With the official launch of On The Block Realty, there’s a new kid in town challenging traditional ways of buying and selling real estate.
Founded by husband and wife Daniel and Katie Steinfeld, the full-service brokerage, based in the Greater Toronto Area, offers clients a choice between conventional real estate sales methods or opting instead for a “‘sale by online auction” platform.
The company’s first auction took place in November and was deemed a success. The property for sale was a mid-town pre-construction condo that attracted 17 registered bidders. After the dust settled, two wound up actually bidding; the others said their maximum price had been surpassed. The countdown clock had to be extended a couple of times to give potential buyers the chance to consider upping their price after a registrant tried to snag the property by sneaking in a bid at the last moment. The bidding eventually closed at $415,000 – which was $16,000 above the opening gambit.
“The process worked as we had hoped and we got a price that made our seller happy,” says Daniel. “It was great to see that people are willing to spend that much money at the push of a button. Since the property wasn’t built yet, we actually made it harder on ourselves. It was more of a risk – it was selling paper essentially. But it worked out.”
The Steinfeld’s auction house is separate from their brokerage; between the two companies they are able to operate the online real estate platform, with the hope of positioning themselves in a way that brings “change and unprecedented transparency” to the real estate industry.
“Our experiences with clients going through the frustration of bidding wars brought us to the idea of auction,” says Katie.
She and Daniel believe that with Canada’s real estate market becoming increasingly competitive and complex, the industry needs to evolve.
In their opinion, online auctions are an exciting new avenue. They feel that the main benefit of auctions is the transparency of the process, information and costs. All competing potential buyers know what the others are willing to pay. Sellers know that they got the best possible price. And an online platform allows the auctions to be secure, convenient and accessible, the Steinfelds say.
“Our mission is to put the power back in the hands of buyers and sellers,” says Daniel. “Our goal is to move the needle a bit. Our hope is that as we grow, at least 50 per cent of our sales will be on the auction side eventually. Our job is to educate our market that this is something that will work well with regular resale homes.”
Auction sales are a proven method in Australia, New Zealand and the U.K., but the Ontario Real Estate Association (OREA) seems sceptical about the concept, while acknowledging that auctions are an option.
OREA president Ettore Cardarelli told REM that while “there is a new, small market of home buyers and sellers who might choose this method, we haven’t seen it becoming a trend.” He says that the traditional offer process is designed to give buyers and sellers “more space to make informed decisions.”
Tim Hudak, CEO of OREA, was quoted in the Toronto Sun saying that “auctions are not the answer to Ontario’s home affordability challenge.”
Says Daniel: “Our model was created to address transparency and uncertainly, not affordability. Our goal is to prove that the auction concept works. We don’t need it to be a trend. If it’s just a viable option, we’re happy.”
He adds that online auction offers consumers at least as much opportunity to evaluate and adapt as does the traditional offer system, if not more.
The Steinfelds stress that they are on the same team as OREA, and that they “continue to listen to the real estate community to determine the objectives that our model must meet and exceed” as acceptance and understanding of the auction concept grows.
On The Block’s process is relatively straightforward. When a seller lists a home using the online platform, it will appear on MLS for about a week and on the brokerage’s website, allowing potential buyers to view the property and get all pertinent information, including terms of sale and an attached home inspection (or for condos, the status certificate). Sellers have the option of setting a “buy it now” price (basically a fully transparent bully offer) that would complete the sale immediately.
Potential buyers are registered and verified, and maintain anonymity from each other. On The Block reserves the right to charge a pre-authorized penalty amount on registered bidders’ credit cards to help weed out delinquent bids.
Once the online auction goes live, the property will go to the highest bidder after a few days. A reserve price is set by sellers beforehand (the lowest price they’ll accept). The seller can’t back out of the deal once that price is reached… but if it isn’t, there is no obligation to sell. However, any bid placed by a potential buyer is binding, even if it’s below the reserve price.
Regarding sales commissions, the Steinfelds note: “On The Block fully co-operates with Realtors, offering the same commissions as any other brokerage. To be specific, generally our sellers will offer 2.5 per cent to buyer representatives…In cases where buyers may have different agreements in place with their Realtors, it is important for them to be clear on exactly what the seller is offering their representative as it relates to their own buyer representation agreement…. We ensure all stakeholders are fully aware of the variables and terms of the deal. This is not just the transparency of documentation and process, but the costs and commissions as well.”
Bidding is open to potential buyers with or without a real estate sales rep. And On The Block has a strict “no double-ending” policy in place. Sellers don’t pay for a bidder who doesn’t have an agent; in those situations, sellers only pay a commission to On The Block for the home sale.
The Steinfelds say that sale by auction has been attempted in a limited way in various parts of Canada, although not generally with traditional resale properties.
It appears that Ontario and the rest of the country will have to wait to see what impact it will have on the status quo.