Regulation has been the big real estate story this year, with several rounds of tightening at all levels of government. Back in May I pondered the likelihood of the days of a self regulated real estate industry being numbered and six weeks later the province took over the Real Estate Council.
Since then we’ve seen some impact from the new oversight in the form of tweaked regulations. The real estate council is now all government appointed rather than elected industry insiders, shadow flipping using assignments was effectively banned in June, and the bar for passing the realtor licensing exam was slightly raised a few weeks back.
Effective September 30, there were a whole host of amendments to the Real Estate Services Act (RESA) that I think may have some unintended effects. Several things have changed but importantly some very significant changes to penalties that can be applied.
- Maximum penalties for brokerages contravening RESA increased 25 times to $500,000 (per contravention)
- Maximum penalties for individual agents contravening RESA increased 25 times to $250,000 (per contravention) plus the commission they received on the deal
- The Superintendent of Real Estate (Mr. Noseworthy) may impose additional administrative penalties of up to $50,000
Meanwhile FINTRAC is cracking down on BC brokerages with a quadrupling of audits and with it the administrative penalties they can apply. I understand what they are doing, they are trying to legislate ethics into an industry using the fear of large penalties. In general this is a good thing, but the flipside is that it will likely increase costs for everyone as brokerages price in the increased risk of the penalties and pass the costs on to the agents who pass it on to the consumer.
I am firmly of the belief that real estate commissions are too high and far too much money is spent on transactions that are really not that difficult. 20 or even 10 years ago everything was done on paper and every signature required driving across town. Agents received the new listings by fax and updated their own binders of listings, or received the comprehensive MLS listings book every 2 weeks. Working with buyers meant actually working to look for properties and make recommendations. Now buyers are doing most of the legwork themselves, contracts are completed and accepted online, and sellers are getting the vast majority of their marketing through Realtor.ca rather than agents buying ads in the paper. Meanwhile property prices have exploded and agents are collecting increasing commissions for less and less actual work.
Now there are some low cost options for sellers like mere posting services that will allow you to list and sell your house for around $1700. However they rely on low cost brokerages to offer this service while still making a profit, and you can bet those brokerages will be increasing their costs as they face more regulation and the threat of higher penalties. So is the increased regulation really a good thing for the consumer?
The real estate industry is on a path to becoming more professional. On the face of it that sounds like a positive trend, but professionals cost money and do we really need another professional involved in real estate transactions when we already have lawyers involved? And is it actually possible to legislate professionalism into a career that anyone with a few thousand dollars and a spare couple months can get into?