[Real Estate] How to spot and walk away from phantom / shill bids?

Unfortunately there is not much else anyone can do because of the way the system is set up, it's outright fraudulent leaving buyers in the dark bidding blind with representatives on both sides working on commission. The good news is you can now ask to see the other bids and if it cannot be produced you should report the agent to RECO to have their license revoked.

alanbrenton wrote: ↑Besides walking away and being approached with a lower asking price, what other tests can we perform to determine whether the bidding war are smoke and mirrors?

In general there isn't a notable percentage of phantom offers. Often times it appears that way even for Realtors who lose out. I've had listed properties in slower markets where after 2 or 3 weeks on market an offer is made and the next thing you know another materializes. Even knowing that when I've been on the buying side and that happens, it might still seem fishy. That's human nature at play.

There are two clauses that can be used within an offer that reduces the risk of a phantom offer. Failing that if a buyer thinks a listing Realtor is bluffing they can call the bluff and stand firm.

streits wrote: ↑The good news is you can now ask to see the other bids and if it cannot be produced you should report the agent to RECO to have their license revoked.

This is not correct. The buyer will not see the bids. Unfortunately, the new rule will not help a buyer in that a complaint has to be made to RECO who will then request proof of the offers from the listing brokerage and possibly contact the buyers as well to ensure they were legitimate. By the time all that's done, the property is long sold.

It does act as a deterrent though.

licenced wrote: ↑This is not correct. The buyer will not see the bids. Unfortunately, the new rule will not help a buyer in that a complaint has to be made to RECO who will then request proof of the offers from the listing brokerage and possibly contact the buyers as well to ensure they were legitimate. By the time all that's done, the property is long sold.

It does act as a deterrent though.

Yes you can ask RECO after the fact if there was other bids, real ones that is.

Specifically, selling agents will have to keep records on successful bids for six years and on unsuccessful bids for one year. As well, agents will only be able to claim they have other bidders if they’ve received a formal offer in writing.

So if you’re strong-armed to cough up more dough because there’s apparently a higher bid than yours, you can follow up later to make sure there actually was one. If it turns out there wasn’t, RECO can step in and take action, including potentially revoking an agent’s registration.

Because the bidding is not transparent and because the seller doesn't have to go with the highest offer, can't the listing agent find a third-party to put a shill bid that will never be accepted?

This would cover the new regulatory requirement, wouldn't it? Or is there some requirement from RECO to confirm funding, mortgage preapproval and the likes?

alanbrenton wrote: ↑Because the bidding is not transparent and because the seller doesn't have to go with the highest offer, can't the listing agent find a third-party to put a shill bid that will never be accepted?

This would cover the new regulatory requirement, wouldn't it? Or is there some requirement from RECO to confirm funding, mortgage preapproval and the likes?

Sure, it's possible they could find a shill to produce an offer but they can also do so with any system. Nothing would prevent a truly unscrupulous crook from trying to get away with it - for example, there are many safety precautions in place to stop mortgage fraud but lawyers, Realtors, buyers or sellers intent to commit same, will try to get away with it.

This new change actually reduces the likelihood of phantom offers in sealed bids more so than it would in an auction process.

licenced wrote: ↑Sure, it's possible they could find a shill to produce an offer but they can also do so with any system. Nothing would prevent a truly unscrupulous crook from trying to get away with it - for example, there are many safety precautions in place to stop mortgage fraud but lawyers, Realtors, buyers or sellers intent to commit same, will try to get away with it.

This new change actually reduces the likelihood of phantom offers in sealed bids more so than it would in an auction process.

That's very true.

The thing is it probably doesn't cost much to create a fake bid. It can always be turned down for any technicality and the listing agent is covered in the event of a complaint or investigation. Although it is unethical, the salesperson may think he/she is adding value to the selling process unlike mortgage fraud, where it is purely trying to rip someone (or institution) off.

alanbrenton wrote: ↑That's very true.

The thing is it probably doesn't cost much to create a fake bid. It can always be turned down for any technicality and the listing agent is covered in the event of a complaint or investigation. Although it is unethical, the salesperson may think he/she is adding value to the selling process unlike mortgage fraud, where it is purely trying to rip someone (or institution) off.

It may not cost much but I would imagine there would be a kickback somewhere.

Not to say that someone wouldn't get away with it but if a complaint is lodged they're not nearly as safe as you presume. RECO's investigators are very in depth going much further than just looking at the offers.

It is also more than just unethical it is bid-rigging which is a criminal offense and all involved are culpable.

Real estate pro tip - only pay what you are comfortable paying and stick to it.

No bidding wars.

No need to worry about phantom bids.

boyohboy wrote: ↑At the end, it's important for buyers to set a budget and expectation. If this is the house what you're willing to pay $x, then stick with $x and that is. Don't get emotional over a house that you don't even own and some other (real or fake) strangers competing with bids.

dutchca wrote: ↑Real estate pro tip - only pay what you are comfortable paying and stick to it.

No bidding wars.

No need to worry about phantom bids.

The thing with a budget in mind is that it's not immune to this foul play but it does allow you to walk away unscathed if the price goes out of one's ballpark. If the "final" price is within one's ballpark, the selling agent just got one to pay way more than necessary as well.

They probably list the property way below market value to attract attention and from then on, make the hocus pocus behind the scene.

It's bs. Because they could do anything they want and can't get caught. Also if the selling price was to low they would never accept it.


It's a complete bs system.

If you put your house on mls for 500k and someone came to you and said i have 500k and will meet your conditions it should be done deal.

And if there is a bidding war then it should be like an auction or a silent auction. You know what the other bids are. Set up a reserve and how much some one needs to win by.

daivey wrote: ↑If you put your house on mls for 500k and someone came to you and said i have 500k and will meet your conditions it should be done deal.

Except under Common Law, it is called an invitation to treat and not an offer to any one person to sell the property. That would only happen if the listing stated something like: 'first come, first served' or, ' will sell for highest and best offer.'

Auctions aren't the answer either. There is often a secret reserved bid that would preclude the seller from selling to the highest bidder.