Being involved in the mortgage market in the Hamilton-Wentworth area for the last 25 years has shown me many of the ups and downs of the real estate market. I have been in two recessions, a real booming real estate market (right now), involved when interest rates on a 5 year mortgage was 11.75% and rock bottom, currently, when rates are 2.59%. But today’s phenomenon is bidding wars. Not a couple of days go by without my clients in Hamilton Ontario informing me that they were involved in a bidding war. So I thought I will look at this area which has become so much of our Hamilton landscape. Our local newspaper, The Hamilton Spectator, had an article on a home which has been listed on Grant Street for $200,000, but had subsequently sold for $300,000. Although bidding wars were becoming the norm, this sale really caught the Hamilton area’s attention.

I decided to look at the bidding wars with our American friends to the south. The city that I looked into was Washington D.C. Before the housing bubble collapsed, bidding wars represented 30% of the homes sold in the nation’s capital. But in the 80’s and 90’s, homes in the United States only sold around 3-4% by bidding wars. In analyzing the post bubble real estate crises in Washington, these numbers have dropped, but not in the numbers which have reached in the earlier years. And now we try to answer the question as to why this is the case.

The easy answer is the current supply of listings in Hamilton and Washington are low. Therefore, the easy answer is that there are multiple buyers out there which are drawing many offers to the few homes for sale. The other theory given in this situation in Washington is that realtors are using this as a new sales tactic to push prices. Needless to say, the general public are starting to accept this form of selling their home. In Canada, BMO had done a study in 2013 to show 28% of us Canadians would participate in a bidding war.

If my Hamilton Ontario clients are any indications, the amount of participants going to auction for a home may be higher. It used to be that a listing price was the ceiling. This is no longer the case. The problem for purchases is that when a home is on the open market today, it is anybody’s guess what the true market value is. With this bidding process continuing in the United States, this may be a trend that will be continued by the realtors. And why not? Australians have been selling homes in such a manner for years. This is a trend that I will continue to monitor to have closure as to whether or not this is a new marketing trend or simply the laws of supply and demand.

Robert Floris is an independent mortgage broker at Mortgage Architects in Hamilton Ontario.