No wonder consumers are confused when it comes to HomeBuying – apparently, they are not the only ones. Departing notably from the campaign platform she pitched to agents several months back, Maureen O’Neill, president-elect of the Toronto Real Estate Board (TREB) now agrees that fake or phantom offers are the scourge of the industry. Realosophy welcomes this turnaround.
When multiple buyers bid for the same home, a “multiple offer” situation is in play. Presently, this process is conducted ‘blind’ in Ontario. This means that an individual buyer and his or her agent do not know anything about the other offers being made – including whether or not they truly exist. As we outline in our HomeBuyers Guide, every HomeBuyer needs to be aware of dangers associated with participating in a multiple offer situation (which are increasingly unavoidable in a hot Toronto real estate market):
Very rarely, you may come up against a fake multiple offer situation. This happens when an unethical agent informs you that you will be competing with non-existent buyers for a particular home, thereby driving up prices (and commissions).
The Toronto Star has recently delved into the issue in a series of must-read articles. The Star’s investigation has revealed that many agents and brokers agree that the unethical practice exists; consumers themselves report being victims. While consumers have made 60 complaints to the Real Estate Council of Ontario (RECO) in one year's time, only one conviction has been registered. In the Kingston case, Bill Batson “suggested to a buyer's agent that another, non-existent offer might be coming in on his listing, priced at $449,000. This sparked a $450,000 offer from the buyers, which was accepted. The buyers were originally preparing to offer about $400,000.” The observant reader may note that Batson’s fine of $10,000 does not exactly cover the injury suffered by the buyers, who may have overpaid up to $50,000.
Intriguing proposals are beginning to see the light of day as consumers become aware of the problem and real estate professionals become increasingly willing to acknowledge the extent of it. Michael Manley, who ran unsuccessfully against O’Neill back in June, has proposed that an official bid registry be incorporated into the Multiple Listing Service (MLS). Others suggest that listing agents should only conduct multiple offers in person as opposed to via fax, since the latter sets-up a non-transparent situation in which consumers can be taken advantage of.
It is clear that the road ahead will be a bumpy one. As noted by the Star, buyer agents might fail to protect their clients (by questioning the actions of fellow agents) because of their desire to make connections and rise professionally. When it comes to overhauling the entire multiple offer process, the more general reluctance among real estate professionals to ‘rock the boat’ makes for a formidable obstacle.
In the meantime, there can be no doubt that fake multiple offers hurt all HomeBuyers, not just direct victims, by contributing to artificial price increases in the market. While Ms. O’Neill may feel that “in a free marketplace, everyone wins,” the truth is that imperfect information and other irregularities often render the real estate market anything but free and open. The industry can never truly profit when it fails to protect the consumer. Consumers will continue to insist that the industry respond to their needs; if concerns are not dealt with, they may take their business elsewhere. Stay tuned.
Urmi Desai is an economic analyst and a freelance writer specializing in urban issues. She is editor of the Move Smartly blog.