A four-month probe of alleged wrongdoing in the real estate industry has recommended wide-ranging reforms, including higher disciplinary penalties of up to $250,000 for realtor misconduct, and up to $500,000 for agencies.
The Independent Advisory Group chaired by B.C. Superintendent of Real Estate Carolyn Rogers has issued 28 recommendations, many of which are designed to better protect the public from unscrupulous agents.
They call on the Real Estate Council of B.C. to undertake a major overhaul of its practices, implement a new ethics code, add disclosure rules and block licensees from engaging in certain practices.
The investigation came in the wake of revelations of misconduct by realtors in Vancouver’s overheated property market.
Several academics have cited an influx of foreign investment money, mainly from China, as a significant factor driving property prices up beyond the reach of many working people.
“I think what’s going on in British Columbia is that houses are no longer just homes, they are trading as investments, and that puts pressure on a regime that was never designed for that,” Rogers told reporters.
The IAG report lists several reasons for rising prices: a strong economy, people moving to the Lower Mainland from elsewhere in Canada and abroad, buyers “motivated more by investment considerations” than a need for housing, the “self-reinforcing market psychology that takes over in a period of rapidly rising housing prices” and the region’s geographic constraints – water, mountains, the U.S. border and the Agricultural Land Reserve.
The provincial government has already moved to block undisclosed shadow-flipping of contract assignments, where a home is resold at a higher price without the knowledge of the original seller to other buyers, allowing realtors to collect more commissions.
The report recommends those new rules – which requires the return to the original seller of any additional profit from contract assignment – also extend to sale-by-owner property deals done without realtors to keep shadow flipping from merely retreating to an unregulated part of the market.
Another recommendation would ban realtors from buying or acquiring an interest in a listed property for which they are acting as agent.
It also would compel high-volume “opportunistic” buying of property directly from owners – sometimes known as wholesaling – to be subject to licensing standards.
A confidential complaints reporting system should be set up, it said, to encourage those in the industry or the public to raise concerns without fear of retaliation.
One of the recommendations would end dual agency, where a realtor can act for both the buyer and seller in a transaction.
The IAG report criticizes the Real Estate Council for failing to adequately enforce the rules it already has against unethical behaviour, noting it took little action against agents who were found not to be complying with other regulations, such as reporting requirements to counter money laundering.
The penalties go up from a current maximum of $10,000 for realtor misconduct and $20,000 for brokerages. Those have been denounced as rarely enforced, and merely a cost of doing business when they are.
The advisory group did not contemplate ending self-regulation of the real estate industry entirely.
“Ultimately that is a decision that only government can make,” the report says.
But it calls for at least half of the council’s 17 members to be appointed from outside the industry.
The province is expected to announce more measures tomorrow.
Finance Minister Mike de Jong has previously signalled he intends to keep the industry on a short leash.
“The report is a comprehensive examination of the practices and challenges plaguing the real estate industry right now, and paints a troubling picture,” de Jong said in an emailed statement Tuesday.
The benchmark price of detached houses in the Greater Vancouver area topped $1.5 million in May, up 37 per cent from a year ago.
The report cautions its recommendations are to ensure buyers and sellers are treated fairly but they are unlikely to stem Metro Vancouver’s soaring home prices,
Real Estate Board of Greater Vancouver president Dan Morrison said “stress cracks” in the system have opened from the rapid rise in prices, shining a spotlight on a few bad apples.
“The volume and what’s been happening in the market has created a situation that nobody anticipated,” Morrison said. “We’re happy to fix those problems to restore the public’s faith in our profession.”