Clarifying the Application of the Real Estate Brokerage Act to Improve Public Protection: A Duty for the State

Transcription

1 Clarifying the Application of the Real Estate Brokerage Act to Improve Public Protection: Brief by the Québec Federation of Real Estate Boards in response to the Finance Department s Report on the Application of the Real Estate Brokerage Act September 2015

2 Table des matières SUMMARY... 3 INTRODUCTION... 4 CHAPTER 1 AN ECONOMIC SNAPSHOT OF REAL ESTATE BROKERAGE... 6 CHAPTER 3 - THE FUTURE OF REGULATION The notion of brokerage The function of an adviser Ad hoc services Seller assistance companies The regulatory body and governance CONCLUSION... 20

3 3 SUMMARY It is correct to assume that Quebec is at a crossroads with regards to the supervision of real estate brokerage following the tabling of the Report on the Application of the Real Estate Brokerage Act by the Minister of Finance on June 12, The Report on the Application of the Real Estate Brokerage Act demonstrates the challenge in the rise of some real estate publicity companies into firms offering real estate brokerage services, also known as for-sale-by-owner (FSBO) companies (and herein referred to as the aforementioned FSBO companies). The government refers to these entities as companies that assist property sellers. The Quebec Federation of Real Estate Boards (QFREB) fully respects the fundamental right of property owners to sell their real estate without the use of a broker. It is the confusion that arises between the services provided by FSBO companies, the largest example of which is DuProprio, and the professional services provided by real estate brokers that requires an update to the Real Estate Brokerage Act for public protection purposes. These FSBO companies have greatly changed their business model in recent years. When they emerged, these companies offered advertising services such as signs, web advertising and photography services. However, over time FSBO companies have gradually taken on new responsibilities and offered new services identical to those provided by real estate brokers. The public at large, whether in the role of buyer or seller, is put at risk when dealing with FSBO companies. These companies offer no guarantees on the validity of the real estate information they provide. They are not subject to any professional norms nor codes of conduct, and are not covered by compensation funds or professional liability insurance. Coaches and real estate advisors working for these companies do not have any accredited nor compulsory professional training. The risks associated with companies that help owners sell their properties have been documented in the context of several court cases. The Quebec Superior Court has often stated that the intervention of a real estate agent increases the pool of buyers, increases transaction security, and decreases the risks associated with the purchase of a property. It is troubling to see that real estate industry actors who are active in the resale market offer services that are part of the brokerage act, and assume the titles of real estate coaches or advisors. In so doing, they are assuming a part of the real estate broker professional title. The public expects to be protected when it deals with a real estate broker, coach or advisor. These new titles are confusing for the public. To eliminate this confusion and clarify what constitutes a real estate brokerage transaction, the QFREB proposes the following clarification to section 1 of the Act: A brokerage act constitutes the solicitation, negotiation or advisory services, directly or indirectly This concept must be inserted in the first section of the Act. The increased use of the internet by the real estate industry is not what necessitates this law. Real estate boards and real estate brokers have been online for a long time, and were innovators in the transmission and diffusion of real estate information via the internet. FSBO companies essentially profit from unclear legislation to operate outside the industry framework and put the public at risk. It is time for an intervention we must clarify the Real Estate Brokerage Act. This is for the protection of the public.

4 4 INTRODUCTION On June 12, 2015, Quebec s Minister of Finance tabled the Report on the Application of the Real Estate Brokerage Act. Five years have passed since the ratification of the current Act. Since the adoption of this Act, the landscape and the practice of real estate brokerage has evolved considerably. Consider the transformation of the Association des courtiers et agents immobiliers du Québec (ACAIQ) into the Organisme d autoréglementation du courtage immobilier du Québec (OACIQ). The Act of 2008 also introduced changes to the practice of securities, and imposed tighter supervision on advertising practices. We can say without a doubt that professionalism has improved across the industry as a result The practice of real estate brokerage in Quebec is similar to what is observed across North America. Professionals work independently, or are grouped together in an agency. The latter can be independent as well, or associated with a group of agencies operating under a franchise. Real estate brokers are able to join a real estate board, and in doing so gain access to support services that assist them in the execution of their tasks. The main market access and collaboration tool used in this regard is Centris. Page 6 of the report states that it is an important publicity website, but it is not. This is an information technology tool which assists brokers in the performance of their regulatory duties. It is also important to mention the important role of the Canadian Real Estate Association (CREA) due to many trademarks they owned. Also, we need to mention their important contribution, at the Canadian level, to the coordination and practice of the real estate brokerage. Moreover, self-regulation of the profession was redefined by the Act of The QFREB notes that self-regulation is becoming increasingly popular amongst professional orders in Canada and the United States (US). The various self-regulatory bodies studied by the QFREB are in the process of gaining more responsibilities as awarded by the appropriate authorities in each jurisdiction. The operating structure of the OACIQ greatly resembles the model operating structure of most professional orders in Quebec. There are 46 such orders across the province, and all are mandated to protect the public while enhancing the professions they represent. During the preparatory work that took place between 2003 and 2008 that led to the current Real Estate Brokerage Act, the concept of companies that help owners sell their properties was not addressed. At the time, these companies focused only on advertising services for their clients. This situation has since changed. FSBO companies have added real estate brokerage to their advertising services. Companies that only offer advertising services shall be recognized accordingly, and is not a seller assistance company. If those companies offer brokerage services, they shall obtain the required licenses from OACIQ. Those services range from estimated market valuations, assistance in drafting contracts and forms, negotiations support and professional reference services. Seller assistance companies, as referred by Quebec s Ministry of Finance, currently offer real estate brokerage services without possessing the required permits to do so. They also lack necessary training, professional supervision, and access to a compensation fund or professional liability insurance fund. The services offered by FSBO companies go well beyond the mere publication of advertisements. They cover all aspects of a real estate transaction. Hiring a real estate coach from one of these companies confirms the true nature of the services they provide. The qualifications necessary to become a coach include the Attestation of College Studies (ACS) in real estate. This diploma is accredited by the OACIQ, and required to become a broker. Thus, the most important and valuable asset of citizens in Quebec is traded by businesses that operate under no regulatory framework. The Government of Quebec must enact such a legislative framework for these companies through the work resulting from the report.

5 5 By comparison, would our society accept that medical clinics provide patient care via staff who do not hold the necessary certifications? Or would we accept that pharmaceutical advisers evolve alongside pharmacists, or securities consultants usurp the professional identity of dealers? This is precisely the phenomenon currently facing the real estate brokerage industry.

6 6 CHAPTER 1 AN ECONOMIC SNAPSHOT OF REAL ESTATE BROKERAGE The property resale market represents an important economic activity in Quebec. The approximately 15,000 real estate brokers operating in the province generate significant and direct economic benefits. Real estate transactions likewise generate a series of benefits, notably in the field of professional services, retail trade and renovations. A healthy resale real estate market is a key element of a healthy economic environment. At the local level, real estate agencies occupy thousands of square feet of office space on the main commercial streets across Quebec s cities. An important group of support and administrative staff is employed by real estate agencies and brokers. The real estate market remains strong in Quebec due to the work of professional real estate brokers. The complex nature of real estate transactions ensures that brokers have a key role in the proper functioning of the housing resale market. Data retrieved from the Centris system indicates that in 2014, 49,824 single-family homes changed ownership, representing a stable level as compared to Sales of plexes, which had declined over the past four years, remained at unchanged levels in 2014 at 6,027 transactions. However, despite the increases in the last two quarters of the year, the condo market saw sale numbers decrease by 2% in 2014 to reach 14,412 transactions. For the fourth consecutive year running, the number of active listings increased sharply in Quebec in An average of 77,985 residential properties were for sale via a real estate broker that year, an increase of 10% as compared to Market conditions relaxed following the increase in the number of available properties and the slowdown in sales. This was particularly felt in price developments that are now growing at a slower pace than in recent years.

7 7 The Quebec real estate market 2014 Annual change Residential total Sales 70,636-1% Active listings 77,985 10% Sales 49,824 0% Single-family Active listings 52,184 11% Median price $227,000 1% Sales 14,412-2% Condominiums Active listings 18,780 8% Median price $215,000 1% Sales 6,027 0% Plex Active listings 6,285 13% Source: QFREB, via the Centris system Median price $350,000 1%

8 8 CHAPTER 2 - THE EVOLUTION OF THE BROKERAGE INDUSTRY AND THE 2008 REFORM The emergence of the real estate broker profession dates back to the 1950s, in conjunction with the residential development of Quebec and the appearance of the first suburbs. The name of the profession and its role were transformed during the six decades since then. From broker in buildings to an agent in buildings, and real estate agent to the eventually unified title of real estate broker, the profession has acquired, via the quality of its services, an essential place in the Quebec economy. Often employees of real estate trusts, brokers have migrated to a professional and autonomous status, particularly because of the training and teaching efforts of the Quebec Real Estate Association (QREA). The QREA is the ancestor of the OACIQ. In 1983, the QREA adopted a code of ethics, a disciplinary process and procedures for arbitration and conciliation. These elements laid the foundations for the creation of a first self-regulating organization in 1994, the Association des courtiers et agents immobiliers du Québec (ACAIQ), which replaced the QREA. During this transformation in the profession, real estate brokers became autonomous business entities with the opportunity to work for a real estate agency or independently. The work structure of brokers then merged with that of several other professions in Quebec under the Professions Act. In connection with this development, there is a need to define the special relationship between the real estate broker and real estate agencies. The brokerage transaction exercised by the real estate broker must be better defined in order to properly capture the role and responsibilities of agencies and brokers. The report is rather vague on this important aspect in determining the evolution of the profession. The QFREB considers that real estate brokers carrying out a brokerage transaction within a professional framework and that this, with its objective to purchase or sell a property, must be better detailed. The real estate agency, meanwhile, is jointly responsible for the actions of brokers and offer professional services and training. The agency itself does not carry out the brokerage operation. During the examination process of the relationship between the agency and brokers, the ownership of the retribution must be determined. If the brokerage transaction is the exclusive professional act of brokers, how can one ensure their full ownership of their retribution? The QFREB wants a reflection on those aspects not covered by the report. The upcoming legislative work to improve the Real Estate Brokerage Act must consider all the progress made by the real estate broker profession, and give it the necessary tools to enable it to continue its growth and development in a changing economy. The objective of the QFREB is to allow real estate brokers to continue to reach new heights of professionalism and, eventually, be grouped within a professional order. The real estate broker profession was one of the quickest to adjust to the reality of the internet and the transition to the new economy. Real estate brokers have transformed their professions since the late 1990s, whether that be via the transformation of collaboration tools from listing books to a digital platform with a website for advertising inscriptions, or via the use of electronic contracts.

9 9 On page 8 of the Report on the Application of the Real Estate Brokerage Act, the Ministry of Finance states that new technologies, including the Internet, were already transforming certain aspects of the practice of real estate brokerage ( ) primarily the advertising of properties for sale.ˮ It is also mentioned that the real estate brokerage industry had a leg up on the real estate market, because of the real estate listing system, which now goes by the name of Centris (...) The system gave brokers a considerable competitive edge, since they were the only ones who could access its mass of information on property listings.ˮ At this stage, it is important to define the information held by real estate brokers. They own and operate a database of past transactions and current property listings. They are not alone in holding such data. The state records all real estate transactions in Quebec in the provincial land register. According to the system of land registration, any real estate transaction becomes public by registration in the land register of Quebec. As it is a public record, any citizen can access and track the history of transactions made on a lot since the inception of the register. Private companies in the field of real estate information also built similar data systems. We cannot assume that Quebec real estate brokers have a competitive advantage in this respect. It is the quality of information, the scope of dissemination, and the collaboration between brokers that are the strengths of the Centris system. The assumed competitive advantage that the report refers to is in contradiction with the fact that real estate sales conducted without the use of a broker are a more frequent historic phenomenon in Quebec than elsewhere in North America. The QFREB therefore wishes to correct the false premise conveyed by the Report on the Application of the Real Estate Brokerage Act that real estate brokers have a competitive advantage in the use of real estate information. An owner who wishes to sell his or her property by themselves has access to real estate information in several forms. It is the added value of the professional services offered by real estate brokers that make property owners, in a vast majority of cases, entrust the sale of their home to a broker. These services are numerous and include estimated market valuations, marketing services, assistance in drafting contracts and forms, advisory services, negotiations support and professional reference services. Regarding the second chapter of the Report on the Application of the Real Estate Brokerage Act, a second false premise is made on page 8. The report states that real estate prices rose much more rapidly than the cost of living ( ) this increase in prices is reflected in a nearly proportionate rise in brokers commissions, which probably fostered a substantial increase in the number of brokers.ˮ An inaccurate correlation is then made by the Report on the Application of the Real Estate Brokerage Act when the Ministry of Finance states that: In recent years, the rise in commissions has likely contributed to a slight decrease in the number of residential sales through a broker.ˮ The report suggests that the growth in fees received by all real estate brokers is responsible for a strong recruitment increase in the profession. These fees, according to the report, have subsequently been responsible for the decline in the number of transactions performed by brokers since 2010.

10 10 In terms of the fees paid to real estate brokers, the report is not based on any data to support the correlation made. It is true that the number of brokers has increased, but this has much more to do with the strong growth of the real estate market in North America and elsewhere since the late 1990s. The considerable reduction in interest rates during this same period made certain segments of the property market more accessible. The increase in demand and growing ownership rates largely explain the increased number of real estate brokers, not by the growth in fees that the report suggests. Conversely, during economic recessions, like those of the early 1980s or early 1990s, the number of brokers decreased significantly. The report omits to mention the impact of tighter mortgage rules instituted by the Canadian federal government since 2008 as a determining factor in the turmoil of the resale market. It is clear that these elements have helped to reduce the number of real estate transactions, especially with regards to first-time buyers. It is thus not an increase in fees that has contributed to the decrease in property transactions handled by real estate brokers. This explanation, as offered up in the report, is without basis. In addition, the introduction of a new and comprehensive mandatory training program for real estate brokers, as well as more demanding assessments for those looking to embark on this career path, have translated into declining numbers of new real estate brokers. During the development phase of the 2008 Real Estate Brokerage Act, real estate boards and the OACIQ worked together to introduce a more modern training program for the profession that focused on the skills necessary to practice as a real estate broker. The era where practice permits may have been easily obtained is over. This reduction in the number of real estate professionals is not unique to Quebec. In the US, membership of the National Association of Realtors (NAR) decreased from 1.3 million members in 2007, to less than 1 million following the real estate crisis. Thus, the Report on the Application of the Real Estate Brokerage Act is wrong to attribute the growth in the number of real estate brokers since the late 1990s to an increase in fees received. The rate of compensation varies in the profession, and depends on applicable business models. One can simply look over the offers of brokers and real estate agencies to see the great variability in fee pricing. On page 9 of the Report on the Application of the Real Estate Brokerage Act, the Ministry of Finance stated that new needs in real estate services have also fostered the development of companies that help owners sell their properties, the best-known being DuProprio.ˮ However, it is not new requirements for real estate services that explain the presence of these companies, but rather false promises of significant savings for the owner-seller of the property. The advertising promotion services of FSBO companies focus on this topic. It is deplorable that no regulatory body standardizes and supervises the advertising content of these marketing services. Advertising services offered by real estate brokers are strictly supervised by the OACIQ. It is due to misleading advertising that the QFREB filed a proposed class-action lawsuit against DuProprio. It is thus not in response to requirements for real estate services that the aforementioned FSBO companies have established themselves in Quebec, but rather due to aggressive advertising and a business model that is unregulated.

11 11 The Report on the Application of the Real Estate Brokerage Act goes on to state that such companies (FSBOs) are increasingly present in real estate transactions (...) the brokerage industry, with the support of the OACIQ, is waging an intense media battle against FSBOs to preserve its market share.ˮ Sales listed through the aforementioned FSBO companies are not completely verifiable, while several sales listed by these companies are eventually carried out by real estate brokers. It is more frequently the case that clients of the aforementioned FSBO companies who were attracted to these companies by their advertising, but many owner-sellers in the end use the services of brokers when faced with the complexities of transactions in a sale. The aforementioned FSBO companies, however, often identify these sales in their own balance sheets. This issue has been raised numerous times by the QFREB. It is important to understand the specific context in which the media battle that the report refers to took root. The aforementioned FSBO companies have flooded the advertising industry with misleading information, and as such it was important for the real estate sector (i.e. real estate boards and the QFREB) and the regulator (i.e. OACIQ) to disseminate the facts, via advertising, on the practice of real estate brokerage. This fact-based response illustrates the need for public protection when faced with the practices of the aforementioned FSBO companies.

12 12 CHAPTER 3 - THE FUTURE OF REGULATION The notion of brokerage On page 11 of the Report on the Application of the Real Estate Brokerage Act, the Ministry of Finance states that just as important to protecting the public is making sure that there is no ambiguity as to the broker s responsibilities: The broker s job is to advise the client on the asking price, make sure legal obligations are met and lead negotiations with the prospective buyers. The broker also looks after listing the property. The scope of the Act is therefore defined by the very nature of the relationship between the seller and the broker who is given the task to sell the property. The scope of the Act cannot easily be delimited by the services performed by brokers, which can vary depending on the circumstances.ˮ It is true that the relation between a broker and its client is different than a FSBO sale mostly because of its nature. However, the professional services that are offered by a real estate broker in the execution of a transaction, when compared with the services offered by aforementioned FSBO companies, represent similar areas. Thus, the estimated market valuation, marketing services, assistance in drafting contracts and forms, advisory services, negotiations support and professional reference services are all clearly professional services that are provided by both real estate brokers and FSBO companies. The brokerage transaction in the broadest sense is a series of professional acts with the goal of finalising a property transaction. The aforementioned FSBO companies that move beyond advertising services to other services clearly execute a brokerage operation. The only difference between an aforementioned FSBO company, a real estate agency and a real estate broker is the relationship with the customer and, implicitly, the mode of payment. This relationship is highlighted in the report. In real estate brokering, and notably with regards to clients who are sellers, a brokerage contract binds the client to the broker. This contract specifies the acts that will be performed by the broker, and the nature of the fees foreseen. The broker is usually paid upon achieving results, such as the sale of a property. The contractual relationship with the purchasing client remains, to date, under-used in real estate brokering. Real estate brokers working with buyers are remunerated through a share of the broker's remuneration linked to the brokerage contract. To define a real estate transaction based solely on the relationship between a broker and his client would set a precedent in the Quebec workplace. A dual-track approach would thus be born on how to define a professional act, one being based on a brokerage contract, and the other not. On page 12 of the Report on the Application of the Real Estate Brokerage Act, the Ministry of Finance stated that FSBO companies are covered by legal provisions that protect people with whom they enter into a contract. Such provisions include those dealing with contracts for services in the Civil Code of Quebec (ss et seq.) and the general provisions governing all contracts. Lastly, to the extent that these companies are not real estate agencies, and depending on the nature of the services offered, a number of provisions, such as the general provisions governing contracts regarding goods and services (ss. 8 to 22.1) and the business practices provisions (ss. 215 to 253) of the Consumer Protection Act, may apply. These provisions protect consumers from, for example, misleading advertising.ˮ

13 13 Would the Government of Quebec come to the same conclusion if companies that provided assistance to sellers were working in the field of law, medicine, securities trading or financial services? The professional orders under the responsibility of the Ministry of Justice and the Office des professions, as well as the self-regulatory bodies under the responsibility of the Ministry of Finance and the Autorité des marchés financiers, appear to enjoy better protection of their fields of practice than the real estate brokerage industry. How can the government justify such treatment when the issue of public protection is first and foremost in what is the most important transaction of a lifetime for most households? Page 12 of the Report on the Application of the Real Estate Brokerage Act also asks: Should brokerage be defined and, thus, certain actions made exclusive to brokers? If yes, which ones?ˮ The QFREB has studied different practice areas in numerous sectors. The results show that in all cases, practice areas are better defined and include the concept of providing advice. For example, under section 5 of the Securities Act, the exercise of real estate brokering is defined as such: A person engaging in or holding themselves out as engaging in the business of: 1. trading in securities as principal or agent; 2. distributing a security for their own account or for another's account; or 3. any act, advertisement, solicitation, conduct or negotiation directly or indirectly in furtherance of an activity described in paragraph 1 or 2. The third paragraph of this article defines a concept of brokerage similarly with the practice of real estate brokering. It is an excellent starting point for a definition of a real estate brokerage transaction. Under the Act respecting the distribution of financial products and services, the concept of adviser is associated with the various practices of securities law. For example, a damage insurance broker is defined as: a natural person who directly offers the public a selection of different general insurance products from several insurers, or provides to a firm, to an independent representative or an autonomous society of general insurance products of one or more insurers. He or she also acts as a damage insurance adviser. This Act also regulates the reserved title of financial planner. It protects the title by prohibiting the use of derivative namesakes, for example that of financial adviser. The Act respecting the distribution of financial products and services therefore includes the concept of advice in essential disciplines under its jurisdiction, and prohibits any deviations to the use of the reserved title of financial planner. The QFREB cannot comprehend why a law under the jurisdiction of the Ministry of Finance, which supervises professions in the finance sector, includes the concept of advice in defining the different professional actions identified therein, however the same ministry would legislate against this in a revision of the Real Estate Brokerage Act. As such, the QFREB proposes to modify Article 1 of the Real Estate Brokerage Act by adding a provision to this wording that originates from the Securities Act.

14 14 The wording would take the following form: The QFREB proposes to amend section 1 of the Real Estate Brokerage Act as such: This Act applies to any person or company who, for others and without compensation, engages in a brokerage transaction relating to the following acts: (1) purchase, sale, offer to purchase or sale of a building, mobile-home or assets used exclusively as a dwelling, or the purchase or sale of such a promise; (2) renting a property, as soon as there are business operations undertaken by a person or company that acts as an intermediary in this area; (3) the exchange of a building or assets used exclusively as a dwelling; (4) a loan secured by immovable hypothec; (5) the purchase or sale of a business, the offer to purchase or sell a business and the purchase or sale of such promises, including any transaction of a company s share capital. A brokerage act constitutes the solicitation, negotiation or advisory services, directly or indirectly, in furtherance of the acts referred to in the preceding paragraphs. However, this Act does not apply to a transaction involving a derivative within the meaning of the Derivatives Act (Chapter ), or to a transaction involving a security within the meaning of the Securities Act (chapter V-1.1). The function of an adviser Page 13 of the Report on the Application of the Real Estate Brokerage Act asks the following questions: Should the activity consisting in providing real estate advice be exclusive to certain persons, such as real estate brokers? Should this activity be regulated by the Real Estate Brokerage Act or another statute, regardless of who carries out the activity?ˮ For professions in the finance sector that operate within a self-regulatory framework, or are governed by a professional order, the concept of advice is an integral part of the professional services offered. To allow individuals or the aforementioned FSBO companies to provide real estate advice would send the message to professional brokers to give up their permit to practice real estate brokering, and join a new deregulated profession that would be that of real estate consulting. Is it really the intention of the Government of Quebec to open such a gap in professional development, and leave an organized profession to disperse into unregulated securities trading? Public protection would be reduced to zero in this scenario. The real estate adviser would have no code of conduct, would not offer any form of compensation, would not be required to hold any professional liability insurance and would not be professionally trained, including continued professional development. Real estate brokerage would become the first profession in Quebec to undergo such a breakdown in quality. Only a real estate brokering transaction performed by supervised professionals can wholly ensure the protection of the public.

15 15 Furthermore, the QFREB calls for a review of the list of people or companies that are not subject to sections 2 and 3 of the Real Estate Brokerage Act. For example, few lawyers or accountants, within the exercise of their professional functions, engage in brokerage transactions. Chartered administrators should likewise not be exempt in the context of their responsibilities as building managers. This is important because the Ministry of Justice may grant them exclusive rights as managers of a co-ownership properties as part of a review of sections of the Civil Code that affect this form of ownership. New construction and sales representatives associated with the property should be subject to the Real Estate Brokerage Act. Many builders and developers already use the services of a real estate broker, however with the protection of the public in mind, the sale of new properties should fall under the scope of the Act. In addition, the exemption that applies to concierges working in apartment buildings is inappropriate and should be removed from the Act. Ad hoc services On page 13 of the Report on the Application of the Real Estate Brokerage Act, the Ministry of Finance mentions that: there has been much discussion around the issue of whether real estate brokers should be allowed to offer ad hoc services. In other words, should brokers be allowed to offer advisory or assistance services for only part of the process of selling or buying an immovable property?ˮ Providing ad hoc services fragments the real estate brokering process. Professional services represent a series of actions that aim to finalize a real estate transaction. It is important to distinguish between ad hoc remuneration rates and ad hoc real estate services. Form Annex DR - disbursements and compensation allows brokers to apply other modes of remuneration than those stipulated in a brokerage contract. To allow the provision of ad hoc services in a real estate transaction would remove responsibilities from the broker, and harm the protection of the public. The latter expects to be accompanied by his or her real estate broker throughout the transaction process. The obligations to provide counsel and real estate services are cornerstones of the brokerage industry. The limitation of professional liability via the provision of ad hoc services goes contrary to that foundational aspect. Would we permit doctors, engineers or architects to offer ad hoc services without worrying that our entire patient/client dossier was studied, thus limiting their professional responsibility? At the end of the section on ad hoc services in the Report on the Application of the Real Estate Brokerage Act, the Ministry of Finance asks should brokers be prohibited from offering their services otherwise than under a brokerage contract?ˮ There is a contradiction here with a prior finding in the Report on the Application of the Real Estate Brokerage Act that stated that the scope of the Act cannot easily be established by listing the services provided by real estate brokers, while this section of the report proposes to outline targeted ad hoc services that would fall outside the scope of brokerage contracts. Logically, real estate transactions should be precisely defined and made up of delineated acts if, as is suggested in the report, a professional had the intention of dividing up certain acts as part of an offer of ad hoc services.

16 16 How can ad hoc services be provided if the same services are not pre-defined within the notion of brokerage? What professional services, as part of a real estate brokerage transaction, could be considered ad hoc? The dividing up of certain acts falling within the realm of professional services is not desirable at this stage. A brokerage contract with limited scope is not in the interests of public protection. The brokerage process should not be dismantled, fragmented or offered as part of ad hoc services. The definition that applies to the industry must, once and for all, establish clearly what is and what is not real estate brokerage. Seller assistance companies The Ministry of Finance uses a new name in the field of reselling of real estate: Seller assistance companies. The QFREB does not support this name as it will add to the existing confusion present in both the media and general public s perceptions about these companies and real estate agencies. The Report on the Application of the Real Estate Brokerage Act fails to detail the evolution of services offered by these companies. The web boom in the late 1990s opened the online advertising field to the profession of real estate brokerage and advertising. Large sites displaying properties for sale have appeared in Quebec and elsewhere. Properties for sale by brokers are displayed on the banners of sites and real estate boards, including Centris. Advertising companies have built and offered other sites displaying properties for sale. This is the environment in which the aforementioned assistance companies, as referred to by the Ministry of Finance, were born. By offering a service that combined taking photographs, registering for a website dedicated to the sale without intermediaries and by providing standardized for sale signs, these companies have found a niche in the field of real estate advertising. It should be noted that at this stage of these companies evolution, the real estate brokerage profession has cohabited well with them. It is for this reason that between 2003 and 2008, the work on the current version of the Real Estate Brokerage Act has not addressed this issue. At one point, in order to justify quickly-rising costs and the costs of their web infrastructure, these companies started to offer real estate broker services, often calling them real estate coaching. These companies now offer a broader range of services, including coaching, market valuation, management of visits, accompaniment in the drafting of documents, offering standardized contract templates, and professional reference services. A distinction must therefore be made in the activities of these companies. Some of them focus only on offering advertising services and displaying for the owner wishing to sell their property. These entities are essentially advertising companies. Once a company or individual provides services other than advertising, in order to assist an owner in the sale of their property, he or she is acting as a real estate broker. As it stands, in terms of services offered, consumers and even the media can no longer differentiate the aforementioned FSBO companies from real estate agents and brokers. It is in this regard that the OACIQ sued DuProprio in 2009 and filed a motion for declaratory judgment in It should be noted that DuProprio holds licenses for its real estate agency activities in Ontario, Manitoba and Alberta. Strangely, it refuses to comply with the provisions of the Real Estate Brokerage Act in the province it which it is headquartered.

17 17 Moreover, nothing is said about buyers throughout this description of the aforementioned FSBO companies. How are buyers protected when they acquire a property sold by the owner using these companies services? The Report on the Application of the Real Estate Brokerage Act is clear: these companies are assisting the sellers. These sellers are their customers that pay the companies for support services rendered. So who ensures the accuracy of the information presented on the property, which is displayed by the aforementioned FSBO companies? How can the buyer have full confidence in this broken transactional process? In case of problems, how will the buyer be compensated? The services of real estate brokers offer guarantees and protections that are in complete contrast to what is offered by FSBO companies. This safety net is underpinned by an ethical approach, compensation or professional liability, and must be prioritized by the Ministry of Finance in its current thinking. Unlike the aforementioned FSBO companies, real estate brokers have professional obligations to buyers. Although buyers often like to have a first look at available properties, and particularly on agency websites, the services of a real estate broker remain highly prized in the context of property acquisitions. The services made available by real estate brokers, either in the presence or absence of a brokerage contract, are important. One need only look at the living environment, the analysis of past and comparable transactions, negotiations, the drafting of purchase agreements and professional services. The confidence of buyers in their real estate brokers is high, and this confidence is necessary during an acquisition that affects the financial future of an individual or household. For example, a transaction involving a condominium purchase requires detailed knowledge of the types of documents necessary to analyze and inspect. In this regard, FSBO companies are unable to ensure a secure transaction process for buyers. The objective of these companies is to maximize the number of listings on their platforms. They cater exclusively to sellers. One can read the following statement on the websites of companies that offer assistance to sellers: "Although the company is working to deploy its best efforts to ensure the security and integrity of the website, the aforementioned FSBO company offers no guarantee and makes no representation whatsoever as to the properties, as to the validity or accuracy of their descriptions." This complete lack of responsibility towards buyers goes against any notion of public protection. On page 14 of the Report on the Application of the Real Estate Brokerage Act, the Ministry of Finance asked the following questions: Should the scope of the Act be broadened to include for-sale by-owner (FSBO) companies? If yes, which services, in particular, offered by such companies should be regulated in order to protect the public? A company that provides services with the goal of selling properties engages in real estate brokerage and must be subject to the provisions of the Real Estate Brokerage Act, while a company specializing solely in providing advertising services should be subject specifically to the provisions of the Consumer Protection Act. Coaches/real estate advisors, whether they work for certain FSBO companies, or that evolve independently, must honour the same obligations and duties as real estate brokers.

18 18 The regulatory body and governance On page 15 of the Report on the Application of the Real Estate Brokerage Act, Quebec s Ministry of Finance states that: Despite its mission, which is restricted to protecting the public, the OACIQ is perceived, especially by brokers themselves, as a body mandated to defend the business interests of brokers and agencies, with the result that its role in this respect melds with that of the real estate boards and their federation. It is true that under the current Real Estate Brokerage Act, the OACIQ s mission is exclusively to protect the public. The QFREB believes, however, that the activities of the OACIQ must be focused on the functions of regulation and monitoring real estate brokerage. The OACIQ must be perceived by the public as the authority on the supervision of real estate brokerage. The role of advocacy belongs to Real Estate Boards and the QFREB, which offers a range of services to their voluntary members. Duplication of regulatory functions, and advocacy of the real estate practice by the OACIQ, could be explained through its past evolutions where it was previously known as the Association des courtiers et agents immobiliers du Québec (ACAIQ), and prior to that the Association immobilière du Québec (AIQ). The QFREB notes that Canadian real estate commissions, including those in Ontario (RECO), Alberta (RECA) and British Columbia (RCBC) have been assigned increasing responsibility for self-regulation. Although they have different mandates and geographical areas, each is solely dedicated to its mission of protecting the public, leaving the provincial real estate associations to defend the interests of the profession. The advertisements for real estate commissions that are made focus on the informative and educational aspects of real estate transactions. In the same section of the Report on the Application of the Real Estate Brokerage Act, the Ministry of Finance proposes three options to reform the OACIQ s governance model: Substantially reduce or terminate industry professionals control over the regulatory body; The OACIQ could henceforward be run solely by a president and chief executive officer appointed by the government, according to the model of the Autorité des marchés financiers; Limit, in the Act, the OACIQ s activities strictly to the functions involved in regulating brokers and agencies. On page 16 of the Report on the Application of the Real Estate Brokerage Act, Quebec s Ministry of Finance asks the following questions: Which regulation model should be chosen? Should other models be studied? The QFREB supports the third option proposed by the Report on the Application of the Real Estate Brokerage Act; the fight against illegal brokering should remain a core function of the regulator. It should be noted that the current Act states that the exclusive mandate of the OACIQ is one of public protection. That said, it is the Ministry of Finance s role, as an inspector, to ensure compliance with this mission. This governance model is prevalent in most Canadian provinces and several US states. This change in the OACIQ s functions should be made while informing affected professionals. Adjacent issues, such as public protection and membership services will continue to exist, and notably in regards to professional training. It therefore remains relevant for the OACIQ to continue providing training.

19 19 Self-regulation remains a proven governance model in finance, insurance and in other professions. The current dispute between the real estate brokerage sector and the aforementioned FSBO companies is a backdrop to the Report on the Application of the Real Estate Brokerage Act; it must not overshadow the benefits of self-regulation. Professional orders have reacted strongly to seeing their practitioner foundations taken over by a non-controlled and non-regulated model.

20 20 CONCLUSION The central issue in the potential legislative revision of the Real Estate Brokerage Act is undoubtedly the lack of guidance for what the Ministry of Finance calls seller assistance companies and coaches/real estate advisors. The companies that offer these services have evolved over the past years. From the exclusive offer of advertising services to sellers, into companies that now offer several services that are part of a real estate brokerage transaction. This new service offer is confused with that offered by real estate agents and real estate brokers. The confusion is so prevalent that the media refers to FSBO companies regulatory as real estate agencies. It is key to note that in Alberta, Manitoba and Ontario, the various laws on real estate brokerage apply to these type of businesses. Coaches/real estate advisors that work for the aforementioned assistance companies, or that evolve independently, must honour the same obligations and duties as real estate brokers. The public expects to be protected when making use of professional services. Compensation and protection when it comes to errors or omissions are essential to maintaining full public confidence in the market for real estate sales. The QFREB believes that a more precise definition of real estate brokerage would clarify the structure the property resale sector. The main objective of the Ministry of Finance s consultations in this regard should be to determine what exactly constitutes real estate brokerage, and what does not. Thus, the QFREB proposes that the aforementioned assistance companies and coaches/real estate advisors be regulated as such: Within the framework of provisions of the Consumer Protection Act for said assistance companies offering only advertising services to client-sellers. An application of the Real Estate Brokerage Act to include any of the said assistance companies that offer any real estate brokerage transaction services, as well as applying to the evolving concept of coaches/real estate advisors. This clarification of the Real Estate Brokerage Act could be inspired by the model used in the Securities Act regarding the definition of brokerage activities. The QFREB proposes to add the following to Article 1 of the Real Estate Brokerage Act: a brokerage activity constitutes the negotiation or advisory services provided in furtherance of the acts referred to in its preceding paragraphs. On the contrary, if we include the services offered by the aforementioned assistance companies in the concept of real estate consulting, we would create a breach in the real estate broker profession and likely push such practitioners to become unregulated coaches/real estate advisers, thus avoiding any professional supervision. Public protection would thus be significantly compromised. Finally, the OACIQ s primary mission of public protection could better reflect the governance models of real estate commissions from other Canadian provinces (Ontario, Alberta and British Columbia). Self-regulation would be preserved, but in a stricter model based on the offering of real estate services. Real estate boards and the Quebec Federation of Real Estate Boards are best placed to manage this responsibility.