Canadian real estate agents and brokerages are accused of working against their clients. Not by some rando either, but the claims came from the Real Estate Council of Ontario (RECO). The provincial regulator wrote the industry to explain they found clients were directed based on commissions. This tactic means some buyers may have bought real estate that wasn’t in their best interest… but the agent still got a sweet commission out of it.
Canadian Real Estate Agents Found Directing Buyers To Higher Commission Properties
RECO said some agents and brokerages are “steering” clients towards higher commission homes. Steering is the process of withholding information from a client, against their best interest. In this case, they allege some agents and brokerages directed people to certain properties based on commission. This may have pushed more buyers to the same home, when better options were available. That’s one way to start a bidding war, eh?
“It has been brought to our attention that some real estate agents and brokerages in Ontario may be steering their buyer clients toward listings where the seller is offering buyer representatives higher commissions over those offering lower commissions,” said the Ontario regulator to local industry.
Adding, “we are concerned that this may be happening without the buyer’s informed instruction.” Perhaps the buyers just enthusiastically preferred higher commission properties after finding out. A mystery for the ages, really.
Ontario Warns Steering Is Illegal, and Can Result In Losing Your License
If you see something, say something… please? The regulator is asking the industry to report this kind of behavior, if they become aware of it. They also remind them, fines can run up to $50,000 for an individual and $100,000 for a brokerage.
They warn, in extreme situations, they will revoke the agent or broker’s registration. This would restrict their ability to conduct future real estate trades in the province. Probably a good idea to remind people of that, since the maximum fines are smaller than a commission cheque in some parts of Ontario now.
Agents Are Asked To Explain Their Obligations To Buyers
The regulator says there are a few things agents should emphasize to buyers to help them. Amongst the tips are confirming the details of the buyer’s criteria in writing. They should also document how the agent will share listings, and commission structures.
If Steering Is A Problem, Few People Have Been Punished For It… At Least For Now
If this is a real problem, the regulator has yet to show much action. Only one enforcement action was taken by RECO in August — in total, for all complaints. It wasn’t clear if it involved steering either. One needs to go back a few months to see a penalty specifically for failure to disclose compensation. The email makes it seem like they’re knee deep in steering, but few public data points show this is the case.
That said, they wouldn’t bring it to the attention of the industry if it wasn’t an issue. Regulators generally prefer not to allege a criminal activity is occurring if it was just a one off. They might be in the middle of investigating these claims, though. Or the claims may be really hard to prove, since clients don’t know when information is withheld. It’s hard for consumers to know what data is missing in an industry notorious for restricting the public’s access to data. In the meantime, caveat emptor.
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“The regulator says there are a few things agents should emphasize to buyers to help them. Amongst the tips are confirming the details of the buyer’s criteria in writing. They should also document how the agent will share listings, and commission structures.”
That would be nice, but if doing so is not in the agent’s / buyer’s interest, and there’s no enforcement of the obligation and / or the punishment (or chance of getting caught) is small relative to the opportunity, then why expect anything to change?
There is room (at least in Ontario, based on my experience) for the operating model of the real estate sales industry be (forcibly) changed. To this extent, we can enhance consumer protection regarding residential real estate, by changing the compensation structure for the real estate sales chain — the current split-commission system only serves to foment paranoia / euphoria in the minds of buyers, all to interest of agents, with no consequence. In my view, minimum policy changes should include:
a) ensuring that buyers / sellers / landlords / tenants each pay each of their own agents / representatives directly for the value of services performed, on a fee-for-service basis; and
b) forbidding any commission-based remuneration as a primary basis of payment. The current split-commission based compensation structure only incentives both agents / brokerages to push the price up as high as possible, with the fastest turnover rate, in order to make the best profits. I haven’t seen justification as to why agent / brokerage compensation should be proportionate to the selling price – where is the value & accountability?
If one really wants to test who is principally responsible for instigating bidding wars, how about simply taking agents / brokerages out of the entire negotiation loop? After all, you don’t actually need them to buy or sell real estate – you can easily do it yourself in conjunction with a competent real estate lawyer (who you pay directly for their services, and therefore are obligated to work in your interest, and can be held to account for it). When buyers and sellers deal with each other directly, the negotiations are much more sober and reasonable – I can attest to this personally.
The current split-commission based compensation structure only incentivizes both agents / brokerages to push the price up as high as possible, with the fastest turnover rate, in order to make the largest profits. Having read the (Ontario) OREA Buyers and Sellers Agreements, I’m seeing little (if any) value provided for the fees charged, nor any accountability / liability for the services performed or the consequences of not fulfilling said services, and I have never seen how the services provided are justified as being proportionate to the selling price.
We know that the ‘real estate profession’ has issues; see the on-line Globe and Mail article of May 4, 2021 entitled ‘How is this legal?: Real estate sales tactics under fire as Canadian home prices spiral out of control’, and the on-line Global News article of March 2, 2020 entitled ‘How do we follow the money? Canadian real estate gets ‘abysmal’ anti-money laundering grades’.
Notwithstanding money laundering, accountability by real estate services can only be achieved when the buyer’s and seller’s agent are paid directly by each of their clients, for the value of services provided (in accordance with specified performance standards) on a fee-for-service basis. Otherwise, the realtor and brokerage shenanigans will continue — as evidenced by all the stories on the ‘net — because the current rules and laws are simply not working in the consumer’s interest; they’re working in the interests of the profession.
Well put cogent thought. Thank you.
The real estate industry is one of the most corrupt in the world. It doesn’t take much to see that they are the ones manufacturing the situations that are happening. These situations are affecting both buyers and sellers negatively and could potentially lead to a major economic crash. I love Canada and its a great place overall but I have noticed that there is alot of passive corruption because people don’t like to formalize rules around things. Terms like “trust” and “building relationships” are used in place of rules so that there is room to operate without recourse. I see it both at my work place (a major bank), the government and real estate. Everyone knows the real estate agency is corrupt and not one bit of enforcement is being done. Occasionally they punish one person for show. Your ideas are good. But they will NEVER be implemented.
Completely agree with the comments from Dennis K. Commission based service should.be prohibited.
Some? Try all are doing this. Both of the transactions I ever did by Realtors getting 5% were horrible. These realtors are not worth 5%. That’s a down payment on a house. Absolutely ridiculous! I will never use a useless 5% commission realty again. Pure greed!
It’s pretty absurd the only fee that doesn’t go down with scale as it becomes more lucrative.
No action because Canadian regulators would rather warn people, bury the issue, and then pretend they didn’t find anything. It’s money laundering all over again.
Well written, thank you.
I expected more change to happen in this industry years ago with technology. Using video walk through and the like and am simply astonished at the amounts of commissions sellers pay.
That said, it’s not a big deal to pay a realtor 50k for a few days work when the value of your property continues to skyrocket. A downturn or stagnated growth in real estate might change people’s minds and allow them to consider better negotiation with a realtor or find other available solutions.
Canada new slogan: I will own nothing and be happy.
I don’t know why RECO even exists – they absolutely deliver no value, have no influence. This is what they say about themselves, they should rather be sued for outright lying:
“The Real Estate Council of Ontario (RECO) enforces the rules that real estate salespeople, brokers, and brokerages must follow. We protect the public interest through a fair, safe and informed marketplace.”
What rules? What protect the public interest? Informed marketplace? didn’t they just say buyers are not informed.
My real estate agent kept on pushing me towards buying the more expensive house. I gave her a flea in her ear in the eleventh hour and cancelled the whole deal.
Most cooperating brokerage commissions are standard. The odd one may be offering more, which is a selling strategy to have more interest in the home. I’d be dumbfounded if I could persuade someone to purchase a home they didn’t really like. I personally don’t feel that strategy works anyway. I’m quite shocked over this article. I’d be interested to see the stats in this and what markets they have based this article on.
Congratulations RECO, you recognized something that’s been going on for decades.
Some Co-operating agents have not shown their clients any listings/properties that did not pay the standard 2.5% commission.
Also some buyers agents push their clients into pre-construction projects that pay them 5-6% commission.
I am a Realtor and have been trying to expand my low fee business –
You would be SHOCKED at how many sellers and buyers disregard the service because they feel we are cheap. I think the issue is the public does not understand how much agents really are being paid and associate total commission with value.
James – I applaud your efforts at introducing a low fee business model, however the article is quite clear that the issue is with buyer’s agents pushing their clients toward housing that maximizes the agent’s benefit, at the cost (and potentially to the detriment) of their client. This is a clear breach of the (Ontario) REBBA Code of Ethics provisions, as well as a breach of fiduciary duty (in my opinion). They are simply not working in their client’s interest (i.e. not looking at all sources for the most suitable accommodation, for the best possible price). Hence my comments that commission-based (and particularly split-commission) compensation needs to be forbidden as a primary means of payment.
Under a fee-for-service structure, if I were a buyer and I hired you as my agent, I would pay you for every hour you worked (but of course, you would need to justify what you are doing / accomplishing for those hours, and also demonstrate value + accountability for said services), and I could further offer you a bonus structure, where say for every $10k you get the price below asking, I pay you a $500 – $1k bonus (but that’s for me, the client, to offer voluntarily – not for an agent or brokerage to demand – let’s be clear about this). Under this system, you would be working very hard for my interests — looking at all sources of places for sale (i.e. MLS, private, FSBO, auctions, etc.) that meet my requirements, and also work very hard to get the price as low as possible — because now it works in your interest as well. The current system simply doesn’t allow that (and nor would OREA ever consider it — means less money for them & their members).