It was a proposal designed to strengthen consumer protection by "modernizing" fines for real estate agents who break ethics rules.
Conceived amid a spate of headlines about questionable practices in the Toronto region's overheated real estate market, the Ontario government's plan to double the maximum penalty to $50,000 seemed like a tonic for restive times.
Despite the government's conclusion that the existing system is "outdated" and the top fine needs to be increased, a Globe and Mail analysis of ethics sanctions doled out to realtors has found the average penalty has fallen significantly over the past decade, sitting at just $4,100 for the first half of 2017. In addition, the current maximum $25,000 fine has been imposed only once in recent years, and was later halved on appeal.
The steady reduction in fines comes amid heightened 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 group representing realtors for being reluctant to crack down on agents who disregard their clients' best interests.
"[Realtors] want to see the regulator throw the book at anybody who breaks that trust and they seem to be going in the opposite direction," said Tim Hudak, chief executive officer of the Ontario Real Estate Association. "For whatever reason, the average has gone down at a time when housing prices have gone up significantly. I think we can do a lot better than this."
In the face of concern over unethical practices, industry support has been building for what may be the most painful punishment of all: forcing realtors who run afoul of the rules to repay commissions from improper transactions, which can be tens of thousands of dollars. Premier Kathleen Wynne's government says it may review the measure, known as disgorgement, next year.
In the summer, when the government first proposed doubling the maximum ethics fine for individual realtors and brokers to $50,000, it cited concerns that existing penalties are too low to deter misconduct and stamp out the perception that fines are part of the cost of doing business. For its part, the British Columbia government boosted its highest sanction for individuals to $250,000 last year.
However, Ontario's current maximum $25,000 ethics fine has been levied just once in recent years, on a realtor who took another agent's client and falsified documentation. The case was appealed and the punishment decreased to $12,000.
In addition, a Globe analysis of all decisions where the regulator's internal discipline committees determined in the past 4.5 years that realtors had violated the industry's code of ethics – a total of over 150 cases – found that average fines have plunged by more than half. The average sanction in rulings released in the first six months of this year was $4,109, compared with $9,559 in 2013. (In a handful of cases, realtors who broke ethics rules were not fined but instead ordered to take courses, which are sometimes also imposed on those facing monetary penalties.)
Moreover, despite the sharp rise in housing prices and agents' commissions, the regulator's average ethics sanctions are at the lowest level they have been in 10 years. RECO removes disciplinary decisions from its website after five years but provided annual average fines for 2008 to 2012, which range from about $7,000 to $10,000.
The analysis shows that realtors have been disciplined for a range of ethical misconduct, including giving clients key codes to tour homes unsupervised, not disclosing they are working with multiple parties in a single transaction, false or improper advertising, misrepresenting properties' features and documentation problems.
Kelvin Kucey, deputy registrar of regulatory compliance for RECO, which regulates real estate professionals on behalf of the government, attributed the drop in average fines between 2013 and 2015 to a "weird coincidence" based largely on the types of allegations it received. The nature of misconduct tends to ebb and flow along with the real estate market, with less serious violations during boom times when there are plenty of clients and sales to go around, he said.
However, starting at the beginning of last year, Mr. Kucey said the lower penalties are the result of RECO's decision to adopt a "progressive" discipline system in an attempt to reduce recidivism and combat the idea that fines are part of the cost of doing business. Under the approach, first-time offenders who commit minor violations receive reduced penalties while realtors, who are also known as registrants, who appear repeatedly before disciplinary panels are slapped with higher levies.
"We have to balance that tension of wanting to demonstrate to the public that we take these things very seriously but also giving our registrants the opportunity to correct their behaviour without really impacting on them dramatically," he said.
Asked why RECO didn't maintain higher fines for first offenders and boost sanctions further for repeat violators, Mr. Kucey said "that was one option" but "the decision was made: Well, we'll give them a slight break on the first offence but with the knowledge that we're expecting rigorous compliance on a go-forward basis."
So far this year, only one realtor has been penalized more than $7,000. Several were hit with $2,500 fines for giving their clients unsupervised access to properties. One agent was fined $5,000 for lowering a property's listing price without consent and falsifying the sellers' signatures. Another was penalized $5,500 for negotiating directly with the seller of a property on behalf of her clients, rather than with the owner's agent. The biggest fine, at $20,000, was for a real estate agent who committed a long list of violations involving several customers, including not disclosing her interest in transactions and withdrawing money from a client's bank account without proper authorization. (RECO released enforcement decisions for July late on Friday afternoon, which pull the fine average for the first seven months of the year down slightly to $4,102.)
In recent years, RECO says the total number of complaints it receives has gone up steadily, though the number of realtors disciplined for ethics breaches has fluctuated from between a low of 23 in 2014 to a high of 44 in 2015. Realtors accused of ethics infractions appear before internal disciplinary committees comprised of industry representatives and members of the public.
RECO has a parallel structure for handling misconduct allegations that fall outside the code of ethics. The complex system has a degree of crossover, with some offences appearing in both the code of ethics and the Real Estate and Business Brokers Act. Generally, ethics breaches aren't as serious as REBBA violations, which are prosecuted in court before a justice of the peace who can fine realtors or brokers up to $50,000, order restitution and even jail time. However, RECO says court fines are typically lower than those given by its panels.
RECO officials stress they did not ask the provincial government to raise the maximum code of ethics fine but would accept such a move as a "useful tool in our quiver of remedies," Mr. Kucey said. The regulator is calling for enhanced powers, including the ability to directly suspend or revoke realtors' registrations.
"If the government's prepared to do it, sure we'll take it and we'll try to carry out our mandate more effectively in response to the criticism that we've received that we're apparently too soft on crime," he said.
However, Mr. Kucey said it is "pre-emptive" to say whether standard fines would double if the proposed legislation passed, saying RECO would first consult with industry stakeholders. "Then we'll have to make a call as to how we adjust, if we do adjust, and to what value of adjustment is reasonable."
Tracy MacCharles, the Minister of Government and Consumer Services, which creates rules governing realtors' conduct, declined an interview request. Director of communications Andrew Lang said the province proposed doubling fines in June after the issue was raised in industry and public consultations but that it is up to RECO to decide how to proceed once the measures become law. The bill is expected to pass third reading later this month.
"The hope is that would become a deterrent … and [realtors] can no longer see those fines as the cost of doing business because they've been raised," he said.
The proposed legislation, which would also hike penalties for brokerage firms to $100,000, is an extension of the government's sweeping housing policy changes unveiled in April to cool the Toronto region's market and improve regulation of the real estate industry.
In addition to raising fines, the government is moving to tighten the rules around multiple representation, or double ending, which happens when an individual real estate agent works for more than one party to a transaction. It plans to tackle other more systemic issues next year in the second phase of its review of REBBA.
For many real estate agents, the downward trend in penalties for unethical behaviour does not sit well.
"I think fines should be increased to make them more in line with the amount of commissions being made," said Thomas Neal, a veteran Toronto realtor. "It's always been my contention that RECO really has no teeth so agents will try to get away with something that they should not try to get away with or even think about."
Some realtors say they do not even bother contacting RECO about misconduct allegations because of the perception that complaints from real estate agents aren't taken seriously and that the process is cumbersome and risks creating ill will that can affect future clients. "It's very well known in the industry that there's a big difference when the public complains versus an agent," said David Fleming, a realtor in Toronto.
RECO is complaints-based and relies on individuals to file formal allegations, which critics say does not best serve the greater public interest. For instance, a Globe and Mail investigation earlier this year found realtors advertising guaranteed access to pre-construction condos, an apparent rule violation, but RECO has not launched an investigation into the ads because it has not received a formal complaint.