What is the Open Bidding Process?

Wow, miss a week in this industry, and it’s like you literally went from the 8-track to the CD, and skipped the Cassette altogether…

I came home from Ireland and my child seemed to be a month older.  She learned the word “help” while I was away, which is great, because now when she needs anything at all, she says, “DaDa, Dada, help!”

Drop a noodle on the floor?  “Dada help!”

Can’t pull that second boot over your thick sock?  “Dada help!”

Painting the walls with a magic marker, not going fast enough, and need an extra set of hands?  “Dada help!”

Imagine the look on her face when, with that last one, I did not want to help.  She couldn’t understand why!

Miss a week, miss a lot!

With your child, and with your insanely fast-paced, hyper-sensitive world called “real estate.”

Upon my return, I was asked, by colleagues, clients, and the odd media outlet, about my thoughts on OREA’s “recommendations” to the Province of Ontario, to revamp and update the Real Estate and Business Broker’s Act, specifically to allow for “open bidding.”

Now while their recommendations were plenty, and the idea of transparency was only one small part of what they offered up, the media seems to have latched on to the sexiest part of OREA’s report, and put that at the forefront.

I mean, who cares about “fair tax treatment for Realtors,” right?

It’s all about real estate auctions!

Now before I elaborate on the topic de jour, let me first provide some background on OREA.

Once upon a time, the Ontario Real Estate Association was in charge of education, and while “licensing” was, and still is, left to the Real Estate Council of Ontario, anybody wishing to become an agent, or remain an agent, went through OREA.

In March of 2016, RECO launched a request for proposal for educational services relating to real estate in Ontario, and March of 2017, RECO, to the absolute shock of just about everybody, selected Humber College over the Ontario Real Estate Association.

OREA’s main, and some say only job, was to provide education.

In 2016, approximately 76% of OREA’s revenue came from education.

Hmmm……..I wonder what percentage came in fees?

Once OREA lost education, many wondered what they would actually do.

In July of 2017, four months after losing education, OREA revealed their “Five Year Strategic Plan,” which was kind of interesting, since nobody really asked them to.

The header read: “The plan is a bold vision for a future without the OREA Real Estate College. It is designed to help our members succeed while transforming OREA into the leading professional association in the province.”

Now I’ll be honest, at the risk of sounding uninformed, but I don’t actually know what our association, with the Ontario Real Estate Association, actually is.

TREB and RECO both serve a purpose, but dare I say that ever since OREA lost education, I don’t actually know what purpose they serve.

They seem to have rebranded themselves as a real estate lobbyist, but even that didn’t work, every since they got into a May of 2018 spat with TREB, which you can read about as a refresher HERE.  TREB basically told OREA to “stay in their lane.”

So where does that leave OREA today?

They are the voice of today’s real estate agent, that not a single real estate agent asked for.

And all the while, I don’t know who they work for, who pays them, what authority they have, and what their actual purpose is.  They seem to be the tree falling in the woods, if you ask me.

Now why do you care about this?

Well, because of “The Final Report.”

It’s a report that OREA undertook to author, presumably when they needed something to do, and they gave it a name that seems to suggest either, a) they are aware of their own demise, hence “the final report” will be their last, ever, b) they simply love absolutes.

The Final Report, which you can read by clicking that link, is apparently the “Road Map To A New REBBA.”  I find this ironic because REBBA is enforced by the Real Estate Council of Ontario, who works on behalf of the Ontario government, and does not answer to OREA.

It’s like me authoring exactly what I want for breakfast, and dropping off the lengthy description of exactly how I like my chocolate-chip pancakes, among other things, in the mailbox of a neighbour up the street who not only isn’t responsible for making my breakfast, but also doesn’t care if I eat that day.

Now don’t get me wrong, I have been saying for years that REBBA, 2002, is out of date,  and needs to be re-written, just as the Condominium Act of 1997 needs to be torn down and rebuilt.  But having read their five “white papers,” I don’t know how much of what they’ve put forth, will be adopted.

And that brings me to the “transparency” regarding multiple offers.

Again, let me say that I am absolutely, positively in favour of bringing transparency to the multiple offer process, since there does not currently exist even one iota of an identifiable, and/or generally accepted procedure for how to review multiple offers.  But what OREA recommended in their “Final Report” is pie-in-the-sky thinking, and unfortunately, the public has latched on to it with a hope, a wish, and a smile.

I know that the sexy stuff sells, but it’s currently being over-sold as we speak.

The big article this past week that every media outet picked up was written by Linda Nguyen from the Canadian Press, who I actually met with two weeks ago to discuss this very topic.

Here’s the article: “A More Open Real Estate Bidding Process Can Benefit Everyone, Says OREA”

The article, at the onset, gives us exactly what we’ve read about so many times before in the Toronto real estate market: a unicorn.  Every year, we read an article about a nice couple from Oakville, or Keswick, or this past year – Toronto, who decide to sell their property to the nicer, or nicest, buyer possible.  One year, it’s a couple that admits they turned down an extra $100,000 to sell to a buyer they liked.  The next year, it’s a couple who create a “contest” of sorts for the “most deserving” buyer.  And every time these articles hit the newswire, buyers read the content, and decide this is how it’s always going to be.

Read this quote from the article:

“We really didn’t like the traditional process. My husband and I would rather see the home sell to someone that truly loves it and values it, and not just have someone lose out on the bid because of any undisclosed information.”

More power to them.  The world would be a better place if everybody was like this.  But they’re not.  And the market isn’t, nor will ever be, like this.  Don’t shoot the messenger.

Now as it pertains to undisclosed information, and the “traditional process,” this is where things get tricky, since there isn’t really a traditional, or standard, or agreed-upon process for reviewing multiple offers.

The subject of “disclosure” in multiple offers is only mentioned in one piece of real estate legislation, the RECO Code of Ethics.

“Competing offers – 26. (1) If a brokerage that has a seller as a client receives a competing written offer, the brokerage shall disclose the number of competing written offers to every person who is making one of the competing offers, but shall not disclose the substance of the competing offers.  O. Reg. 580/05, s. 26 (1)”

But as for what else you, the listing agent, can do in the course of reviewing multiple offers, it often falls into a grey area.

I remember talking to a colleague of mine once who was then a current member of the RECO Ethics board of review, and I said to her, “If I have ten offers on a listing, and I want to go back to one of the agents, and ask them to improve their offer, is that doable?”

She said, “No way.  You go back to one, you go back to them all.”

I asked her, “Where is this written?”

And she said, “It’s not, but it’s understood.”

Oh wow.  Really?

Yes.  And that’s how RECO operates.

There are certain sections of REBBA that act as a “catch-all,” if you ask me.

Section 3 of the “Code of Ethics,” for example:

“A registrant shall treat every person the registrant deals with in the course of a trade in real estate fairly, honestly, and with integrity.”

If that’s not a grey-area, across-the-board, catch-all, then I don’t know what is!  If RECO doesn’t like something that a registrant does, no matter if it’s detailed in REBBA or not, they can turn to Section 3, or sections like it, to find the registrant in the wrong.

So as for the idea of “undisclosed information” in the article above, we’re basically being told we can’t disclose certain information, but not really being told as much.

And this is where OREA, to their credit, have suggested we re-write the rulebook, and finally define what can, and cannot be permitted during multiple offers.

I mean that, for what it’s worth; to their credit.  I think that OREA has ceased to become relevant, their “Final Report” was born more of lack of purpose than desire to help, and most of the report is things that Realtors never asked for, and/or ideas that could never possibly be implemented.  But on the subject of multiple offers, they are correct in their recommendation that clarity is needed.

They are wrong, however, in their suggestion that an “open bidding process” either, a) can work, or b) will benefit “all.”

This is where I’m going to lose many of you, and I know that.  I get your frustration with the market, the real estate industry, and Realtors in general.  But hear me out.

In order for this “open bidding process” to take place, all the participants must agree.

And right then and there, the idea is dead in the water.

The unicorn is revealed to be a magical creature who is unfortunately all but a fantasy.

Because what seller, in their right mind, would deliberately agree to a process that might cost them money, or at the very least, cedes control?

Be like the people in the article above, and tell me you would agree.  But then put your full name to your comment, your address, and the value of your home, because I just don’t believe anybody would, in practice, and not in theory, anonymously, on a message board, agree to cede control in a leverage situation.

There are sellers who already do this, FYI.

The article also contains this paragraph:

The Witkowski’s realtor, Daniel Steinfeld, CEO of On The Block, said his company has sold about half a dozen properties in the Greater Toronto Area through the open auction process since launching last year. He likened the process to the website, eBay, but for real estate.

A half-dozen properties, which could be less, judging from the preceding word, “about,” in what sounds like more than a year, does not bode well for the popularity of this method, wouldn’t you agree?

And as with any solution to a problem, it seems, in today’s society, there always comes the unintended consequences.

So let’s do a quick brainstorm, er, thought shower, for questions and/or potential problems that could accompany the auction format:

1) How does the “auction price” take into consideration terms and conditions?  How does the auctioneer distinguish between a $1,000,000 clean offer, and a $1,010,000 conditional offer?
2) Are the bids binding?  Can they be?  Must an offer not be in writing and communicated to be considered?
3) Is the bidding in person, or online?  If it’s in person, what if somebody can’t make it?  Can they have a POA?  Who determines if the POA is authorized?  If it’s online, what platform?  Who oversees it?  What if there are technical issues?
4) What is the minimum bid increment?  Who determines that?
5) What amount of time is permitted between bids?

I could go on, and come up with a hundred other questions, but I almost think this is counter-productive, and coming off as far too cynical for a real estate agent who says he’s impartial, and in favour of change.  So I’ll digress…

The issue I have with the “Final Report,” and the take-away from articles like the one above, which we will surely see far more of, is that once again, the public is going to create this utopia where they can afford a detached home with a white picket fence and a walk-in closet for the price they want to pay, as a direct result of change.

If sellers want the option to divulge the terms and conditions of competing offers, I’m all for it.  In fact, I’m pretty sure a seller already has that option.  And because I’m “pretty sure,” then we absolutely, positively need clarity around multiple offers, and The Final Report is correct in that regard.

But let’s not forget that giving sellers the option doesn’t mean they’re going to take it.  The Final Report seems to convey that “an open bidding process,” can, and will result from this option being provided, and ergo, prices will flatten or decline as a result.

That’s the part that leaves a sour taste in my mouth, because every time I hear a politician, or a member of organized real estate, or the inventor of a better mousetrap suggest that he or she has an idea or plan to make real estate more affordable, that person, or that idea, often disappear.  And much of the time (see: rental controls) when those ideas are implemented, they backfire tragically.

So we’ll sit back and wait for RECO to respond to The Final Report, and continue to see rhetoric and conjecture spewed in the media while the public tries to make sense of it all.

Like I said, don’t shoot the messenger, but I just don’t see this “open auction” coming to Ontario.