Barbara Yaffe: In my opinion

Dubious dealings: B.C. has no rules preventing sellers or realtors from using phantom bids to drive up property prices

Real estate bidding wars are not illegal, but, given the way they are conducted, perhaps they should be.

When I submitted an offer to buy a property in late 2013, the property’s selling agent immediately telephoned another interested party, trying to arrange a competing bid.

She was not successful. But real estate bidding wars have become the scourge of property buying in Vancouver, with greater competition resulting from a dwindling number of detached houses, along with a shortage of listings that force more buyers into situations where they must compete, blindly, on price.

Bidding wars are not illegal, but, given the way they are conducted, perhaps they should be.

Such contests are problematic on many fronts. The biggest challenge for buyers is, unlike at an auction, they are left to bid without knowing the value of competing bids.

This means winning bidders could pay more than necessary to win a property.

Even the spectre of a bidding war can skew bidding, prompting buyers to overbid when the other bids possibly are not real.

It is easy enough to see why sellers, and their realtors, try to inspire bidding, often by way of listing a property below market value.

One Vancouver realtor, Mike Stewart, advertises on his website: “Do you want a bidding war on your property? Call or email me.”

But, for buyers, the system is hideous.

Financial guru Garth Turner, a former Ontario MP, recently blogged that “blind auctions totally disadvantage potential buyers, ensuring the winner pays too much, and are open to realtor abuse.

“It’s the last way that normal people would ever buy anything, and yet, thousands get sucked into this when it comes to the biggest purchase of their lives.”

Turner describes the housebuying frenzy in Vancouver and Toronto as “mayhem. It’s a debt orgy.”

Another problem with bidding wars, warns Toronto realtor Andrew Harrild, is that it “sets our housing market up for disaster. “If people continue to pay ... thousands of dollars over listing prices, the value of our real estate could eventually reach an unsustainable level, and then decline.”

“There is definitely a need to review how we sell homes in British Columbia,” says Michael Geller, adjunct professor at the Simon Fraser University Centre for Sustainable Community Development.

“The notion of fictitious offers has always been worrisome.”

That certainly was the case for a friend of mine, preparing last month to make an offer on a twobedroom condo on West 3rd. She was told at the last moment there was another offer on the condo, from an offshore buyer.

She increased her bid substantially as a result, without being able to confirm the existence of the second bid.

To prevent such a scenario and increase transparency, the Real Estate Council of Ontario has announced that as of July 1, it will be illegal for realtors to make claims about other offers unless a formal written bid has been submitted.

Ontario brokerage offices will have to keep on file all bids for a period of time, so they are able to provide hard evidence of all written offers.

B.C. has no such safeguard for buyers. The Real Estate Council of B.C., in a prepared statement, said last week a similar provision is not currently under consideration in B.C.

“However, we will be monitoring the implementation and effectiveness of the changes in Ontario to evaluate if the new measures adopted there may be useful in the B.C. context.”

Council spokeswoman Marilee Peters added that phantom bidders do not appear to be a big problem here. She noted sellers can, if they wish, elect to auction their property.

Trouble is, it is the buyers and not the sellers who would be wanting open auctions.

Toronto renovation contractor Allan Britnell has advice for those finding themselves in a bidding war. Blogging last month, he recommended bidders have a professional house appraisal done before partaking in any bidding war.

“Remember that when you win an auction, all you’ve really won is the right to pay more than anyone else was willing to pay.”

The biggest challenge for buyers is, unlike a tan auction, they are left to bid without knowing the value of competing bids.