Blind Multiple Offers: An Amplifier of the Real Estate Overheating?

In Quebec, the recent rise in property prices has increased many people's wealth but has made homeownership more difficult, especially for first-time buyers. The primary factor behind the price surge is the significant imbalance between property supply and demand, with too few homes available for an ever-growing demand fueled by economic growth and high immigration. As mentioned in previous articles, only a substantial increase in new construction can curb the soaring prices. However, the media and some political parties blame blind multiple offers, commonly used in Quebec, for limiting access to homeownership. Is this really the case?

In Quebec, there is no legislative framework mandating a specific methodology for managing multiple and competing offers on a property. Aside from the ethical guidelines of the OACIQ that govern brokers, brokers are free to advise their clients on various approaches. However, they cannot legally disclose the content of one offer to another bidder without the first party’s permission, making it impossible to organize open auctions where all participants know each other's bids. Currently, offers are handled as they are received, and auctions typically occur when the seller decides to respond to offers at their chosen time, forcing multiple offers. Sellers are not required to respond to bidders in the order offers are received and can discuss with any bidder at any time and decide when to respond.

Most buyers present their offers when the seller wants to respond, making these offers simultaneous. Buyers are not obliged to comply with the seller's requested timeline.

Blind Multiple Offers

Currently, each buyer presents their offer without knowing the content of the other offers, making their best offer. Due to short response times, sellers typically do not make counteroffers, meaning each buyer must stretch their budget to the maximum. During the overheated pandemic market, this led to the winning buyer often offering significantly more than the second-highest bidder. Critics argue that if the winning buyer had known other offers were lower, they would have proposed less and still bought the property. On a large scale, this would have slowed price increases and improved housing access.

However, a 2021 study by an organization linked to the University of Ottawa concluded that open auctions (where the price is known to all) could also cause similar or worse overheating. The analysis compared different countries' methods and found that in New Zealand and Sweden, which use open auction systems, price increases were higher than in countries with blind auctions during the study period. This casts doubt on blind auctions being a significant overheating factor. According to another study, an open auction can "by demonstrating everyone's interest, encourage buyers to increase their offers substantially" (Shi and Kabir, 2016).

While it's unclear whether the auction management method significantly impacts prices, there are other issues with blind auctions. According to OACIQ regulations, almost nothing can be disclosed about offers. Some brokers have abused this by hiding or fabricating information, making the process opaque. Changes aimed at increasing transparency, such as a registry or verification mechanism, could restore public confidence and help reduce the gap between the winning offer and others. Overall, there is merit in considering changes.