The Regulator for the real estate industry, the Real Estate Council of Ontario (RECO) recently considered a case where the agent was substantially over-extended with a property.
The agent took the listing. It didn’t sell. So, he thought he might buy it himself. Then, he thought he might renovate it prior to the closing date. This would increase its value and he would finance the purchase at the increased value.
I’m sure that you already see the problem here!
The agent did some work, did some more work, undertook various repairs and renovations but was unable to secure financing. This left the Seller in a mess because there was “no sale” and the house had been “ripped apart”.
As you can imagine, this was very foolhardy behaviour on the part of the agent.
Some of the Interesting Facts
The property had been listed for 7 months, with very little interest.
The Listing agent submitted his own unconditional Offer at less than 80% of the asking price, with a three month closing. This Offer was accepted.
During the three month closing period, the agent was permitted to undertake internal and external renovations at his own expense with the Seller picking up the cost of utilities.
The transaction was to have closed on 30 August 2013. It didn’t.
A two week verbal extension was agreed to 13 September 2013, at a cost to the Buyer of $1,000.00. It didn’t close.
A second extension to 4 October 2013 was agreed, together with an additional $1,000.00 cost to the Buyer. Again, it didn’t close.
On the second extended closing date, the Listing Agent (Buyer) removed his equipment and tools from the premises and left it in the following condition:
o A wall torn down between the kitchen and dining room
o Kitchen cupboards removed
o Electrical wiring exposed
o Missing light fixtures
o Damaged hardwood flooring
o Unfinished sanding and incomplete interior painting
o Incomplete exterior painting
o Missing refrigerator and stove
SUMMARY OF ALLEGATIONS
It is alleged that the Listing Agent acted unprofessionally when he:
1. Failed to reduce verbal agreements to extend the closing date for the Property to writing.
This failure represented a breach of Sections 4, 5, 27 (1) (a), 38 and 39 of the Code of Ethics under the Act (the “Code of Ethics”).
2. Failed to reduce a verbal agreement to reimburse the Complainant $1,000.00 for the cost of utilities, to writing. This failure represented a breach of Sections 5, 27 (1) (a), 35, 38 and 39 of the Code of Ethics
3. Failed to deliver copies of agreements to his brokerage. This failure represented a breach of Section 4, 5 and 39 of the Code of Ethics under the Act (the “Code of Ethics”).
4. Failed to deliver copies of agreement to the client. This failure represented a breach of Section 4, 5, 28 (1) and 39 of the Code of Ethics under the Act (the “Code of Ethics”).
It is alleged that Listing Agent breached the following sections of the Code of Ethics under the Act:
Best Interests
4. A registrant shall promote and protect the best interests of the registrant’s clients.
Conscientious and Competent Service, Etc.
5. A registrant shall provide conscientious service to the registrant’s clients and customers and shall demonstrate reasonable knowledge, skill, judgment and competence in providing those services.
Written and Legible Agreements
27. (1) A registrant who represents a client in respect of a trade in real estate shall use the registrant’s best efforts to ensure that,
(a) Any agreement that deals with the conveyance of an interest in real estate is in writing.
Copies of Agreements
28. (1) If a registrant represents a client who enters into a written agreement that deals with the conveyance of an interest in real estate, the registrant shall use the registrant’s best efforts to ensure that all parties to the agreement receive a copy of the agreement at the earliest practicable opportunity.
Financial Responsibility
35. A registrant shall be financially responsible in the conduct of business.
Errors, Misrepresentations, Fraud
38. A registrant shall use the registrant’s best efforts to prevent error, misrepresentation, fraud or any unethical practice in respect of a trade in real estate.
Unprofessional Conduct, Etc.
39. A registrant shall not, in the course of trading in real estate, engage in any act or omission that, having regard to all of the circumstances, would reasonably be regarded as disgraceful, dishonourable, unprofessional or unbecoming a registrant.
PENALTY
RECO found the registrant responsible and imposed a $7,000.00 fine upon the Listing Agent.
COMMENT
This is a situation which was fraught with danger right from the outset. The Listing agent would need to justify the price, and the marketing before convincing the Seller to accept his own Offer at less than 80% of the asking price.
Right at this point, another agent should have been brought into the deal to protect. the Seller. When there were problems, the Brokerage which was the true “legal agent” for the Seller didn’t know anything about it. There was no paperwork, Nothing had been filed.
Extensions and side agreements relating to real estate conveyances must be reduced to writing. This isn’t new. It’s according to the Statute of Frauds from 1677.
It is noteworthy that the Seller was “worse off” one year later by reason of having undertaken this “arrangement”.
It is important too, to remember that the real estate agent may have been very well-intentioned right from the outset, but things can turn out poorly anyways.
It is not possible to draw any conclusions on matters such as intention since the Discipline case was settled and an agreed statement of facts was filed.
Brian Madigan LL.B., Broker