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Wednesday, 22 January 2020
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Regulating Canada’s Real Estate Regulators

Written by Posted On Monday, 25 November 2019 05:30

Ontario and British Columbia just announced changes to the way real estate will be regulated in those provinces. In Alberta, the government took the unprecedented move of firing the entire regulatory council.

It happens in every industry. Sometimes people who offer services to the general public get a little greedy or try to take advantage of their clients and they need to be reined in. In the real estate industry, it’s the job of the real estate regulator, appointed by the province, to set and enforce the rules of the industry.

But what happens when the regulator needs regulating?

As we’ve seen recently in Canada, rules that govern real estate can get outdated quickly. Or, the booming real estate market can overwhelm regulators. Or, the regulators themselves can get so bogged down in internal squabbles that very little work gets accomplished.

Ontario and British Columbia just announced changes to the way real estate will be regulated in those provinces. In Alberta, the government recently took the unprecedented move of firing the entire regulatory council.

In British Columbia, rapidly rising house prices lead to an affordability crisis in 2016 and there was a lot of media attention about “shadow flipping” – assigning sales contracts to condominiums that were still in the planning stages or under construction. There was concern that real estate agents were fueling the sales frenzy, although the practice was legal, and that real estate licensees needed more regulation. 

The provincial government changed the self-regulated Real Estate Council of B.C. (RECBC) to a government body. At the same time, the Office of the Superintendent of Real Estate was made as a stand-alone body responsible for rule-making and oversight of the RECBC.

But in April 2018, Finance Minister Carole James announced, “Our duty as a government is to make sure the regulatory system is protecting people and functioning effectively. We’re launching a review of the province’s real estate regulators, to make sure they’re acting in the best interest of British Columbians.”

Dan Perrin, a former public servant, was asked to conduct the review. In his report, he said the changes to real estate regulation that were enacted in 2016 didn’t work.

“The objectives of the changes were to improve the effectiveness of the regulatory structure, to improve conduct and practices in the real estate industry, and implicitly, to improve housing affordability,” Perrin wrote in his review. “Instead, the two regulators have disagreed about many things and often worked at cross purposes, reducing both the efficiency and effectiveness of the development of rules and the efficiency of real estate regulation enforcement.”

His recommendation, that the province create a single regulator for the industry, was recently accepted by the government. The B.C. Financial Services Authority, which became a new Crown agency on Nov. 1, 2019, regulates mortgage brokers, private pension plans and financial institutions. Now real estate regulation will be added to the agency’s duties, which the government says will result in “increased consumer confidence and opportunities to streamline investigations and enforcement.” The legislation is expected to be introduced in fall 2020, with a projected start date for the new regulator set for spring 2021.

In Alberta, a scathing governance review of the Real Estate Council of Alberta (RECA) resulted in the dismissal of the entire council. An administrator has been named to oversee RECA while a new governance model is established – expected in spring 2020.

The third-party review by KPMG, found that during the last three years, about 80 per cent of motions brought to the council were about governance or administrative issues, while only 20 per cent related to strategic or regulatory matters. The council went to court to remove one of its own members over conflict of interest concerns.

The report found the council did not have constructive relationships with industry associations, including the Alberta Real Estate Association and the Alberta Mortgage Brokers Association, and that it was not exercising adequate oversight of RECA. It also found that the council and RECA staff were having conflicts. The first and only executive director of RECA resigned after serving for 23 years.

In announcing the dismissal of the council, Minister of Service Alberta Nate Glubish said, “For too long, serious concerns and complaints from industry and from council officials themselves have been ignored. That stops now. The council needs to stop focusing on trivial things like advertising guidelines and start focusing on protecting Albertans and address the actual issues facing the industry.”

Ontario’s government recently introduced a bill that would update the province’s real estate act for the first time in almost 20 years, working in consultation with the regulator, the Real Estate Council of Ontario (RECO), and the Ontario Real Estate Association.

The proposed bill gives more power to the regulator to deal with bad actors in the industry. Fines for rule breakers would increase, to a maximum penalty of $50,000 for salespeople and up to $100,000 for brokerages. The bill would allow the regulator to “consider a broader range of issues and provide it with the authority to revoke or suspend a real estate professional’s or brokerage’s registration or impose conditions on a registration,” the government says.

RECO will also be given authority to levy financial penalties (known as administrative penalties) for failure to comply with a legal requirement (such as filing a document late) specified in regulations. 

All of the changes across the country are expected to be in place within the next two years.

One question that hasn’t been addressed, however, is another recommendation from Dan Perrin’s report. He says the topic “begs the question of whether there should be some oversight generally for regulators to hold them accountable and to prevent complacency from making regulators vulnerable to changes in circumstances that require a different regulatory focus.”

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Jim Adair

Jim Adair is editor of REM: Canada's Real Estate Magazine, a business publication for real estate agents and brokers. He has been writing about Canadian real estate, home building and renovation issues for more than 30 years. You can contact Jim at jim@remonline.com.

www.remonline.com/
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