Ontario legislation casts spotlight on issue of phantom real estate bids

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TORONTO — Starting next month, homebuyers in Ontario will have new protections against phantom bids, a practice used by unscrupulous real estate agents to drive up the prices of homes.

Agents may hint they have received competing offers when they haven’t in order to spook potential buyers into raising their offers or rushing into a deal.

Some homebuyers believe the practice occurs during bidding wars in cities with red-hot real estate markets such as Toronto and Vancouver. But prior to the new law, these suspicions have been difficult to prove.

As of July 1, agents will not be allowed to imply they have received an offer unless it is in writing and has been signed. They will also be required to keep records of all of the offers they have received on file for one year.

Buyers who suspect they may have been duped will be able to find out whether there truly were other offers by filing a complaint with the Real Estate Council of Ontario, the agency tasked with enforcing the new rules.

Joseph Richer, registrar of the real estate council, says the agency has received very few complaints about phantom bids over the years, indicating the issue is not as prevalent as some suggest.

“We don’t believe that it’s a rampant practice,” said Richer. “But if it happens it’s very serious, and we would take it very seriously.”

A broker who fails to follow the rules could be prosecuted and face a maximum fine of $50,000 or up to two years behind bars. Alternatively, the agent could be referred to a disciplinary committee and be ordered to take educational courses or pay up to $25,000 in fines.

Phantom bids seem to be haunting some Ontario markets more than others, said Richer.

“It depends on the market and how hot the market might be,” he said. “If there’s lots of bidding wars going on, that might make it might easier.”

Anxious buyers who have already missed out on a number of homes to competing buyers could be anticipating a bidding war, he said.

“It’s very easy for someone to play on that.”

Phil Soper, president and chief executive of Royal LePage, says other jurisdictions may end up taking some cues from Ontario.

“What tends to happen is that one province will put something in place …

and it’ll spread to other provinces,” said Soper. “The regulators in the provinces tend to keep in pretty tight step with each other in terms of how legislation is developing.”

However, officials in British Columbia, Alberta and Quebec say they haven’t received many complaints about phantom bids and therefore don’t believe such rules are needed.

“It never has been a significant problem for us,” said Charles Stevenson, director of professional standards for the Real Estate Council of Alberta.

In the event that a phantom bid does occur, officials in those three provinces say there are already ethical codes in place that require agents to keep records on file and prohibit them from using deceptive practices.

Although these rules were not introduced specifically to tackle ghost bids, they could be used to that end if necessary, said Stevenson.

“Our legislative tools are there to deal with it in the event that it does rear its ugly head,” he said.