If you are looking to buy a new home – especially in this increasingly-hot market – you may be understandably wary of getting into a bidding war in competition with one or more other buyers. Fortunately, new rules have just come into place in Ontario that should help dilute these high-pressure scenarios, by eliminating “phantom” bids.
Although fully-documented instances are apparently rare in the industry, phantom bids are the device of unscrupulous real estate agents, who falsely hint to interested buyers of a home that there are competing (and implicitly, better) offers on a property. This adds fuel to the proverbial bidding-war “fire”, and when left unchecked can result in a buyer-frenzy that drives up offers and selling prices – and with them, the agents’ commissions.
As of July 1, 2015, changes to the rules used by the Real Estate Council of Ontario (RECO) are aimed at eliminating these kinds of unsavory tactics, and level the playing-field for buyers (and agents) even in a hot market. They arise under Bill 55, the Stronger Protection for Ontario Consumers Act, 2013, which amends the Real Estate and Business Brokers Act, 2002 and its regulations. The amendments’ main thrust pertains to the handling of offers by brokerages, whether or not there are competing offers on a particular property.
To be specific, the changes now mandate the following:
All buyers’ offers on a property must now be in writing, and must be signed in order to be valid.
A real estate agent cannot indicate, imply, or even hint that he or she has a competing offer, unless the offer is in writing and ready to be delivered to the seller.
Seller’s brokerages are also newly-subject to long-term record-keeping obligations with respect any offers that they receive, and must record various information about the buyer, the seller, their respective brokerages, and the particular property, among other things.
Brokerages must also keep detailed records of any buyer’s offer it handles and conveys, including the date and time it was made, and the manner in which it was received. In certain circumstances they must also keep an actual copy or a summary of the offer, stored either in hardcopy or electronically, for a period of up to six years.
Most importantly, the changes have implemented a formal disclosure-upon-request system: Agents, buyers, or sellers can request RECO to reveal how many written offers the listing brokerage received for any particular property (which information will be obtained by RECO from the brokerage). This imposed transparency is designed to eliminate the possibility of phantom bids in any bidding scenario.
The legislative changes are not only mandatory, but they are intended to be strictly enforced: Any realtor who falsely suggests that there is an offer, or who otherwise breaches the new rules, is guilty of a provincial offence. All brokerages are also required to create processes and policies that comply with the changes, and must train their employees accordingly. The Ontario Real Estate Association (OREA) is assisting with this province-wide mandate by preparing a form for agents and brokerages to use that ensures compliance.
Undoubtedly, these initiatives are good news for the industry and home buyers can breathe a sigh of relief; it’s one less thing to worry about when trying to find a new home.
Martin K. I. Rumack