Let’s continue the conversation from last week, shall we?
What if through CREA, TREB, or somewhere within the real estate industry, we were to create a platform for a transparent auction process?
I think it’s a good idea. And here is how I think it should boil down…
I can already see a certain faction of the industry disapproving of what I’m about to say.
I guess this is where the boys are separated from the men…
I think if you took an informal suvey of buyers, you would find that majority of them do not like the “blind” offer process when involved in multiple offers.
I’m just gonna throw that out there and see what the wind blows back at me….okay?
Call me crazy, but I think that most buyers don’t like being told by their Realtor, “Okay, the property is listed at $679,000 and there are twelve offers. I think we should offer…..ummmm……uhhh…..$765,000. Whaddya think?”
This is the way it currently works, save for my own sarcastic spin on things.
But we work as best as we can within the system in place, and the rules that govern it.
So what if there was a different system?
I think the issue people have with the “blind” offer process is that there is no opportunity to find out what other bidder/buyers are willing to pay. When there are twelve offers, and you “win” with the $765,000 offer, you don’t know if the second highest offer was $761,000 and you just squeaked one out, or whether the second highest offer was $720,000 and you want to slit your wrist.
I propose an auction process for properties that receive multiple offers.
I’m not saying that I think this system is essential, and I’m not saying that it will happen.
But I’m proposing it for the sake of argument.
Here is how it would work.
Currently, you will read on the MLS listing, “Offers kindly reviewed on Thursday, January 4th @ 7PM.”
You show the property to your buyers, you wait a week, and then you ready them for “offer night.”
You meet at the listing agent’s office, and one-at-a-time, you go in to present your offer to the seller and the listing agent.
You know nothing about the other offers, and when you get “sent back” for more money, you don’t know if you were the highest, lowest, or to be perfectly honest – whether there are any other offers competing at all!
The advent of the Internet is a wonderful thing.
The Internet has changed the way we do practically everything in this world, and the advertising and listing is no different.
So let’s take that a step further and bring the Internet into the actual selling process.
Every Realtor licensed by the Toronto Real Estate Board has a “TREB Number” which in turn is their “USER ID” for www.torontomls.net.
I propose that TREB creates a platform for online auction services, and each Realtor represents his or her client online for “bidding.”
Instead of “Offers kindly reviewed on Thursday, January 4th @ 7PM,” we’ll have, “Online auction begins on Thursday, January 4th @ 7PM, please login by 6:30PM.”
Buyer-agents will still “register” their offer with the listing brokerage, and buyer-agents will still be informed of how many offers there are on “offer night.”
In this example, let’s assume there are six offers and the asking price of 123 Fake Street is $599,000.
All the agents are logged-in by 6:30PM (in theory) and their clients are sitting with them, or are on the phone. Buyer Representation Agreements would be signed in advance, as is mandated by TREB rules, and a new form called “Online Agency Representation” would be signed to allow a Realtor to bid on behalf of his clients.
At 7PM, the online auction begins.
The online platform would show six icons for the six agents, although it may or may not be anonymous (this could be much debated). Nevertheless, you would know with 100% certainty that there are, indeed, six offers on the property – something that many buyers and/or buyer agents have been known to question in the past.
The bidding begins at $599,000, and bidders must increase their price by no more, or no less, than 1/4 of 1% (rounded up for simplicity). I this case, each bid amount would be $1,500.
This would prevent the first bid to be $695,000. Do we want to prevent this? Yes/No? Another topic of debate…
A very clear, very large, very bright icon would show the CURRENT bid price – $599,000.
Another very clear, very large, and very bright icon would show the INCREASED bid price – $600,500.
Another (you get the picture) icon would be your ability to BID.
Click on the “BID” button, and it will ask you “Confirm Bid?” Click it again, and you will bid $600,500.
Keep in mind that six people are bidding, so the auction could move up pretty fast! You may be staring at a bid price of $600,500, but before you can bid, eight other bid increases have been submitted and the price is now $612,500.
The process continues for each buyer-agent, until the auction is completed.
But each agent may, at any time, “LEAVE” the bidding. The auction room would then update that there are only five buyers remaining.
Of course, this opens the door to agents just staying in the virtual room to watch the auction. Hopefully they would have the decency to “LEAVE” the auction, but stay in the room if they so choose, allowing remaining bidders to know with certainty that one buyer has dropped out.
There are many other caveats to my example, but you get the point.
Surely this system could be created, no?
There is one major benefit of this system that every single buyer would love to see: TRANSPARENCY
The argument against the current system is that you have no way of knowing what other people are offering.
This is true, but again – we work within the current system and the rules that govern it, to the best of our ability. Rules don’t change overnight, and there’s no sense on dwelling on them.
Would this online auction system keep prices down? I’m not so sure.
Many people argue that the “winning” bidder of a multiple offer scenario in today’s system may pay $951,000 for a $799,000 house when the next highest offer is only $890,000.
But with a transparent, online auction where bid increases are 1/4 of 1%, how can a buyer draw the line in the sand?
Can you expect a buyer to bid $890,000 but drop out when bidding hits $892,000?
Maybe we could argue that this system will encourage more bidding!
We could argue all day.
I don’t think that TREB or CREA will ever design and implement an online auction platform for bidding in multiple offer situations.
But if they did, would it look anything like the one I described?