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When you enter the housing market to buy or sell a home, you’ll quickly find yourself surrounded and dealing with any number of real estate agents.  Now don’t get us wrong here, because the vast majority – like 99% of agents we’ve dealt with have been true professionals – something that’s certainly true of every vetted, reviewed and trusted agent you’ll find through the Keasy Unlock program, but sometimes agents can try to take advantage through phantom bidding.


What is a phantom bid?


Phantom bidding is a shady tactic to get a home to sell for a higher price.  The way it works is that as you (the home buyer) decide to place an offer on a home, the listing agent informs you that there are several other registered offers already in place competing with your bid.  This naturally pushes you towards increasing your offer price or removing some conditions.  Then your offer is accepted and the home becomes yours, but you don’t know for certain if the other offers were actually legitimate.  It’s happened many times before; an agent mentions other offers, the buyer figures they wont win and back out, only to see the house sell for less than their initial offering price.  They then know for certain that the listing agent was phantom bidding to increase the sales price and their own commission.  The offending agent can use people they know to register conditional offers at higher prices (which are registered and technically legitimate), knowing full well that those bids will never be accepted.  The bids sole purpose is to make a house seem popular and to entice or manipulate other buyers offers.

Sellers should also be wary of phantom bids because buyers can use the same tactic but in reverse.  In a typical scenario, the buyers agent can leverage their connections to place multiple low price offers in the hopes that the seller will rethink their listing price and negotiate lower.


What’s being done about phantom bidding?


It’s not common but it does happen, and it’s always a risk that is never in the buyer’s favour.

Ontario passed a law that as of July 01, 2015, that listing agents are not allowed to imply that there are other offers for a home unless those offers have been officially registered in writing and signed.  If you think that a listing agent may have been phantom bidding and that the other offers weren’t real, you can make an official complaint with the Real Estate Council Of Ontario (RECO) and force the agent to provide documentation proving the legitimacy of the other offers.  If RECO determines there was phantom bidding involved, the agent could face a maximum fine of $50,000 or face up to 2 years in jail.


How to keep yourself from protected from phantom bids


Pay attention to the situation closely, looking out for multiple representation issues where a brokerage represents a buyer(s) and the seller in the same transaction.  While this scenario could be legitimate, it’s much easier to create phantom bids when one agent is assisting a buying client as well as the seller. In this scenario, your  agent should ask what actions are being taken to ensure a fair bidding process. For example, when the selling agent is representing a potential buyer, it is best practice to bring in another agent from the same brokerage to assist that buyer in preparing and presenting the offer so that the bidding process is the same for every buyer involved. When best practices such as this are followed it is one indication that the multiple representation is legitimate. It is also appropriate for your agent get as much information about the other offer(s) as they can. Agents with experience make all the difference in these scenarios because you want your agent to get as much information without alienating  the selling agent or the seller.

Your best protection though is to make sure you can trust your real estate agent to always be looking out for your best interests.  As a buyer, your agent can often help you determine what’s going on and will advise you accordingly when making offers.  It’s important not to get sucked into any games, so know your offer limits and stick to them, no matter what.

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