Lawyers jump into listing battle
Lawyers are the latest group trying to grab a piece of the $8-billion in annual residential property commissions, as the real estate industry deals with the impact of changing regulations. A group of seven Ontario lawyers behind propertyshop.ca,which allows consumers to list their property on the site for a fee ranging from 1% to 1.5%, believe the landscape has changed dramatically because consumers listing with them can now also gain access to the Multiple Listing Service (MLS) for a nominal fee. Those fees contrast with an average 5% that consumers pay to real estate agents to handle a listing from beginning to end.
"There's been a lot of chatter among lawyers [about competing]," says Michael Forcier, one of the lawyers behind the site owned by Lawyers Web Property Shop Ltd. "It has been talked about for years, but the problem has been the MLS."
Changes now occurring in the industry are opening up access to the MLS rapidly. In February, the Commissioner of Competition filed an application with the Competition Tribunal saying the Canadian Real Estate Association's restrictions on the MLS -- responsible for about 90% of sales nationwide--were anti-competitive. CREA responded by making changes to its bylaws to allow more a la carte services, including letting consumers conduct a transaction with the agent providing only the listing.
Mr. Forcier's group is now working with an agent with the Ottawa Real Estate Board who, for $109, will take the listings his group gets and upload them to the national site mls.ca or realtor.ca."You don't want to talk to a realtor who will charge you 5%, you don't want to deal with the FSBOs [for-sale-by-owner sites] who are not licensed, so you deal with a lawyer. We've been involved with deals since Confederation. We understand deals and we know how to negotiate deals," Mr. Forcier said.
Consumers using his site would get access to a lawyer from the beginning to the end of a transaction and would get legal advice on areas such as disclosure rules and zoning bylaws.
Ontario lawyers are allowed to trade real estate under the Real Estate and Business Brokers Act.
"We do private deals all the time. This just means we have to organize it a bit," said Mr. Forcier, who has managed only about 20 to 25 listings on his site, which is linked to 61 lawyers operating in Ontario. British Columbia lawyers are organizing a similar system in their province.
Lawrence Dale, the lawyer who at one point operated the discount broker Realtysellers Ltd., said legal fees have been dropping for years. "The legal profession has been hammered," he said. "Twenty years ago they used to get a 1% tariff, so on a $500,000 deal they'd get $5,000. Today they'd be lucky to get $500."
Mr. Dale said the legal fees on a property deal became a commoditized service much like what he says is happening to real estate. "No matter [what lawyer] you used, you knew you would get in and out of the market, so you said, 'Give me the cheap one.' Lawyers are looking for other opportunities," he said.
John Andrew, director of the executive seminars on corporate and investment real estate at Queen's University, said increased competition was to be expected in the wake of the competition commissioner's application and the changes by CREA itself.
"We are in an environment of tremendous uncertainty, but it's clear to all of the players that CREA is in the phase of relaxing its rules," Mr. Andrew said. "We are going to see even more of these websites springing up, all kinds of alternatives models.
"A lot of them will fall by the wayside. It almost doesn't matter what happens at the [tribunal] hearing. I think the writing is on the wall."
Rogers cited for 'scraping' listings
Century 21 sues over links to brokers sites.
A legal battle is brewing between one of the country's largest real estate companies and Rogers Communications Inc., the owner of a new web-site promoting property listings across Canada. The Financial Post has learned Century 21 Canada is suing Zoocasa Inc., which officially launched last month, for "scraping" information from sites provided by Century 21 brokers and representatives. Sources indicate privately controlled Zoocasa is nearly 100% owned by Rogers.
University of Ottawa law professor Michael Geist said while there may be debate about what information you can take from a competitor's real estate site and post on your own, he doubts any court will listen to an argument banning a hyperlink. "There have been any number of attempts to invoke requirements to obtain permission in order to link, but the courts have been reluctant to uphold that. The whole web is dependent on links," Mr. Geist said.
RECO Public Advisory
Re/Max Executive Realty Inc. (1996), with offices at: 1225 Kennedy Road in Toronto, Ontario; 8 Weldrick Road in Richmond Hill, Ontario; and 13321 Yonge Street in Richmond Hill, Ontario is registered under the Real Estate and Business Brokers Act, 2002 (REBBA 2002).
On February 2, 2009, the Director under REBBA 2002 issued a freeze order, freezing bank accounts of Re/Max Executive Realty Inc. (1996).
RECO is continuing its investigation and taking all appropriate action pursuant to REBBA 2002 with respect to Re/Max Executive Realty Inc. (1996) and its broker of record.
New kind of housing co-op
Co-ownership is one way for first-time buyers to get a foot in the door of the current housing market.
Many Canadians in their 20s and 30s who dream of owning a home face a significant financial hurdle, especially since house prices just seem to keep on rising, making affordability a burning issue. When entering the workforce, 20- and 30-somethings often must settle for part-time positions or self employment, meaning a frustratingly long period before building enough capital to buy a home.
"That’s the challenge people are looking at," said Murray Pituley, an Investors Group financial planning expert, who lives in Regina. "Higher prices and a longer period of time before they are able to afford a house."
Although many do eventually buy a home with a spouse or common-law partner, others must seek out innovative ways to get their foot in the door, including co-ownership partnerships with family members or friends.
"I’m seeing more and more of it (co-ownership) over the last few years," says Dianne Usher, vice-president and division manager of Royal LePage J&D Division in Toronto.
"Affordability is certainly a driver" for many, she said. For others, it is a way to invest instead of buying stocks and bonds in volatile public markets.
In its last census, Statistics Canada estimated that the value of Canadian homes between 2001 and 2006 rose 49.3 per cent. The Canadian Real Estate Association says since 2006, house prices have shot up 15 per cent.
At the end of July this year, the average price of a resale home nationally was $302,298, or $327,020 in major markets, according to Multiple Listing Service figures released by CREA.
At the same time, Statistics Canada determined that home ownership is a top priority for 76 per cent of adults aged 25 to 39, who have left the nest.
However, it said only 60 per cent manage to achieve home ownership.
As of 2006, says Statistics Canada, more than 70,000 young adults had bought homes in partnership with a friend, sibling, parent or other family member. It is a trend that appears likely to grow.
Co-ownership, said Usher, is "national and it’s emerging."
For instance, "there are those who want to get into a co-ownership situation because of affordability particularly if they want a higher-end neighbourhood," said Usher.
Then, there are those who "say ‘You know what? Instead of putting our money into the stock market, let’s buy and co-own a unit or units’," she said.
Putting your money into a house is "a little bit more stable in the long term than other forms of investment," said Usher, especially given the ups and downs of the markets following the worldwide credit crisis.
Some are buying multi-units, a duplex or a triplex, and there may be friends or family members co-habiting on different floors — mom and dad on the lower level with adult children up above, said Usher.
Co-ownership is also somewhat gender driven, she said. "Women believe in real estate these days . . . we have more singles out there."
A couple of professional women will go together to buy a property in a higher-end neighbourhood, which they couldn’t afford on their own, said Usher.
Or a group of women will buy a property and rent it out, not necessarily to each other, but as an investment.
Richard Corriveau, with the Canadian Mortgage and Housing Corp. in Calgary, says parents and their children attending university sometimes buy houses together.
"A lot of folks rather than pay rent for children while they are going to university . . . they’ll buy a condo and by the time they’re done (graduated) they hope to realize some price appreciation," he said.
It is a way to build some equity, he said.
But there are pitfalls, he said. There is the risk that "the property doesn’t appreciate as fast as you would hope to make sure it pays for itself."
Pituley said there are several drawbacks to co-ownership arrangements, including instability of relationships and not being able to decide who does what, such as repairs.
Many of these problems can be avoided, he said, by drawing up a co-ownership partnership agreement with a lawyer at the same time that the buy-sell deal is arranged.
’That’s the challenge people are looking at. Higher prices and a longer period of time before they are able to afford a house.’
Who says you own your house?
Teranet is an 'Income Trust' that operates the electronic Land Registry system in Ontario, by authority of the Provincial Government and holds a monopoly on recording real estate transactions in Ontario that lasts through 2017. Teranet takes a share of the fee every time a house changes hands in the province. Last year, the trust took in $254-million of these fees.
Competition Bureau's inactivity
Canada's Competition Bureau just got a report card that it may not want to show its parents. The Global Competition Review, published by Britain's Law Business Research Ltd., has maintained Canada's 3½-star "good" rating, but warned that the regulator's performance slipped last year after its reputation "appears to have faltered."
The problem? Despite additional staff, the report said the bureau's overall level of activity and timeliness "appears to have slumped over the past few years." Citing anonymous authorities in the competition bar, academics and economists, the report said critics complain that the bureau's "strong" emphasis on policy work and international issues may be "eating up too much of the bureau's resources."
Key points of concern cited are: a decline in cartel fines to $7.9-million last year from $39-million in 2006, a "scant" record of enforcement against companies that abuse their industry dominance and declining efficiency in its reviews of mergers that trigger competition reviews. The report, which ranks the world's leading competition regulators, credited the bureau for its work on an alleged cartel in the chocolate industry. But it chided the Ottawa regulator for its drawn-out reviews of the Labatt Brewing Co. Ltd. merger with Lakeport Brewing Co. Ltd. and its two-year-old abuse-of-dominance probe of sugar makers.
A bureau spokesman said he agrees with the review's finding that criticism reflects a "perception problem." The facts, however, dispute the public image, he said, noting that in the past year the regulator has closed more abuse-of-dominance cases and launched more cartel cases than during the previous 12 months.
We've been hearing for over a year now that the Competition Bureau is investigating the real estate industry and their MLS cartel which controls the Canadian real estate industry but to date no results.
Realtysellers vs. TREB
An insightful and balanced analysis of the dispute between Realtysellers and the Toronto Real Estate Board appears in an article on the Realosophy website. It is refreshing to see that there are some people in the real estate brokerage business who "get it"!
Protect yourself from title fraud
Title fraud is a daunting problem for all stakeholders in real estate, and it’s not just an Ontario problem; it affects the industry across Canada and the United States. Investigators at a conference in crime and prevention in Toronto in December called mortgage fraud an epidemic in the developed countries. The Ontario government has responded to increased concern and, in December, passed legislation that will strengthen protections against real estate fraud, with fines increased for $1,000 to a possible $50,000.
In the US, in the fall of 2004 the FBI warned that their open mortgage fraud investigations had increased five times in three years. They reported 533 open files and a single one of those files could be dealing with losses of over $100 Million. In 2005 the FBI reported 170 convictions with losses of over $1 billion.
These are big numbers, yes, but real estate transactions always involve huge sums, so why is this crime such a problem now? Kathleen Waters, LL.B., Vice-President of TitlePLUS, suggested real estate has become a commoditized business. "In the 1950s and 1960s it was quite common to know the client," she said. Clients lived in your community, or you knew of them or their family members. But with more transactions happening with clients that you don’t know "that leads to the possibility that they may not be who they say they are," she said.
There is no absolute way property owners can protect themselves from title fraud, but there are some measures they can take to minimize the chances of a fraudster stealing the rug, and their home, out from under them. Here are some suggestions:
- If you are renting property or leaving it vacant, be careful and watch those properties and the tenants.
- Be vigilant; check your credit reports regularly. Question any queries that you don’t recognize.
- Title insurance gives protection for past frauds and on a "go forward basis."
- Do not become involved in any financial situation that you do not fully understand. Tou may not realize that you are being drawn into a crime.
Protection Against Title Theft
The media is filled these days with reports of title theft and fraud surrounding peoples’ ownership of homes and condominiums. For example, the Toronto Star reported in October that one of Canada’s largest banks is locked in a legal battle with a North York couple who lost their condo to identity thieves. The Owners owners are faced with a $247,860.00 mortgage which was put on their home. The court has ordered the mortgage cancelled, but the bank is considering an appeal.
This latest case of property fraud comes to light as Ontario courts and legislatures scramble to protect homeowners from the consequences of identity theft. In title theft, the fraudster uses stolen or forged identity to change the title, sell the property or re-mortgage it without the true owners knowing. The fraudsters then take off with their ill-gotten gains leaving owners and lenders to bear the loss. The Ontario government has proposed that title would be restored to the owner who lost it, however, critics of the proposal believe that this would be punishing an innocent buyer at the expense of owners.
One critic stated: "The flip side to a law which would restore title to an innocent owner who has been defrauded is that virtually no one will be able to say with certainty they own their home. It does not matter how many years you have lived there and how much money you may have put into it, one day someone could knock on your door and tell you to leave".
Until the government and courts decide upon an equitable solution to the problem of title theft and fraud, the best thing for existing homeowners is to make sure that they get title insurance.
What is Title Insurance?
Title insurance is a policy of insurance that provides coverage for the title related risks associated with real estate transactions. It is designed to cover the unpredictable or undetectable issues such as forgery, fraud, missing heirs or creditors that can affect rights of ownership.
Because it is insurance, the policy moves the risk associated with title from the home buyer, the lending institution or the lawyer, to the title insurer.
If there is a problem with title that only becomes known after closing, the title insurer may rectify the problem or compensate the policy holder, provided the type of problem that surfaces is covered by the title insurance policy.
Should a policy holder suffer a loss of title through title/identity theft, the insurance will provide funds to discharge the mortgage or compensate for the loss of the property. Without title insurance the home owner is forced to make a claim to the government’s Assurance Fund – a long and expensive process which is not always successful.
Mortgage Fraud Legislation Passed
In response to growing concerns about real estate fraud, the provincial government has passed Bill 152, the Consumer Protection and Service Modernization Act, which provides various new safeguards for property owners.
Under Bill 152, the Land Titles Act is amended to ensure that ownership of a property cannot be lost as a result of the registration of a falsified mortgage, fraudulent sale, or a counterfeit power of attorney. The proposed legislation will also,
- Implement a streamlined and expedited Land Titles Assurance Fund process for individuals who are victims of fraud so that title is returned and a decision on compensation is made within 90 days. More information about the Land Titles Assurance Fund is available here. Information on how to make a claim to the Land Titles Assurance Fund is available here.
- Introduce new safeguards for suspending and revoking the accounts of fraudsters so that they cannot register documents, and
- Raise existing fines for real estate fraud related offences from $1000 to $50,000.
What is real estate fraud?
Real estate fraud has recently received attention from the real estate, legal, and financial communities due to its increasing prevalence. Real estate fraud can take various forms, but one of the most serious is title theft, whereby title to a property is transferred fraudulently without the true property owner’s knowledge. The home can then be sold without the true property owner’s knowledge or a mortgage can be placed on the property, which could become the responsibility of the unsuspecting rightful property owner.