Have you recently bought or sold a home? If you were a buyer, did you pay more than you wanted because you were told there was a competing bid on the property? If so, you are not alone.
Many of
us have encountered this real estate strategy even though it may be contrary to
the Canadian Real Estate Association Code of Ethics. More specifically, a
realtor cannot tell a prospective buyer about another bid unless they know for
a fact it was formally submitted in writing.
To
address this practice, new rules come into effect in Ontario today (July 1) to
make real estate bidding wars more transparent and so-called “phantom bids” a
thing of the past. Under
these rules drawn up by the Ontario government and Ontario Real Estate Board,
real estate agents will no longer be allowed to tell a potential buyer there is
a competing offer unless that offer is signed, sealed and delivered.
If
someone has suspicions about the validity of a competing offer, his doubts can
be taken to the Real Estate Council of Ontario and the listing agent will be
required to show proof. If the
agent has fabricated the offer, he or she may be liable for a substantial fine
or jail time.
According to a recent Toronto Star story, officials in British Columbia say they haven’t received many complaints about phantom bids and therefore do not believe similar rule changes are needed, adding there are ethical codes in place that prohibit agents from using deceptive practices.
However,
based on my experience and discussions with real estate agents in preparation
for an interview tonight on CBC’s The National, similar rule changes in B.C.
would be of benefit to potential buyers.
Realtors
tell me that while more sophisticated buyers often know when “phantom offers”
are being fabricated, first-time buyers are more easily duped. They could
benefit from new legislation.
Since the
Vancouver real estate market is even hotter than the weather, this may be a
good time to discuss other real estate practices.
Recently,
some Vancouver media have expressed alarm over the fact that properties are
selling well above their listing price. What they
do not realize is that in many cases, the listing price is deliberately set
below market value as a strategy to obtain multiple offers. Once the offers
have been received, it is not uncommon for agents to play one off against
another. Some of
these agents then boast in their real estate listings about the many properties
they sold above listing price.
As I
observe the Vancouver market, I am reminded of a New Zealand television program
I watched during a 2007 trip called School of Home Truths. It
followed 13 potential house buyers and sellers as they learned how to
successfully play the real estate game under the tutelage of a critic of the
real estate industry, a psychologist and financial expert. Through
the use of hidden cameras, the students and real estate agents were observed
and evaluated on their performance.
One
episode opened with a classic card trick to reveal how some real estate agents,
like good magicians, can make you think you are in control, when you really are
not. Through a
hidden camera we see an agent telling a prospective purchaser what a
“nightmare” a property has been to sell, and why the vendor will likely accept
significantly less than the asking price. Another
agent encourages a prospective vendor to list a home with her noting, “I really
don’t have to work for a living because my husband is an importer.”
The
program stresses the importance of not letting your emotions take over when
buying a home, and how to carry out an initial inspection of a house. The
teachers then grade the students on their performance. “She
didn’t even check the shower for water pressure,” exclaims one teacher in
justifying a student’s poor mark.
I suspect
it is just a matter of time before we have a similar program in Vancouver.
In future
columns I will discuss alternative approaches to buying and selling homes,
outdated real estate commissions, and what I learned about real estate agents
from the book Freakonomics.
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