A ‘bid log’, to make the buying and selling process of houses more transparent and fair. The outgoing minister Kajsa Ollongren (Internal Affairs, D66) recently presented this proposal.
The idea: in such a log all bids on a house are kept. All conditions surrounding the purchase are also announced in advance. When all bids have been received, the seller will see the logbook via the broker. That way they can make a careful choice. The prospective buyers can also view the log afterwards to check whether the process was fair.
Currently, buyers place their bids directly with the broker, who then submits the bids to the seller. This sometimes involves shady practices. Think of brokers who deliberately do not pass on offers to the seller, because they want to help a broker friend. Or: real estate agents who pass information to each other about how much has to be bid to have a chance of winning a house.
Level playing field
How does such a bidding log that Ollongren talks about work in practice? The Rotterdam estate agency Baljon has recently started its own version. In the system that Baljon set up, the broker only has a mediating role between the seller and buyer. And the real estate agent guides the sales process until the house is put on the market. But the broker no longer plays a role in the bidding process.
In order to keep this bidding process ‘fair’, as Baljon calls it, it now largely lies with a notary. In Baljon’s case at RoX Legal, also from Rotterdam. It works like this: interested buyers who register with Baljon for the bidding process, are immediately shown a draft purchase agreement. “For example, all bidders know the conditions, such as the transfer date and construction details, and the playing field is level,” says Rogier van Heeswijk of the notary’s office.
Interested parties can then e-mail an offer to the notary’s office under these conditions. One bid: your first is equal to your last, to avoid a price-inflating bidding process. The e-mails arrive in a separate mailbox, which only Van Heeswijk can view. “After the deadline, I make a list of buyers and bids and submit it to the seller,” he says. The sellers then choose the winning bid themselves. The broker has no access to the bidding process. And therefore cannot influence this.
In the current process, for example, they can only submit the highest bids to the seller, and withhold others. But because the bids can be viewed in a logbook, “the sellers retain the option of awarding a home, for example to a young family that does not pay the main price,” says Van Heeswijk.
If the selling party has chosen the winning bid, the purchase contract is signed (digitally) within a few hours. Karel Glazener, of real estate agency Baljon: „Now it is true that we congratulate a buyer on Thursday, but the purchase agreement is not ready until Tuesday. In that ‘pre-contractual phase’, when an agreement has not yet been signed, even higher bids can come in.”
Also read: Tackling Shady Brokers: Does a ‘Bid Log’ Help?
Now, according to the agreement with the sellers, the sales broker is obliged to communicate all bids, including higher bids that come in later, to the sellers. “That’s how things often go wrong,” says Glazener. Many buyers, says Glazener, bid on a house with the knowledge that they can offer even more. “When buying with a final bid, your first bid is also the last bid.” After the selling party has chosen the winning bidder, all bidders from the notary are shown anonymised what has been bid.
This process, also known as ‘bidding per subscription’, is not entirely new. It is already happening in the commercial real estate market, but the method used by the real estate agency is new in the private market. Dozens of other brokers have also recently started experimenting with a bidding log.
According to Glazener, it is time to put a stop to the massive outbidding. “It also benefits me when a house sells for a good price,” he admits, “but too often we deal with disappointed buyers. Mass overbidding has become normal.” According to Glazener, the old way of working sometimes also causes frustration for sellers, because they have to constantly consider new bids during the bidding process.
‘Step ahead’
Due to the constant overbidding, buyers and sellers “regularly withdraw dissatisfied from the process,” says Glazener. Glasser says that it often happens that he receives a higher offer after the deadline, after which a disappointed party who initially thought they had bought the house makes an even higher offer. That drives up the price even further.
Emeritus professor Johan Conijn housing market, associated with the University of Amsterdam, sees something in Baljon’s approach. “I don’t have the illusion that you can develop a system that is excesses-proof.” For example, you can still overbid Baljon’s bidding log excessively, even if you can only make one bid. But, says Conijn, „in this way you have overcome a large part of the outbidding and driving each other crazy. There is also a transparent element to it, which also allows bidders to understand why they didn’t get it. It is an important step forward.”
Real estate association NVM (4,400 members) is not entirely positive about Baljon’s plan, nor about Ollongren’s proposal. The NVM applauds that with a new type of bidding process, home owners have more choice about how they want to sell their house. But she believes that “a compulsory public selling method is an infringement of their freedom of choice.” The association also has doubts about the relationship between real estate agent and notary – now the buyer and seller should trust the notary completely. Is it reliable and independent? Both Baljon and RoX Legal underline that the bidding process is independent. Baljon has chosen RoX because of previous, good experiences. But, says Glazener, ‘one is also free to choose his own notary’.
In mid-2020, the NVM itself introduced an online bidding system as a pilot to make the bidding process more transparent. With this system it is already visible during the bidding process what other interested parties are bidding. Bidders can also make multiple bids, in contrast to Baljon’s final bid. When placing a bid, the prospective buyer must immediately communicate the conditions – including financing, building inspection and transport date – so that the conditions are clear. Online bidding will be further expanded after this year, but it is up to the members themselves to participate.
Glaser van Baljon is curious how fellow brokers will respond to his initiative. “It may make us a bit unpopular with some colleagues,” Glazener laughs. “But the time is right and calls for action.”
A version of this article also appeared in NRC in the morning of November 23, 2021
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