Real Estate

Disclosing prices in bidding wars may hurt homebuyers: Samaroo

By Tony Poland, AdvocateDaily.com Associate Editor

An Ontario government proposal to allow realtors to disclose prices of other offers in bidding wars may cost homebuyers more in the long run, says Toronto real estate lawyer Sarita Samaroo.

The government launched a consultation earlier this year to examine the Real Estate and Business Brokers Act, including its rule on multiple bids.

As it stands, if there is more than one bid on a home, the seller’s broker can only disclose the number of competing offers, not details of them. And Samaroo, principal of SST Law Professional Corporation, says that’s the way it should remain.

“I don’t think disclosure in this instance is a good thing,” she tells AdvocateDaily.com. “If there is a belief that blind bidding wars cause inflated prices in the market, then how will disclosing prices limit that if people want to continue bidding higher? I believe this would inflate prices even more.”

In the current model, a prospective buyer goes into a potential purchase knowing only the asking price. In a hot housing market, with several bids on a home, a purchaser may feel the pressure to exceed the asking price by tens of thousands of dollars in order to be successful.

In its consultation document, the government says, “Allowing registrants to disclose the details of competing offers to other bidders may benefit both buyers and sellers by making this process more transparent.

“Prospective buyers would have better information to inform their decisions, while sellers would know that potential buyers had not been deterred by the prospect of a blind bidding war,” the government notes.

The Ontario Real Estate Association welcomes the consultation.

“The rules governing realtors were set 16 years ago when smartphones weren’t invented, and fax machines were the norm,” CEO Tim Hudak said in a statement. “The industry has changed tremendously since then. It’s time for the legislation, as well as enforcement and education to catch up with the modern real estate market. Updating the rules will increase professionalism in our industry, which is what realtors want and what home buyers and sellers deserve.”

But Samaroo says an open process increases the likelihood of an auction where the final amount can climb even higher than in a blind offer.

She says in the present system, a purchaser only knows the asking price and can exceed it up to the limit of their financing. But an open bid could mean buyers may feel the urge to keep topping the highest tally.

“It’s similar to that of an auction process. If you know the starting price of something is $100, that’s where you have to start. But then you see what’s being offered and have to beat those subsequent bids. It’s going to cause even more of a frenzy,” Samaroo says.

“I think the mystery of the bid is a safer practice because the prospective buyer comes in at the price they’re prepared to spend, whereas once you know the bid, you feel pressured to come up with an increased amount.”

She also says there’s a potential for “underhanded deals” if realtors from affiliated brokerages know each potential bid in the process.

Samaroo says for the plan to work, “There would have to be some form of control as to when those amounts are disclosed, and how realtors receive that information.”

“Then it may be beneficial for everyone to have that extra disclosure,” she says.

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