Ontario makes phantom bids illegal in real estate transactions

Ontario has banned the practice of phantom bidding, an unscrupulous process designed to inflate house prices.

Some homebuyers fear that prices are being driven up by nonexistent bids

The practice of phantom bidding is now illegal after new real estate regulations went into effect on July 1, according to the Toronto Star. Phantom bidding is a process by which a real estate agent attempts to get a higher bid on a property by implying that a higher - but, in fact, nonexistent - offer has been made by another prospective buyer. While it is difficult to tell how prevalent the practice is, there have been cases of some homebuyers, particularly in hot real estate markets like Toronto, claiming that phantom bidding has led to properties being overvalued.

Phantom bidding

Phantom bidding happens when a real estate agent who is selling a property tells a prospective buyer that an offer on the property has already been received when, in fact, no such offer exists. The point of a phantom bid is to drive up the price on the property in order to get the homebuyer to pay more than what the property may actually be worth.

Phantom bidding is not considered to be particularly prevalent since relatively few complaints about the practice have been reported. However, as the Financial Post reports, phantom bidding is suspected to occur in especially competitive real estate markets, like Toronto's, where prospective homebuyers are already often on guard against competing offers. Furthermore, phantom bidding has long been difficult to prove, suggesting that many consumers' suspicions of having been victims of it have likely gone unreported.

New penalties

New regulations that went into effect July 1, however, will provide some protection for consumers against unscrupulous real estate agents. The new law prohibits agents from saying or implying they have received an offer unless such an offer has actually been made in writing and has already been signed. Brokerages will also be required to maintain records of all offers received for one year and those records will be made available to consumers who file a complaint about any alleged phantom bidding to the Real Estate Council of Ontario. Agents who violate the new law could face up to two years in prison and a fine of up to $50,000.

One limitation of the new requirement, however, is that records will only reveal whether an offer has actually been received. There is no requirement to record how large each offer is, meaning that if consumers fear they overpaid on a house, they will be able to verify whether competing offers existed, but they will not be able to tell how high or low those offers were.

Legal advice

Buying or selling a home is a major transaction, which is why, as the above article shows, security and peace of mind are so important for buyers and sellers. Anybody who is currently in the market to sell or buy a property should contact a qualified real estate lawyer. An experienced lawyer can help ensure that a real estate transaction goes smoothly and can provide an additional level of protection to consumers throughout the process.