“Phantom bids” are driving up Toronto home prices—by as much as $90,000
Here’s a terrifying tale: realtor Josie Stern’s clients paid $90,000 over asking for a midtown house priced just shy of $1 million, even though they were the only ones making an offer. Stern and the buyers are miffed because they believed there were two other interested bidders—and chillingly, the Real Estate Council of Ontario says they’ve received a surge of similar complaints about “phantom bids.” Stern eventually got the listing agent and the sellers to accept a mere $45,000 over asking. Now she’s demanding new legislation that will prevent phantom bids by making listing agents provide a roster of all the involved brokers before any bidding begins. It’s already against RECO’s rules to pretend to have bids when you don’t, but only four agents have been disciplined for the practice over the last decade. RECO’s now reviewing whether they should urge legislative changes around the process (the thousands of frustrated buyers would probably say yes). [Moneyville]
18 thoughts on ““Phantom bids” are driving up Toronto home prices—by as much as $90,000”
I don’t think this is the case of a phantom bid. Why wouldn’t the real estate agent ask how many others were bidding? They were asked to submit a bid. They submitted over asking thinking there was going to be a bidding war, but nobody submitted another bid, so there was no phantom bid. Yes, the listing agent should have made that clear, but why not ask about the competition? Then, if they lie, bam that’s a lawsuit.
That’s how the real estate agents “help” us.
There is so much ambiguity to “they believed there were other interested bidders.”
Unless Stern was explicitly lied to and told by the listing agent that they were one of three registered offers, then she’s just a shitty agent representing an overzealous buyer with zero business savvy.
When we bought our first home in 2007 in Toronto, we were told the afternoon leading up to the offer date that there was another interested party. So we prepared two offers. One at list, in case there was no competition, and won slightly above list, the # we were willing to go to to get the home. Lo and behold, the other buyer dropped out and we submitted the lower offer.
Offers need to be registered. All agents have access to that registry. You would think, given how easy it’s been for agents to make their 2.5%s in the last decade in Toronto, they’d feel somewhat obliged to do a little investigative work for their clients and be the cooler head in the relationship.
Should be obvious to anyone that this booming market is in part commissions-driven.
I have personally run into this situation with clients! In a case where there are multiple offers the agent should be asking for details (ie: how many other offers are there, who are the other agents bringing offers etc…)
In the event that there are multiple offers, I will request a copy of the confirmation of co-operation from the listing agent for the other offers to be provided to me. I will also put the following conditon in the offer: ( This offer is being submitted on the basis that it is part of Multiple Offers. In the event the Seller receives no other offers by 10pm on__,20__ then the Sellers Sales Representative will notify the Buyers Sales Representative and the Buyer will have 1 hour to revise or revoke their offer. If the Seller accepts the Buyers offer the Seller will provide the Name, Address and Phone Number of the Sales Representatives and Brokerage of the other offers )
“You would think, given how easy it’s been for agents to make their 2.5%s in the last decade in Toronto, they’d feel somewhat obliged” That’s just the problem though isn’t it? So many agents have had to do little or nothing to make a living that they don’t either don’t remember or they never had to learn (if they’re newer) how to work at it!
I agree there does not seem like a phantom bid, but the scenario sounds dubious to me. I would not do business with Ms.Josie Stern or any other realtor
who has the misfortune of having been “outed”. Sounds to me like a realtor w/o scruples and the procedure of not having any other bid and being asked to give “your best offer” is borderline criminal. If the market has no competing bids, it should be communicated and the listing should sell at asking. But that’s not what Ms. Stern had in mind to maximize her pocket. Shame on you!
I have to say, this sounds an awful lot like an agent trying to get ahead of a story to salvage her reputation and perhaps avoid sanctions from her governing body. If I was her client, I would absolutely take action, because she no doubt persuaded her clients to offer 90k over ask to get the place and it appears from the story that she didn’t necessarily do the legwork to find out if there were competing offers. She probably went into it assuming there would be multiples, given the market and the location, the listing agent didn’t do anything to dissuade that view, and she didn’t seem to make much effort to find out for herself.
At the very least, you check if there are any registered offers – if there are none, that should be the first clue. If the listing agent “alludes” to competing bids, you ask him or her directly if there are any. If the agent is elusive then you advise your clients to be prudent in their bid (if they proceed) as the listing agent appears to be playing games. Besides, the agent’s advice on a bid should be tied to comparables in any event – not to whether there’s competing offers or not. Seems obvious to me, but then, I’m not a real estate agent.
From the story it looks like Ms Stern did none of that and panicked once she realized her clients got hosed and went to media to blame the listing agent for her own shoddy work.
Of course, the thing that’s consistently overlooked is the commission system that puts buyer’s agents in direct conflict with their clients since they get paid by the seller and they make more money the, more their client pays for their property, regardless of the amount of work done. In other words, its in the buying agent’s financial interest for their clients to get hosed. Nice system.
Good point about the commission system. Completely illogical and backwards. Thx for pointing that one out to everyone.
I see on Josie’s website that she is calling for more transparency in real estate transactions. At least as of yesterday when she posted the article.
Meanwhile seller testimonials laud her for getting x amount over asking.
Spin doctors working overtime.
No sympathy for these buyers!!
It’s a lesson for every house buyers, you should paid what the house is worth else walk away and there are other houses around the corner. This example is the main cause for all the inflated prices that we are seeing. Serve them right for listening everything their agent told them, agents have other agendas $$$ that are not the same as yours.
Thanks JP. I’m not out to disparage agents – I know for a fact that there’s plenty of great agents out there who do good work for their clients. I just hate the inherent conflict of interest embedded into the real estate industry, especially since its only on one side of the transaction. A selling agent’s financial incentives (higher commissions) are directly in line with what’s good for their clients (higher selling price). Why does the system allow – heck, alomst require, buying agents to be in a conflict of interest with their client? It’s takes a strong and highly ethical agent to act against their best financial interest, especially in a heated market like Toronto.
I think that’s the question that should be asked in all of this.
This is a cautionary tale. My fellow REALTORS you should ALWAYS ask the listing agent for contact information of the realtor/brokerage representing the competing bids. Be sure to call the other realtors and verify that they are indeed submitting an offer. I always verify the information, it is our duty to our clients.
NO ONE works in the best interest of buyer’s – agents would like to suggest they do with mandated changes years ago which forces them to obtain a “sign off” to mitiagate thier liability however their education and entire process model and OREA contracts are geared specifically toward working in the best interest of the seller only (or of course the commission salesperson themselves). Time RECA and others recognized there need to be an advocate assisting buyers outside of the real estate sale industry looking after buyers.
Agree, Chris, people should ask that question, which could result in the commission system being revamped. Yes, there are some great agents, but there’s no way to escape the conflict of interest. Perhaps those agencies that charge a flat fee for consultation, advertising etc. will be the way things go in the future. Especially given that we all now have access to listing information that, only a short while ago, used to be accessible only to agents.
“Phantom offers” are a blight on the real estate landscape, clearly unethical and result in increased lack of regard for the real estate profession and its practitioners. As a REALTOR®, I am very concerned that my buyer clients are not misled into bidding as if there is competition when, in fact, there is not. The small additional amount of commission that I stand to gain if my buyer client pays more is absolutely inconsequential next to my obligation (and desire) to fulfill my fiduciary obligations to my buyer clients.
In a situation in which there is potential competition, I do a number of things. Routinely. First of all, I always ask the listing agent if there will be competing offers. Second, I ask to be made aware if any competing offers surface between the time I express interest on behalf of my clients and the time I complete an offer for presentation. Third, when I am told there is competition, I always ask who the other REALTOR(S)® is (are). Some agents will tell me, some will not. However, in any case, my fourth tactic is to include, in situations where I am led to believe there are competing offers, a clause in my clients’ offer that stipulates that it is being prepared with the understanding that there are competing offers. The clause further stipulates that a) if no other offer is received by the listing agent by a specified time, that we will be notified and have the opportunity to revise our offer and b) if our offer is chosen, the seller/listing agent will provide the name of the agent/brokerage who made the other offer. Presumably, this clause could be rendered useless if an agent conspired with another to have a phantom offer story upheld. But that would require the cooperation of at least one other agent willing to risk the sanction of the real estate governing bodies.
Of course no one is working in the interest of the buyers. There are typically four parties in a real estate transactions: seller, seller’s agent, buyer, buyer’s agent. When 3/4 of the parties involved in the purchase benefit from higher sale prices, no one is fighting for the buyer. If you’d care to debate this with me, please start by naming a single agent who advertises that they’ve “bought below asking!” That’ll be the day! Most of them are more than happy to boast “sold above asking” though.
Bidding blindly on a house should be legislated against. It’s absolutely stupid. Do you bid blindly at auctions or on eBay? No. The current state of the system milks buyers of more and more money, placing people further and further into debt. Bidding should follow an open procedure where each and every bidder knows what the other is offering. This will eliminate gross overpayment due to lack of information.
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