Do you know the No. 1 reason driving Real Estate Council of Ontario (RECO) complaints and successful lawsuits against Realtors? It makes sense to believe the answer must relate to the most difficult part of an agent’s role: drafting written documents and knowing the market. Right? Wrong.
Since nothing is ever that simple or clear in life – especially when it relates to the law – the answer is a bit more nuanced and, therefore, more difficult to manage.
The scenario
Your client is selling a commercial property. You’ve done your due diligence and you’ve pored over all kinds of research to make sure you have the right CAPs, market data and listing price. You don’t list the property on MLS since you are part of a massive brokerage and you already know of a few potential buyer-reps. Plus, it’s not industry standard in commercial real estate to share the details and the commission fees related to your client’s listing.
Within two weeks, you find a buyer through word of mouth and start negotiating. You give away nothing about the leases or the reason your buyer must sell. You remain silent on fees and are loyal to your client the entire time. The deal closes and you get a nice hard-earned cheque in your pocket… and then the regulator comes knocking because your client claims that you violated the law.
Why? How?
Finally, the answer to our question: most RECO complaints – more than 32 per cent – are because the client believes the salesperson acted either unethically or unprofessionally. For example, they weren’t transparent in how they were collecting fees, finding buyers or marketing the property and, therefore, did not actually properly advise their client or get the best dollar value for the property. In other words, they failed to meet their fiduciary duties.
“So what?” you may say. “A regulator’s complaint can go away and the fine can be small in comparison to the commission cheque!” Think again. News about a complaint is likely to spread far and wide, not to mention that the hard-earned client will not be sending you any referrals. What is more, the standard for “conviction” isn’t as high as a criminal case. The proof only has to show that on a balance of probabilities you committed “the crime”. This is a much easier threshold to meet than the criminal evidentiary threshold of “beyond a reasonable doubt”.
A regulator’s complaint “disappearing” also doesn’t automatically mean that you won’t get sued. In fact, we’re seeing a steady rise in the willingness of clients to file complaints against agents for unprofessional behaviour. And, worse, get a litigator involved.
This means that the industry’s unofficial “ways of doing things” – such as withholding listing information and not collaborating with agents – are no longer acceptable.
If a threat of lawsuit doesn’t compel you to be more transparent, then understand that you’ll lose clients. Clients are becoming more sophisticated and they’re demanding more transparency. They’re also demanding a new type of “agent” – one who acts collaboratively and professionally and acts as a real estate advisor (a fiduciary!), not a “sales” person.
The layers of law run deep, so don’t forget to peel them all back.
A “fiduciary relationship” is a common law concept that creates another layer of protections for your client and another list of prohibitions against what you can and cannot do. This fiduciary duty, which includes the “duty of loyalty”, is the most onerous because of its broad scope: you can never put yourself in a situation where you’re even slightly tempted to do something that is not in the best interests of your client.
Your fiduciary duties stand separate from and in addition to all of your responsibilities under the provincial real estate act, its Code of Ethics, CREA’s Code of Ethics and the CREA Standards of Business Practice.
It is clear that your job is to get your clients the best “bang for buck”. That’s why it’s bizarre that the “unofficial” industry practice among commercial agents is to not disclose information about fees or the property and to not market the property as far and wide as possible. Many industry experts assert this standard practice is a feigned attempt to not split fees and to ensure an easy, fast close by remaining in control. Does that sound ethical to you? No wonder agents are getting sued!
The new way of practicing real estate has come and if you don’t change, you’ll be left behind.
It’s clear that you’re never to put any of your interests first – which means you may be violating the law by not working with co-operating brokerages, withholding listing information and not sharing commission. There’s one brokerage that’s caught on to this fact by adopting a strong “client first” and collaborative approach to marketing and selling a property. This brokerage understands that this approach is also the only way to build a successful brokerage and stay above the law.
George Slusser, chief growth officer of Sperry Van Ness Commercial Real Estate Advisors, says we’re at a crossroads in the business because the millennials are all grown up and are calling the shots. Millennials will ask about the company’s code of conduct and core covenants (which SVN has) and involvement in giving back to the community (which SVN does).
Slusser asserts that millennials can’t be fooled by vague sales claims, such as “keeping a property secret will solicit more offers and a higher bid!” They’ve grown up, after all, in the Internet and information age. They know very well the value of making something “viral” and this requires a public disclosure of the property’s details, as well as a strong commitment of co-operation from the agent.
The facts, Slusser says, also don’t support the claim that “secrecy” and double-ending deals is needed to get the best price. Rather, research shows that a client will get a better deal if two different brokerages participate in the sale of a property and if the property is broadly advertised.
In order to protect yourself from litigation and a regulator’s complaint, it may be wise to follow the “SVN” approach and to disclose, disclose and disclose…and to co-operate. In fact the SVN philosophy mirrors the Canadian case law: agents are to “always act in your client’s best interests and (to) make full disclosure of everything you know respecting the sale of the property that would likely influence your client’s conduct.” (Ocean City Realty v A &M Holdings Ltd, [1987] BCJ No 593, 36 DLR (4th) 94 BCCA).
If this isn’t enough of a reason to rethink how you practice real estate sales, there’s another benefit of following “the law”. It’s a benefit with which we all should be concerned: disclosing and co-operating helps repair the damaged reputation of agents among the public and shows that we offer value as skilled advisors who help our clients navigate the complexities and nuances of a deal.
This article offers general comments on legal issues and developments of concern to business organizations and individuals and is not intended to provide legal opinions. Readers should seek professional legal advice on the particular issues that concern.
Natalka Falcomer is a lawyer, real estate broker and Certified Leasing Officer who started her real estate career in private equity. She created, hosted and co-produced a popular legal call-in show on Rogers TV and founded and recently sold Groundworks, a firm specializing in commercial leasing law. She is currently the Chief Real Estate Officer of Houseful.ca, leading the development and expansion of the company’s personalized home buying and selling experience for the Canadian market. She sits as an advisor on NAR REACH Canada and is the former multi-year board member of the Ontario Trillium Foundation.
