Unethical dealings in hot Toronto real estate market under the microscope

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Who are the unscrupulous players in Toronto's real estate market?

It all depends on who you're asking.

Some real estate agents engage in unethical behaviour, industry veterans acknowledge. But so do buyers and sellers.

The machinations of Toronto's blazingly hot market are receiving a lot of scrutiny these days. Last week, I wrote about an undercover investigation by CBC's current affairs program Marketplace and the real estate industry's efforts to get their own message out before the broadcast aired. The Ontario Ministry of Government and Consumer Services, the Real Estate Council of Ontario (RECO) and the Ontario Real Estate Association all offered assurances that they are looking out for real estate buyers and sellers.

RECO, which enforces the Real Estate Business Brokers Act 2002 and its Code of Ethics on behalf of the provincial government, encouraged consumers to complain if they suspect skullduggery in a housing deal.

This week, they're likely fielding a lot of new complaints after that reminder. I've heard from several buyers with their own tales.

Meanwhile, agents and brokerages are also taking steps to distance themselves from the bad actors who tarnish the entire industry.

The flurry comes after Marketplace shone a light on agents who end up "double-ending" a higher-than-average percentage of their deals. The practice, also known as multiple representation, involves an agent who represents both the buyer and the seller for the same property. Multiple representation also refers to a broker or agent representing more than one competing buyer in the same transaction. It's within the rules but only if the parties are fully informed and agree to it in writing. There can be no sharing of confidential information.

In the Marketplace investigation, the reporter went to open houses and posed as a buyer without an agent. She asked the agents at the open houses what they could do for her. One recommended that she hire an agent to act for her. But others said things along the lines of "I will block other offers" and "I will make sure you get the house."

That kind of behaviour is a clear violation. RECO can fine the miscreant or, in severe cases, revoke their registration.

The Toronto Real Estate Board president Larry Cerqua issued a statement saying the board strongly condemns the actions of any real estate agent who knowingly behaves in an unethical manner during the course of a real estate transaction. He added that most of the board's members have their clients' best interests in mind and care about the communities they serve.

ReMax Hallmark Realty Ltd., which has 10 offices in Toronto and other parts of Southern Ontario, changed its policy this week to address the controversy. From now on, a listing agent may not also represent a buyer for that property in multiple offers.

Geoffrey Grace, an agent with ReMax Hallmark, approves of the change.

"I think this move should send a strong signal to our peers and hope others will follow."

But real estate agents who adhere to the rules point out that clients may be the ones pushing to bend them.

John Carr, a broker with Royal LePage Real Estate Services, Johnston and Daniel division, says in an e-mail that he has encountered buyers who are openly willing to break any regulation that would prevent them from winning a bidding war.

"Some of those buyers are not only willing to break the rules but in many cases offer cash incentives."

Sellers, he adds, may ask an agent not to disclose a significant defect about the house. That falls under the category of wrong-doing as well.

Shawn Lackie, a real estate agent with Coldwell Banker RMR Real Estate, says his firm offers regular training programs so that agents can refresh their knowledge. The programs offer reminders of how agents should behave in various scenarios.

As a listing agent Mr. Lackie has occasionally had a buyer's agent approach him and say, "Can you tell me what the highest bid is? My buyer really wants the house." He simply tells them to put their best offer in writing.

The firm takes a hard stance against misbehaviour by its own representatives, he adds.

"Anybody that does something like that is out the door. There are no second chances."

What happens if an agent at the company has a hot property and they hope to generate a bidding war for the seller but they also happen to be working with buyers who would love the house? When that happens, Mr. Lackie says, it's common practice in his company for the listing agent to ask another agent to represent that buyer, he explains. He's done it many times himself.

In one case the listing agent asked him to sit with the sellers and oversee the bidding process so that she could present a bid on behalf of the buyer clients. That way the sellers could be assured that there was no conflict of interest.

When Mr. Lackie represents buyers he always presents the offer in person – preferably in front of the seller – so he can establish a rapport.

"I want to get in front of the seller and explain why my clients are the best people to buy the house."

When he represents the sellers, he also encourages the buyers' agents to present their offers in person rather than sending them by e-mail or fax. If he does receive offers electronically, he adds them to the queue so the seller can review them.

"There's no room for backroom wheeling and dealing."

But Mr. Lackie has had occasions where house hunters have approached him and asked if he would be able to get inside information or skew a bidding war in their favour. He asks them to leave.

"If somebody asks me that, that's a red flag."

He won't violate the Code of Ethics and he doesn't want a client that would push him to do so. He also figures if they're willing to operate in that fashion, they likely won't be honest or loyal in their relationship with him either.

People who say they desperately want a certain house should let their bid reflect that, he adds. He says that motivation sometimes explains the offers that blow all the other competition away.

"If you absolutely have to have it, show that in the amount you're willing to pay for it. It's as simple as that."

Sellers can be extremely greedy too, he says. When Mr. Lackie is representing a seller and multiple offers are expected, he informs all of the participants that there will be only one opportunity to bid. At the end of the night, some sellers have looked at the top offer and prompted him to ask for a second round of bidding in order to squeeze out a higher price. Mr. Lackie advises the seller to stick with the procedure and accept the cheque in hand.

"We made those ground rules right from the start," he reminds the seller.

At Sotheby's International Realty Canada, broker Paul Maranger says multiple representation combined with multiple offers is a veritable minefield. His team has policies in place so that agents can gracefully navigate various scenarios. One policy is that no secret discussions are allowed.

"It drives me crazy when an agent during a negotiation asks, 'May I talk with you in private?' My response is always, 'No.' "

Mr. Maranger asks the agent to step into the room and speak with him and the client together.

The team also wants offers in closed envelopes, presented in their own boardroom. If a member of the team is going to make an offer on behalf of a buyer, they present first – never last. That way the seller and the other agents can be assured that the contents of another envelope were never disclosed to their own team member.

As for the consumers, brokers and agents lodging their complaints with RECO, many complain that the investigatory process is too slow and the penalties too lax. Many are calling for stricter monitoring of the industry in Ontario.