink is dry on the accepted Agreement of Purchase & Sale, the “winning” buyer has already improved his or her offer, 5-6 times.

That is a bidding war, folks.

And I have only ever been in that experience once in my thirteen years, because I wouldn’t advise a client to partake in such foolishness.

Most of the time, as you know, the listing agent will accept the highest offer, “Unless two are virtually identical.”

But when you have ten offers on a $399,900 condo listing, and the highest offer of $460,000 is accepted, that is, in absolutely, positively, no way a “bidding war.”

Of course, the media disagrees.

So does a large part of the general public.

But if I may be so bold, dare I say that their opinion on the definition of a “bidding war” doesn’t matter.  Because they’re either living in a dream world, or analyzing the market in a vacuum, or as the media is often guilty of, spinning a story.

Folks, did you ever hear “the one” about the scorpion and the frog?

A scorpion and a frog meet on the bank of a stream and the scorpion asks the frog to carry him across on its back.

The frog asks, “How do I know you won’t sting me?”

The scorpion says, “Because if I do, I will die too.”

The frog is satisfied, and they set out.

But in midstream, the scorpion stings the frog.

The frog feels the onset of paralysis and starts to sink, knowing they both will drown, but has just enough time to gasp “Why?”

Replies the scorpion: “It’s my nature…”

The frog was naive to expect the scorpion not to sting him.

Just as the public is naive not to expect multiple offers on real estate when there is low supply, and high demand.

This is why I get so frustrated when I see headlines like, “Government Set To End Bidding Wars.”

End bidding wars?

Really?

First of all, you’re completely mistaken in your definition of a “bidding war.”

Secondly, how do you propose to do that?

City TV ran a segment last Thursday, and then followed up online.

Their headline is exactly what I’m talking about:

EndingBiddingWars

They showed a reporter, in a condo, talking about how “This $450,000 condo could get multiple offers, and result in a bidding war!”

Yes.  And the earth revolves around the sun.

It feels like these people are three years late to the party, and only now playing catch-up.  Only they seem so shocked by what they see.

“People in society are taking photos of their lunch, and putting it on social media for other people to comment on?” said the person who lived in a cave for three years.

Yes.  And with low supply, and high demand, in a market of buyers and sellers – multiple offers result.

So when I hear reports that “the government could end bidding wars,” it scares me, because I think I know how they define “bidding war,” and they’re wrong.

The government can’t stop ten offers on a $399,900 condo.  And if they think, as the media suggests, and as the public laments that “ten offers on a $399,900 condo is a bidding war,” then I have no clue what the government intends on doing.

The problem in the Toronto market is, and always has been, supply and demand.

I have written about this dozens of times over the years, and it never gets old.  Why?  Because I write about it once for every 10-12 times that the media report about the hot-hot real estate market, and fail to mention that the root cause, or even one of the root causes, is low supply, and high demand.

“Ten offers on a $399,900 condo” is high demand.  Simple enough?

“Ten offers on a $399,900 condo” is the result of low supply.  Is it fair to say that if there were nine more of the same condo, then each of the ten condos would, on average, receive one offer?

To me, that is so damn simple.

But the media continues to talk about every sale of every property as though it’s a bidding war, and they couldn’t be more wrong.

In the City TV story last week, they interviewed a guy who said something to the effect of, “You don’t know who you’re bidding against, you don’t know how many bids there are.”

But he’s wrong.

You do know how many bids there are.

In fact, you should NEVER submit an offer on a property unless you have, in writing, an indication from the listing agent on how many offers are registered on a property.

So if the gentleman interviewed in the City TV story last week truly “didn’t know how many bids there were,” then he should have fired his buyer-agent on the spot for not doing his or her job.

Perhaps another part of this “ending bidding wars” story is more transparency in the process.

That was alluded to in the City TV piece, but it was overshadowed by this idea that “the government” is going to wave their magic wand, and put an end to high real estate prices.

“Government to end bidding wars.”  That headline makes the average person think that there will no longer be multiple offers on properties for sale, because the average person thinks that multiple offers on properties for sale is the definition of a bidding war!

So by the time we start to talk about the real story here – transparency, most people have already tuned out.

The City TV story referred to the “auction-style” of selling real estate in Australia, as though it were some sort of magic solution.

The grass is always greener on the other side.

Australia has their own problems with this system, which I wrote about last month, HERE.

So what transparency do we need?

We know the number of offers.

We can find out the names of the agents presenting the offers.

Do we want to know the prices of those offers?

Is that what we’re talking about with “transparency” here?

Because I fail to see how that would work.  You know, unless we shut down the city every time a property went on sale, so we could have an Aussie-style auction.

I think the public want to be able to beat the highest offer by $1, but it doesn’t work like that.

The idea of getting “caught up in a bidding war” ignores the fact that the buyer can quit at any time.

If you make an offer on a property, and it’s accepted, great.  If you’re told you’ve lost, then go home.  If you’re told, “We’re down to two offers, you and one other,” you can still choose to go home.

So who creates the bidding war?

Is it sellers?

Listing agents?

Buyers?

Or is it everybody?

If you’re a buyer, and you’re willing to improve your offer 5-6 times, then you’re just as culpable in the “bidding war” as the listing agent who continues to send you back.  But he’s also as guilty as your buyer agent who doesn’t say, “This is ridiculous, go home.”  And that agent has just as much a role as the seller who says, “I want the most money for my home.”

No kidding.  Doesn’t everybody?

Folks, I don’t know what can be done to “end bidding wars,” since I think the definition of a bidding war is off-base, and I think multiple offers are a function of supply and demand.

But if the conversation we’re having is how to “cool the market,” and the terminology being thrown around is flawed, then that’s a whole other conversation.

A great conversation for Wednesday!

The Globe & Mail ran an article last week with a slew of “ideas” on how to cool the market.  Let’s talk about that.

I’ll give you a hint at how I feel about the ideas: the word “tax” was used a whopping 15 times in the article…

42 Comments

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  1. AK says:

    Well…. As hard as it is, I think we need to think about the process of buying real estate separately from the price. I don’t think the process we use in this city (ie the underlist and offer date) necessarily causes prices to shoot up. Try using that process in Calgary right now and see how well you do, I dare you. List your house for 70% of what it’s worth with an offer date next week, the results might be hilarious (for the eventual buyer we gets it at 50% of what it’s worth).

    What I’m saying in a roundabout way is there are other underlying factors that are causing the price escalation, and even without this terrible process, prices would be going up. So let’s look at those factors. BUT while we are at it, maybe we should also decide to not accept
    this under list and offer date process as normal, and not accept it as the best way to buy and sell real estate. In fact, it’s pretty terrible. And it doesn’t need to be this way. But let’s not lose sight of the fact that fixing it will NOT reduce prices or reduce demand.

  2. Jason says:

    Asshole!

    1. matthew arrigo says:

      Great comment! Very constructive!

    2. moonbeam!` says:

      Jason – you are pathetic. Your post is moronic, unintelligent & a frat-boy cry for attention.
      You don’t have to agree with David Fleming or like what he writes ….. but how about a reasoned or even semi-educated comment?
      You are insulting David’s other commenters who at least put some thought into their comments.
      Blah blah…. go out for recess.

  3. steve says:

    Think interest rates folks … they will be going up sooner than later … perhaps not dramatically, but enough to put the kibosh to endlessly rising prices.

  4. Condodweller says:

    Shall we talk about the “invisible” elephant in the room that’s hiding in plain sight but no one seems to talk about? It has been mentioned and even used as the reason for high prices, but no one has suggested changing it so far. No, I am not talking about approving more land to build on. I’m talking about the one biggest source of demand which if dealt with, might also address the foreign ownership issue. I am talking about immigration. This is something the government can address and make changes if they wanted.

    We have a hot housing market on our hands where the government, instead of helping balance the supply/demand equation they are making it worse each and every year. I mean it’s like when your house is on fire and when the fire department showed up they started spraying it with oil and pump some fresh air into it. On one hand, the government is saying we need to deal with the hot market all the while they are ushering in fresh demand each year. I’m no economist, and it’s above my pay grade to comment on why we are bringing in so many new people each year, but perhaps someone can comment. I suspect it has something to do with bringing in wealth to keep our economic engine going but I have no idea what effect reducing immigration would have on our economy.

    Other than what I have said before about somehow forcing sellers to sell above asking price, I can only see changes to the process making a difference. The first thing I would change, which is not a major change yet it could be effective, is to make it illegal for an agent to come back to me asking me to improve my offer if my offer is the highest. I realize in the world of negotiations it’s a great tactic to extract the most amount of money from the buyer, however, I find it deceptive, dishonest, and totally unnecessary. Yes I know that I can walk away at any time, but once I am emotionally invested I am likely to go above my high price just to finally put an end to the process.

    Finally, I place the blame squarely on the shoulders of the agents. They are the most culpable for leading buyers to believe they have to offer higher and higher prices to secure their house/condo. I spoke with an agent recently and he told me that prices are going up by $x each day! If you want a property you have to project that into the future and offer that, plus more in order to beat others out. Of course that sounds logical until you stop to ask yourself, right, but where does it stop?

    1. Nick says:

      We bring in new immigrants every year because we use their labour. We are also looking at bringing in their best minds to work with us instead of helping elsewhere/against us. Believe me when I say, you don’t want to be on the wrong side of immigration(Brain Drain). Right now Canada is on top of the world because of our immigration policy as well as the fact that while the US goes Trumpish and Britain went Brexit, we remained stable and consistent.

      Its up too our government to make the most of that opportunity(yet to be seen). The wealth part of the equation is a nice side benefit but not just them bringing the money, they invest in and create jobs which I have seen personally. Many immigrants come here and find it difficult to find jobs with their existing qualifications and experience so their entrepreneurial spirit kicks in. From Convenience stores and Taxis too Retirement Homes and Tourism Accomodation not to mention the doctors, lawyers and engineers that do push through and get Canadian qualifications.

      So no, thats not the invisible elephant in the room, in fact thats one thing we should increase with smart planning.

  5. Nick says:

    Yea, I seriously doubt any attempt to end bidding wars will end well. That’s a natural part of the existing process. Now if Government was serious about helping there are a few ideas I have.

    1) Increasing incentives to clean brownfield development sites up. Think of the area that can be unlocked and rebuilt in central Scarborough as one example. There are factories there yes, but eventually manufacturing will die out in that immediate area. Whether its the poor economic choices of our government, obsolescence, jobs moving overseas or more likely automation, we won’t have those plants there forever. So what we do is we get in front of it, the three levels of government and 10-15 choices builders and developers go to town on that area and carve it up now. Think of the supply in a central location that can be created and it can have high rises, as well as townhouses and hey the always mentioned missing middle properties as well.

    2) Reducing the LTV amount that current owners can use to refinance their homes. Currently, one of the things skewing the market is that people buying their first home getting their parents to loan them funds. From my perspective this is skewing the market more than CMHC or foreign investors. People should be able to refinance, but limiting it to between 55% and 65% (getting all Banks and Credit Unions in on this agreement is key) as opposed to 80% would reduce the amount of people doing it as well, it would serve as a consumer protection on top of it as rising debt loads continue to be an issue. They can still cash out if they like by selling there home, which would help with inventory as well as create a bit of demand for condos and rentals(which if we chase investors out, we will need anyway).

    3) The other post I saw in this thread that I thought was a great idea was requiring purchasers to put down 50% of the purchase price on any non primary residence purchase. I would refine the statement to limit it to purchases of any residential property up too three units. We talk about foreign investors a lot right now but its investors of all kind driving this. Flippers(especially the ones claiming the flip as their primary res), foreign investors, buy to lets and so forth. All of these guys with multiple holdings are driving prices up and pushing people out. If we force investors as a whole out of the family residential market but leave them able to participate in larger multi unit buildings and commercial spaces with the current rules I think we can find a happy medium.

  6. R says:

    1. the 1000+ words about not understanding “bidding wars” is semantics. Everyone is talking about the same process in which multiple offers are involved, “offer dates/terms/prices are irrelevant and agents/RECO/CREA/etc. have no teeth to do anything about misleading practices, rogue agents, illegal dealings, etc. Cal it whatever you want, the PROCESS is a problem.

    2. Selling PRICES may be because of supply and demand. Selling process is not. All else being equal (and often it’s not), the selling price is “what a property is worth”. The process of nonsense listing prices and multiple rounds has nothing to do with supply or demand. If a SFH is worth $1.2 it should be worth $1.2 no matter if it’s sold in a Buy it Now eBay listing for $1.2M or a “bidding war/process” that starts at $1. Aside from a few outliers, I would imagine this is the case. Supply and Demand has nothing to do with the bidding wars, it’s just the mess of the system that is currently out there.

    3. The government can adjust the process (ie. controls of who/how/where/when things are sold), they can adjust the pricing levels (i.e., taxing/commissions/etc.), they can adjust the market (ie. housing builds/developer incentives, home buyer credits, taxes).

    4. While those on the hunt for home ownership (and the media) might be the loudest now to ask for change to the system, I’d give it a few more years of similar activity when the volumes decrease and realtors have less listings (even at higher prices), before the RE industry is the one asking for changes to keep all those agents (esp. the newer ones) afloat in a market where volume is down and GOOD agents are doing 1-2 deals a year and the search goes on for 6-9 moths before they get paid….

    5. Overall, just another example where the industry isn’t helping itself, sticking it’s head in the sand (as per your post) saying there’s no problem (or it’s not our problem) when the majority of others (including sellers) see the system as the issue. Almost as bad as those radio commercials from REALTOR.ca a while ago making it sound like the average buyer is an idiot and lost without an agent…

  7. T says:

    The government at all levels are scrambling to position themselves as providing the solution to the current housing and debt challenges experienced by many. Nothing good can or will come from this, likely just more oversight and taxes to pay for said oversight.

  8. Carl Warner says:

    “Cool the market” means one thing, and one thing only: lower prices. Good for buyers (half the people involved), not so good for sellers (the other half of the people involved). Does anyone ever explain why favouring one particular half of the actors is preferable to favouring the other half?

    1. Jack says:

      There are several explanations. One is this: When an important market (such as the housing market in Toronto) is “overheated”, it is likely that it will drastically correct, with bad consequences far beyond just buyers and sellers in that market. That’s why it is in the interest of many to “cool” it. Here “many” is way more than just half of those involved.

      So we can argue whether the Toronto market is heading for a major correction. But if it is then it is hard to argue that we should all just ignore it and let the market forces do their magic.

      Another explanation is that the population is not nicely divided into buyers and sellers, with one half in each category. When speculators make the market, those who lose far outnumber those who gain.

    2. jeff316 says:

      Because more people are looking to buy than there are looking to sell.

      Which means there is more pent up political clout in the buyer segment.

    3. AK says:

      Because the belief of the impending correction scares the government. For good reason.

      1. CMHC. Don’t forget taxpayers are on the hook.
      2. Banking system. Remember 2009? A banking crisis is not a fun thing.
      3. Misallocation of both labour and capital: a scorching market causes all sorts of people to make a beeline directly for real estate to get rich. How many new realtors and investors do we have in this city? If (yes, IF!) there EVER is a correction in this city, this will cause unemployment to soar way past what it otherwise would have, as lots of these people will now need to re-train and find new industries. This leads to serious structural unemployment and makes inevitable downturns much worse. And as a proportion of our GDP growth, Real Estate is WAY WAY WAY WAY above it’s historic norm, so it’s hard to argue this isn’t happening right now.

      That’s why. Also, it’s not as simple as buyers vs sellers. I know plenty of sellers who want lower prices (or at least a sane market that goes up gradually each year, not 30%), maybe because they want their kids to be able to live in their communities. Maybe because they want to upgrade one day. Maybe they are just scared of what happens when the party ends. Lots of reasons, but it’s not as simplistic as you suggest.

  9. jeff316 says:

    David’s quote — “I think the public want to be able to beat the highest offer by $1, but it doesn’t work like that.”

    Yes and no.

    Yes, the buyers and sellers and agents that the media keeps talking about and talking with, they’re not worried about prices. Or affordability. They’re worried about justifying their own behaviour.

    No, it doesn’t work like that *right now* but it can work like that if we choose. The question is, how will such a change affect consumer behaviour and prices? It might not be in the way we think. But as long as the people in the first group don’t truly care about prices, then risk of making these changes is low.

    1. Ralph Cramdown says:

      “It doesn’t work like that.”

      Perhaps a thought experiment. What if Ontario market conditions and conventions on real estate sales were different than they are now, and people agreed that they weren’t working and needed fixing, and the government (or the self-regulatory organization) did some studies for six months or a year, and came back with recommendations that things be changed to roughly our current system, viz:
      – Agents could work for the buyer, the seller, or both, but if they worked for both they’d collect double the fee and be able to provide only half the useful advice.
      – It could be declared that there would be a single round of secret bidding, multiple rounds of secret bidding, or an open auction, but the rules could be changed after each round of bidding, or even before the first round if a tasty enough offer showed up.
      – No conditions on home inspection, financing or condo status certificate, strictly “as is, where is” rules
      – We have no idea who is buying all the property and we don’t care to find out. It is possible that half the dollar value of our patrimony sold every year is going to citizens of a certain country that can’t be named, but where I and every other Canadian are severely circumscribed from owning property.

      If this came out as a policy trial balloon it would be roundly excoriated as completely asinine and inappropriate.

      And yet, and yet… Everyone even tangentially connected to the industry seems to be saying to be very careful before changing anything, and maybe take a long, long time studying possible options first. And everyone outside the industry is having the conversation that strikes fear into grandparents everywhere: “Mom, dad, we want a yard for the kids and the dog and a decent school, and we can’t afford it in the city, so we’re moving to Bowmanville. We’ll still visit at Christmas.”

      1. jeff316 says:

        The only one of those bullets that would get totally panned is the last.

        In the other three, there are arguments that could be made in favour of them as policy ideas, particularly depending on the circumstances we would be changing away from.

  10. Fred says:

    The real estate market is as transparent as the retail gasoline market. A transparent system that will actually result in fair market value prices is one where all the offers are registered with prices visible to the general public. You don’t have to shut down the city to do this. It’s as simple as building a website. An e-bay of real estate, if you will. Equities markets will give you both the breadth and depth of a security to ensure you understand the price environment you enter or exit. Real estate should be no different.

  11. Edwin Mcdougall says:

    Why not ban offer deadlines? Put the onus on the seller to know what their property is worth and accept what they are comfortable with.

    Also, they could very easily force listings to be within 10% of the final sale price of all similar properties within the last 60 days. That way nothing is grossly underpriced.

    1. McBloggert says:

      Sorry – but there is no way in the world that will ever happen. Unless we become a communist country.

      The government can’t dictate what price you list your house for. It would be interfering with a free market and would never hold up to legal challenges.

      And the logic to your first idea escapes me. People would be forced to list their houses for an exact amount they will accept. The first person to call bibs on it get its? How would that be even possible? 50 people want to buy the house at $X and what determines who gets it? What if no one wants it at the price the owner has set? By the same logic – lowering the price wouldn’t be acceptable…

      More transparency would be great; sales information, the offer process etc. Would an auction work system work? Potentially – but I don’t think it will do much to cool the prices – but it would at least offer some satisfaction to those in the market that they know exactly how they lost…

      1. Ralph Cramdown says:

        “The government can’t …”

        Any time you feel the urge to start a declarative sentence with “the government can’t,” I’d urge you to consider instead saying “the government shouldn’t,” or “the government shouldn’t be able to,” because, believe me, the government CAN.

        In Canada, it often goes back to Section 1, a.k.a. the “notwithstanding clause” of the charter, less than 40 years old.
        https://en.wikipedia.org/wiki/Section_1_of_the_Canadian_Charter_of_Rights_and_Freedoms

        In the US, it is even more interesting because their constitution is usually given more primacy, and this is probably one of the more ridiculous cases you will ever read:
        https://en.wikipedia.org/wiki/Wickard_v._Filburn
        The top two paragraphs if the Wikipedia page is enough, and much of subsequent interstate commerce clause jurisprudence relies on this decision.

        So don’t say the government CAN’T. It CAN. Whether you like it or not.

        1. McBloggert says:

          I think you are sized on an argument of semantics. There are no absolutes and your suggestion that the Federal government would invoke a reasonable limits clause to curtail the charter of rights and freedom in an effort to distort free market practices is possible – but – is utterly impossible and not what the clause was intended for.

          Further – such a action by government would likely crumble in appeal and call into question our democratic system – when government starts dictating the pricing of property (i.e., property to sell at no more than 10% of the previous sold – which is impossible given housing stock is not all the same even).

          @Jeff316 presents a much more constructive comment; in that government could legislate some pricing and advertising rules.

          1. Ralph Cramdown says:

            Your “free market” use and trade of real estate is already governed by umpteen statutes, regulations and levels of government, from treaties and the federal government all the way down to your condominium board, which says you can have any colour window coverings you want, as long as they’re white.

            I’m not arguing here that a level of government should or will impose any particular rule soon, just that federal or provincial governments COULD impose all kinds of things that you might consider pretty draconian, and if challenged on it in court, could probably point to similar legislation in some other reasonably free and democratic country, and the court would grant it deference.

            You do not “own” real estate in Quebec or in the rest of Canada, in two different ways (Quebec civil code is based on the Napoleonic code, elsewhere is based on English common law which, regarding land, is an outgrowth of the feudal system). You own a limited bundle of rights relating to that real estate, all of which ultimately are subservient to the rights of the Crown.

            Look on the bright side… If your real estate is registered in Ontario under the Land Titles Act, at least you don’t have to worry about your neighbour using your driveway for a few decades and then claiming he and anyone he sells the land to in future has the right to use it forever. Under the older Land Registry, you had to worry about that kind of thing. So sometimes, the government gives you more or stronger rights over your real estate than you had before. But not often.

            Real estate here definitely isn’t a “free market.” It is regulated in different ways from the free market we don’t have in small kitchen electric appliances, or the free market we don’t have in credit cards, but it is heavily regulated nonetheless. For a free market, try illicit drugs.

          2. jeff316 says:

            Yeah I gotta go with Ralph on this one. I cringe each time I read “free market”. I have no doubt that someone in government has considered requiring real estate representations to be offers, or to have requirements for sale upon certain conditions. Who knows what we’ll see in the budget! I just don’t think they’ll do it, for legal, economic and policy reasons.

      2. jeff316 says:

        Government certainly could legislate/regulate how you go about pricing and advertizing your house sale.

        They would have a harder time legislating conditions upon which you would be forced to sell it – it’s not impossible, but unlikely.

        That’s not to say that a government couldn’t try to legislate forced sales requirements with a view to looking proactive, knowing full well the chance of it holding up is slim.

      3. Edwin says:

        In my example there is no law or rule forcing the seller to sell their property to the first person that offers them list price. If they think they can get more, they are free to reject the offer. But at least they take the risk instead of the current system where the buyers are forced to blind bid.

        Step one before any big changes to the bid process, I think it would be nice if the seller had to publish (confidentially) the official offer from all received bids, once the property sale is final and closed. That way you could at least see what the majority of bidders offered, and get an idea of what the properties true value is. Right now if one bidders overpays by a bunch it sets the market going forward at an artificially inflated level.

        And how is a law forcing someone to list their property for what it’s worth communist? Hell, I’d be ok letting sellers list their property for more then its worth, if they would like to try for the home run. I just don’t think it’s right allowing list prices 20+% below current market value.

        1. Condodweller says:

          Revealing the all the offers after the fact is actually a great idea. I have said before that I would either use a silent auction process or at least have all offers registered on a central site monitored by an independent agency. I.e. don’t let the RE industry self-regulate itself. This would weed out the bad apples who hide offers from the seller in order to double end the deal. Having the transparency of seeing all offer prices after the fact would provide the secrecy seller agents are so desperate to keep, yet would provide valuable information to would-be bidders on the next property which might help keep things in check.

        2. jeff316 says:

          Why is a list price that’s 20 percent below “fair market value” a problem, but a list price 20 percent above “fair market value” not a problem?

          Which one do you think will end up costing buyers more money?

          1. Jack says:

            Answer to: “Why is a list price that’s 20 percent below “fair market value” a problem, but a list price 20 percent above “fair market value” not a problem?”

            Because in every other market the list price is the asking price. It means “this is what the seller is willing to sell for”. In the Toronto RE market the list price doesn’t mean that. In fact, it doesn’t mean anything at all.

          2. Ralph Cramdown says:

            Interesting to note that, for most other products, listing at a price you won’t sell for is illegal. Want to add a bunch of fees to the price of that new car or that airplane ticket that you advertised in the newspaper? Illegal. “Sold out”? Covered by bait and switch laws. Heck, advertising “70% off” on a mattress set is illegal even if you’re willing to sell at the advertised price, if you didn’t sell most of them at the full price.

            I don’t know if the local real estate industry doesn’t understand how good it has it compared to other industries, or is just so short term in nature that it doesn’t care. Remember a few years ago when the occasional young Turk agent would list a house at $1, the media would eat it up, he’d be quoted saying “we’re going to let the market decide,” and five readers would think “Cool concept!” while everyone else would think… yeah, well I’m not going to tell you what you thought of him, but probably similar to what I thought. And now most every listing is doing that, but with a price 15-20% below market instead of $1.

          3. jeff316 says:

            Just to re-cap:

            A house selling for 20 percent above the list = list price is a sham

            A house selling for 20 percent below list = list price is A-OK

            All-in pricing requirements tend to be applied to specific sectors and industries (e.g. payday loans, airlines, travel, used car sales, etc – there are many areas where extra fees and add-ons are, sadly, perfectly legal) and to offers, not invitations to treat. Certainly they could be applied to real estate and likely to invitations to treat, but applying the same rules that apply to hamburgers and mattresses may or may not prove appropriate for selling your home.

          4. jeff316 says:

            I do agree re: the real estate industry’s naivete, though. I think that’s why we’ve been seeing some articles featuring more sympathetic real estate agents – those guys that get that they need to get out ahead of this, and capture a niche for themselves as the guy that get’s it. The real estate industry’s unwillingness to acknowledge and address the public’s perception of the current market. Sometimes you gotta get out there and deal with problems, even if they are really only issues of perception. And if the industry aint’ gonna do it, government will eventually.

          5. Jack says:

            I am sure there are different opinions about this. To clarify: In my mind, a house selling for 20 percent above the list does not necessarily mean that the list price is a sham. It can easily happen when there are multiple buy offers. But if the list price does not mean that the seller is willing to sell at that price, then it does not really mean anything, and we can just as well have listings with no list prices.

          6. Condodweller says:

            20% below will cost you more in the current environment. It may sound counterintuitive but that’s how it is. I don’t think I ever said 20% over is ok though I don’t know why anyone would want to do that.

            I don’t tink the government is going to do anything major. They are going to keep doing their tweaks to cool the the market as they have done in recent years.

          7. Ralph Cramdown says:

            To my mind, market knowledge used to be the primary thing* that hiring an agent bought you. What price should I list my property at so as to maximize the sale price I get, minimize the number of lowballing yahoos tracking mud onto my carpets, and ensure a high probability of selling within 90 days? Because (almost) any fool with a license can install a lockbox and put a listing on MLS.

            I think that the strategy of under-listing everything and turning each listing into a 10 day goat rodeo has cheapened the value proposition of agents in the eye of the public. What expert knowledge do you bring to the table for 5%, aside from the right to list on MLS?

            * – OK, negotiating prowess also used to be a thing that full commission bought sellers. But in an era where agents routinely accept the highest unconditional offer on “offer night” without sign-back or negotiation, that’s another thing sellers apparently aren’t getting lately for their 5%.

          8. Condodweller says:

            Getting value for our 5% is a whole separate discussion. Whoever dreamt up the percentage based on price commission scheme was very smart. He/she knew that with appreciating prices agents would get ever increasing commissions. At current prices commissions are way out of touch with reality. So many things are tied to CPI, RE commissions need to be inversely tied to CPI to make things fair for the public.

    2. Emm says:

      I also wondered if there is some way to keep listings from going so insanely over list price – I think some of what buyers are struggling with are the properties going $1,000,000 over list…is there a way to incentivize setting prices at actual property value. Should the listing go more than 20% over the list price, real estate commission will not be paid on that price, and the sellers get taxed extra on that amount? Possibly terrible ideas, but how else to prevent real estate agents from keep sending buyers back to increase their prices if there isn’t a diminishing rate of return for them and their clients?

    3. Jack says:

      The “offer days” as currently used are not really deadlines, they are the opposite of deadlines. “Offers accepted on Thursday” means “will not accept offers before Thursday”. I don’t see what’s wrong with that. It’s perfectly reasonable to give the prospective buyers a few days to inspect the property before they make an offer, and to give the seller a choice of several buy offers.

      As for the “listing prices”, they currently don’t mean anything, at least as used in the Toronto market. I believe David Fleming had a blog entry about that some time ago. They are definitely not “asking prices” as that term is understood in other markets (e.g. in bid–ask in equity markets), despite all those sign boasting “sold xxx$ over asking”. In any other market, the seller sets the asking price higher than what he is willing to accept, not lower. So governments could amend or clarify the contract law, so that the listing price would have some legal meaning, thus converting a useless piece of the market mechanism into a useful one.

  12. Nic says:

    Was reading the below over the weekend and not sure if a similar set of circumstances could ever be applied in Toronto/Canada. More transparency can’t be a bad thing.

    http://www.cbc.ca/news/business/here-s-how-to-buy-a-home-in-australia-should-canada-follow-its-lead-1.3826727

    1. Jack says:

      Not sure why the Competition Bureau has to fight the RE organizations to release the sales data. The governments already have the sales data — they are reported as part of registering the title. In Ontario, some updates to the MPAC database and web interface could easily make the data available to everyone.

      As for selling homes in an open auction, why not? Does anyone know of any reasons why that would not work?

      1. Kyle says:

        Teranet (the electronic land registry) was sold to Borealis (OMERS), the Government doesn’t own it anymore.

  13. Ralph Cramdown says:

    If I’m selling a place and I ask three friends to each show up on offer night and submit offers for $5,000 under list with an uncertified $100 cheque for “serious money,” that would be unethical, right? And if my agent knew about it, that would be even worse? But if my agent lists the place 15% below market and three people out of the twelve who show up offer around list, they’re part of “demand,” right? Huh.

    Here’s some (unlikely) things that government could do to cool the market:
    – Buyers must be Canadian citizens with three years of NOIs showing taxes paid on income sufficient to support the mortgage.
    – 50% down on anything that isn’t a primary residence, or where the resident requires a cosigner.
    – MLS listings treated as offers rather than offers to treat, so if an all cash offer or one with guaranteed financing at the list price comes in, the seller is bound to complete.

    No, I don’t think these are going to happen, but if you think governments can’t do anything to cool the market, be more imaginative. Kathleen Wynne is running at less than 1/2 of Trump’s popularity, and about tied with President Maduro of Venezuela, where they’re literally rioting in the streets over food shortages. And by all accounts she’s going to run for reelection next year. Something, or the appearance of something, is going to be done.

    “Supply and demand” is such a non-explanation for the housing market. In economics 101, they sketch a couple of curves on the chalkboard and say “see, when prices go UP, demand falls and supply rises. When prices go DOWN, supply falls and demand rises.” Which is typically exactly NOT how housing markets work. They depend on the supply of jobs and wages, the supply and price of credit, of foreign money, of speculators and of optimists. Here and now, it would appear that voters have a demand for change.

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