Under new rules from the Real Estate Council of Ontario, it will be illegal for agents to claim they have other bidders unless they’ve received formal offers in writing.Fred Lum/The Globe and Mail
With friends in the real estate industry, Jonathan James had long heard horror stories about heartbreak of bidding wars.
But it hit home a few weeks ago when Mr. James, a mobile software developer, found himself in a battle of his own with one other potential buyer for a house in Toronto. What's more, the other offer came through the same agent who was selling the house.
Mr. James ultimately won, but the process left him with lingering questions about whether there was really a second offer on the home. "My case probably was done fairly and with integrity, but I'm not sure," he says.
"That's a feeling that nobody should have walking away from a process like that."
Regulators have sought to crack down on some of the industry's shadier practices, such as fake bids from agents trying to drive up the selling price of their listing and agents who represent both buyers and sellers.
Hot markets for single-family homes in cities such as Toronto and Vancouver have sparked fierce bidding wars, with some properties seeing dozens of offers from buyers willing to pay well above the asking price.
In July, the provincial government is introducing new rules requiring selling agents to keep records on successful bids for six years and retain the details of unsuccessful bids on file for a year. It will also be illegal for agents to claim they have other bidders unless they've received formal offers in writing.
The changes will give the regulator more power to respond to consumer complaints about the bidding process by requiring agents to show proof of all written offers on a property. They will also crack down on phantom offers, something the council says is rare, but has generated tremendous public attention.
"The concern nowadays with the fairly hot market we've had for a number of years is that either people are not told they're in competition and therefore can't make an informed offer or perhaps they don't know for sure how many people they're in competition with," said Bruce Matthews, deputy registrar of the Real Estate Council of Ontario, which regulates the province's real estate agents.
Others are looking to go further. Having survived the real estate wars, Mr. James recently teamed up with his real estate agent, Adam Brind, software developer Herman Chan and mortgage broker Drew Donaldson to create Dealdocket, a mobile and web-based app that aims to bring more transparency to the bidding process.
"We got to a point where we got so frustrated and we thought something has to change," says Mr. Donaldson, of Safebridge Financial Group. "There's no transparency in the marketplace. People walk away frustrated not only that they didn't win, but because they have no idea what actually happened."
The group is aiming to tackle some of the more infuriating aspects of bidding wars. Much of the process is still done by fax, e-mail and in person. Selling agents often accept bids well past their stated deadline and often buyers can't be sure exactly how many other offers there are on a property.
"Very often what happens is our clients go away from this process and they feel like they've had the wool pulled over their eyes," Mr. Brind says. "It's usually not the case, but they have no way of knowing that."
Last year, he represented buyers who had offered just shy of $1-million for a property listed for $799,000. His clients ultimately lost the home by just $5,000 to buyers represented by an agent working in the same office as the seller's real estate agent.
With Dealdocket, buyers can upload their offers directly to an encrypted site. Offers are time stamped and locked until after the bidding process is closed and buyers can go online to watch the bidding process unfold in real time. Bids from buyers represented by the selling agent get opened first, so that agents can't give their clients an edge in the process.
Mr. Donaldson sees buyers shell-shocked by bidding wars almost daily. He also knows the feeling first-hand. Several years ago he bought a condo townhouse that had been on the market with no offers for nearly a month. The seller was a real estate agent. After submitting a bid he thought was fair, a competing offer suddenly emerged. Mr. Donaldson dug deep and upped his offer by $10,000.
"To this day I have no way of knowing if there ever was an actual offer on the property," he says.
Tamsin McMahon