Brian Madigan’s Comments on the Star Double-Ending Editorial
It looks like all of a sudden everyone is out to change the real estate rules, and apparently, this is long overdue.
Here’s the recent Star Editorial. My comments appear in yellow.
Stop real estate agents from 'double-ending': Editorial
The province is currently looking for feedback on a proposal that would stop agents from representing both the buyer and the vendor on the same deal. It’s a practice that should have been banned long ago.
Feedback on the issue should be directed to the Ministry of Government and Consumers Services by 24 July 2017.
The Star says it should have been banned long ago. If that were indeed the case, then, why is the Star now jumping on the bandwagon? Perhaps this suggestion would have been more timely if it were made “long ago”.
Real-estate agents can't fairly represent both a seller and a buyer on the same deal. The conflicts of interest are numerous — and one client or the other will often get hurt by receiving too little or paying too much. Yet these so-called double-ended deals are commonplace in Toronto’s red-hot real estate market. By some estimates one in 10 sales falls into this dubious category.
There is clearly a conflict of interest. Several decades ago, this issue was addressed in the United States by the National Association of REALTORS (NAR) which owns, controls and licences the use of the MLS system.
NAR proposed to eliminate the conflict by permitting real estate practitioners to assist the other side (either buyers or sellers) by establishing a non-agency relationship with them.
For example, a Seller would hire a Listing Agent. The agency relationship was established in law with that Seller. The Agent owed certain duties and obligations to that Seller, including:
These were the fiduciary duties! The Listing Agent could enter into a non-agency arrangement with the Buyer. That is, they could “help them out” but could not provide any advice. With all the criticism going back and forth, this 30 year old solution was not discussed, and it makes a difference.
That’s why it’s welcome news that the Ontario government is proposing banning double-ending, except in limited circumstances, and is currently seeking public input into the proposed rule change.
There are two ways to double-end:
1) Double agency,
2) Single agency with assistance to the other party.
This second option should have been addressed.
It’s a long overdue rethink of a practice that is so fraught with conflicts that even the Ontario Real Estate Association, which represents brokers and salespeople, says it is problematic. That association has asked the province for an overhaul of the 2002 provincial rules and code of ethics that govern real estate practices, including double-ending.
Although initially proposed in 2002 (the Act), the actual Regulations did not come forth until 2005. The Act and Regulations came into force on 31 March 2006, so it’s not quite as old as many believe it to be.
Ontario wouldn’t be stepping out on a limb by prohibiting these deals. It’s already been done in British Columbia, Alberta, Nova Scotia and Manitoba.
True, and that’s also the case in several States south of the border. It is also noteworthy that BC abolished the self-regulating body RECBC late last year. That is not on the current agenda, as far as we know in Ontario with the Real Estate Council of Ontario (RECO).
Start with the most obvious point of conflict: the vendor wants the highest price while the buyer wants to pay the lowest. Whose interests is the real estate agent representing?
Two approaches, in our example, double agency, we indeed have a conflict, but with single agency, the clear and unequivocal answer is the Seller.
As the province’s proposal points out: “These competing interests may make it challenging for registrants involved in these types of transactions to meet their obligations to their clients or to be able to advocate effectively on behalf of either party.”
The rules are simple, but they need to be:
1) Explained, and
The problem in many circumstances is that they are not explained properly and they are circumvented. It’s not the “rules”, it’s the “people”. We need better and more knowledgeable people, not new rules.
Moreover, the real estate agent may shut out offers that compete with his potential buyer’s bid, meaning a loss of profit for the seller.
The agent cannot do this without breaching their fiduciary duties to their client.
Double-ended deals can also encourage real estate agents to break the rules. As the Star’s Tess Kalinowski reported last February some sellers’ agents say they will no longer notify other interested consumers when their client decides to entertain a pre-emptive bid, and not wait for the date they set to consider all offers.
Again, this is not permissible. The agent cannot do this without breaching their fiduciary duties to their client.
That’s against Ontario’s real estate rules. But it can be appealing for agents representing both sides of the deal, because it allows them to engineer a competition-free purchase for their buyer.
It is clearly a contravention. That’s the case NOW. We don’t need to change the rules. We need to police and enforce the existing rules. If that were to happen, we wouldn’t be facing these issues today.
The government is also wisely considering increasing the maximum fines for real estate agents who break rules. Agents busted today can be fined by the Real Estate Council of Canada for anywhere from $5,000 to $25,000. But those numbers are hardly a disincentive given how lucrative cheating can be in Toronto's overheated market. The government has floated the idea of increasing the maximum fine for agents who violate the code of ethics to $50,000. This would be a welcome step, especially if paired with a ban on double-ending.
I am in agreement with the increased fines. I would also include a provision whereby RECO would have the right to disentitle the agent to a commission. That would mean, no commission plus a hefty fine!
Currently, double-ended deals are allowed in Ontario if all the clients represented by the agent agree to it in writing. But this isn't good enough; clients often do not recognize the risks.
Informed consent is the key here. Good agents secure it and follow the rules. The bad actors don’t.
For both buyers and sellers, real-estate deals are already loaded with enough financial and emotional peril without having to worry that their agent is not working in their best interest. The Ontario government needs to update the provincial rules and code of ethics to protect both parties from predatory brokers. A ban on double-enders would be an important start.
Let’s put this in some perspective. There are 80,000 agents in Ontario, 52,000 of them are members of the Toronto Real Estate Board. Issues appear to be Toronto based. There are many small service areas throughout Ontario where there are a limited numbers of agents. They often “double-end” 80% or more of their deals. They are good at that. They follow the rules carefully. There’s no need to punish them by bringing in new rules. The people ready to break the rules will break the new rules too. They need to be ousted from the business for everyone’s sake.
Brian Madigan LL.B., Broker