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Will Ontario’s New Bidding War Regulations Eliminate Phantom Offers?

Multiple offers; clients lined up outside, waiting anxiously to see if they are the lucky ones; finally getting a house to call home—not an enviable position. These aren’t generally the expectations but unfortunately, an all-to-common reality in today’s competitive housing market.

To exacerbate an already challenging process, there is talk of phantom offers skewing the outcomes for clients lined up with offers. A phantom offer is said to be a possible verbal bid brought by the sellers’ agent. The offer is not registered and often it is not presented, as the other offers are, and there is rarely a record of the offer. Allegedly phantom offers are used by selling agents to alarm potential buyers into raising the amount of their offers to spark extra rounds of bidding,

The practice is considered a breach of ethics under the Real Estate and Business Brokers’ Act of Ontario – administered by the Real Estate Council of Ontario. The practice is considered unethical by most all the realtors I spoke to. Realtors who are caught engaging in this practice face hefty fines.

An informal poll of 30 Toronto-area agents by the Star suggested agents believed that phantom bidding exists in the market. More than two-thirds said some kind of structural reform in the way bids were handled is needed to address the problem.

When speaking with agents I found an array of differing perspectives.   Some agents did not want to comment on the issue of phantom offers at all. They contended that any discussion would negatively impact on the overall reputation of agents. One group completely denied the existence of phantom offers. They contend that it is an overreaction from the public to a competitive and often disappointing multiple offer environment. Another group was prepared to consider the existence of a phantom offer but qualified their perspective saying that they themselves have never encountered one. And then there were those agents that said yes; they have experienced a phantom offer. Agents in this group were quick to add that it is very difficult to know for sure, hence the name “phantom” but it was clear when they found themselves in the situation that all things were not equal in the offer process. One agent, Robert Turgeon of Royal Lepage, says that he has had dealings with agents who, he was convinced were bringing phantom offers to the negotiations. But without proof, and not wanting to compromise his client’s purchasing experience, he completed the transaction. He did tell me that any future dealings with those agents were approached with great caution.

Diane Usher, VP of Johnston and Daniels agreed that the practice of phantom offers exists, but hastened to say that it was rare. Ms. Usher wondered if the use of technology in the offer process has contributed to the issue. Today signed offers are faxed or emailed and may not be presented in hard copy. And the absence of a live representative on offer night could leave room for speculation. Ms. Usher advised that a form was developed two to three years ago to log all offers presented with the sellers signatures, but it was not widely used. She speculated that the form, had it been embraced by the industry may have alleviated the need for the provinces’ new legislation.

When I contacted RECO to ask for a list of offenders, they said it was not documented to provide that detail. They recommended that I contact the province, the author of the legislation. It made sense to me that the province would have received complaints. I did contact them to find out how many complaints had been made and by whom, the information was not available.

According to an article printed in the Toronto Star, Maureen O’Neill, a past president of the Toronto Real Estate Board, is quoted as coming out strongly against this practice. “It’s dirty realty, it really is,” she said of agents who fabricate offers during bidding wars. O’Neill advocated that agents engaging in this practice should have their licenses revoked and not be allowed to practice real estate at all.

The Province of Ontario is addressing the issue of phantom offers and has issued a notice recently with the new requirements. In a recent bulletin sent by RECO to all Agents and Brokers. It stated.

  • Offers must be made in writing. Please keep in mind that a written offer must be signed to be valid.
  • A registrant cannot indicate that they have an offer, unless they have a written offer.
  • The seller’s brokerage must keep a record of all written offers that it receives.
  • RECO is developing a process to confirm the number of offers that were received for a property.

The objective of the legislation is clear: a higher level of transparency with competing offers in real estate transactions.

Some realtors say the province has overreacted. Others are pleased that the process will be more rigorous. Ultimately it serves to protect the clients as well as the realtor. There will be more paper work for the brokerage and the new process will feel cumbersome at first, but I do believe the new requirements lend more credibility to our profession. Plus it will provide our clients with a higher level of transparency and confidence in the services we provide.

Will the new changes eliminate the practice of Phantom Offers? I am confident that practices will change and that realtors who do not oblige will be fined, as will their brokerage. As with all RECO offenses, the names will be published on a website for all consumers to review before making a decision on who will be their realtor. Once those involved in the phantom offers face the consequences of their dishonesty, we can start to expect a change. Real Estate professionals will insist on it and the market will demand it.

Contributed by:

Ellen Lesiuk

Ellen Lesiuk,  Realtor

Royal LePage Real Estate Services Ltd.
JOHNSTON & DANIEL DIVISION, Brokerage 477 Mt. Pleasant Rd, Toronto,ON  M4S2L9
C 416.414.4501   T 416.289.2121

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