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Rigged housing deals about to receive a whole lot of scrutiny

A hidden-camera investigation into unethical practices by real estate agents is shedding light on the red-hot world of real estate, including bidding wars cloaked in secrecy.

Mark Blinch/The Globe and Mail

Outlandish bidding wars in Toronto's real estate market are already generating attention. Now, agents who appear to be promising to rig the outcomes of those competitions are in the spotlight.

The Real Estate Council of Ontario is exhorting brokers to clamp down on unethical practices in light of a hidden camera investigation by CBC's Marketplace. Judging by RECO's leap into damage-control mode ahead of the show's scheduled broadcast on Nov. 4, the broadcast will contain some jolting revelations.

RECO is responsible for regulating real estate agents in Ontario on behalf of the Ministry of Government and Consumer Services. They also have a mission to protect the public interest and enhance consumer confidence in the real estate profession.

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So RECO higher-ups were clearly rattled after Marketplace presented videos of agents at open houses issuing such assurances as "I will block other offers" and "I'll make sure you get the house."

The current-affairs program started out investigating a specific complaint filed with RECO, according to deputy registrar of compliance Kelvin Kucey, who was interviewed for the program. He and registrar Joe Richer issued their admonishment to brokers who joined a recent webinar.

One of the main topics of the CBC interview was how RECO's regulatory processes operate to root out bad behaviour in the profession, Mr. Kucey says. Some of the sketchy practices concern "multiple representation" in RECO's lingo. That typically means one agent represents both the buyer and the seller of a property. In other cases, agents represent two or more buyers who are interested in the same property. It's sometimes called "dual agency" or "double-ending" a deal.

The practice is within the rules, but only if all of the parties to a deal agree to it in writing. The upside for consumers is that they may get a break on commissions, but the practice has the potential to create all kinds of murkiness.

During the CBC investigation, the Marketplace reporter and a colleague posed as a couple who were not represented by an agent, Mr. Kucey explains. The video shows violations of rules contained in the Real Estate and Business Brokers Act and its Code of Ethics.

"In every video that I saw the registrant was promising to do something that would be a clear breach of the act and code. The worst one featured a registrant who unabashedly said 'I control the offer process. I'm in charge. I will block all other offers to make sure you get the property no matter what prices are being tendered.'"

In an interview, Mr. Kucey said RECO has submitted informal and formal requests to CBC to get copies of videos and the names of the registrants featured. He plans to press for those identities and possibly take the matter to the courts.

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"It's evidence of at least the intent to break the law," he says of the videos he saw.

On the webinar, Mr. Richer reminded brokers of record they should not allow unethical activities such as this to occur under their watch.

"To whatever degree this is actually happening, it needs to stop now. These sorts of practices completely undermine consumer protection, consumer confidence and put the reputation of the real estate profession as a whole very much at risk."

An unethical individual could receive fines up to $25,000, he says. In severe cases, RECO could revoke the individual's registration.

Minister of Government and Consumer Services Marie-France Lalonde was also interviewed for the program, according to a spokesman for her office.

Bryan Leblanc says the ministry and RECO are constantly assessing the strength of consumer protection. Discussions about appropriate sanctions are ongoing, he says, but the minister urges consumers to bring evidence of shady practices to RECO's attention.

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"If people see behaviour that they think is unethical, they should report it to RECO," he says. "RECO can't investigate unless people complain."

RECO plans to follow up on the webinar with missives sent directly to agents. They also want to remind consumers of the rules that govern agents who double-end a deal.

Even before they sign an agreement to represent a client, agents have to inform potential buyers and sellers that multiple representation could arise. When the thorny situation does arise, they have to make it clear to clients what impact that will have on their services and how information related to a transaction will be shared. The client must be told what will be disclosed to the other party and what they can expect to be told in return and all of these details must be explained before an offer is in the works.

While the agents in the undercover videos did not appear to be involved in a specific trade, RECO says, making such comments while trying to solicit business is unethical all on its own.

A Marketplace producer declined to comment for this story, but the CBC did issue a media release promising the program offers a look inside the red-hot world of real estate, including bidding wars cloaked in secrecy.

"When bidding wars occur behind closed doors and there are low fines for unethical behaviour, how do you know your deal wasn't already rigged?" the release asks.

Tim Hudak, the recently-appointed chief executive officer of the Ontario Real Estate Association, would like to see tougher penalties for agents and brokers who break the rules. He's also calling for RECO's investigatory powers to be strengthened.

"Anyone who breaks a realtor code of ethics and violates the rules is on their own," he says.

OREA represents real estate agents from 40 boards in the province. Those who operate within the rules fear their reputations will be tarnished by those who act unethically, he says.

"It's also ripping off the people making the biggest investment of their lives," he says of the home buyers who are treated unfairly.

Mr. Hudak, the former Progressive Conservative leader in Ontario, served as minister of consumer and business services during his career in politics. As minister, he brought in the Real Estate Estate and Business Brokers Act 2002 and created RECO.

"It was ground breaking legislation at the time," but in 2016 the real estate market has changed, he says, and he is calling for the provincial government to reform the act.

In an upcoming meeting scheduled with Ms. Lalonde, he will recommend that fines for agents found in violation of the regulations be doubled to $50,000. Brokers should be fined $100,000, he adds.

RECO's power could be strengthened by allowing investigators to launch their own enquiries without waiting for a complaint from the public.

"I want to make sure RECO has more teeth."

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