Ah, spring. Chirping birds, budding flowers, and bloodthirsty bidding wars on Toronto’s frenzied real estate scene. Two weeks ago, a detached house in tony Lawrence Park confirmed that we’re in the busiest, silliest buying-and-selling season: The brick fixer-upper was listed for $699,000 in a million-dollar neighbourhood, then drew a ludicrous 72 bids before selling for $1.3-million.
And it’s only May. With interest rates still really low, and demand still really high, it looks like another bad year for spring fever.
It’s pointless to wish that buying a house at such a competitive time could be easy (or cheap). Increasingly, real-estate professionals and politicians have been wondering if it could at least be a little less deceptive. The Ontario government is fine-tuning Bill 55, a piece of consumer protection legislation passed last year that includes new provisions for bidding wars (officially known as “multiple offer scenarios”).
The target is “phantom bids:” to prevent unsavoury agents from inventing nonexistent buyers to drive a home’s price up, brokerages will now have to keep documented proof of each offer brought to the table. It should take effect by the end of the summer. Between now and then, the Real Estate Council of Ontario and the Ministry of Consumer Services are discussing exactly what documentation should be kept, and for how long.
The thing is, either fake bids don’t happen much, or buyers are too worn out after they’ve finally got themselves a house to launch a complaint. Since 2002, only four phantom offer cases have been prosecuted out of the four million real estate deals that took place in Ontario. (Penalties for convicted agents range from a written warning, to a fine of up to $25,000, to a revoked license). Making the buying process more transparent is a worthy goal, but phantom bids aren’t nearly as loathed as more common bidding war scenarios.
The first is listing houses at prices they’ll never be sold at. I’m not convinced that the adrenalin of a bidding war always translates into a significantly higher price, but it’s almost worse when multiple offers fail to materialize. One familiar Toronto scenario is a house listed at, say, $499,000, attracting a parade of buyers whose price ceiling is $575,000 or so. For whatever reason – the phase of the moon, maybe, or a cuter house one street over – only one offer comes in, at $565,000. The seller yells at his agent, refuses the offer, then lists again a week later for $601,000. Meaningless list prices are a huge time suck for buyers. Perhaps a refusal to sell your house for the price you chose to list it at should mean a 30-day penalty before it can be listed again.
Also sneaky is sending warring bidders back to do “a little bit better,” again and again. One agent told me about coming in second in a recent bidding war in the west-end neighbourhood Dufferin Grove. The selling agent said repeatedly that the top two bidders were “really close,” so the buying agent and his client spent hours crafting new offers before relinquishing. The eventual sale price was $70,000 over their highest bid, meaning that the final buyer was probably competing against herself for at least the last $50,000. “It comes down to morals and ethics,” says the agent I spoke with. “And some agents don’t have it.” Which is why a limit on the number of times buyers can be asked to bid again wouldn’t hurt, either.
Mainly what’s needed is tearing down the curtain of mystery dividing buyers from the Realtors of Oz. “All bidders should see all other bids,” says my friend Dave, who finally triumphed over another buyer this March after four months touring $650,000 houses that all sold for $800,000. “There needs to be less opacity, and less chance for sellers and agents to collude to squeeze the buyer.” Ironically, current law expressly forbids realtors from disclosing other offer amounts, in part to stave off the use of “escalation clauses,” or offers to perpetually pay $5,000 more than the next guy.
“If sellers want to auction off their property, they can certainly retain the services of an auctioneer,” says Bruce Matthews, the Deputy Registrar of Regulatory Compliance at the Real Estate Council of Ontario. “The existing code of ethics prohibits brokerages from disclosing the substance of competing offers.” Changing that would require a change in provincial law, which is unlikely to happen when out-of-control bidding wars are mostly localized to the Toronto area. This aversion to honest auctions means a season of blind, dishonest auctions that turn a competitive process into one that’s unnecessarily sleazy.