Regulating false real estate agencies and expanding the application of the Real Estate Brokerage Act to better protect the public: the State s duty

Transcription

1 Regulating false real estate agencies and expanding the application of the Real Estate Brokerage Act to better protect the public: the State s duty 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 July 2015

2 Regulating false real estate agencies and expanding the application of the Real Estate Brokerage Act to better protect the public: the State s duty Contents EXECUTIVE SUMMARY... 3 INTRODUCTION... 4 CHAPTER 1 - THE REAL ESTATE MARKET... 6 CHAPTER 2 - THE 2008 REFORM AND SUBSEQUENT CHANGES IN THE BROKERAGE INDUSTRY... 8 CHAPTER 3 - THE FUTURE OF REGULATION The notion of brokerage The function of an adviser Ad hoc services For-sale-by-owner (FSBO) companies The regulatory body and governance Remuneration ownership CONCLUSION... 20

3 better protect the public: the State s duty 3 EXECUTIVE 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, Quebec is one of the only jurisdictions in North America that provides three distinct options for the sale of real estate. These include: direct sales by property owners without the use of an intermediary; companies that help owners sell their properties, known as for-sale-by-owner (FSBO) companies, and; the professional services of real estate brokers. 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 an intermediary. 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. FSBO companies have greatly changed their business model in recent years. When they emerged, these companies offered advertising services such as the development of posters, 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. Although FSBO companies deny that they offer the same services as real estate agencies, the facts are indisputable. 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. The risks associated with companies that help owners sell their properties have been documented in the context of several court cases. As a result, companies that help owners sell their properties by providing advertising services should be referred as such; a company that provides advertising, should thus be subject to specific provisions under the Consumer Protection Act. As soon as actions are undertaken with the objective of offering support services or counseling on real estate sales, these companies should be subject to the Real Estate Brokerage Act. To clarify what constitutes a real estate brokerage transaction, and distinguish this from what it is not, the QFREB proposes the following clarification: solicitation, conduct or negotiations directly or indirectly in furtherance of the actions referred to in the scope of application of the Real Estate Brokerage Act. This concept must be added to section 1 of the Act. This is in the interest of the public, and their protection.

4 better protect the public: the State s duty 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, including 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 2010 also introduced changes to the practice of securities, and imposed tighter supervision on advertising practices. These changes improved professionalism across the industry. 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. 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 45 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. It would be appropriate to provide a more accurate label to companies that the Ministry of Finance calls companies that help owners sell their properties. Companies that offer advertising services as part of a real estate transaction should be called companies that provide advertising. If real estate brokerage services are provided by these companies, they must obtain the necessary permits in order to become a real estate agency. The services in question range from providing estimated market valuation, assistance in drafting contracts and forms, negotiations support and professional reference services. FSBO companies 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.

5 better protect the public: the State s duty 5 In fact, 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 framework for these companies through the work resulting from the Report on the Application of the Real Estate Brokerage Act. 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 the phenomenon currently facing the real estate brokerage industry.

6 better protect the public: the State s duty 6 CHAPTER 1 - THE REAL ESTATE MARKET The number of transactions in the Quebec real estate market declined slightly in 2014, following a decline of 8% in The 70,686 residential sales that were processed through the Centris system in 2014 represented a 1% decrease on the year prior. However, the figures for 2014 should be examined in two stages; sales declined in the first two quarters of the year, however increases were recorded in the third and fourth quarters. In 2014, 49,857 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 6,032 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 14,423 transactions. The employment market in Quebec experienced a significant slowdown in This was mainly in terms of full-time jobs. This has a direct impact on the housing market. The number of full-time jobs decreased by 33,400 as compared to 2013, which more than offsets the gains of 31,100 part-time jobs created during this period. With these results, it is not surprising that consumer confidence has declined. The consumer confidence index in Quebec, which finished at 75 points in 2013, was reduced to 63 points in the fourth quarter of In addition, the proportion of households that felt that the time was right for a major purchase, such as property, fell from 43% to 38% between the last quarters of 2013 and Thus, historically low interest rates were not enough to bring the Quebec real estate market back to a growth path in The majority of Quebec's cities saw an increase in residential transactions higher than the provincial average in The towns of Val d'or, Montmagny, Thetford Mines and Rouyn-Noranda stood out with increases of 42%, 25%, 21% and 19%, respectively. As for census metropolitan areas (CMAs), only those of Trois-Rivières and Quebec City managed increases of 21% and 3%, respectively. Other CMAs posted decreases in 2014 on their residential sales between 1% and 6%. The largest declines were recorded in Baie-Comeau, Alma, Mont-Laurier and Rawdon with decreases of 22%, 14%, 11% and 10%, respectively. Note, however, that sales in Rawdon and Baie-Comeau peaked in In addition, 2013 was the second best annual performance year in terms of residential sales for Mont- Laurier, and the third best performance year for Alma. For the fourth consecutive year running, the number of active listings increased sharply in Quebec in An average of 77,938 residential properties were for sale via a real estate broker that year, an increase of 10% as compared to When broken down by category, it is the plex listings that, this time, represented the largest increase of 13%, while the number of single-family and condominium sales rose 11% and 8 %, respectively. Each category has posted a record number of homes for sale, with single-family units having surpassed 50,000 registrations.

7 better protect the public: the State s duty 7 The vast majority of urban centers in the province recorded increases in the number of residential properties for sale, including Amos (+50%), Val-d'Or (+42%), Sept-Îles (+26%) and Lachute (+25%). Among the CMAs, those of Saguenay (+19%) and Gatineau (+16%) posted the largest increases amongst active listings in Only five cities belied the upward trend including La Tuque (- 9%), Rimouski (-8%), Montmagny (-4%), Sainte-Marie (-1%) and Charlevoix (-1%). The level of supply remained stable in the region of Mont-Tremblant. 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. Only three of the six CMAs posted increases in the median price of single-family homes in 2014: Sherbrooke and Trois-Rivières with an increase of 2% each, and Montreal with an increase of 1%. For the entire province, the increase in the median price was up 1% to $227,000.

8 better protect the public: the State s duty 8 CHAPTER 2 - THE 2008 REFORM AND SUBSEQUENT CHANGES IN THE BROKERAGE INDUSTRY 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 listing 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 various registers that make up 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. Thus, 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. Besides, real estate sales conducted directly by the owner or without the use of an intermediary are a more frequent phenomenon in Quebec than elsewhere in North America, and this notwithstanding the presence of FSBO companies. The QFREB therefore wishes to correct the 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. The higher share of property sales that take place without the use of an intermediary in Quebec, as compared to elsewhere in North America, illustrates the incorrect basis of this premise. 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 them. 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.

9 better protect the public: the State s duty 9 Unlike FSBO companies, real estate brokers have professional obligations towards buyers. The exclusive brokerage buyer contract is increasingly used, and though buyers often like to view and reference available properties first via the internet, the demand for real estate brokers remains high. The services offered by real estate brokers to buyers, either through an exclusive brokerage buyer contract or not, are central. One need only consider the advice given to buyers on a property s surrounding environment, the analysis of past and comparable transactions in the region, negotiations with the owner, the drafting of an offer and professional reference services. The confidence of buyers in real estate brokers who work for them is high, and most of all it is necessary as part of an acquisition that affects the financial future of an individual and/or household. In this regard, companies that help owners sell their properties cannot guarantee buyers of a secure transaction process. The objective of these companies is to maximize the number of entries on their listing platforms. FSBO companies are mainly focused on sellers. The following statement often appears on FSBO companies websites and contracts: Although the company is committed to use its best efforts to ensure security on its website and maintain integrity, the company offers no guarantees and makes no representation whatsoever regarding the properties, including the validity or accuracy of their descriptions.ˮ The QFREB would have liked the Report on the Application of the Real Estate Brokerage Act to focus more on the lack of support for buyers who use the advertising services of FSBO companies. Another false premise is made on page 8 in the second chapter of the Report on the Application of the Real Estate Brokerage Act. 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 In terms of remuneration (i.e. sales commissions), 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. During down times in the real estate market, including the early 1980s or early 1990s, the number of brokers decreased significantly. The report omits the impact of tighter mortgage rules instituted by the Canadian federal government since 2008, and the turmoil of the financial crisis. It is clear that these elements have helped to reduce the number of real estate transactions, especially with regards to first-time buyers.

10 better protect the public: the State s duty 10 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. This also means that there are less brokers subject to OACIQ rules. During the development phase of the 2010 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 remuneration. The rate of compensation varies in the profession, and depends on applicable business models. One can simply look over the offers of brokers, real estate agencies and franchised agencies to see the great variability in pricing for services. 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 FSBO 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 the marketing services offered by FSBOs. 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 not in response to requirements for real estate services that FSBO companies have established themselves in Quebec, but rather due to aggressive advertising and a business model that is unregulated. 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

11 better protect the public: the State s duty 11 The market analysis service of the QFREB has documented for several years the proportion of real estate sales carried out without an intermediary. This rate has remained stable at 30% since Sales listed through FSBO companies are not completely verifiable, while several sales listed by these companies are eventually carried out by real estate brokers. Clients of FSBO companies are 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 the transaction process. FSBO companies, however, often identify these sales in their own balance sheets. It is important to understand the specific context in which the media battle that the report refers to took root. 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 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 FSBO companies.

12 better protect the public: the State s duty 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 mandate 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 nature of the service provided by the broker to their client is different than in the case of a property sale without the use of an intermediary. 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 FSBO companies, represent the same services provided. 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 defined as a series of professional acts with the goal of finalising a property transaction. FSBO companies that move beyond advertising services to those services normally reserved for real estate brokers become, in effect, a real estate brokerage company. The only difference between an 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 on the Application of the Real Estate Brokerage Act. 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 remuneration 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. As a result, we see the incongruity of attributing the concept of real estate brokerage solely to the relationship between a broker and his client. With the influx of FSBOs on the market, real estate brokerage becomes a dual-track concept in Quebec, with relationships between clients and professionals governed by a brokerage contract, whilst other relationships between clients and service providers lack such a thing. 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)

13 better protect the public: the State s duty 13 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 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 professional fields in order to analyze the scope of the practice areas governed by each professional body. The results show that in all cases, practice areas are better defined and include the concept of providing advice. 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 the 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

14 better protect the public: the State s duty 14 the different professional actions identified therein, however the same ministry would legislate against this in a revision of the Real Estate Brokerage Act. 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, 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; (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, via contract, if the company's assets, as judged by their market value, are mainly real estate property; (6) solicitation, conduct or negotiations 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 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.

15 better protect the public: the State s duty 15 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, and would not be required to hold any professional liability insurance. 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 ensure the protection of the public. 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. Authorized 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 legislation affecting this form of ownership. The exemption affecting building managers is inappropriate and should be withdrawn. 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. The provision of ad hoc services opens the door for FSBO companies to become subject to the Real Estate Brokerage Act. The QFREB stresses that part-real estate agencies or part-real estate brokers should not exist, but rather only fully trained and responsible professionals. The inclusion of FSBO companies under the scope of the Real Estate Brokerage Act must be done on the same terms, and with the same regulatory framework, that are applied to other licensees who practice as real estate brokers. 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?

16 better protect the public: the State s duty 16 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. 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. It was mentioned as an idea by certain actors of the brokerage profession in response to the search for a regulatory framework that would apply to FSBO companies. 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. For-sale-by-owner (FSBO) companies The Ministry of Finance uses a new name in the field of selling real estate: For-sale-by-owner (FSBO) companies. The QFREB is not comfortable with this name, since 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 FSBO 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 the legislative work on the current version of the Real Estate Brokerage Act has not addressed this issue.

17 better protect the public: the State s duty 17 At one point, in order to justify quickly-rising costs and the costs of their web infrastructure, these companies started to offer services related to real estate sales. 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 companies should be referred as 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 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. Moreover, nothing is said about buyers throughout this description of 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 FSBO companies? How can the buyer have full confidence in this broken transaction process? In case of problems, how will the buyer be compensated? The services offered by brokers come with a guarantee and protection; this is in complete contrast to what is offered by FSBO companies. This safety net, whether in leadership, ethics, compensation or professional liability, must be prioritized by the Ministry of Finance in the ongoing debate. 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? The answer depends largely on the operations carried out by the company involved, and must reflect the facts. If a company focuses on advertising operations, it is not carrying out any brokerage activities. This is the foundation of such companies.

18 better protect the public: the State s duty 18 If, however the company offers advertising to support a broader range of services for the specific purpose of selling a property, it is helping to carry out a brokerage transaction. Although the Ministry of Finance commented on the relationship between the seller and the buyer to differentiate real estate brokerage transactions from FSBO companies, the customer pays for services from these companies with the goal of selling a property. This element of differentiation thus becomes too weak to distinguish real estate agencies from FSBO companies. 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 new provisions of the Consumer Protection Act. 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. Like other professional orders in Quebec, this mission can be accomplished while further developing the profession. 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 that offer 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: 1. Substantially reduce, or even terminate, industry professionals control over the regulatory body. 2. 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.

19 better protect the public: the State s duty 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 of the OACIQ, 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 of the amendment. Gray areas regarding the public protection role and membership services exist, and will continue to exist despite changes in the OACIQ s governance, including training. The regulator should set training requirements, but should not participate in the provision of training services. Self-regulation remains a proven governance model in finance, insurance and in other professions. The current dispute between the real estate brokerage sector and FSBOs 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. Remuneration ownership The QFREB invites the Ministry of Finance to consider the question of the ownership of remuneration in brokerage contracts. It is established that the latter belongs to the broker, who may, in the context of a change of estate agency, with the authorization of his or her client, migrate remuneration to a new agency or cancel it. The current Real Estate Brokerage Act stipulates in Article 13 that anyone who, without holding an agency licence, engages in a brokerage transaction through the intermediary of a natural person is not entitled to claim or receive remuneration for that transaction. This article contradicts the link between the broker and client. The professional role of an agency should therefore be revised. Are agents dedicated to brokerage transactions, or is it the agency s role to monitor and offer services to its brokers? The QFREB believes that remuneration must belong to the real estate broker and not to the agency. The broker could, however, contract his or her services to an agency.

20 better protect the public: the State s duty 20 CONCLUSION The central issue in the potential legislative revision of the current Real Estate Brokerage Act is undoubtedly the lack of guidance for what the Ministry of Finance calls For-sale-by-owner companies, which have evolved from companies offering advertising services to sellers that had chosen to pursue a real estate transaction without an intermediary, into companies that now offer several services that are part of a real estate brokerage transaction. Today, the largest of these FSBO companies offers a range of services, thus allowing it to be, erroneously, confused with real estate agents and real estate brokers. The media refer to it on a regular basis as a real estate agency. In Alberta, Manitoba and Ontario, the various laws on real estate brokerage apply to this type of business. Founded as an electronic advertising platform for owners who have chosen a sale without an intermediary, in recent years it has evolved to include several services that are part of a brokerage transaction. The QFREB believes that a more precise definition of real estate brokerage would clarify the composition of 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 FSBO companies be regulated as such: 1. Within a framework via new provisions to the Consumer Protection Act for FSBO companies offering only advertising services to client-sellers. 2. An application of the Real Estate Brokerage Act to include any FSBO companies that offer any real estate brokerage transaction services. In order to ensure that FSBO companies are regulated by the Real Estate Brokerage Act, a more accurate definition of the brokerage operation must be detailed in the Act. The model of the Securities Act regarding the definition of a professional act would be, for the QFREB, an interesting description for drawing a parallel to the Act associated with professional real estate brokerage. Thus, Article 1 of the Real Estate Brokerage Act should be amended to include within its scope the solicitation, conduct, or negotiation directly or indirectly in furtherance of the acts referred to in its preceding paragraphs. By including the services offered by FSBO companies in a concept of real estate consulting, and allowing such services to compete with certified and regulated real estate brokers, would create a breach in the real estate broker profession and likely push such practitioners to become unregulated advisers or consultants, thus avoiding any professional supervision. Public protection would thus be significantly compromised. Finally, the OACIQ s primary mission of public protection must be to better reflect the models of real estate commissions from other Canadian provinces, including Ontario, Alberta and British Columbia. Selfregulation would be preserved, but in a stricter model based on the offering of member services and the advocacy of the real estate brokerage profession. These roles can be occupied exclusively by real estate boards and the Quebec Federation of Real Estate Boards.