The real estate industry disruptor is listing homes for sale in the traditional way—with a list price—until new laws take effect.
Rising interest rates, stingy banks, a buyers’ market and an imminent overhaul of Ontario’s house sale regulations have Ottawa’s Unreserved putting a hold on its house auction sales.
Launched in July 2021 during the peak of the heated pandemic housing market, Unreserved sought to shake up the real estate industry by taking advantage of an exemption to the usual closed bidding process that was traditionally only used for bankruptcy auctions.
A year ago, founder and CEO Ryan O’Connor forecast Unreserved would have 160 employees by the end of 2022 and boasted he was “building the future of real estate.” That prediction didn’t foresee the sharp downturn in the housing market in which January sale prices were 30 per cent lower than a year before.
“The reason we got into this is that we saw a problem and thought we could easily solve it,” O’Connor said. “Blind bidding is a problem, especially in a crazy hot market where people are getting carried away. You’d go in, put offers in on five different homes and get blown out of the water.”
Some homes sold for $100,000 or more over asking price, as frenetic buyers outbid competitors without any idea of what others were offering.
“When the bids were over it was, ‘Congratulations. You are now essentially the biggest loser,’” O’Connor said.
Unreserved sold more than 300 homes through its online bidding process, expanding its business to Toronto, Sudbury and Windsor.
“Buyers really gravitated toward that,” O’Connor added. “We had houses with 20 different bidders. It worked incredibly well in a hot environment.”
In a down market, not so much.
From a peak of about 150 employees, Unreserved now has about 70.
“We did our share of layoffs, like a lot of real estate companies,” O’Connor said. “It’s hard to anticipate a downturn. You can sit and put your head in the sand and think, ‘We’ll get through the summer. It’s going to pick up.’ But you’ve got to face the facts.”
O’Connor knows about adversity. He grew up on a farm in rural Ottawa and at 16 was bound for a career in plumbing. When his teenaged girlfriend died during open heart surgery, he had a reckoning.
“Not many people at that age learn about how short life can be,” he said. He realized he didn’t want to be a plumber. A promising boxer, O’Connor had hopes of competing on Canada’s national team. A broken hand scuppered that dream. He got into car sales and in the early years of the “Web 2.0” set up Find-a-Car, an online used car sales site.
He was young and ambitious. Too ambitious as it turned out. In 2007, the RCMP raided his Kingston office and he was charged with two counts of fraud over $5,000 for fudging his clients’ loan applications. He pleaded guilty in 2007 and was given a conditional sentence and an ankle monitoring bracelet.
“I was in my 20s. I was a single guy who lacked focus, but had a lot of ambition. That got the best of me,” he said. “I did my time. Now I’m three years away from turning 50. I have five kids. That was a long time ago.”
In 2016, he founded E Automotive Inc., an online marketplace for car auctions. The company raised $136 million in its initial public offering on the Toronto Stock Exchange and at its peak had a market value of more than $1 billion.
When O’Connor realized that the auction format he used with cars could be applied to homes, Unreserved was born, buoyed with $34 million in investors’ seed money.
O’Connor doesn’t see himself as “a disrupter”, but Unreserved made waves in the real estate world. Last summer he filed a $25-million lawsuit against the Ottawa Real Estate Board and other real estate associations, alleging they had tried to mislead Unreserved customers and made it difficult for the company to operate.
O’Connor contends that Penny Torontow, the former president of OREB, and Tim Hudak, CEO of the Ontario Real Estate Association, defamed the company with “injurious falsehoods” in statements published on YouTube and in the Ottawa Citizen, respectively.
Both Torontow and Ken Dekker, OREB’s current president, declined to comment for this story. In a statement to this newspaper at the time of the lawsuit, Hudak said the Ontario Real Estate Association would not stop “standing up to protect Ontario homebuyers and sellers” because of the lawsuit. Auctions could have “serious negative consequences” for consumers, he said, including phantom bidders or potential conflicts of interest with the auctioneer.
The lawsuit is ongoing, although O’Connor says he hopes to have a resolution soon.
William Strange, a housing economist at the University of Toronto, said housing auctions like the Unreserved model are here to stay, even if they are less popular in a soft market.
“The dominant way to sell houses now, despite the huge changes we’ve seen in information and communication technology, is the same way we sold houses in 1970,” Strange said.
“Are auctions a reasonable model? Absolutely,” he said. “Lots of other markets have changed. Travel agents used to intermediate our purchase of plane tickets. We could, and probably should, see changes like that in real estate.”
Auctions are how houses are sold in Australia and New Zealand, with auctioneers literally standing on the front step selling to the highest bidder, he said.
One problem in Ontario, is that the rules of auctions aren’t clear, said Strange, who once participated and lost a home in an auction. Strange and his wife stopped bidding at $30,000 over asking price and the home finally sold at $80,000 over asking.
“No one really says what the rules are. Is it going to be two rounds? Three rounds?” he said.
In one Unreserved auction, a buyer paid $517,501 for a house in Orléans that turned out to have structural problems related to a fire that had been undetected during Unreserved’s pre-auction inspection. O’Connor said Unreserved had estimated the house was worth between $430,000 and $470,000 and that the buyer’s real estate agent had “ghosted” her before the sale, leaving her on her own in the bidding war. The two sides have now settled, he said.
A home auction can take steady nerves, Strange said.
“People are dealing with amounts that can be their whole life savings,” he said. “If I sold my house tomorrow — and I do this for a living — I’d still use a real estate agent because they know things that I don’t know.”
Ontario is in the process of overhauling the Real Estate and Business and Brokers Act which, when it comes into effect in April, will allow sellers to disclose offers if they choose, essentially turning their sales into an open auction. But the province resisted calls to close the farm auctions loophole and regulate real estate auctions.
O’Connor says Unreserved is waiting for the new laws to take effect before resuming auctions. In the meantime, Unreserved is listing homes on its website for sale in the traditional way.
O’Connor is ready for the change and he still sees a bright future for Unreserved.
“Agents are going to tell a client that it’s going to stop someone paying $100,000 over the next best offer if you go with an open auction process. We say: ‘If you’re hoping for a Hail Mary, by all means go with closed bids. But if you want a really fair and competitive process — and most agents will know the value of a home — when they are five, 10, 15 people (in an auction) and they’re all around the same price and they all really want that home, then the results will speak for themselves.’
“If you run an open auction process, you’re going to get more engagement from buyers. When you build something from a buyer’s perspective, the sellers are the natural beneficiary. This is never going to be a one size fits all. We see benefits in both ways. It’s going to be dictated to us by the seller.”
Strange says he welcomes new ideas in the housing sales market, which has been remarkably resistant to change.
“I think we will see a change from that old 1970s model that our parents used to sell their houses. But I would have said the same thing to you 20 years ago and it’s still here,” he said.
“I’m glad people are trying new things to see if something works better because in general, competition is better in all markets.”
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