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Tag Archives: real estate council of ontario

Real estate regulator says Ontario market working just fine, thanks

Carolyn Ireland – The Globe and Mail

Toronto’s spring real estate market has been as wild as any in recent history when it comes to bidding wars and bully offers.

While Torontonians are endlessly fascinated by the city’s housing capers, Joseph Richer, registrar of the Real Estate Council of Ontario, says the market is running smoothly, judging by the tenor of complaints to the not-for-profit corporation.

RECO regulates the trade of real estate on behalf of the Ontario government. It oversees education and insurance for agents, for example, and investigates complaints from buyers and sellers.

Comment: Warranted or not, anyone can make a complaint to RECO.

The office will sometimes hear from buyers and sellers who feel they were not well-served by a particular agent, Mr. Richer says, but he doesn’t know of any disgruntlement about some of the more talked-about bidding contests.

There was the Lawrence Park house that sold in April for $1.366-million with 72 offers, for example. The asking price was $699,000. That one lit up Twitter. A house on Perth drew 32 bids earlier in the spring and there was a burst of spirited competition on Manning.

“We really aren’t hearing a lot of complaints,” Mr. Richer says.

RECO Complaints
Niels Christensen of ReMax Professionals Inc. is one broker who is very outspoken about the Lawrence Park deal, however – to the point where he sent an e-mail about it. “This particular transaction irritated me so much, I just had to share my opinion on it.”

He is irked that so many potential buyers and their agents wasted so much energy. He’s exasperated that the listing agent also submitted the winning bid. And he says he’s not alone. In an interview, he says he didn’t represent any buyers on that April night but he has talked to agents who did. “They’re absolutely furious at it.”

Comment: But there is nothing to complain to RECO about. They cannot enforce bad judgement or lack of character. They cannot penalize bad optics. I agree that is was very poor form to list the house for half of what it was worth, that is most extreme example of under pricing I have seen yet. And then to double-end it? That just smells to high heaven. Not that I am saying the agent did anything wrong, but he should have had someone else in his office handle his buyer, to keep everything above board. No rules were broken, but the whole affair came off very badly and made a lot of people mad. That is how I judge bidding wars – if people aren’t mad, then you did it right.

Other agents who self-identified as “ranting” expressed their views to me through social media and by e-mail. Some continue to bring it up in sotto voce conversations weeks later.

Consumers who heard about the Lawrence Park house asked what it should realistically have been listed for. A reader named Brent said he can see how agents benefit from pricing a house at a low figure and then create a frenzy, as bidders are sucked in by emotion. The agent can boast that his or her listings sell at eye-popping amounts over asking. “It is absolutely brilliant … for everyone but the buyer.”

Comment: Depends. Ask the winning buyer(s), see if they are happy or not.

Susanne Hudson of Chestnut Park Real Estate Ltd. provided one answer for Globe and Mail readers. In an e-mail, she says this deal was a “hot button” issue for her and that a house selling for 50 to 90% above asking is far from the norm. “I think readers should know that. I think they are better served by what the real story is. Not every home sells for over asking but many do … a great house under $1.6-million in the central core will probably attract four to six buyers – sometimes several more – and they go for 10 to 20% over asking.”

Comment: Exactly. When you see the stats that some neighbourhoods have 80% of houses selling over asking, the average could be 101%, it does not have to be double the asking price every time.

The general consensus among agents seems to be that holding back offers and setting an asking price just below the price they actually hope to get is an acceptable strategy in order to lay the groundwork for multiple offers. “When the circumstances are appropriate, I do the same thing,” Mr. Christensen says.

As a rule, agents say that setting a price about 10% below estimated market value is a good benchmark.

Comment: Yes, exactly! Or even right around what used to be market value, knowing that that value has gone up of late.

Mr. Christensen acknowledges that setting a list price is not an exact science, but he suggests that agents who dangle a price that’s completely irrelevant are incompetent or not doing their due diligence. “Why not just ask $1?”

Comment: Some have tried that, it doesn’t work. Setting the price WAY low is not incompetence, it is done deliberately to create chaos, a feeding frenzy, a story in the news. It is very much thought through and on purpose. And don’t forget, the seller has to sign off on it.

One agent who works in that part of town says he had buyers who asked him what he thought about putting in an offer on the Lawrence Park house. He told them not to waste their time. I hear that refrain from agents all through the busiest time of the year and it frustrates them as much as it does their clients.

Comment: Don’t tell them not to, but make sure to explain what the likely price will be. Sure, it is listed for $699k, but that is half of its real value. If your people want to make a bid, then explain to them that $750,000 isn’t going to cut it. And no, it is not “worth a shot” just to “see what happens” because “you never know”. Yes, I do know, and it is not worth a shot. I know what is going to happen. I’ve been to this rodeo before. Do not bid unless you are bidding to win.

Mr. Christensen thinks RECO needs to do more. “This kind of nonsense has to stop. How does RECO serve the public’s interest when they fail to regulate how multiple offers are handled so that buyers are dealt with in a more transparent fashion?”

Comment: That sort of nonsense is not RECO’s bailiwick. Buyers’ agents need to be more proactive and explain to their clients what a realistic bid would be. I bet 50 of the 72 offers were nowhere near the final price. None of those offers should have been made. But buyers’ agents are happy to just do whatever their client wants, get them in the game, get them to smell the blood, hoping that they will win a bid one day.

By “transparent,” he means that the bids in multiple offer scenarios should be disclosed to all.

Comment: But we do not have open auctions here, they are blind for a reason. I think there should be an electronic offer registry, though. Every agent with an offer has to register it with the system, upload the paperwork, leave a record. All parties can see how many offers there are and all of the agent names. If there is ever an issue down the road, everything is there and can be examined.

RECO’s position, Mr. Richer says, is that bidders are free to decide how much they are willing to offer. A house is worth what someone is willing to pay for it. “Those are market forces.”

Mr. Christensen disagrees: “No one in his right mind would pay $100,000 more when he only had to pay $10,000 more.”

Comment: But they don’t know that. And the person that was only $10,000 under might offer $20,000 more to beat your $10,000. There is no way to know how prices would be affected by an open auction system. People might pay more, some might pay less. But it would likely keep all the “junk” offers out of it. Once people see that the current bid is $900,000 they cannot offer $700,000.

As for the agents who say that 10% below market value is a fair listing price when offers are held back, Mr. Richer doesn’t see the logic. That is just one strategy, he points out, and who are they to dictacte what the “right” amount is. “Why is 10% okay but not 20%?”

In the case of the Lawrence Park house, he was heartened to hear that 80% of the offers were for more than $1-million. Mr. Richer says that that is evidence the bidders were educated or had good advice from their agents. “The vast majority of people knew what it was going to go for.”

Comment: Which is surprising, as that is not usually the case.

Those who bid below $1-million may have received bad advice, he acknowledges, but another explanation is that they decided to lowball an offer, he says.

Mr. Christensen points out that, for many years, all agents essentially represented the seller because it was the seller who paid the fees. “For years, this created much cause for concern.”

The industry fought long and hard to introduce buyer representation, he adds, but now that that practice is in place, the offer process is still tilted toward the seller. “Buyers are forced to go through this nonsense where the best advice their agent can give them is to pick a number and hope for the best.”

Comment: That has nothing to do with agents, it is solely because the sellers have all the power as they have the rare commodity that everyone wants. Agents or no agents, buyers have to kowtow to the person that has the thing that they want.

The fact that a listing agent can also represent a buyer for the same house – a practice known as or multiple representation or “double-ending” a deal – can create very bad optics, agents say.

Mr. Richer says consumers have not registered dissatisfaction with that practice. “Multiple representation makes up a very small percentage of our complaints. We’re not getting consumer complaints or registrant complaints about the actual conduct.”

Comment: I just double-ended a condo. Both parties knew, we talked about it, they were comfortable with it. Everyone signed off and now there is a happy buyer and seller. But in a bidding situation, it is awkward. The listing agent sees all of the bids, he knows what all of the prices are. How can that not affect the advice he gives his client? My wife had a similar situation a long time ago. Her broker handled the bids for her seller client, while she helped her buyer. No conflict there, no one is seeing both sides of the coin. Her client did not have the winning bid, so it did not matter in the end. But that situation made the other agents happy, as the two sides were kept apart.

One thing to keep in mind, he says, is that the transactions that make headlines in Toronto are the extreme examples in a sellers’ market. Most deals in Ontario – and even in Toronto – take place at a more leisured pace without multiple offers. Also, legislation has to cover buyers’ markets, too. “I’m not sure what the laws would look like that would be flexible enough to handle both sides.”

Comment: No, most deals for detached houses in the 416 are multiple offer situations. The rest, not as much, but one segment is almost completely sold through bids.

The Real Estate Council of Ontario is responsible for administering the Real Estate and Business Brokers Act, 2002, on behalf of the provincial government.

Queen’s Park has been working on some tweaks, but Mr. Richer knows of no plans to change the rules that govern multiple offers.

The Ontario government’s Bill 55 – introduced with the goal of providing stronger protection for consumers – targets so-called “phantom” bids. The goal, Mr. Richer says, is “to ensure there isn’t any funny business around trying to create the illusion of multiple offers.”

Comment: There has NEVER been any proof of “phantom bids”. It is simply sore losers trying to find a boogeyman where none exists. But my electronic offer registry idea would address that as well.

The legislation is waiting to be proclaimed by the next provincial government.

Another change, already passed, allows for more flexibility in the fees and commissions consumers pay to brokerages.

In the past, brokerages could charge a flat fee or a percentage of the sale price, but not a combination of the two. Under the new rules, Mr. Richer says, brokerages now have the option to negotiate fee arrangements that could include a combination of a flat fee and a percentage of the sale price.

Comment: That was always the strangest rule ever. Why can’t I charge $2,000 + 1% of the sale price, for instance? Nope, that was illegal before. I know, weird right? Same as I could only charge a sliding scale if the % dropped as the price rose. So I could not make a deal where I was paid 2.5% if the sale price was over $500,000 and only 2% if it sold for less. That was also illegal. So much sense…

Mr. Christensen isn’t satisfied with Mr. Richer’s explanation that RECO hasn’t received complaints. The organization should be pro-active in protecting consumers, he says. “It would be analogous to the police not leaving the police station until someone complained.”

Comment: But the police do not go after people unless they are doing something they shouldn’t. Bad behaviour by realtors is not against any law. Bad judgement is not really illegal. And no one has outlawed bad optics. Some new referesher courses on ethics would not be a bad idea, but no one has done anything against the rules.

Contact Laurin Jeffrey for more information – 416-388-1960

Laurin Jeffrey is a Toronto real estate agent with Century 21 Regal Realty.
He did not write these articles, he just reproduces them here for people who
are interested in Toronto real estate. He does not work for any builders.