What is Blind Bidding
Everything you need to know about using this practice to sell your home and the pros and cons of this approach.
By Emily Southey | 12 minute read
Wondering what blind bidding is and how it works? This is a term that comes up a lot in Canadian real estate (not to mention one that has been the subject of controversy in recent years). We break down everything you need to know about this strategy below.
What is Blind Bidding in Real Estate?
Blind bidding is a practice where prospective homebuyers bid on a residential property listing without knowing any of the other bids. With blind bidding, if a buyer bids on a home, they have no idea what amounts or conditions their competitors have offered, nor how many other bidders have made an offer on the property. Once the offers are made, the seller can approach the bidders and ask them to increase their offers. In turn, the bidders often submit higher bids in an effort to win the property and complete the sale. By the end of this process, the winning bidder may have bid tens of thousands if not more than the other bidders, which could be well over the asking price.
Blind bidding is a common practice throughout Canada. While it is not a legal requirement, it is by far the most common method of selling homes in Canadian real estate. Blind bidding offers many advantages to sellers. However, it is not nearly as advantageous to homebuyers, which has created some controversy as of late. Critics purport that the practice of blind bidding has contributed to the skyrocketing home prices that have made home ownership unattainable for many. To understand where you stand in the blind bidding debate, we break down how blind bidding works and the pros and cons below.
How Blind Bidding Works
As explained above, blind bidding is the process of submitting an offer (or bid) without any knowledge of what other buyers are offering (or bidding). Blind bidding most commonly occurs when sellers choose to review all offers at the same time on an offer review date. Offer review dates imply that a seller will receive multiple offers. If this ends up being true, then the buyers who make an offer will have no idea who else is bidding or the amounts they are bidding at the time the offer is made.
Here is an example of how the blind bidding process works: Let’s say six people put in an offer on a house. On the offer review date, the seller carefully reviews each offer and decides to contact the top three bidders to ask them if they want to increase their offer amount to complete the transaction. When faced with this situation, a buyer can opt out of increasing their bid, keep it as is, or choose to increase their bid. The tricky part is that the buyer still has no idea how many other buyers are interested in the home, what the other buyers originally bid, or what the other buyers intend to increase their bids to. In an effort to win the home, a buyer in this situation may decide to bid significantly more than their original offer. This could result in a winning bid that is tens of thousands of dollars more than the second-place bid. In a hot real estate market, where multiple bidding rounds are more common, the winning bid could be as much as $100,000 over the second place bid. You can see how blind bidding benefits sellers, as it can easily lead to a higher purchase price.
On the flip side, from the buyer’s perspective, blind bidding can lead them to overpay for a home. Not only can this be frustrating on a personal level but it can also further inflate house prices and make home ownership unattainable. If blind bidding were to end, homebuyers would be able to see the exact amounts that other bidders had offered, allowing them to adjust their bids accordingly.
Open Bidding Versus Blind Bidding
In real estate, there are two types of bidding: blind bidding and open bidding. They are opposite practices and as such, each comes with its own unique advantages and disadvantages. We explain the key differences between open and blind bidding below.
“With blind bidding, if a buyer bids on a home, they have no idea what amounts or conditions their competitors have offered, nor how many other bidders have made an offer on the property.”
What is open bidding in real estate?
Open bidding is a process of making an offer that enables buyers to see the bid details (for example, purchase price, conditions, financing) of all competing offers. In essence, with open bidding, any buyer who makes an offer on a home will have access to the details of all other offers made on the property. They will be able to learn how many other offers have been made, when the offers were made, the amount of each offer, and other important details of the offers, such as the size of the down payment, the conditions included, and whether it’s all cash or contingent on financing. As you can imagine, this information is invaluable to buyers as it helps them craft their offer as strategically as possible.
While open bidding is generally far more transparent than blind bidding, the exact process varies from seller to seller. For example, some sellers ask that all offers are made on the same date and time, while others review offers as they are made and real-time notifications are sent to all interested parties. No matter the format, buyers will always be able to view the other offers and understand how much more they need to spend to be successful with an open bidding process.
Open bidding versus blind bidding
The main difference between open bidding and blind bidding? Open bidding is transparent and blind bidding is not (hence the use of the word “blind”). In a blind bidding process, the buyer submits an offer without any knowledge about the other offers, including how many other offers there are or the terms or amounts of those offers. In contrast, an open bidding process is one in which all buyers have access to the terms and amounts of all competing offers. From a seller’s perspective, the blind bidding process is typically more lucrative and therefore preferred. However, it can take longer than the open bidding process. From a buyer’s perspective, the open bidding process is generally preferred as it levels the playing field for buyers, and is therefore viewed as the fairer option.
The Pros and Cons of Blind Bidding
What are the pros and cons of blind bidding? We’re so glad you asked. We outline the advantages and disadvantages of blind bidding below.
Pro: Blind bidding can help streamline the home-selling process
Some view blind bidding as a time saver for both buyers and sellers. Generally speaking, real estate transactions are stressful. Whether you are the buyer or the seller, you likely want the process to be over as quickly as possible. Blind bidding can help streamline the entire process as it usually involves the seller reviewing all offers at the same time. This allows them to quickly narrow down the top offers, eliminating all lowball offers and focusing on the top two or three right off the bat.
Pro: Blind bidding can get you more money for your home
One of the main perks of blind bidding from a seller’s perspective is that it can lead to a much higher sale price. Since buyers cannot see what anyone else has bid, they might end up offering a price well over asking in an effort to outbid the competition and secure the home. In some scenarios, blind bidding could lead to a buyer offering tens of thousands or even $100,000 over their original offer.
Pro: Bidders often abandon contingencies in an effort to win the home
Another pro from the seller’s perspective is that buyers will often waive contingencies in an effort to outbid their competitors. While this can be a risky move for the buyer, it has major benefits for the seller. A firm offer is more likely to go through — and fast. And if for some reason the buyer tries to back out, the seller might have legal recourse.
Con: Blind bidding allows buyers to back out
One downside of blind bidding is that the process allows buyers to back out of the homebuying process if they change their minds. This makes blind bidding riskier for sellers, especially in a cool real estate market.
Con: Blind bidding might turn off buyers
The practice of blind bidding has garnered the ire of many. Canadian homebuyers, especially first-time homebuyers who are fed up with soaring housing prices, may view blind bidding as an unethical or outdated practice that manipulates buyers into overspending on homes. In turn, they may refuse to make an offer on a home that uses blind bidding to avoid the frustration of the process. Therefore, a con of blind bidding is that it may alienate some buyers, narrowing your pool of prospective bidders.
Con: Blind bidding may contribute to unattainable home prices
Critics of blind bidding argue that the practice has contributed to the soaring home prices that have made it difficult (if not impossible) for many Canadians to purchase homes. Since blind bidding prevents buyers from knowing what others have bid on the property, it can lead the winning bidder to outbid the second-place bidder by huge amounts. The result? Not only does the house sell for way over asking (and likely more than it’s worth), but it also drives up future home prices in the same neighbourhood.
The Pros and Cons of Blind Bidding
Now that you know the pros and cons of blind bidding, let’s dive into the pros and cons of open bidding.
Pro: Open bidding brings clarity and transparency to the homebuying process
The first advantage of open bidding is that it brings more clarity, transparency, and information to the homebuying process. This eases the frustrations of many buyers and can even streamline the process for sellers.
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Pro: Open bidding makes communication between parties easier
Another pro of open bidding is that it streamlines the communication process between buyers and sellers. This means less back-and-forth between parties and no drawn-out negotiation processes. If you are a seller who’s motivated to sell quickly, the open bidding process might be for you. How it helps ease communication is as follows: The seller states their desired process and terms upfront so buyers know exactly what they need to include in their offer to have the highest chance of success. Since buyers have a clear idea of what sellers want, there are likely to be fewer counteroffers, which makes for a shorter negotiation period and a faster home sale.
Pro: Open bidding can save buyers and sellers money
Open bidding can be more economical for both buyers and sellers. From the buyer’s side, the transparency of open bidding prevents them from bidding an excessive amount in an effort to win the home. And from the seller’s perspective, employing an open bidding process makes selling a home yourself much easier. For example, a seller can easily list their home online through an open bidding platform, thereby removing a realtor from the equation and saving them money on realtor commissions.
Con: Open bidding can be emotionally difficult for the seller
One drawback of open bidding is that it can take a psychological toll on the seller. The open bidding process can reduce the emotional value of a home. A seller may find it uncomfortable to see buyers bidding on your home like they would on a piece of furniture at an antique auction or a stock.
Con: Many buyers and sellers lack experience with the open bidding process
Another con of open bidding is that many buyers and sellers lack experience with this process. Since blind bidding is by far the most widely used system of real estate bidding in Canada, both parties may be unfamiliar with how open bidding works.
Con: Open bidding can limit a seller’s profit margin
One final drawback of open bidding is that it can lead to a lower purchase price. Since all bidders know each other’s offer, the odds of a buyer making an offer that far exceeds another bid is lower. This may result in a lower sale price than the blind bidding process, limiting a seller’s profit margin.
Frequently Asked Questions
Is it possible to make two offers on the same home?
It is only possible to make one original offer on a home. However, buyers can end up making two or more offers on a home if they decide to submit another bid or make a counteroffer.
Is blind bidding legal in Canada?
Yes, blind bidding is currently legal in Canada. However, changes are in the works. Announced as part of the 2022 federal budget in April of this year, the government intends to place restrictions on the practice of blind bidding. How the federal government plans to do this has not been confirmed, though they did propose the implementation of a Home Buyers’ Bill of Rights. The Bill of Rights, if finalized, could ban blind bidding, protect a buyer’s legal right to a home inspection, and require transparency on the history of sale prices on title searches.
Further, it must be noted that the Government of Ontario, Canada’s most populous province, announced new legislation on blind bidding set to take effect in April 2023. Specifically, the Ontario government is introducing legislation that allows sellers to choose whether bids are shared with buyers or not. This change will be introduced by the Trust in Real Estate Services Act (TRESA).
How do buyers put blind offers on a house?
A buyer submits a blind offer on a home just as they would any other type of offer. They work with their realtor to draft an offer, which includes key information like the offer price, conditions (if any), expiration date, and more. From there, the realtor submits the offer to the seller’s realtor, and the buyer waits for a response from the seller. The main difference between a blind offer and an open offer is that the buyer has no idea if any other offers have been made or what the terms and conditions of those offers are. Therefore, they must strategize to curate an offer that’s as attractive as possible, usually with the help of their realtor, to give them the best odds of winning the home.
How many offers typically are made on a home?
This depends on the condition of the real estate market. In a hot real estate market, sellers may receive as many as four or five offers on a home. However, in a cool market, a seller may only receive one or two offers (and sometimes none for a long time).