Transparency needed for real estate

A bid to reform Toronto’s real estate practices

 From the Toronto Star:

The strong light of open disclosure can work wonders in keeping dubious characters from pursuing shady practices. That is becoming especially obvious in Ontario when it comes to real estate bidding, which could benefit from more clarity and disclosure.

While the vast majority of Ontario’s 52,000 real estate agents are ethical and honest, there are a few agents who break the rules and take unfair advantage for the sake of profit. One such technique some of them use is “phantom bids” to drive up the price of a property.

To curb such practices, a special registry requiring all real estate agents to formally declare the receipt of an offer could go a long way toward delivering clarity and transparency for buyers and sellers alike.

Contrary to some opinion, the biggest impact of phantom bidding is not necessarily in a super-heated market like Toronto, where sellers in prime neighbourhoods commonly receive multiple offers in excess of their asking price. In these circumstances, there is less pressure for unscrupulous agents to resort to phantom offers since bidding wars do erupt without any fakery. Even when false bids happen, they have reduced impact in a hot market because one or two phantom offers are unlikely to seriously sway the outcome amid 20 legitimate bids.

Phantom bidding is potentially a bigger problem in ordinary real estate markets across the province, where buyers routinely submit an offer below a seller’s asking price, and often with conditions attached.

The unethical tactic can work like this: The agent of an interested buyer contacts the seller’s agent and sets a time for a meeting to present an offer. But, just before that meeting, the seller’s agent calls back and says a second offer has just been received, commonly by fax. That unexpected competition puts pressure on buyers to raise their bid, perhaps to the seller’s asking price, or it may result in the dropping of some conditions for accepting a house.

The problem is that sometimes there is no second bid ““ just a fake offer designed to inflate costs and real estate commissions. Currently, such bids cannot be tracked or verified.

Allegations of such bidding are not specifically listed by the Real Estate Council of Ontario, which regulates the conduct of agents and brokers. But the council has received 60 complaints about bidding processes, in general. And there is significant anecdotal evidence from outraged real estate agents convinced that the practice is happening.

Michael Manley, a Toronto-based real estate agent, has proposed a registry system that would require the agent of a property-seller to formally list all the offers being received. Buyers’ agents could then check that list and have a better idea of where they stand.

While Manley is trying to develop an online registry that agents could sign onto voluntarily, there is no reason why it could not become mandatory province-wide. True, unscrupulous agents could still put a fake offer on this registry, but having their bid publicly declared and documented could deter many from risking such a lie.

It is worth a try. Almost 195,000 existing homes changed hands in Ontario last year, and the process needs more light.

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