Everything You Need To Know About Phantom Bids

For Home Buyers

While I’d like to think that most professional Realtors® across our industry follow a certain code of conduct that upholds values of honesty and integrity, unfortunately not every real estate agent you come across believes in the same thing.

Although I do understand that the real estate industry in high-concentration markets like Toronto and South Etobicoke can be competitive, to say the least, there are a few back-door practices that some agents use to get ahead, with one of the worst culprits being phantom bids.

To learn more about what phantom bids are, why they’re so dangerous, and what you can do to protect yourself from them when buying your next home, rely on my guide here on everything you need to know about phantom bids.

Looking for a trustworthy real estate agent who can guide you through a smooth home purchase? Call or text me at 647-239-7587 or send me an email at melissa@southetobicoke.com to get started.

What is a Phantom Bid?

A phantom bid is a deceptive, ugly practice that, unfortunately, a few real estate agents still take part in. When a real estate agent helps a client list their home for sale, phantom bids can be used in order to create the illusion that there’s more competition between buyers for a listing than there actually is, and in return, raising the overall sales price.

Here’s an example of how phantom bids work: let’s say you go to see a home for sale, you really like the property, and you decide to make an offer for it. Then, once your offer is submitted, the listing agent all of a sudden tells you that there are two other offers registered for the home as well, and that you’ll be competing to win the listing.


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Now, knowing that there are two other interested buyers, you feel compelled to increase your offer price, remove a few terms and conditions to benefit the seller, and then register your second offer. Eventually, you win the listing and the home is yours — but, how do you really know that there were offers for the home registered? Did you really compete against two other buyers, or were you competing with yourself and scammed out of money and favourable terms and conditions?

While this situation definitely sounds scary, it’s important to remember not every agent employs such a deceitful act. However, it’s equally as important to keep in mind that some of them do, and you need to know what to watch out for to avoid them.


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How Can You Protect Against Phantom Bids?

The difficult thing about phantom bids right now is that the current system of real estate transactions right now makes these types of deceitful practices too easy and too tempting for crooked real estate agents to pull off.

One of the most controversial topics surrounding the real estate industry today is the structure of our blind bidding system. As of now, Canada’s real estate industry follows the blind bidding process, which in essence, is exactly what it sounds like — offers and negotiations for active listings are made completely behind closed doors with little-to-no public transparency.

In the current blind bidding system, listing agents work directly with their selling clients to review and respond to incoming offers from buyers privately. This means there’s no actual way of telling how many people have submitted offers for a home and for how much. This is exactly why it can be challenging to know whether or not a listing agent is advertising fake or ‘phantom’ bids to eager buyers during a sale.

The good news is that, as of July 1st, 2015, a new law was recently passed that protects buyers from phantom offers. How does it work? It enforces by law that listing agents cannot imply that a competing offer has been registered by another buyer unless there’s physical proof of the offer. The proof must be in the way of a written and officially registered offer that has been signed off on by both the bidding and selling parties involved in the transaction.

How is The Law Actually Enforced?

Under the new law, if you as a potential buyer believe that the listing agent has falsely implied there’s another offer competing with yours and that it was actually a phantom offer, you can file an official complaint to the Real Estate Council of Ontario (RECO).

As RECO is the governing body of real estate agents across the province, they have the power and authority to contact the listing agent and request proof of documentation that the other offer or offers in question were actually authentic.

And get this — there’s a lot of incentive for real estate agents to comply. If RECO determines that a listing agent has submitted a phantom bid, the agent could have to pay a maximum fine of $50,000 or spend up to two years behind bars! If that isn’t reason enough to stay far, far away from phantom bids, you’ve got to be quite the risk-taking real estate agent.

Looking for a trustworthy real estate agent who can guide you through a smooth home purchase? Call or text me at 647-239-7587 or send me an email at melissa@southetobicoke.com to get started.

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