- the source for market opinions


October 11, 2018 | The Blind

A best-selling Canadian author of 14 books on economic trends, real estate, the financial crisis, personal finance strategies, taxation and politics. Nationally-known speaker and lecturer on macroeconomics, the housing market and investment techniques. He is a licensed Investment Advisor with a fee-based, no-commission Toronto-based practice serving clients across Canada.

Brenda and Khira, her partner, tried to buy four little houses last year. Failed every time. “Yeah, okay, I know we were kind of emotional,” says B, “but after losing out on the first one – it was perfect – we started to panic and just kept offering more, even though it was stupid, because how else are you supposed to get a place? It was insane.”

You wait, kid. Prices don’t go up forever. It’s a lesson which seems obviously now – but nobody believed it last year.

However at the heart of the B/K angst was the fact they kept being outbid by other, anonymous buyers who were making offers for unknown amounts, with undisclosed conditions, deposits or closing dates. This blind auction process, common in most major markets, is designed to give 100% transparency to the seller and 0% to the buyers. Couples like this are expected to make their “best offer” with no knowledge if they’re coughing up too little to be competitive, or too much and will overpay.

Blind auctions encourage buyers to do rash things. Like make the offer unconditional – no time to arrange financing or do a rudimentary home inspection. As such the process can easily result in someone “winning” a blind auction by paying too much and massively increasing their risk. Given the price of residential real estate these days, it’s a giant stain on the entire industry.

Worse, some agents and brokers purposefully engineer these hideous sales events. They list for a price strikingly below market value (as determined by comparables on the street or in the hood) in the full knowledge this will ignite hope and attract multiple bidders. Then when the blind auction begins each party is pushed higher by the spectre of competition and the place usually sells for a premium over street values.

In fact, it’s not uncommon during a frenzied time or in a demand area for bidders to sit in their cars at the curb outside, waiting for the listing agent to emerge with the top offers, then ask for more. Sadly, they always get it. So people like Brenda and Khira, on a fixed budget but with a bad case of house lust, are incredibly bitter.

“Realtors are scum,” Khira told me, spitting out those three words like an undigested bug. “How is anyone supposed to be able to buy a home without knowing what you need to pay for it, then have to make a decision in five minutes? They should all burn.”

Not everywhere are buyers so victimized. In Australia, for example (where people have also been house horny for years) it’s also common for properties to be auctioned – but it all happens in broad daylight. Most states there have legislated fair conduct – for example, it’s illegal to advertise an artificially low price just to goose buyers. False offers are not allowed. In some areas buyers need to register their interest in advance (so you know who the competition is), and the sellers can set a reserve or minimum price. The auction is open, often on the front step of the place being sold, and is final when the hammer comes down. The standard down payment then is 10% with closing in a month or two.

The big drawback to the Aussie method: no conditional sales. Sold means sold. (And for this reason, now that the Down-Under market is cooling, auctions are growing less commonplace.)

Well, time for a change. What our heroines went through – which turned them completely off home ownership – should not be repeated. Kudos to the real estate industry for making exactly this suggestion to the Ford government in Ontario.

On Thursday the province’s realtors said legislation governing their business should be revamped after a 16-year pause. One suggestion would mean the end of blind auctions – allowing realtors to disclose details of competing offers to prospective buyers. The catch is that all parties would have to agree to this change (which only makes sense). If adopted by the Big Kahuna, it would help end wild price speculation in boom markets by providing transparency. After all, why would you pay more than you have to or eliminate conditions once you know the competition has flamed out? Just like in a real, Aussie-style auction.

This also comes as the realtor cartel’s iron grip on sales data is being shattered, thanks to the courts and the federal competition bureau. Soon it will be common – in all major markets – for buyers to see the past sales history of a property, previous listings and relistings plus price changes and days-on-market. It’s valuable and powerful information in the hands of buyers so they research their own comparables, determining if an asking price is fantasy or realistic.

Of course, these are steps on the path to a real estate revolution in which agents, brokers and marketing giants like Re/Max and Royal LePage go the way of Sears and Future Shop. When Millennials no longer visit banks or stores – empowered by their phones instead – being held hostage in a house deal by some sleazy rock star realtor running a high-stress blind auction is repulsive.

The asteroid is coming.

STAY INFORMED! Receive our Weekly Recap of thought provoking articles, podcasts, and radio delivered to your inbox for FREE! Sign up here for the Weekly Recap.

October 11th, 2018

Posted In: The Greater Fool

Post a Comment:

Your email address will not be published.

All Comments are moderated before appearing on the site


This site uses Akismet to reduce spam. Learn how your comment data is processed.