Real estate auctions catching on in Ontario as calls for transparency, end to blind bidding grow

Bev Holt hates the cutthroat competition that comes with the blind-bidding of the Toronto-area real estate market.

So when she was preparing to sell her Burlington semi last year, Holt was receptive to her real estate agent's suggestion that she put her house up for auction. As a seller, Holt didn't want the pressure of deciding between competing offers with different prices and conditions such as financing and closing dates.

She also worries about buyers already struggling to afford a home, who are frequently being asked by sellers to come back with a bigger offer to win" a bidding war.

I've seen friends overpaying on houses, especially in this market, and then regret it after," she said.

Auctioning real estate is common practice in Australia and Britain. In Ontario, where realtors are prohibited from sharing offer details with other buyers, it has mostly been used to sell rural, sometimes unique properties.

With concerns that Ontario's blind-offer system is driving up home prices, there are calls for alternatives that provide more transparency in real estate transactions, particularly the practice of blind bidding that forces buyers to up their offer without knowing what they are competing against.

That's something auction companies such as On the Block Auctions in Vaughan and Ottawa-based Unreserved say their businesses provide. But their expanding presence is raising questions among real estate agents about whether they should be subject to the same provincial regulations as realtors, who hold deposit checks in trust and guard clients' personal information.

Auctioning her house meant Holt was able to set all the conditions and a minimum price before the home went on the block. Nearly 100 buyers toured the home in the two weeks leading up to the online bidding on the On the Block platform, which conducts most auctions

The system works so that the time of the auction, typically a three-hour event, is extended if a buyer comes in late. That means no one can come and steal" the home without others having a chance to better their offers, she said. There were about seven active bidders on Holt's home, one who came in at the end causing the auction to be extended twice.

Holt said she set a minimum selling price of about $650,000 for her home and it sold for about $780,000. Until that minimum is reached, she was under no obligation to sell, she said.

The appeal of auctions to buyers is obvious. An auction lets them know what offers they are competing against and the conditions of the sale. Things like minimum price, financing and closing dates are all decided beforehand, said Daniel Steinfeld, who founded On the Block.

The attraction for sellers may be less obvious but its appeal is real, he said.

Without using technical terms, this whole (traditional, blind bidding) process gives them an icky feeling. As a seller you don't know when to stop because you know if there's more money out there you want it," said Steinfeld.

It's just very difficult, especially in some of these crazy situations where you've got dozens or even just three or four people competing and you are being advised, in some cases, to keep going back to the well."

Steinfeld and his wife, Katie, founded On the Block Auctions in 2017, with Steinfeld getting his auctioneer credentials and building an online platform he describes as similar to eBay. They have a real estate brokerage that runs as a separate company and his wife is on the board of the sector's regulatory authority, the Real Estate Council of Ontario.

The auction business was a response to the frustrating bidding wars realtors live every day alongside their clients, Steinfeld said.

It's a mess out there," he said. The lack of transparency ... It just raises eyebrows that don't need to be raised."

The platform has sold about 20 homes to date. Originally they had expected to charge a commission on homes auctioned on the platform. Now it's an additional service offered to the clients of the On the Block brokerage and other real estate agents can use the auction platform for a flat fee of $1,500.

Since auctions are predicated on competition, properties with broad appeal rather than homes only a mother could love," are the best candidates, says Steinfeld. He has been surprised by the cross-section of sellers who opt for an auction. Initially he thought it would be younger people.

Our first residential resale was empty nesters who were selling their Mississauga detached home because their kids went off to university," he said.

Although it only launched last summer in Ottawa, Unreserved tested its business model on homes it bought itself and then resold on its auction platform. It has now sold about 140 homes - 40 in March alone - and has recently expanded into Toronto with plans to soon move into the Sudbury market, according to CEO Ryan O'Connor.

People love to talk about blind bidding and overpaying. But what nobody's talking about is the lack of fairness and the missed opportunity. That's something that we cancel out," he said.

We think we're solving a major problem in this space and we think we can grab some market share," he said.

For a fee of 1 per cent of the home's sale price, Unreserved guarantees auction sellers a minimum dollar return - something O'Connor says provides peace of mind for those who have already purchased their next home. If the bids fall short of that, Unreserved makes up the difference.

It also recommends that sellers pay a 2 per cent incentive" to buyer agents based on the belief that real estate agents won't show their clients a home if there's no potential commission. Now Unreserved is offering that amount in a discount to buyers who come to the auction directly without an agent.

In the past, that 2 per cent would be collected by the company as part of a package of services, including home staging, said O'Connor.

His first exposure to auctions was in the car business running a company called E-Block. Before that O'Connor had a string of car dealerships. It was in connection to those that he pleaded guilty in 2009 to two counts of fraud over $5,000. He says he took responsibility for his dealership employees, who were helping customers boost their bank loan applications for vehicles they didn't qualify to buy. When asked, O'Connor is straightforward - it's not a chapter he's proud of but he stresses he did not plead guilty in connection to any act that hurt consumers.

Giving cash incentives is likely to further irk the real estate sector that is already pushing for more auction regulations.

The Ontario Real Estate Association (OREA) sent a letter to provincial Government and Consumer Services Minister Ross Romano last month, cautioning that some companies are exploiting the exemption auctioneers are allowed from the province's Real Estate and Business Brokers Act (REBA). The act prohibits anyone else from trading in real estate unless they are registered with RECO.

OREA says auction houses are veering into handling deposits; offering market analysis; showing properties and reporting on the sale status of homes. It warns that Australia has instituted tough fines to deter phantom bidding where fake buyers were being planted at auctions to help bid up the price of properties.

There is no legislation in Ontario which regulates the activities of auctioneers nor even a registration system. Outside Manitoba, Ontario is the only province in Canada that does not have a regulatory framework to protect consumers using auctions to sell property," says OREA in the letter.

Pointing out that companies like On the Block have proactively" registered with RECO, OREA says that removing the auctioneer exemption would allow auctions to continue while protecting consumers.

The Ontario government won't say if it plans to eliminate the auctioneer exemption, only that it is looking at additional regulations as part of the 2020 Trust in Real Estate Act. Those could include allowing realtors to conduct open bidding at the request of their clients. It is also considering making the auctioneer exemption conditional on that person not having any duties other than receiving, managing, recording and accepting bids.

Meantime, the federal Liberal government promised in this month's budget that it will move to end blind bidding on homes across the country and there are signs the traditional real estate industry is moving toward more transparency.

The Canadian Real Estate Association will begin partnering with an Australian company this summer to pilot real-time tracking of offers on the industry's website, Realtor.ca. The new platform will tell consumers when an offer has been registered on a property but it is not yet clear if offer details will be disclosed.

We're still in the process of completing our due diligence, so details are still being worked out with provincial regulators to select the location(s) for the pilot, as well as what can and can't be displayed," said a spokesperson.

O'Connor says industry objections to auctions are ridiculous. In the traditional model not only do you not know who you're bidding against, but you can't see the price."

Steinfeld says most people in the real estate industry and the city don't even know they have the option of buying or selling a home by auction.

It's just the choice element that's the most important," he said. I don't think people should feel like they're subject to one way that they have to do things and it's always going to be blind."

Tess Kalinowski is a Toronto-based reporter covering real estate for the Star. Follow her on Twitter: @tesskalinowski