New Ontario real estate act strives for transparency, comes up short

New Ontario real estate act strives for transparency, comes up short

TRESA has promised enhanced professionalism, more robust consumer protection and education of both buyers and sellers

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The rules of Ontario’s real estate brokerage business changed in December when the Trust In Real Estate Services Act (TRESA) came into force, promising enhanced professionalism, more robust consumer protection, transparency and education of both buyers and sellers.

TRESA, which replaces the Real Estate & Business Brokers Act of 2002, contains numerous changes to how consumers might interact with their real estate agents and is supposed to improve real estate governance, something that seems to be lacking. The province’s auditor general in 2022 noted the “activities (the Real Estate Council of Ontario) performs … are not always effective and timely,” and found that 88 per cent of the 2,643 complaints concerning alleged violations by realtors were summarily closed without a follow-up or an escalation to the investigation department.

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But three provisions in TRESA generated the most interest: open bidding, introducing “designated representation” and new rules regarding sales commissions.

The first is supposed to address the bidding wars that erupted during the early phases of the pandemic as prices rapidly escalated and prospective buyers were forced to bid excessively higher amounts above the list price for fear of missing out. Subsequently, many buyers found they were tricked into bidding hundreds of thousands of dollars more than the second-highest offer. This led to the demand for open disclosure of competitive offers.

TRESA only partially addresses this concern. Rather than obliterating the veil, it leaves it up to the seller’s discretion to disclose competitive offers. The act allows buyers to request that sellers release written offer details (price, terms and conditions), but that only happens if the seller agrees.

Michael Walsh, owner and broker of record at Exclusively Buyers Inc. (EBI), an Oakville, Ont.-based real estate brokerage that, as the name suggests, solely represents homebuyers, said “releasing information about price, terms and conditions is not mandatory under the revised guidelines. It’s at the discretion of the seller.”

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Do these changes relieve the homebuyers’ angst of blind bidding? Walsh thinks otherwise.

Another change in the act is termed “designated representation.” TRESA allows consumers to designate an agent(s) at a real estate brokerage to represent their interests. The agent will now be named in the contract with the brokerage, which helps improve transparency in what is known as multiple representations, or when agents from the same brokerage represent the buyer and the seller.

Walsh advised consumers (TRESA calls them clients) to be cautious here. “Previously, home sellers were guaranteed that no agent at the listing brokerage would ever suggest that the seller’s home was overpriced, or by how much, or negotiate against the seller’s interests in any way. The new act changes all that.”

According to the act, in case another client of the brokerage wants to make an offer on the seller’s property and has designated representation, the buyer’s agent can counsel the buyer about whether the home is overpriced and by how much, and suggest terms and conditions be added to the offer to promote the interests of the buyer at the expense of the seller’s interests. This will happen even if the buyer and the seller are clients of the same real estate brokerage.

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TRESA also addresses sales commissions, which have become controversial and are currently being contested in the courts.

In the United States, a US$5-billion judgment against the National Association of Realtors and two co-defendant brokerages has set a precedent for sellers to contest the practice where their agent promises to split or entirely pay the buyer’s agent part of the commission.

Several significantly larger class actions are currently making their way through the courts. These lawsuits accuse the industry of artificially inflating real estate commissions beyond the level in a “freely competitive” marketplace.

Walsh believes past practices allowed the seller’s agent to directly offer compensation to the buyer’s agent even though the buyer is not privy to this offer. The buyer can neither stop nor alter the commission being offered. “That’s the issue,” he said. “The buyer is left out of the loop.”

In practice, most buyers have been fine with this arrangement since they do not have to reach into their pocket to pay their agent’s fees. That is perhaps why home sellers brought the first legal action in the U.S.

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“Sellers didn’t like the idea that they were being ‘forced’ to pay for the buyer’s agent. So they sued. And they won,” Walsh said. “But here’s the curious part. Sellers weren’t being forced at all. They always had the option of not offering to pay the buyer’s agent. Or to pay a minimal amount. It was on the advice of the sellers’ agents that the offers were made.”

TRESA requires a seller’s agent to clarify that the amount a seller pays for the services of the seller’s brokerage “does not include any amount the seller might offer to compensate a buyer for their buyer’s brokerage fees.”

Furthermore, Walsh said “a listing agent will still be allowed to offer compensation directly to a buyer’s agent by including the amount in the listing commission. A buyer will still be unable to alter the payment and could end up paying for an agent (via the purchase price), even if they didn’t use one.”

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It’s still early days, and the real estate industry is trying to make sense of the new regulations. TRESA might not have gone far enough, but it is a small step toward building greater transparency and trust in the industry.

Murtaza Haider is director of Regionomics Inc., a consultancy specializing in predictive analytics and machine learning. Stephen Moranis is a real estate industry veteran. They can be reached at the Haider-Moranis Bulletin website, www.hmbulletin.com.


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