“I have $400,000, do I hear 450? Four-five-zero, 450, I got 450. Do I have the big 500? Yes, I do thanks to the gentleman in the back. Five-hundred, $500,00 for a one-of-a-kind, two-storey with no rear neighbours. Going one, going twice… Sold!”
Today an article from Matt Day of the Canadian Real Estate Assocation.
Imagine consumers bought homes the same way they bought art? While quick-talking auctioneers aren’t involved in the traditional home buying process, Canada’s hot real estate market is paving the way for more unconventional ways of selling homes. Enter online auctions, an open public sale method allowing buyers to see, in real-time, what someone is willing to pay for a property. It’s fast, transparent and could catch on in Canada.
Although online auctions haven’t reached a mainstream level here, they’re quite common in countries including the United Kingdom, New Zealand and Australia.
In fact, the New Zealand Real Estate Authority—the independent conduct regulator for the Kiwi nation—said this method of buying and selling homes was first regulated in 1928.
“Buying by auction does require a steady nerve, but it is by no means reserved only for ‘experienced’ buyers or investors,” said Belinda Moffat, CEO of the New Zealand Real Estate Authority. “It all comes down to preparation. A buyer needs to do all their due diligence in advance of auction day, like getting a property inspection report and making sure they’ve got their finances in order…(and) the real estate agent working for the seller should provide interested buyers with a copy of the terms and Contract of Sale, which sets out what chattels will be included with the property.”
Much like Canada’s current housing market, New Zealand has recently seen low supply, climbing prices and strong competition for properties, putting pressure on both buyers and sellers.
“The number of residential properties sold in February 2021 was at the highest February levels for 14 years,” Moffat said.
Median prices for residential property across New Zealand increased by 22.8% from NZD $635,000 in February 2020 to NZD $780,000 in February 2021, a new record for the country.
Sound familiar? According to CREA’s Director and Senior Economist, Housing Data and Market Analysis, Shaun Cathcart, Canada’s national average sales price rose 31.6% from March 2020 to March 2021, making the national average home price a record $716,828 at the time.
However, unlike Canadians, home sellers in New Zealand are much more inclined to sell by auction—even if the fast-paced process can come with added stress and overwhelming feelings experienced by both buyers and sellers.
“Some buyers, particularly first home buyers, try to avoid auctions because the idea of a live bidding situation is, quite frankly, a bit scary,” Moffat said.
Once a bid is successful, there’s no turning back without significant legal ramifications. The buyer is immediately committed to buying the property and can’t seek to impose conditions once the auction is finished, making it essential for buyers to come prepared under the guidance of a real estate professional.
So, why choose this route if it comes with so much added stress?
“From a buyer’s perspective, auction bids are open so you know what everyone else is bidding,” Moffat explained, adding a seller may choose to go this route if their home is difficult to price because of unique features or if the market is hot, like it currently is.
Back here in Canada, though, examples of selling by auction are so rare they often get media attention.
REALTOR® and salesperson Jessica Hellard from Kingston, Ontario, had one of her listings featured on CTV News earlier this year because her client chose to go the auction route. The home ended up fetching $110,000 over asking.
The cost of the semi-detached, three-bedroom home had a reserve price of $350,000. Bidding began on a Friday afternoon at 5 p.m. and by Saturday afternoon, 55 bids had been placed. The 1,471 square-foot home sold for $461,010.
“I think you have to have a certain type of property and a seller who’s on board with this style,” she said. “It worked in our market because I had noticed a lot of buyers were getting frustrated at the traditional process and constantly being outbid that they weren’t even putting in offers anymore, but this method allowed for a more transparent way for them to get involved.”
Hellard said she used Toronto-based On the Block Auctions Inc. to facilitate the process and that both the seller and buyer were happy with the result.
“Others may believe the sellers could have gotten more for the home, but I did my research beforehand and the attention this listing got because of the auction brought more buyers to the table. Yes, this hot market favours the bold, but there’s a whole bunch of buyers unwilling to offer $150,000 in a blind bidding war.”
Founded in 2017, On the Block Auctions works with REALTORS®—strongly recommending both buyers and sellers use agents—and has a completely open bidding process, but keeps identities protected.
“Many listings in Ontario are auctions already—they are just silent,” said Katie Steinfeld, co-founder of On the Block Auctions. “By showing the leading price, all potential buyers stay involved, and sellers can ensure they get the best price for their property.
“A lot of people think auction buying is reserved for luxury homes or homes in distress, but we’re trying to show that’s not necessarily the case.”
CREA Chair Cliff Stevenson said he certainly sees the appeal online auctions bring and welcomes the method if it means Canadians feel more confident in entering the market.
“At the end of the day, the REALTOR® still needs to be a part of this process,” Stevenson said. “The home still needs to be shown, its value still needs to be assessed, the sale still needs to be facilitated and finalized, and it’s critical agents are there to oversee the sale to make sure everything is done correctly.”