Gail Swainson
Real Estate Reporter
tony wong
staff Reporters
The incoming head of the Toronto Real Estate Board has come out swinging against phantom bidding tactics after denying they even existed when she ran for the job three months ago.
“It’s dirty realty, it really is,” Maureen O’Neill said of agents who fabricate offers during bidding wars. She is now calling on the Real Estate Council of Ontario (RECO) to yank the licences of agents convicted of using phony bids.
“Boot them out, we don’t need them in the business,” O’Neill said. “I don’t think these people should be allowed to sell real estate.”
Phantom bids can be used by selling agents to spark extra rounds of bidding or to spook potential buyers into rushing or raising offers. The practice is considered a breach of ethics under the Real Estate and Business Brokers’ Act of Ontario – administered by the Ontario council – and realtors who are caught can face hefty fines.
There are more than 52,000 real estate agents in Ontario (26,000 in Toronto) and last year they sold 194,793 existing homes in Ontario (84,872 in the Toronto market).
An informal poll of 30 Toronto-area agents taken yesterday by the Star suggests that virtually all believe that some form of phantom bidding exists in the market. More than two-thirds said some kind of structural reform in the way bids were handled was needed to address the problem.
However, more than half the agents said the problem is being caused by “a few bad apples.”
One prominent broker, who handles one of the city’s largest brokerages, calls the problem “rampant.”
“This is a major problem and it’s causing a black eye for the real estate community,” said the broker, who did not wish to be named. “You end up with one man at an auction bidding against himself – it’s plain fraudulent.” The broker says he gets an average of one complaint per day from his agents about potential phantom bidding.
He said he has complained for three years to directors at the Toronto Real Estate Board who “really don’t have the stomach for this. They don’t want to deal with the issue.”
O’Neill made her comments after learning the Star had received documents proving the Real Estate Council of Ontario has been called upon to deal with complaints about bidding war tactics.
Until this week, she steadfastly refused to acknowledge made-up bids occur, saying the Ontario council’s CEO Tom Wright and registrar Allan Johnson assured the Toronto body’s 18-member board on July 19 that no complaints had ever been received.
But the Ontario council’s spokesperson Sandra Gibney said yesterday that Wright and Johnson made no such statements and “RECO does not know why Maureen O’Neill is claiming otherwise.
“If Ms O’Neill had contacted RECO prior to responding to questions about RECO’s complaints statistics, RECO would have provided the same information that you received,” Gibney added in an emailed statement.
In response, an angry O’Neill said she “will certainly be calling (RECO) and asking what the hell is the problem. Certainly they have strained this relationship.”
O’Neill doesn’t think the answer lies in a formal registry and open bid process, something Michael Manley, the owner of Prudential Properties in the Beach, advocates.
“If a buyer doesn’t like the process, they can always walk,” O’Neill said. “I think that in a free marketplace, everyone wins.”
Manley, who ruffled feathers by raising the phantom bid issue during the real estate board’s elections, is glad to hear O’Neill has come around. “I don’t know where she’s been. It’s incredible that anyone as experienced as her could not have heard about this,” he said.
Manley said the solution to phantom bidding is a registry system where every bid on every house is officially registered on the Multiple Listing Service. He is marketing an Internet program that would allow sellers to put a check mark on their listing to signal they are open to registered bids in an open process.
While no statistics are kept specifically involving phantom bids, the Real Estate Council of Ontario documents – obtained after a request by the Star – show the council received 60 complaints about bidding processes in the year ending March 31, 2007.
The Real Estate Council of Ontario, which regulates the activities of agents and brokers in Ontario, said in a statement that complaints about bidding “generally arise in a hot real estate market and are more common in highly desirable areas.”
In July, Kingston Re/Max broker Bill Batson had his November 2006 conviction for “misrepresenting the existence of an offer to another member” upheld on appeal by the council’s disciplinary panel. He was fined $10,000. The panel heard 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.
When reached at his Kingston office Thursday, Batson said he preferred not to comment.
“It’s over and done with,” Batson said. “I’ve paid the fine. RECO didn’t believe the truth.”
Under Section 26 of the provincial code of ethics, an agent or broker is required to disclose the number of competing offers to every buyer. But the agent is prohibited from disclosing the substance – or price – of competing offers, unless the seller agrees.
In more than two decades of selling homes, veteran Toronto realtor Mike Donia has seen more than a few deals that looked so questionable that he encouraged clients to walk away. The phantom bid, says the ReMax agent, is “one of the oldest tricks in the book – it’s been out there forever and a day.”
The problem is proving it.
“You’ve got people out there creating an illusion to pump up their profit,” says Donia. “My advice to clients is not to get caught up in the bidding wars and make a decision on the spot, especially if you’re not sure there really is another bid.”
Heather Sherman, an associate manager at Sutton Group Admiral Realty who has served on various committees at the Toronto Real Estate Board, says phantom offers could be avoided if agents presented their offers the old-fashioned way: Show up in person.
Some vendors will only take faxed offers, which is a less transparent process and leaves potential buyers wandering if there really was a person on the other end of the phone line, said Sherman.
David Blair of Oakville put an offer on a house that was “conveniently” exceeded by $1,000 from the listing agent’s own client. “I’m positive the agent told his own client what our offer was. I was a victim of an agent in a double-ended deal.”
Even though the practice is not allowed under the provincial act, Blair’s agent didn’t file a complaint.
“She’s developing a network right now and doesn’t want to make any enemies in the industry,” Blair said.
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