Ontario's Changes to Real Estate Fees and Offer Process

By Penny Elizabeth Dutkowski, Broker

*2 Updates December 4,2013

On April 18th, the Government of Ontario under the Stronger Protection For Ontario Consumers Act announced two significant amendments to the Real Estate Business and Brokers Act, 2002 (REBBA), that if passed would be welcomed by REALTORS® and consumers.

1) OFFERS

Although not so stated, the first will deliver more transparency on the contentious issue of phantom offers by requiring that a real estate person may only present offers that are in writing and that the brokerage* must retain all failed offers in file. Anyone making a written offer on a property can make a request for the number (nothing else) of offers submitted of the Registrar of the Real Estate Council of Ontario.

To put it bluntly, If a buyer or their REALTOR® is told that there is another offer then there had better be a written and received offer as it would be incumbent upon the brokerage to provide same as proof to the Registrar. Aside from the fact that a verbal offer to buy real estate is not binding, this is an interesting restriction that no doubt will be clarified by the Registrar because it can cause some confusion.

Best practices at present call for a buyer's representative to personally advise the seller's brokerage that they have an offer (on hand). This is called registering the offer and serves to notify enquiring buyers and REALTORS® as to the number of competing offers if any. The first possible point of contention is that buyers do not actually have to follow through by presenting that offer to the seller, which does happen, and so the seller's brokerage will not in such cases, have an offer to hold in records.

* December 4, 2013 - as the bill has passed 3rd reading and only awaits assent, I asked RECO to clarify if a brokerage providing a mere listing to a private seller would be required to retain all offer. Their answer was "The REBBA 2002 requirements apply to any service model a brokerage may use." I interpret that to mean that yes, a mere listing brokerage is required to keep all offers. Private sellers and brokerages should however, contact RECO's registrar for direction.   

Good REALTORS® 

a) initiate what I call buyer insurance by enquiring just before presenting the offer ifothers have been received and in time to advise the client to adjust accordingly and

b) insert a clause into the offer which allows the buyer to change their bid price if at a minimum X numbers of offers are not received and

c) require proof (which cannot be the offer itself) of same from the seller.

The second possible contentious scenario is more so from the point of view of the disbelieving buyer who makes the request in that the turn around time from Registrar to brokerage to Registrar to buyer won't in all likelihood be quick enough for that buyer to acquire the property in a multiple offer scenario, so the buyer insurance clause is still the best protection. 

2) Commission Structure
The change allows a brokerage to offer more flexible fee options that currently are not permitted. To understand the impact of this we'll first address the current rules:

a) A brokerage is only permitted to collect from a buyer or seller either a fixed amount or a percentage of the sale price but not a combination of the two. This does not apply to brokerages offering mere listings to private sellers (fsbo) or prohibit a seller's brokerage from offering the combination to a buyer's brokerage.

b) It allows a sliding scale such that a percentage need not be fixed but may increase only if the sale price decreases. Both 'a' and 'b' therefore prohibit the payment of a bonus to the client's brokerage.

The Commission Change and Impact
The amendment removes restriction 'a' thereby allowing buyers and sellers to negotiate a compensation structure tailored to the services required by the buyers and sellers.

Unless my interpretation of the change is mistaken, consumers can expect some brokerages to add Fee for Service to their compensation models.*

* December 4, 2013 - I asked RECO to clarify if brokerages will be able to use a fee for service model, the answer directed me to the change in language to REBBA 2002. Unfortunately that was not instructive enough to discern if that is possible. Hopefully the registrar once the changes are enacted, will issue an interpretation bulletin.  

That model can easily be adopted to offer customer service (non-fiduciary) only and a transition to client representation (fiduciary) depending on the particular service the seller or buyer contracts for at any given point in time.

Brokerages would be able to structure their Fee for Service models to offer anything from individual service pricing to varied degrees of packages. For example consumers may be able to purchase on an as needed basis:

• a listing review with seller or market value assessment analysis
• comparative listings reports
• feature sheets
• preparation of offer
• negotiation of purchase or sale
• advice

It goes without saying that fees for such individual services will be payable up front and while it is too soon to say, it is also conceivable that billable hours for travel, telephony, computer and technology usage will eventually find its way into the fee for service model. 

Needless to say this change will be welcomed by consumers and REALTORS® alike.     

Read the news release here