Residential Market Commentary - A closer look at blind bidding

With the federal election campaign now past the half-way mark all of the major parties have their housing policies in place. Most of them focus on building more affordable housing, and offer plans to make it easier to buy a home. To that end the Liberals are taking aim at one of the most annoying (and some would say questionable) aspects of the process: blind bidding.

Blind bidding prevents potential buyers from knowing what other offers are being made. The Liberals says that “ultimately drives up home prices.” But, will ending it make a difference? The CBC checked with some real estate economists, and they have their doubts.

William Strange, with the University of Toronto Rotman School of Management, says economic evidence does not support the idea. He says blind bidding is often used outside of real estate, in areas like commercial procurement, and that we wouldn't see different types of auctions if blind bidding always benefited the seller.

Economists who study bidding point to a broadly accepted concept known as "revenue equivalence." It's the idea that different types of auctions do not produce dramatically different sales prices, assuming certain conditions are met.

William Wheaton, a professor at MIT, calls the Liberal proposal “dubious.” He told the broadcaster, economists tend to look favourably on blind bidding, because it means a bid is more likely to reflect exactly how much an item is worth to the bidder. Wheaton also says, in open auctions, bidders can often be influenced to over bid just because someone else is.

"Bidding wars are a symptom of an extreme seller’s market, they are not the cause," says Leo Spalteholz, a realtor, analyst and owner at househuntvictoria.ca. Spalteholz told the CBC he doesn't think ending blind bidding will do much for real estate prices. He points to Australia's open auctions and hot housing market as an example.

He does, however, agree with banning blind binding.

"With blind bidding, occasionally you see a bid come in tens or even hundreds of thousands over the next highest bid, which is clearly irrational. Ending the practice would protect those unlucky or ill-advised buyers," he said.