Karen Scutt is in the market for a new home in Toronto and placed an offer $100,000 above the asking price of a $1.8-million home, only to find out within minutes that she was out of the running as someone had bid upwards of $400,000 more than the asking price.
“They’re pricing the houses so much under what they want that even if the listing is in your range, you’re already resolved that you’re not going to get it,” she told CTV News.
When she was placing a bid on the home, Scutt was told that there were six other bidders, but wasn’t told who they were or how much they had bid.
This process is referred to as “blind bidding,” and the lack of transparency can lead to properties being sold for thousands of dollars more than they need to be.
For example, if there are three bidders looking at a home, one could bid at the asking price, one could bid $5,000 more than the asking price and the third could bid $25,000 more than the asking price. Without knowing what the other bidders offered, the third bidder essentially paid $19,000 more than what would have sold them the house.
Blind bidding is becoming more common in Canada but has concerned some economists, who believe the housing market is overheating and becoming unsustainable.
“We think that if we’re going to have an auction process that should be transparent and open to all bidders,” said Douglas Porter, chief economist at the Bank of Montreal.
In Australia, the preferred method of home sales includes an auction outside the home on a predetermined date. With this method, potential homebuyers can see who else is bidding and exactly how much they’re offering.
“If it was a little more transparent (in Canada), then I think that would be great,” Scutt said.
Ultra-low interest rates and a sense from buyers that they may never own a home if they don’t act now are also adding fuel to Canada’s housing market.
In Toronto, a report released on Tuesday indicated that home sales are up 97 per cent compared to a year prior, as the demand is vastly outpacing the supply. The report also found that average housing prices have jumped by 21.6 per cent in the last year to a whopping $1,097,565.
The red-hot housing market isn’t just a Toronto problem, either.
Last month in Ottawa, a couple lost what they called “one of our dream homes”despite offering $400,000 more than the asking price.
In Montreal, the average home is selling for around 20 per cent more than it was a year ago.
In Victoria, B.C. more than 60 per cent of homes are selling above the asking price.
“At some point the activity is going to have to slow down. It is unsustainable what we’re seeing,” said David Langois, president of the Victoria Real Estate Board.
To try and slow things down, some economists have suggested taxing the profits on home sales, even for primary residences, or raising the minimum requirements for a down payment, while others believe governments should focus on increasing housing projects to improve the supply on the market.
“It’s absolutely imperative that all levels of government address the supply side of this equation, and bring new housing across the spectrum — rental, vertical, low-density — to market as quickly as possible,” Don Kottick, president and CEO of Sotheby’s International Realty Canada, recently told CTV News Chief Financial Commentator Patricia Lovett-Reid.
“Trying to tackle the demand side through taxation is not getting to the root of the issue and will bring about unintended consequences. It puts the financial plans and the financial security of millions of Canadians at risk, and it also risks reducing housing supply even further, if people are discouraged from selling their homes.”
With files from CTV News Chief Financial Commentator Patricia Lovett-Reid