The Finnish Consumer Ombudsman is of the view that selling flats using the so-called open bidding model should not be prohibited on formal grounds. Even though there are not provisions for housing sales based on submitting higher bids in the existing legislation the system would not seem to be any more harmful to consumers than the traditional bargaining approach. However, the rules of the game should be laid down in the law.

The Consumer Ombudsman has submitted an initiative to the Finnish Ministry of Justice proposing that the Finnish Housing Marketing Decree be updated.

Under the existing decree, the seller must give the start price of the flat on offer, which is referred to as the sales price in the decree. In reality, however, the sales price means the price requested by the seller and the prospective buyers are expected to submit offers that are lower than the sales price. At the same time, the sales price is not binding on the seller, as the seller is not obliged to sell the flat at the quoted sales price or at a higher price. In other words, the sales price as defined in the decree is of little importance when the actual price of the flat is determined.

Open bidding model now well-established

However, nowadays there are also ways of selling homes that were unknown when the present decree was introduced. A few years ago, the Kiinteistömaailma chain of real estate agencies introduced an open bidding model called “Tarjouskauppa” in which the bids made by prospective buyers must always be higher than the start price given by the seller. The chain offers the new model in addition to the traditional system of selling flats.

However, there are no provisions for this new alternative system in the existing legislation as the Finnish Housing Marketing Decree is based solely on the traditional model. In order to make a distinction between the two models, Kiinteistömaailma uses the term ‘debt-free start price’ for the flats sold using the open bidding model, while the term ‘sales price’ (which is the term used in the decree) is applied to flats sold under the traditional system. As under the decree, the seller should always give a sales price for a flat, the manner in which the prices for flats sold using the open bidding model are quoted is in violation of the decree because the term ‘debt-free start price’ does not appear in it.

However, the Consumer Ombudsman is of the view that prohibiting such open bidding of flats on these formal grounds would not be justified, considering the overall situation.

In their capacity as supervisory authorities, the Consumer Ombudsman and the regional state administrative agencies have discussed with representatives of Kiinteistömaailma the open bidding model and the manner in which it is applied. The model has also been improved by incorporating changes suggested by the authorities into it.

After examining the matter, the Consumer Ombudsman has determined that the open bidding model introduced by Kiinteistömaailma should not, at least exclusively, be considered to be against the interests of consumers. The matter can be examined from many different angles and using a variety of assessment criteria some of which are also connected with the state of the housing markets at the time.

There are also features in the Internet-based open bidding model of Kiinteistömaailma that help to make housing sales more open and transparent and, consequently, will probably decrease unjustified price speculation. At the same time, many of Kiinteistömaailma’s competitors are of the view that the open bidding model has made the public more aware of the fact that on the housing market, different sales situations call for different sales methods.

Consumer Ombudsman submitting an initiative to change the Housing Marketing Decree

According to the Finnish Consumer Ombudsman, markets should be allowed to develop and new operating approaches should be assessed with an open mind. Kiinteistömaailma is not the only operator that has used or that is using the open bidding model. The Consumer Ombudsman is of the view that the open bidding model and the rules governing it should primarily be regulated by legislation and not by authorities basing their decisions on legislation that even the supervisory bodies consider outdated and inadequate. Particularly the provisions concerning the giving of price information should lead to more open and transparent business practices. Likewise, such bodies as regional state administrative agencies have suggested that there are also other provisions in the Housing Marketing Decree where updates are required.

On this basis, the Consumer Ombudsman has submitted an initiative to the Finnish Ministry of Justice on changing the decree. In particular, the changes should be in accordance with the regulatory needs that have resulted from the changed practices in the housing and real estate brokerage sector. Consumers should also have better access to information about the actual housing prices as this would decrease unjustified price speculation on the housing market.