The Real Estate Council of Ontario (RECO) has charged three realtors for allegedly accepting improper entry fee payments for access to pre-construction condo units.
The charges came after RECO received complaints earlier this year about realtors charging oddly structured entry fees.
In one case, a husband complained about a $30,000 payment his wife made to a realtor above and beyond the purchase price paid to the builder. In another case, a client was given a “Willy Wonka–style golden ticket” that offered access to pre-construction units for $5,000.
According to industry experts, these payments were illegal in that they were made directly to the realtors involved.
The law under the Real Estate and Business Brokers Act (REBBA) is that realtors can only be paid by the brokerage that employs them. They can not be paid directly by the buyer.
“It seems these realtors have been charged, not for the extra fees, but for taking that fee and putting it straight into their pocket. That's illegal,” says John Pasalis, president of Toronto-based brokerage Realosophy.
“Realtors can only get paid through their brokerage. If they are taking this money directly and keeping it, that could lead to a charge.”
Realtors who do so face a $50,000 fine. The extra payments for access to pre-construction condo units are legal, however.
“It is OK to offer exclusive access. I don’t want to say it’s fine that they charge these fees, but it is not illegal. It’s when the payment is going straight into the pocket of the realtor that there is a problem,” says Pasalis.
These cases highlight an interesting shift in the Toronto real estate market. The condo sector has held up well in the wake of recent legislative tweaks the government introduced to slow unsustainable increases in home prices. So interest in pre-construction units remains high.
Martin Rumack, a Toronto lawyer, notes that cash-for-access to pre-construction units through “entry fees” has become part of the Toronto real estate market, even if they are unpopular.
“It’s like getting good tickets to see the Blue Jays play.… You’re going to pay to be closer to the field. Everyone is trying to get to the front of the line,” he says.
“Some realtors will pay someone to stand in line for 24 hours to get that access, and they might charge for that. To a member of the public that seems wrong. It’s not good for our reputation. But no, it’s not illegal.”
The Ontario government is currently undertaking a review of REBBA. RECO has also recently advocated higher fines for realtors who violate ethics rules.