A balanced housing market is good for everyone, and in the spring of 2021 the GTA was far from one. As a real estate agent, I have been listening to my clients’ concerns and trying to find solutions, and this post explains why blind bidding was pushing prices up and why balance matters.
This post was first published on March 31, 2021. The views below reflect the market at that time.
How blind bidding drives prices up
Among the many factors behind rapidly rising house prices in Ontario, especially in and around the GTA, one major contributor could be the blind-bidding process.
In many cases, the asking price sits well below the actual market value, and that creates competition among buyers. Since no one knows what the other offers are, everyone tries to make their best and highest offer. Eventually, the house sells for much more than the asking price, sometimes hundreds of thousands more.
In the end, the selling agent proudly posts that he or she sold the home far above the asking price. Yet that asking price was already below market value. A balanced housing market would not reward this kind of pricing game.
False competition works against a balanced housing market
This practice is not good even for real estate agents. Their buyer clients get frustrated after losing several attempts to buy a home for themselves. Many families write offer after offer and still walk away with nothing.
It also leads to misleading statistics about the difference between asking and selling prices. When sellers set list prices low on purpose, the gap looks bigger than it really is. As a result, buyers and sellers both get a distorted picture of value.
For sellers, there is a lesson here as well. A realistic price based on recent sales tells buyers you are serious. My post on a GTA home pricing strategy explains how to set an asking price that sells.
Calls for government action
Later in this post, you will find a link to a Globe and Mail article about a BMO report. The report called on policymakers to take the necessary actions to cool off the housing market.
This false competition is not good for the market. Eventually, it gives people reasons to call for the government to take serious action, even though the real goal should be a balanced housing market. We have also heard recent talk about placing a capital gains tax on a principal residence, which is currently exempt from such a tax.
Such a tax would be a disaster for everyone, especially for seniors. Many of them rely heavily on their biggest asset in life, their home. For many older homeowners, that equity is their retirement plan. It may pay for care, help their children buy a first home or simply give them peace of mind. A new tax on that equity would change those plans overnight, and it would not add a single new home to the supply.
What a balanced housing market looks like
A one-sided housing market, either a sellers’ market or a buyers’ market, is not good for anyone. The ideal is a balanced market for all, including buyers, sellers and real estate agents.
In a balanced market, homes sell within a reasonable time and close to their fair value. Buyers have time to do their homework, book an inspection and arrange financing. Sellers, in turn, can plan their next move with confidence. Supply and demand still set prices, as I explain in my post on how supply and demand shape home prices.
How real estate agents can help bring balance
I hope my fellow real estate agents will think long term. We can help educate our clients and bring about a level playing field for everyone. Honest pricing, clear advice and patience all help move us toward a balanced housing market.
Buyers can also protect themselves. Know your budget, get pre-approved and set a firm limit before you walk into a bidding contest. Sellers who face a slower market can read my tips to sell your home in a buyer’s market. You can also read the Globe and Mail article on the BMO report for the wider debate at the time.
Finally, take care of yourselves and follow the safety precautions from health care professionals as the COVID-19 pandemic continues.
Talk to a Mississauga real estate agent
Do you have questions about buying or selling in today’s market? I am happy to talk through your plans. Please send me a note through my contact page or call me at 416 908 5600. A. Q. Mufti, Sales Representative, RE/MAX Real Estate Centre Inc., Brokerage. If you found this helpful, I would appreciate a Google Review.
