What’s the deal with open offers?

On December 1, the Government of Ontario made some changes to the province’s real estate regulations. The new Trust in Real Estate Services Act (TRESA) is meant to increase transparency, encourage ethical behaviour, and avoid conflict of interest and fraud. The changes mostly impact agents (and the amount of paperwork we’re going to have to do!), but there is one big one that will affect buyers and sellers: open offers.

What is Ontario’s new open offer process all about? 

Before we go into that, let’s start with the way offers have been handed until now. Before the guidelines came into effect, if a seller got multiple offers, they couldn't reveal what those offers were to competing bidders. 

That process is called blind bidding. In it, you are making an offer on a home based on your agent’s guidance and what you can afford. But so are any other people who are interested in the property, so you don’t know what you’re up against. They could be following their agent’s recommendations and keeping their offers within the property’s actual value, or they could be getting emotional and making offers much higher than that.  In those cases especially, it would be nice to know how much someone else is bidding so you can either try to win it or tap out and move on. 

When the market was hot, this type of bidding sometimes pushed prices higher and higher. Buyers tired of losing out on properties would offer aggressively high amounts, and drive up not just the price of that property, but set the standard for similar ones in the area. 

I always counsel my clients to come up with a number where they’ll be okay walking away if the bidding gets too high – but also won’t have buyer’s remorse if they win it. 

People have been asking to bring transparency to this process for a long time. So the government came up with a compromise: they've introduced open bidding but made it optional. In other words, it's up to sellers to decide if they want to be open with bidders. 

Are open offers good for sellers? It depends. 

To be honest, I'm not sure how all of this will play out. The market will certainly influence seller decisions, and I predict we will see more blind bidding when the market gets hot again. But I also think there are a number of advantages to showing buyers your hand.

Another benefit to a transparent approach? When buyers can see exactly how much more they'll need to offer to stay in the running, they'll be a lot less likely to walk away in defeat, thinking the final price will be way out of their range. 

Here's a great example: I made an offer on a house for myself in the Beaches, south of Queen and just steps from the lake, so it got plenty of attention even in a slow market: I was up against several other bidders. 

Ultimately, I got outbid and didn’t get the place, which was a big letdown. And I was even more disappointed when I found out that it had sold for only $25K more than what I’d offered! If I had known another $30K or so would have done it, I would have likely stayed in the game. Even if I didn’t get it, the other buyer would have bid it up further – and the seller would have made more on the deal.

Open offers could actually drive prices up

Although the new process is meant to curb big price jumps, it could potentially get sellers more for their properties than blind bidding – as in my example. When bidders can see what they're up against, it basically becomes an auction – one that only ends when people stop bidding. Australia, which has an open auction-style system, has seen prices climb in ways similar to Canada's. I think supply and demand is what drives price – not the selling system.

Ultimately, time will tell what kind of difference open offers will have, how many sellers will actually use them, and whether buyers will find the new process beneficial or not. As with any new guidelines, it will take a while to settle in since there are so many variables to each sale – nothing is that cut and dried.

Would you consider open offers as a seller? Would you welcome that kind of transparency as a buyer? I'd love to hear your thoughts! Drop me a note anytime at [email protected].