The victims of a phantom (or fake) multiple offer recently came forward to tell their story to Toronto Star reporter Gail Swainson. In March 2005 Heather and Rob Pearson put in a $400K offer for a home listed for $449K in Kingston Ontario. A reasonable offer considering the home had been on the market for 7 months and needed some repairs. But at the last moment, listing agent Bill Batson informed the buyer’s agent that he received a second offer for the home. As a result of this sudden competition for the house, the Pearsons decided to offer $450K for the home and removed all conditions. The Pearsons won the house but found out a short while later that there was no competing offer on the home. A year and a half after the Pearsons won the multiple offer Bill Batson was found guilty of misrepresenting the existence of an offer to another agent.
There are two things that really stand out about this case. Firstly, it is the only phantom offer case that I know of where an agent was actually found guilty for misrepresenting the existence of an offer. While the Real Estate Council of Ontario (RECO) and the Toronto Real Estate Board (TREB) might argue that the limited number of convictions are an indication that the system works and that agents are operating ethically, I’m not sure if the truth is quite that easy. The limited number of convictions may very well be a barometer of how easy it is for an agent to create a phantom offer, how difficult it is to prove it and how reluctant some agents are to point out a phantom offer when they see it, out of fear of being black listed by their peers.
The other issue that stands out is the fine Bill Batson must pay as a result of his conviction. Just to recap: because Bill Batson lied about the second offer, the Pearsons likely spent tens of thousands of dollars more on their house than they should have and also lost out on thousands of dollars in unexpected repairs because they removed their condition on a home inspection. What’s RECO’s punishment for Mr. Batson, a $10K fine. Mr. Batson continues to sell real estate as if nothing ever happened.
These types of nominal punishments have made real estate fines just another cost of doing business for some agents. Some agents refer to RECO fines as ‘two minutes in the penalty box’. For many agents it’s probably more profitable to be unethical and to misrepresent the public because the probability of getting caught is slim. But what’s worse is that even the possibility of getting caught is not enough to deter agent’s because they know that the fines and punishment put forward by RECO are nominal.
Being a real estate agent myself, I know that unethical agents are definitely in the minority. But the issue isn't how many bad agents are out there, it is how we as an industry choose to deal with the few. The nominal fines being handed out by RECO give consumers the impression that the industry isn't serious about consumer protection.
RECO’s mission statement found on the home page of their website reads:
"Fostering confidence and upholding integrity in real estate transactions"
If RECO intends to live up to their mission, they need to convince consumers that they are serious about punishing and dealing with unethical real estate agents. A $10K fine is not a punishment, it’s a cost of doing business.