The real question is: does the phantom offer really exist! Maybe, and maybe not.
A phantom offer, of course, is an offer which is make-believe, it’s imaginary, it’s simply pure fabrication. The offer exists only in someone’s mind. Now, the question is who?
The Real Estate Council of Ontario recently imposed a significant fine on an agent who felt that such a practice was “clever marketing”.
Phantom offers became a rather widespread and growing problem. Yes, most agents have heard of them! These are offers that come out of nowhere.
A prospective buyer views a property and decides to submit an offer. All of a sudden, they hear “there’s another offer”. So now, rather than being able to negotiate they pretty well have to come up with the best overall offer that they can. Often this means deleting any conditions they might have had regarding the purchase including financing and home inspection. There are times when this can be crucial.
So, the a couple of things happen:
1) they are told that they are in competition,
2) both offers are very close to one another,
3) they should go back, revise their offer, and then re-submit it.
It has also be rumoured that some agents have arranged for their friends, relatives, and other agents to park their cars outside the house the evening that offers are submitted to create a frenzy of activity. Talk about home-staging, this really takes it to the next level. Stanley Kubrick and Steven Spielberg would be proud to have staged such a production.
Bidding wars have became the “norm”. However, surely not all properties are really worth fighting about.
And, of course, all these phantom offers are illegal. The present ethical guidelines clearly prevent this sort of tactic. Not only is it wrong and deceptive, it is against the law. There are consumer protection laws in the Province as well as federal legislation in the Competition Act and the Criminal Code which would prevent this type of behaviour.
If the status quo remained in place, then nothing is going to happen.
The real problem is that phantom offers although often suspected are rarely reported. Agents frequently don’t want to become involved in this type of controversy. As a result, it falls to the Real Estate Council of Ontario (RECO) to investigate. And while they will, they first need these types of cases to be reported.
Actually, it is a lot like “speeding”. There are already rules against speeding, but if the police never set up radar, then it’s unlikely anyone is ever going to be caught.
This is a matter of law and ethics, and it first should be addressed by the industry. The failure of the industry to police itself, reflects very poorly upon the industry.
In a hot market, on many occasions, there truly are second, third or multiple offers and with underpricing frequently 20 or more. But, surely there isn’t always a mysterious second offer that suddenly materializes the same day as the first offer, after the property has been on the market for over 2 months. And, this same coincidence seemed to follow the same listing agents.
A number of years ago, I suggested the following:
1) all offers shall be properly registered,
2) the broker is responsible to maintain copies of all offers submitted through his office,
3) RECO shall periodically review the files of a brokerage to ensure that offers were in existence and legitimate in multiple offer circumstances.
If this is the case, then this is like radar for phantom offers. The perpetrators are caught and punished, then this will deter others and be of ultimate benefit to the consumer.
The Act was amended in 2013 to require Listing Brokerages to retain:
- Copies of all Offers, or
- Copies of all Offer Summary Documents.
That provision has a 10 year life and in April 2023, copies of all Offers will be required to be retained.
So, that will bring Form 801 to an end.
The reason for this is relatively simple. In 2013, it was difficult to retain copies. It was a great deal of extra work. A simple one page Summary made a great deal of sense. However, today, now that everything is digital, it’s actually easier to retain copies of the complete document, rather than have the Buyer’s agent go to the trouble of creating an additional and unnecessary document.
Brian Madigan LL.B., Broker