As a Buyer, the only thing worse than being in a bidding war for the home of your dreams, is wondering if you’re really in a bidding war. What are the chances that a second offer magically appeared after the condo you love has been on the market for 30 days? Are there really 7 offers on that house? Or is the Seller just trying to squeeze more money out of you?
The phantom offer, as it is is called, isn’t a real offer – it’s make believe. It’s unethical and illegal but it could cost you tens of thousands of dollars. Here’s why.
If you’re the only Buyer offering on a property, you’ll likely have conditions (eg. financing and/or home inspection) and you’ll almost certainly not offer more money than the asking price. But when there are multiple offers, all bets are off. Conditions go by the wayside and offer prices get increased.
No one really knows how often phantom offers happen in Toronto. Interestingly, there have been very few formal complaints to the Real Estate Council of Ontario (RECO) from consumers about it. But as an agent who has presented hundreds of offers, I can tell you that my spidey senses have tingled on more than one occasion.
As of July 2015, RECO will be mandating new procedures to deal with bidding wars. Brokerages will now be required to keep copies of all offers (including counter-offers) and Buyers will be able to verify the existence of additional offers through RECO. Buyers will never be able to find out the details of the other offers, but they will at least be able to verify their existence. It’s going to create a lot of paperwork, but it’s a step in the right direction.
In the meantime, here’s what you and your agent can do to protect you from phantom offers:
- Have your agent call the other brokerage and ask how many offers are “registered“. “Registered offer” is real estate lingo for a signed offer, and most agents will officially ‘register’ their offer by calling the listing brokerage and informing them that an offer has been signed. Details of that offer are not shared, but the office records the name of the agent and the brokerage. Unfortunately registration isn’t a mandatory part of the process, so this isn’t a guarantee that another offer does or does not exist.
- After I register an offer, I usually call the listing agent and ask them what brokerages the other offers are from – they don’t technically have to tell me, but most agents are cooperative. If the second offer is BS, I can generally tell by the other agent’s reaction.
- I like to present my clients’ offers in person, and nothing beats looking the Seller in the eye and asking them how many offers they received. Most agents and Sellers are legit, so it’s easy to make this question part of the conversation and not come across as paranoid.
- While most agents aren’t aware of this, there is a legal clause that your agent can insert into the Agreement of Purchase and Sale that will generally protect you from phantom offers. The clause essentially says that your offer is being made on the condition that another offer exists, and in the event that you are the only bidder, that you can revoke your offer. The clause we use further states that the names of the agents and brokerages of the other offers will be provided to me/my brokerage the following day. This clause also protects you in the event that the other offer doesn’t get presented, as Buyers sometimes second-guess themselves and pull out at the last minute.
Worried about bidding wars? You’re not alone. When you’re picking an agent to represent you, make sure they are experienced in navigating the process and know how to protect you. It could save you tens of thousands of dollars.