B.C. panel calls for fines, more transparency in real estate industry

theglobeandmail.com
June 29, 2016
By Kathy Tomlinson and Mike Hager

Buyers and sellers in B.C.’s overheated real-estate market have been failed by agents who are driven by skyrocketing commissions and a regulatory system incapable of overseeing a world where houses have become investment vehicles rather than places to live, says an advisory group formed after a Globe and Mail investigation highlighted unscrupulous practices and lax oversight.

The industry’s regulator, the Real Estate Council of B.C., came in for harsh criticism, with the panel finding the council is dominated by industry members who do not use the tools they have to deter unethical behaviour, intervene reluctantly, and when they do, take tentative action rather than the bold measures required.

“Alleged misconduct, combined with the perception that the Real Estate Council is unable or unwilling to take strong action to address it, has resulted in a loss of public trust,” said the report.

The panel was convened earlier this year after The Globe reported on the practice of shadow flipping, in which a house is resold before the original sale closes. The legal technique can result in a windfall for the agent, a deception for the seller and a tax-dodge for the middle men. The months-long investigation also prompted a continuing probe and licence restrictions on New Coast Realty, the fastest growing firm in the Lower Mainland. The Globe revealed that the firm’s owner teaches his realtors they should persuade homeowners to sell for less than their home is worth to collect a quick commission.

In misconduct cases where the council imposed financial penalties, only a fraction of agents ever lost their licences, and fines averaged $4,850 or less, according to a Globe investigation into more than 100 recent disciplinary proceedings. Those penalties were dwarfed by commissions gained in the questionable transaction - money that was never returned to the aggrieved person.

After the release of the report, the council said it accepted all the recommendations and will start implementing changes next month.

B.C. Finance Minister Mike de Jong said the province would have a response to the “comprehensive” report on Wednesday, but he added that it “paints a troubling picture.”

The panel suggested new consumer protections ranging from increased education requirements, language proficiency and background checks for aspiring realtors, to potential fines of $250,000 for agent wrongdoing - up to $500,000 for brokerage firms. The current maximum fine is $10,000.

“It’s very important for consumers to feel like justice was done,” said Carolyn Rogers, B.C.’s superintendent of real estate and head of the panel.

Major suggested changes include ending “dual agency,” in which a single realtor can represent both buyer and seller in a deal, therefore not have to share the commission with another agent. The practice has been widely criticized for years because of its inherent conflict of interest. However, realtors would still be able to collect full commissions if the buyer has no agent.

A recommendation that may have a dramatic effect is one suggesting all offers be registered with the brokerage representing the seller, where they can be viewed by the regulator if need be. In Vancouver’s hot market, buyers in bidding wars often suspect realtors lie to them in an attempt to drive up prices, leading them to believe numerous offers have been made. The panel suggested eventually all offers should be posted electronically, in real time, so buyers can review all the bids.

The group also said brokerage firms, licensees and the council should be more transparent and accountable in several ways. For example, the panel said the regulator should set up a confidential hotline for people to report wrongdoing anonymously, and should expand the scope of its investigations and brokerage audits.

Ms. Rogers said the council needs to adjust to the “gold rush” environment of B.C.’s superheated market.

“The regulatory regime for real-estate services was designed for people who are buying and selling homes, not people who are buying and selling investments,” Ms. Rogers said. “What’s going on in British Columbia right now is that houses are no longer just homes, they are trading, essentially, as investments, and that puts pressure on a regime that was never developed for that.”

The advisory group is also urging the B.C. government to change some of the laws governing the industry. For example, it wants a new provision to require realtors who profit at their clients’ expense to compensate them.

The panel also said the province should make it illegal for anyone to own a real-estate brokerage if the regulator found they did not have a “fit and proper” background. A Globe investigation revealed that Ze Yu Wu, owner of New Coast Realty, coached his agents how to get a quick sale by lying to clients about how much their property was worth. Mr. Wu had a history of complaints and lawsuits over flipping properties before he opened the brokerage.

Joe Kiem, who filed a complaint with the regulator against New Coast earlier this year, said he hopes the new rules will make agents think twice about taking advantage of seniors. He claims its realtor talked his elderly father into reducing his asking price for his house and agreeing to pay the buyer’s realtor - also from New Coast - a $20,000 bonus. New Coast did not respond immediately to a request for comment.

“Any companies like that where they are trying to profit from the system, they should be out of business,” Mr. Kiem said. “I have no trust right now in realtors.”

The panel said the regulator should be more pro-active about detecting and deterring agents who market aggressively and target vulnerable people. It also suggests B.C.’s 11 real-estate boards be sidelined from any role in consumer protection and education. It wants the council to redesign paperwork made up by the boards so contracts and other forms better inform clients about their rights and realtors’ responsibilities.

“The overlapping roles between Real Estate Boards, industry associations and the Real Estate Council were creating consumer and industry confusion and diluting accountabilities,” the report said.

Agent Keith Roy was recently voted off the Great Vancouver board’s conduct committee after speaking out about problems in the industry. Mr. Roy said the suggestion to register all offers could help cool the market.

“That goes a long way to preventing what I call ghost inflation, which is when, in the blind bidding process, buyers are forced to bid up their prices because they are told there are a number of other offers, but those offers may or may not exist,” Mr. Roy said.

However, the panel warned none of its suggestions will affect prices directly.

“It is important to understand that the recommendations in this report, if implemented, are unlikely to have a material effect on housing prices and issues of affordability.”

Vancouver MLA David Eby, the Opposition NDP’s housing critic, said he was surprised the group was able to uncover such “significant and wide-ranging” problems with the regulator in 15 weeks without visiting individual brokerages or performing any financial audits.

“This is a warning that real-estate agents are in danger of losing self-regulation,” Mr. Eby said. “Frankly, reading the report, I can’t understand why the recommendation wasn’t that they should lose self-regulation entirely. ... There are a lot of hard-working realtors out there whose reputations have been profoundly affected by the failures of the regulator that they fund.”

Ms. Rogers said the panel members started each meeting leading up to the report showing each other the array of aggressive sales pitches realtors had crammed into their mailboxes.

“We respect the fact that real estate is fundamentally a sales business and licensees need to market and advertise and pound the pavement to drum up business,” she said. “But there’s a line and that line needs [to be drawn] by the council.”