Ethics breaches costing Ontario real estate Brokers less than Anticipated

It was a proposal made to strengthen consumer protection by “modernizing” penalties for real estate agents who violate ethics rules.

Conceived amid a spate of headlines about questionable practices at the Toronto area’s overheated real estate market, the Ontario government’s plan to double the maximum penalty to $50,000 looked like a tonic for restive times.

Regardless of the government’s conclusion that the present system is “obsolete” and the very best fine has to be improved, a Globe and Mail evaluation of integrity sanctions doled out to realtors has discovered the average penalty has dropped significantly over the last ten years, sitting at only $4,100 for the first half of 2017. Additionally, the present maximum $25,000 fine was imposed only once in the past several years, and was afterwards halved on appeal.

The steady decrease in fines comes amid increased scrutiny of the industry’s regulator, the Real Estate Council of Ontario (RECO), which finds itself in the unusual position of being sharply criticized by the team representing realtors for being unwilling to crack down on agents who dismiss their customers’ best interests.

“[Realtors] wish to see the ruler throw the book at anyone who violates that trust and they appear to be moving in the opposite direction,” stated Tim Hudak, chief executive officer of the Ontario Real Estate Association. “For whatever reason, the average has gone down in a time when housing costs have gone up significantly. I believe we can do better than that.”

In the face of concern over unethical practices, industry support has been building for what might be the most painful punishment of forcing realtors who run afoul of the principles to refund commissions from improper trades, which is tens of thousands of dollars. Premier Kathleen Wynne’s government says it may review the measure, called disgorgement, next year.

In the summer, once the government first proposed doubling the highest integrity fine for individual realtors and agents to $50,000, it mentioned concerns that existing penalties are too low to discourage misconduct and stamp out the perception that fines are a part of the cost of doing business. For its part, the British Columbia government boosted its greatest sanction for individuals to $250,000 last year.

However, Ontario’s current maximum $25,000 ethics fine was enforced only once lately, on a realtor who took a different representative’s customer and falsified documentation. The case was appealed and the punishment dropped to $12,000.

Moreover, a Globe analysis of decisions where the regulator’s internal discipline committees determined from the past 4.5 years that realtors had violated the industry’s code of ethics — a total of over 150 cases — discovered that average fines have dropped by more than half. The typical sanction in rulings published in the first six months of the year was $4,109, compared with $9,559 in 2013. (In a small number of instances, realtors who broke ethics rules weren’t fined but rather ordered to take classes, which are occasionally also imposed on those confronting monetary penalties.)

Moreover, regardless of the sharp increase in housing prices and brokers’ commissions, the regulator’s typical integrity sanctions are at the lowest level they’ve been in ten years. RECO removes disciplinary conclusions from its site after five decades but provided annual average penalties for 2008 to 2012, which vary from about $7,000 to $10,000.

The analysis demonstrates that realtors are disciplined for a array of ethical misconduct, including giving customers key codes to tour houses unsupervised, not disclosing they’re working with many parties in one trade, false or improper advertisements, misrepresenting properties’ attributes and documentation issues.

Kelvin Kucey, deputy registrar of regulatory compliance for RECO, which regulates real estate professionals on behalf of this authorities, attributed the fall in average fines between 2013 and 2015 to some “weird coincidence” based mostly on the kinds of allegations it received. The character of misconduct will ebb and flow along with the housing market, with less severe offenses during boom times when there are loads of customers and sales to go around, he said.

However, beginning at the beginning of this past year, Mr. Kucey reported the reduced penalties are caused by RECO’s decision to embrace a “progressive” field system in an effort to decrease recidivism and combat the notion that fines are a part of the cost of doing business. Under the strategy, first-time criminals who commit minor violations receive reduced penalties while realtors, who are also called registrants, who appear repeatedly before disciplinary panels are slapped with higher levies.

“We must balance that tension of wanting to show to the public that we take these things very seriously but also giving our registrants the opportunity to adjust their behavior without actually impacting on them radically,” he said.

Asked why RECO did not maintain higher penalties for first offenders and boost sanctions farther for repeat violators, Mr. Kucey stated “that was one alternative” but “the decision was made: Well, we will give them a small break on the first offence but with the understanding that we are anticipating strict compliance on a go-forward foundation”

So far this season, just 1 realtor was punished more than $7,000. Several were hit with $2,500 penalties for giving their customers unsupervised access to possessions. 1 representative was fined $5,000 for lowering a property’s listing price without permission and falsifying the sellers’ signatures. Another was punished $5,500 for negotiating directly with the vendor of a property on behalf of her clients, instead of with the owner’s agent. The largest fine, at $20,000, was to get a realtor who committed a long list of offenses involving several clients, including not disclosing her interest in trades and withdrawing cash from a customer’s bank accounts without proper authorization. (RECO released enforcement choices for July late on Friday afternoon, which pull the nice average for the first seven weeks of this year down marginally to $4,102.)

In recent decades, RECO claims the complete number of complaints it receives has gone up steadily, although the amount of realtors disciplined for integrity breaches has fluctuated from between a low of 23 in 2014 to a high of 44 in 2015. Realtors accused of integrity infractions look before inner workings committees comprised of business representatives and members of the general public.

RECO has a parallel structure for handling misconduct allegations that fall beyond the code of ethics. The intricate system has a level of crossover, with a few offences appearing in both the code of ethics and the Real Estate and Business Brokers Act. Normally, ethics breaches are not as severe as REBBA violations, which can be prosecuted in court in front of a justice of the peace who are able to fine realtors or agents around $50,000, order restitution and even jail time. But, RECO says court penalties are usually lower than those given by its panels.

RECO officials stress that they did not request the provincial government to increase the most code of ethics fine but might take such a move as a “useful tool in our quiver of treatments,” Mr. Kucey stated. The regulator is currently calling for improved abilities, including the capability to directly suspend or revoke realtors’ registrations.

“When the government’s ready to do it, sure we will take it and we will attempt to carry out our mandate more efficiently in response to this criticism that we have received that we are apparently too soft on crime,” he said.

But, Mr. Kucey said it’s “pre-emptive” to state whether standard penalties would double if the proposed laws passed, stating RECO would consult with industry stakeholders. “Then we’ll need to make a call as to how we fix, if we do fix, and to what value of modification is reasonable.”

Tracy MacCharles, the Minister of Government and Consumer Services, which generates rules regulating realtors’ conduct, declined an interview request. Director of communications Andrew Lang said the state suggested doubling fines in June after the issue was raised in public and industry consultations but that it’s up to RECO to determine how to proceed once the measures become law. The bill is expected to pass third reading later this month.

“The expectation is that would become a deterrent … and [realtors] can no longer find these fines as the cost of doing business because they have been raised,” he said.

The proposed legislation, which would also increase penalties for brokerage companies to $100,000, is an expansion of the government’s sweeping housing policy changes introduced in April to cool the Toronto area’s market and enhance regulation of the real estate market.

Along with increasing penalties, the government is moving to tighten the rules about multiple representation, or double end, which occurs when an individual realtor works for more than 1 party to a trade. It plans to handle other more systemic problems next year at the next phase of its review of REBBA.

For many realtors, the downward trend in penalties for unethical conduct doesn’t sit well.

“I believe penalties should be increased to make them more in line with the number of commissions being made,” said Thomas Neal, a veteran Toronto realtor. “It has always been my contention that RECO has no teeth agents will attempt to get away with something they should not attempt and eliminate or even consider.”

Some realtors say they don’t even bother calling RECO about misconduct allegations due to the perception that complaints from property agents are not taken seriously and that the method is awkward and risks generating ill will that can impact future clients. “It is very well known in the industry that there is a significant difference once the public complains versus an agent,” said David Fleming, a realtor at Toronto.

RECO is complaints-based and is based on people to file formal allegations, which critics say doesn’t best serve the larger public attention. As an example, a Globe and Mail analysis earlier this year found realtor advertising ensured entry to pre-construction condos, an apparent rule violation, but RECO hasn’t launched an investigation to the advertisements as it has not received an official complaint.

Courtesy: The Globe And Mail

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