Multiple offers | The Blind versus the Auction

Multiple offers | The Blind versus the Auction

There has been a tremendous amount of recent debate on how multiple offer situations should be handled as we experience an increase in overall real estate activity. Numerous listings are having more than one offer for the sellers to consider soon after they are listed, the debate about what method would be most beneficial for all parties including the market itself thus picks up steam.

The most common method currently used with multiple offers is called the “blind offer” method. The process consists of the listing realtor setting a time for which all offers from potential buyers must be submitted for review. Potential buyers must write their best offer, including the highest price they are willing to pay, putting forward a large deposit which can be seen as a sign of strength, removing conditions they might have otherwise included such as financing or home inspection and setting a possession date that is as amicable as possible for the Sellers. All of these parameters are set without knowing any details of the other competing bids, thus is it called the “blind offer” method and gives the buyers one shot to structure their best offer to try and be the winning bid.

The concern lies in the lack of transparency, without knowing what the competition is offering some buyers become overly aggressive and make offers that they would not normally ever consider putting forward. They offer well over the list price or leave out a condition that possibly could leave them exposed to future issues.

Overall the blind offer system is most beneficial to the sellers, it ensures they get as much as possible for their property however it can be detrimental to the buyers and the overall housing market. Aside from a buyer overextending themselves beyond their means this method can all drive up the values of real estate unnecessarily reaching a point where things become unsustainable eventually leading to a correction.

An alternative method would be to have an auction, a more open and transparent method where buyers who were bidding on a property would be informed of all the other offer’s terms and conditions. This would allow the buyers to still offer more than their competitors, they would be able to continue to increase their offers as other buyers increased their bids to a point where only one offer would be left standing. In the end, the buyer winning the bid would know they paid the correct amount to successfully win the property rather than blindly throwing a number into the ring. The value of the offer would likely be over the asking price but the sale value would be set using a more informed method helping keep the overall market in a healthy state.

The seller would still be getting fair market value and the highest possible offer but some argue the seller would still end up selling the property for more using the blind offer method instead, thus the debate continues.

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