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Dishonest Realtors and The RECBC

In the wake of a recent CTV news story by Lynda Steele (Dishonest Realtor’s Punishment Questioned by Victim) involving the Real Estate Council of BC’s disciplining of of a Vancouver area realtor, Whispers From the Edge of the Rainforest blog has run a couple posts that I’ve commented on.

Additionally, Trish Johnson, who regularly posts the daily stats here has bent my ear (via email) with outrage over the events recounted.

People are upset over two things: the actions of the realtor and the punishment handed out by the Real Estate Council of BC. The ling and short of the story is that the realtor allegedly forged a document, and after consenting to discipline received a $1,250 fine, a four month suspension of his license, and the requirement to take some education.

I say that the realtor is alleged to have committed forgery because I haven’t seen the evidence. That’s an abundance of caution on my part. Most people seem pretty confident that he’s guilty as charged.

Before I get too far into this let me make a few things clear:

  • Forgery is a crime;
  • The punishment should fit the crime
  • A fine should not be so low that it can be written off as a cost of doing business
  • Civil court should be a place for damages to be collected. It should not be the tool to enforce good behavior.

Aside from the fact that forgery is a crime the rest are merely my opinions.

The story, as I understand it, is as follows. I’m filling in blanks based on my experience.

The agent and his buyer came across a listing that the buyer wanted to make an offer on. The listing did not offer a full co-operating commission, but rather, some sort of discounted amount. I suspect that it was more than a “mere posting”, because as I understand things the seller’s realtor was involved in more than merely posting the listing on the MLS, but was in fact involved in the sale process. There seems to have been, in other words, two agents involved in the transaction, one working for the seller and one working for the buyer.

The buyer agent reported having some trouble getting in touch with the listing side. In a mere posting situation this is a distinct possibility, as the selling side has no professional representation – it is possible that a FSBO seller is difficult to contact. It appears, however, that the real reason for the reported communication delay between seller and buyer was that the buyer agent was negotiating a fee agreement with the seller whereby the seller would top up the discounted commission.

This form was executed by the seller. There was agreement between the seller and the buyer agent. However, there is a prohibition against secret commissions in BC. That means that both parties to the transaction, both buyer and seller, must be aware of how much their agent is being compensated in a transaction. Clearly, as a result of the fee agreement and the MLS contract itself, the seller knew exactly what both the seller agent and buyer agent were getting paid.

The buyer, however, was apparently not aware, because the realtor allegedly forged her signature on the fee agreement. If this is the case I can’t for the life of me understand what the realtor was thinking. The paperwork for a real estate transaction goes through many hands after the parties agree. Brokers and conveyancing secretaries on each side see it almost immediately. It then goes to lawyers, where again, a secretary and a lawyer will both see it. The information in the paperwork is used to, among other things, create a statement of adjustments – the accounting for the monies in the transaction, showing who’s getting what and demonstrating that everyone is getting paid the right amounts. That, of course, is where the rubber hits the road. The buyer gets to see that paper, and so would have seen the effect of the fee agreement.

Granted, the buyer may not have noticed, but the fact remains that a forgery in a real estate transaction has to pass many sets of eyes.

This one didn’t. According to reports it was discovered right away by the seller’s agent, who reported it to the buyer agent’s broker. The jig was up.

What was the damage? It’s arguable that the buyer suffered nothing. The seller seems to have agreed to pay the commission from his end. The sale completed and the buyer apparently took possession as outlined in the contract. She went through some unnecessary stress while the offer was being negotiated, and got a shock on closing, but arguably as far as she is concerned, all’s well that ends well.

Except her agent forged her signature on a document.

How serious is that? As I’ve said, it’s a crime, but the police are reported to have looked into this and declined to go after the buyer agent. Personally, I think its very serious, but I’m not the police.

A core agency duty is to promote your client’s interests as you would your own. Another is the duty to provide your client with any information that may reasonably be expected to influence her decisions. That didn’t happen. That means that the agent breached his fiduciary duties to the client.

The client complained.

Since the police aren’t interested in the complaint it can go two places: the appropriate real estate board and/or the Real Estate Council of BC. There are some important differences.

A real estate board (in this case the Real Estate Board of Greater Vancouver – REBGV) cannot take away an agent’s license. The REBGV can suspend membership, require education, and fine the agent up to $10,000. That’s it.

The RECBC is a government body, however, and can, in addition to suspending licensing (not membership, which is not a requirement to practice real estate, but licensing, which is a requirement), fining and requiring education, can also take a license away permanently.

I don’t know if the buyer complained to the REBGV, but if she did this complaint would have been held in abeyance until the RECBC dealt with their complaint. The thinking is that there is no sense in the REBGV investigating the conduct of a member who has lost their license permanently. (If that makes you think that the REBGV may yet have a meeting with the realtor you could well be correct).

So, the RECBC fined the realtor $1,250, suspended him for 4 months and required him to take some education. The suspension takes effect in June, apparently allowing for a month to pass in case realtor wants to appeal.

Does the punishment fit the crime? The buyer did not suffer anywhere near as greatly as she could have, that much is clear. On the other hand, it’s important to realize the realtors are required by provincial law to carry errors and omissions insurance. That means that if the forgery had cost the buyer a great deal of money she’d have a good chance to recover it. I think its fair to say that the existence of the E&O insurance reduces everyone’s exposure to financial loss resulting from professional misconduct. Putting everyone on an even playing field in terms of financial loss makes the size of the financial loss actually suffered less important in determining punishment. I think we can recognize that the buyer could have fared much worse without excusing her agent at all. From that point of view, the punishment does not fit the crime.

The realtor forged a document in order to earn money. Its not clear how much he wanted to earn, but let’s assume he was acting on the purchase of a $350,000 Yaletown condo. It’s not unrealistic to assume the commission he would have expected would be roughly half of the common commission rate, or about $6,000. Would a reasonable person risk $1,250 to get $6,000? Its very hard to answer that question if you can’t quantify the risk, but it certainly seems unjust that unlawfully trying to earn $6,000 should cost $1,250 when caught. (It is another question entirely to wonder what actually happened to the hypothetical $6,000. Did the seller keep it after agreeing to pay it, or did it go to the buyer, who is arguably entitled to it as a result of the agency duties being breached).

Still, we can’t forget the suspension. A 120 day license suspension means that realtor cannot sell real estate for 25% of the year. For a person earning $90,000 per year, gross, that’s a potential hit of $22,500. That’s not negligible. The knock against this interpretation is that a license suspension can be construed as an enforced vacation. If the suspension was for two weeks, and if it coincided with the realtor’s marriage, we could certainly characterize it as a vacation. Four months? Not so much. Who among us pulling down $60,000-70,000 per year (net) could easily deal with loss of employment for a 1/3 of a year? That strikes me as reasonable.

For those who feel that forgery is a crime that merits permanent loss of a license, all I can say is that we live in a very lenient society. As a realtor whose reputation suffers as a result of realtor’s actions, I’d support that sort of ban, but I think that I’m in the minority of citizens. After all, look at what we do to car thieves and murderers.

The education requirement is really just a bit more financial penalty. All realtors take continuing professional education, and anyone who has been in the business for very long has repeated several courses. There’s a good chance that the courses the realtor has to take are ones he’s already been to. They will not stress the concept of forgery being wrong – we consider that to be obvious. However, he will have to take a day off work (unless he does it during his suspension) and he will have to pay for the courses.

I’ve addressed whether the fine should be a cost of doing business. I think it should have been higher. What about damages?

A consumer can’t sue a realtor for damages if the consumer hasn’t suffered damages. In this case the buyer got the property at a price she wanted and was able to move in. She experienced stress, but that’s not a lot of damage once we start talking about going to court. I am, however, curious about what happened to the commission that the realtor negotiated with the seller. If he was paid that amount (after all, the seller had no objection to paying him), then in my opinion it should be forfeit to the buyer, as a remedy for his breach of his agency duties. Hopefully this is what occurred. If you ever find yourself in a situation where your agent breaches his agency duties to you remember this: his claim to commission is generally forfeit.

The reason I bring this last bit up is because although civil court is always a recourse for consumers it should not be the way we ensure good behaviour from realtors. That should come from the RECBC and the appropriate real estate board.

Do you think that the penalty handed to realtor is appropriate? Too low? Too harsh? Please let me know.

In your own dealings remember that a realtor must disclose all commissions earned. That means that if you’re selling you’ll see that disclosure on the listing contract itself, but if you’re buying it will come separately. Make sure you see it, and make sure you understand that realtors do not work for free. It may seem that way to a buyer, but in fact buyers play a critical part in paying realtors.

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