‘How is this legal?’: Real estate sales tactics under fire as Canadian home prices spiral out of control

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When Darrell Parsons recently tried to buy a mobile home in Erin, Ont., northwest of Toronto, at the listed price of $269,000, the seller’s real estate agent told him his unconditional offer was unacceptable, and he would have to wait for all the other bids.

The home sold for $312,000 a few days later. It’s standard practice for realtors to list a price below what the seller really wants in order to spark a bidding war, but the listing did not specify a bidding date. In any case, Mr. Parsons took exception. “It was bait and switch,” Mr. Parsons said. “Realtors are tricking people to come in.”

The 60-year-old Mr. Parsons filed a complaint with the province’s real estate regulator, saying the sale was unprofessional and unethical. “How is this legal? They list an amount and I try to buy it. They don’t show an auction in their listing,” he said in his filing with the Real Estate Council of Ontario (RECO.) “The buyer is deceived about the price and if they want to continue, must bid and wait and see if it was high enough.”

But RECO told him the realtor did not break any rules, and the listing price is not an offer to sell at a particular price but, rather, an invitation for buyers to submit offers. “If a seller makes the decision to undertake a particular marketing strategy, such as choosing a particular asking price or setting a future date for offers, they are free to do so,” the regulator said in an e-mail.

As Canadian home prices spiral out of control, long-standing realtor sales tactics are coming under fire. Blind bidding, in which prospective home buyers don’t know what their competitors are offering and winners often blow past their budget and the second-highest bid, is being blamed for driving up prices. So is the practice of setting an artificially low price to draw in crowds of hopeful buyers, increase the number of bids and pump up the offer price.

“They are chumming the water,” said Andy Yan, a housing expert and director of Simon Fraser University’s city program. “The issue is fairness. Was there ever any intent to sell at that price or was it just to feed the pricing frenzy.”

Economists – and even realtors – have blamed such sales tactics for helping to drive soaring prices, and called for reform. “A review of local market practices should occur to ensure that a seller’s market doesn’t turn into a runaway market due to practices that can jawbone buyers, like price-baiting or gaming the lack of transparency on the bid process,” Toronto-Dominion Bank chief economist Beata Caranci said.

Realtors are prohibited from making false, deceptive or misleading statements under provincial rules governing realtors, but that does not apply to listing prices. Underpricing a property is considered a marketing technique, according to RECO.

“These are marketing strategies that have positive and negative results depending on the circumstances, but it is ultimately the sellers that make the decision,” RECO spokesman Brian Buchan said.

Blind bidding is also considered a selling strategy and, ultimately, the decision on whether or not to use it is up to the seller, according to RECO.

The regulator opened 674 complaints in the first three months of this year, its highest level for that period and an increase of 38 per cent over the same period last year. RECO said the top complaints included the handling of the offer process and undisclosed commission reductions.

In today’s overheated real estate markets, an underpriced home can draw upward of 50 private viewings in a week. Houses are routinely selling over the asking price – in some cases, more than $800,000 over. Sellers, of course, love the higher prices that come with bidding wars.

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For Mr. Parsons, the asking price of the mobile home was at the high end at $269,000, especially since it was located on leased land and the unit could not be renovated. “What drives me crazy is the realtor is the one [who’s] telling the homeowner to lower the price to increase traffic, and then when they sell it over asking, they can brag that they are a great realtor when in fact they lowballed it,” he said.

Mr. Parsons said, in hindsight, he should have also filed a complaint with the Competition Bureau, an independent federal law enforcement agency whose purview includes false advertising.

Under the Competition Act, businesses are prohibited from making materially false or misleading claims to promote a product, service or business interest. The Bureau considers a claim “material” if the general impression it conveys leads someone to take a particular course of action, such as buying or using a product.

“It’s the general impression conveyed by the advertising that matters,” said Denes Rothschild, partner with Borden Ladner Gervais LLP, who specializes in competition issues. “My assumption is that the bureau has found that the general impression conveyed by a list price is that it’s just a starting price and that the seller won’t necessarily sell for that price, based on how home buyers know the market works.”

The Bureau said it received 2,134 deceptive marketing complaints from April through September, 2020, which was on track to surpass the previous full fiscal year’s total of 3,226 complaints. The law enforcement agency would not say how many involved real estate, citing confidentiality reasons.

In any event, the last time the bureau pursued a case against an individual realtor for misleading advertising was in 1978, and it involved false claims about the condition of the house, furnace and wiring, not the listing price.

The ambiguity of listed prices in today’s red-hot markets has home buyers guessing at how much over asking they should bid.

Sabrina Piccirilli and her fiancé made an offer of $915,000 on a suburban Toronto house late last year that was listed for $899,000. The seller’s agent told them “it was not going to cut it.”

“I was so insulted by that,” Ms. Piccirilli said. “I thought, ‘Well, you listed it for $899,000 and we are offering $915,000. What the heck do you want?’ I did not know it was a game.”

The couple looked at about 30 houses. Many were priced artificially low by sellers and their agents. “They wasted our time,” Ms. Piccirilli said.

Anthony Anichini, a realtor based north of Toronto, said one of his clients wants to sue or file a complaint against him and a seller’s realtor for false advertising.

“The customer feels the current marketing strategies are illegal, deceptive, a waste of everyone’s time and against accepted Canadian advertising standards,” said Mr. Anichini, a rep with Royal LePage Premium One Realty. His client threatened to sue after viewing numerous underpriced Toronto area homes that sold well over asking.

“Imagine you spend two weeks looking at 20 different homes, you find one or two that you like and the [asking] price is not the price. It is extremely frustrating,” he said.

Even if artificially low listing prices and blind bidding are the norm, Simon Fraser’s Mr. Yan says that doesn’t make it right.

“At the heart of it, it goes to the transparency and accountability of real estate sales,” he said.

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