When Real Estate Brokers Don't Measure Up - Why Inaccurate Measurements are a Big Deal

CBC Radio jolted me from my "Oh gawd it is the first Monday of Daylight Saving Time" stupor yesterday morning with a real-estate report.

A woman in Alberta has been left frustrated and her retirement put in jeopardy because the house she purchased and later sold was considerably smaller than what the agent who originally sold it to her claimed. You can see the TV report here.

Pam Whelan paid $800,000 for an Okotoks bungalow in 2007, believing that she was buying a house with 2,580 square feet of living space. Turns out, the bungalow is about 25 per cent smaller, 2,094 square feet. She complained to the Real Estate Council of Alberta, saying the original listing agent providedd misleading information. Had she known the real square footage at the time of purchase she could have made a "more educated guess"  on whether or not to buy.

Whelan says she was counting on the proceeds of the sale of the house for her retirement. She sold in 2014 for $775,000, after having put money into upgrades.

The Real Estate Council of Alberta acknowledges the listing agent had committed a "minor breach" of the province's Real Estate Act by misrepresenting the square footage. The council found no reason to believe the misrepresentation was intentional. The agent got a note in her file. A note is not a sanction, apparently.

That's the part that blew my mind. No sanction.

A few things about this story struck me. First, 500 square feet is a lot of space to go missing. Second, there would be hell to pay for the agent who made that mistake here.

Real-estate professionals in la belle province are ruled by the Real Estate Brokerage Act,  provincial legislation. The OACIQ (Organisme d'autoreglementaion de courtage immobilier du Québec) polices the industry and enforces the brokerage act.  The law is unequivocal. Real estate brokers are responsible for the things written in their listings.

 Sections 83 and 85 of the Regulation respecting brokerage requirements, professional conduct of brokers and advertising are clear on this point:

83. A broker or agency executive officer must act with objectivity whenever advising or informing the party represented by them or the agency for which they act and all other parties to a transaction. That obligation extends to all the material facts relevant to the transaction and to its object, and must be fulfilled without exaggeration, concealment or misrepresentation. If applicable, the broker or officer must inform the parties of products and services that concern heritage protection and relate to the transaction.

85. A broker or agency executive officer must inform the party represented and all other parties to a transaction of any known factor that may adversely affect the parties or the object of the transaction.

 If you don't know the square footage, don't say. If you aren't sure, don't say. You cannot rely on the measurements another broker took - like the measurements from an old listing. Adding a disclaimer like "all measurements to be verified by the buyer" is illegal and has no force.

So you can imagine how gob-smacked I was to hear the Real Estate Council of Alberta's director of professional standards say that "caveat emptor is alive and well in all real estate markets in Canada."

In other words, buyer beware.

Again, it is written into law that Quebec brokers must verify the information in their listings. They must be ready to prove anything asserted in a listing, if asked. That's why listings sometimes do not specify the net living space. Better not to say than to say the wrong thing.

In Quebec, every time a house is put up for sale, the seller is obliged to provide a certificate of location prepared by a land surveyor. The certificate shows the dimensions of the lot. It also shows the dimensions of the building. It does not show interior square footage. A certificate of location for a condominium will show interior square footage.

It is common practice now for notaries to examine the certificate of location with a buyer prior to the closing of the sale. They verify the dimensions together, look at servitudes and make sure the buyer understand what he or she is buying. No surprises that way.

I have to wonder whether the unhappy Okotoks woman saw a certificate of location or survey plan before buying. If she had, a bit of quick math  might have shown there was no way it could be as big as advertised. Maybe such survey plans are not required in other parts of the country.

 Living space is the space within the walls of the dwelling. Balconies do not count (even though some condo developers include outdoor space in the square footage on their spec sheets.) parking spaces do no count. Storage lockers in the basement of a condo building do not count.

Mistakes happen. Misrepresntations happen too but when they do there can be real consequences for the Quebec broker, including a fine or license suspension.

The CBC story asserts that the number of these complaints are growing across the country, but it is telling that the report did not mention Quebec, where the real estate brokerage laws have teeth and where consumers get better than a form letter saying "buyer beware".

Sutton Brokers Were Left $600,000 Short When Their Agency Went Bankrupt

CBC Montreal recently had an excellent report on a group of former Sutton Royal agents who were done out of a combined $600,000 in real estate commissions when their agency was forced into bankruptcy.

The story began with an alleged cheque kiting scheme implicating the agency's director and his executive assistant. Two banks, the TD and National, stepped in when Sutton Royal accounts came up about $2 million short.

When it was discovered that the agency was depositing commission cheques for sales by its agents to a Bank of Montreal account, TD and National  asked the court to seize the money. Last December, the Dollard des Ormeaux agency was forced into bankruptcy.

That's when things got ugly for Sutton Royal's agents. Money they had earned selling homes and supposedly held in trust by their agency, as per the Real Estate Brokerage Act, was gone - poof - sponged up as part of the bankruptcy proceedings. To make matters worse, Sutton Quebec appears to have quietly paid off the collaborating agents (the agents who represented buyers in deals involving Sutton Royal's sellers) while stiffing their own people. Ouch.

I cannot imagine the nightmare these brokers are living. First, the agency they work for collapsed in scandal. Next, their revenue was snatched away - in the case of one agent, $300,000 ! The brokers allege Sutton Quebec president Christophe Folla promised to help them but has not.

An aside. When I was The Gazette's real estate reporter, I had a story about a Sutton agent (they were called agents then, not brokers) at the La Salle brokerage, who appeared to pretty much try to screw an old lady out of her condo. Her daughter came to me with the story. (Quebec's real estate authority later convicted him of breach of ethics and his license was suspended.)

I tried very hard to talk to Christophe Folla at that time. He never once called me back. I hope these agents have better luck. 

Click on the link above to read the whole story and watch the TV report. The CBC promises that a second report is coming up.

Stay tuned, as they say.

When Your Dream Home Was the Scene of a Nightmare

Yahoo News picked up a Toronto Star story today about a Bowmanville, Ont. couple who bought what they thought was their dream home, only to discover that the property was the scene of a double murder 15 years earlier.

The owners are now suing their real estate agent, claiming she should have disclosed the house's sordid past to them. They are also suing the former owners, who purchased the property after the crime.

According to the Toronto Star story (link here until it goes dead): 

"The Real Estate Council of Ontario, which regulates the industry, issued a warning to (agent Mary) Roy last month on the grounds that she “deliberately withheld a material fact known to her” regarding the murders from the buyers, contrary to the Real Estate and Business Brokers Act. The decision followed a complaint by the (buyers) earlier this year.
The council cited several provisions in the act’s code of conduct, including not engaging “in any act or omission that, having regard to all the circumstances, would reasonably be regarded as disgraceful, dishonorable, unprofessional or unbecoming a registrant.”

The Star story goes on to say that the case raises questions about what a real estate agent is obliged to disclose.

"Lawyers say the case involves a grey area in common law on the issue of “duty to disclose” — and how to assess what information that entails.
If the claim proceeds to trial, it could become a test case for the doctrine of “caveat emptor,” or buyer beware, and whether the couple’s situation is an exception to that general rule."

You will be glad to know that in Quebec there is no such ambiguity about what an agent is obliged to disclose to a potential buyer. The Real Estate Brokerage Act (REBA) says:

 A broker or agency executive officer must inform the party represented
and all other parties to a transaction of any known factor that may adversely
affect the parties or the object of the transaction.

In plain English, if I know something about a house,I must disclose it, whether the buyer asks or not.
The law goes further. Each time a client and I sign a brokerage contract before listing a property for sale, we also complete a Vendor's Declaration. This six-page checklist is where sellers declare everything they know about their house, from the age of the roof to - oh yeah, by the way -  someone was killed here.

"To your knowledge, has there ever been a suicide or violent death in the immovable?"

In case that is too narrow a question, the declaration also inquires:

"To your knowledge, are there any other factors relating to the immovable not mentioned in these declaration that are liable to significantly reduce the value or restrict the use thereof, reduce the income generated thereby or increase the expenses relating thereto (e.g. development or construction project, environmental problems (e.g. radon, abnormally high noise level, unpleasant odor, etc.)"

The latter question covers pretty much any other eventuality, whether the house was used as a brothel, a marijuana grow-op or a slaughterhouse for chickens. (Where did THAT come from?)

The vendor's declaration is attached to the listing so that other agents can see it. Buyers are given a copy before they make their offer and must sign and date the declaration as proof that they are aware of all a house's quirks and defects.

There's no gray area in Quebec law about whether or not you must disclose. When in doubt, disclose.

Do Bother Me, Please!

I'm listening to one side of a phone conversation going on about 15 feet away from me.
My colleague is talking to a professional contact about a new condo that has just been listed. The contact wants to know what my colleague thinks about the location and the price.

If I understand correctly, the person on the other end of the line has just said she's going to go over and have a look at the place and then maybe she'll call back if she's interested in making an offer.

I can hear my colleague explaining politely, but with rising vehemence, that if the person wants to visit the condo she would be most pleased to visit with her,

She isn't just being nice, you know. The agent really, really, really would like to visit that condo with her.

Seriously.

I've heard the story too many times to count. It is the story of people who don't want to bother a real estate agent until they've seen the place they like. Then and only then will they ask an agent to negotiate the purchase on their behalf.

Too late, folks. Too. Freaking. Late!

Here's a little bit of inside baseball type information for you. If you want me to represent you in the purchase of a property, I have to be the one to make the appointment to visit the place. I have to go with you for the visit and I have to be with you for all subsequent visits.

(The exception to this rule is the open house. You can go to an open house without your agent, but you should tell the agent at the door that you are working with your own agent.)

Those are the rules. The Real Estate Brokerage Act, the regulations that govern the industry, are very clear about this. The agent who is the "effective cause of sale" is the one who gets paid at the end of the day. Being the effective cause of sale can mean showing the property, pointing out the pros and cons of the property, gathering supplementary and pertinent information that helps the buyer make up his or her mind and, finally, negotiating the deal.

Being as I sell real estate to feed my family, I am really, really, really interested in getting paid at the end of the day.

Early in my career I negotiated on behalf of a family who had a really hard time buying their first home. I held their hands through the whole process and, when their bank refused to give them a mortgage, helped them find a mortgage broker who could get them good financing.

I worked very hard on that file. And I never got paid. Why? Because they buyers had visited the property once before they met me and had spoken to the agent after their visit. The listing agent had a prior claim on them,

It was a painful and expensive lesson.

So by all means, call me to talk about properties that interest you but please do take with you to visit. You won't be wasting my time. Au contraire, it's how I earn my living.  I like visiting properties with my clients and will visit as many as they need to see before we find the right one.

Honest.

What economic slowdown? There are more agents than ever.

Quebec's real-estate regulator, the Association des courtiers et agents immobiliers du Quebec, also known as the ACAIQ, reports that the number of agents who sought licenses for 2009 jumped by 1,500. There are now 17,500 licensed agents in Quebec.
What's going on? For one thing, a weak economy may be propelling more people into the industry. The barriers to entry are low. It costs less than $4,000 to enroll in a certified real-estate program. If you study full-time, you can be on the street with a license to practice in less than four months. That can be an attractive option for a laid-off worker seeking a new career path.
The number of real-estate graduates has been climbing steadily for a decade, from about 1,100 in 1997 to more than 2,400 in 2006. No doubt some of those graduates were attracted by the lure of easy money.
The reality is that about 85 per cent of those who graduate stick it out in the business for one year. At the end of five years, only 50 per cent of those graduates are still in the business.
It is only going to get harder.
The ACAIQ is in the process of rewriting the Real Estate Brokerage Act, the legislation which governs the practice of real-estate brokerage in la belle province. Starting as soon as July, it will be harder and take longer to earn that real estate license. Maybe some of those freshly minted agents are signing up now to avoid the heavier training requirements. If history is any indicator, a bigger crop of new agents won't necessarily translate into a larger pool of agents further down the road.