New Changes for the Real Estate Industry
The rules regulating the real estate sales industry in Ontario have been significantly revamped with the introduction of the new Real Estate and Business Brokers Act (REBBA 2002) which came into effect on March 31, 2006. Although the real estate profession in Ontario has been regulated in some form for at least 75 years, REBBA 2002 is primarily designed to enhance consumer protection through additional regulation.
Among the important changes affecting real estate brokerages, the rules governing ownership have become much more flexible. Under the old rules, fifty-one percent of a brokerage had to be owned by a registered real estate broker. Under REBBA 2002, a brokerage can be owned 100% by anyone. That is, there is no longer the requirement that a brokerage be owned by a real estate broker. In addition, the previous restriction limiting salespersons to holding no more than 10% of the shares of a brokerage has been entirely eliminated. Brokerages must now designate a “broker of record”, being the individual registered broker responsible for compliance with REBBA 2002. REBBA 2002 also introduces a new Code of Ethics. The code sets out greater obligations on real estate agents by imposing minimum standards for agents to follow for the purpose of protecting the public. The code further provides that an agent can now commit an offence under the Act by giving false information (such as not disclosing a recent property “flip”) or counselling others (buyers or sellers) to furnish false or deceptive information (such as a mortgage application which inflates the true purchase price of a property).
The requirements for disclosure in Seller Property Information Statements have also been broadened. These statements, which are typically completed by a seller in consultation with its agent at the time of listing a property for sale, contain a standardized list of questions designed to reveal any defects or problems that the seller may be aware of relating to the condition of the property or the seller’s title to it. The new Code makes clear that, in situations where the seller has filled out a Property Information Statement, agents are required to disclose the existence of the statement to potential buyers and to provide copies upon request.
A new complaints process for the public has been established and the Registrar of the Real Estate Council of Ontario (RECO) has been granted new powers in professional discipline proceedings. Prior to March 31, 2006, a registered agent could continue to work even though disciplinary proceedings were underway against the agent. Under REBBA 2002, the Registrar has the power to immediately suspend an agent, while the complaint and appeal process is underway, if it is deemed in the public interest to do so.
More stringent regulations have also been introduced for the handling of a purchaser’s deposits. The objective of these changes is to ensure that matters relating to trust funds and interest bearing accounts are as transparent as possible. Brokers now have a duty to disclose, in writing, whether the deposit has been invested in an interest bearing account, the rate of interest earned on the deposit and the amount of interest, if any, that the broker is entitled to receive. If the customer and the broker are unable to agree, all interest earned must be paid to the customer.
The rules governing the representation of multiple parties have also been clarified and enhanced. Under REBBA 2002, real estate agents are required to make certain disclosures to help ensure that buyers and sellers have a clear understanding of the services that will be provided to them by their agent. Prior to entering into any agreement, agents are required to inform buyers and sellers about the possibility of multiple representation or “dual agency” and the particular services that will be provided to each. It must also be clear that the representation of both buyer and seller cannot occur unless all parties consent in writing. Agents must describe to potential clients how the services differ in each situation including, most importantly, the agent’s obligation to disclose information within its knowledge to the buyer and the seller in each particular circumstance. Each of these disclosures must be made at the earliest opportunity and, in every case, before an Offer to Purchase is made.
In summary, REBBA 2002 attempts to both improve protection of the public while continuing to build on and enhance the professionalism of the real estate sales industry. As with any new regulatory regime, REBBA 2002 is certain to bring with it significant changes and a period of adjustment as both long-standing and more recently introduced business practices are re-examined and adjusted to comply with the new environment.