Monday, 23 July 2012
Phantom Bids: Just How Scary are They?
No, it's not the undead, up from the grave to make an offer on a Toronto condo, and no, it's got nothing to do with the "Phantom of the Opera" or Star War's "The Phantom Menace". But yes, the term "phantom bid" is as scary as it sounds.
Since last week, a lot more of Toronto's sellers, buyers, and real estate enthusiasts have come to learn of the term "phantom bid" because of a real-life incident that was written up in the Toronto Star's Moneyville. (For the Moneyville article click here). In a nutshell, a buyer's agent put in an offer on a property for her clients $90,000 over the asking price. The buyers and their agent believed they were in competition with other buyers in a bidding war. As it turns out, there were no other offers on the table. Those bids that really didn't exist are the "phantom bids". A buyer has either been lied to, mislead or misunderstood some thing.
Since this article has come out, many people I have come across in my real estate sphere have been full of questions. The biggest one: How common is this phantom bid phenomenon? I can say that this has never happened in any of the deals I have worked on or any other agent I know. And I do not know any of the agents referenced in the Moneyville article. According to that piece, there has only been 4 official complaints lodged with the Real Estate Council of Ontario (RECO) in the past 10 years. So officially, not very common at all.
The next biggest question: Why do phantom bids happen? Well, to be clear, it shouldn't happen. When a buyer's agent makes an offer on a house, that agent needs to know how many offers have been registered, if there are any other buyers interested. And the key word here is "registered". Many agents will tell you that they are pretty sure there is an offer coming in or they are expecting an offer to come in or they are 99.999999999% sure an offer is coming in, but if it is not registered, it is not an offer. Even if there is a registered offer, that offer can be withdrawn if the actual written offer has not reached the seller and the selling agent. And if that happens, that listing agent has to let you know that offer has been withdrawn. So, when you hand in your offer, the selling agent should let you know exactly how many offers you are working against, if any.
It is up to the selling agent to be very clear about how many offers are being presented to the buyer, especially since that can affect the offer price. If a seller agent misleads a buyer agent into thinking there have been more bids than are being offered, they could lose their license. Though there are some very responsible and professional agents out there, there are a few that are not as keen to stick to the rules or who are just not as familiar with the rules as they should be.
Many real estate salespersons have asked to have clearer rules set up around phantom bids, and I think the day is coming when we will see it. Until then, I don't think every day is going to feel like Halloween in the real estate world. Yes, phantom bids do exist, but they are in direct violation of the rules and regulations set up by the Real Estate Council of Ontario.