Real Estate Brokers

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Real Estate Brokers Program

• Barbara Grodaes

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Responsibility, Liability, Accountability

• July 1, 1996 Alberta became self-regulating
  real estate industry.
• Onus is on real estate industry members to
  conduct themselves responsibly when dealing with
  both the public and other industry members.
• Role of Broker has full scope of responsibilities
  and MUST know all.

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Real Estate Council of Alberta

• RECA responsible for ongoing admin of Act and
  self-regulation of the industry
• Composed of all licensed and registered
  individuals.
• Is the Licensing BODY for all brokers, associate
  brokers, and agents in real estate and mortgage
  brokerage industries.

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RECA continued

• RECA has authority to change Rules initially set
  by government and/or create new ones.
• 11 members of Council
• Executive Director is Chief Admin Officer and
  responsible for hiring, performing and providing
  leadership ensuring effective application.

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Real Estate Act

• Applies to all people trading in real estate
  except those excluded by statute.
• Regulates the sale of real estate located in
  Alberta.
• Definitions of Real Estate and Trade are broad
  and must be fully understood.

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Definition of Real Estate

• Real property
• Leasehold property
• Business with or without premises
• Manufactured or mobile home fixed.
• Above includes land and generally whatever is
  erected or affixed to the land, land being used
  as residential or businesses and all asset
  related.

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Definition of Trade

• Covers EVERYTHING a broker would be required to
  do in a real estate transaction, including
  property management activities.
• Generally, the term means to dispose of, or
  acquire, real estate in some manner or to offer
  to do so.
• Trading term is VERY BROAD.

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Application Exemptions

• Section 2(1) does not apply to anyone acting as
  directed by statute, order of court, estate
  administrators, executor or trustee, financial
  institutions, owners, members of the Law Society
  of Alberta, Licensed Land Agents, etc.
• Broker MUST know all as it applies.

9
Trading outside Alberta

• Trading outside of Alberta improperly can lead to
  suspension of Alberta registration.
• MUST use an Alberta Broker.
• Prospectus MUST be filed and certificate of
  acceptance issued by Executive Director.
• Party entering transaction MUST receive
  Prospectus with 30 days and give written
  acknowledgement.

10
Exemptions outside Alberta

• 2 instances where Exemption may be granted
• Only advertisement placed or made from outside
  Alberta sent by mail or placed in
  national/(inter) magazines and contact is outside
  Alberta.
• Isolated trade such as where marketing
  opportunities better in Alberta and prospectus
  not required.

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Isolated Trade

• Means one, singular trade not part of a continual
  successive transaction
• Marketed only in Alberta and no for sale sign
  on the property.
• Information only distributed in Alberta.
• Alberta Broker cannot show property.
• Purchase contract written and signed by both
  parties in Alberta.

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Mortgage Broker Industry

• The Real Estate Act regulates both the mortgage
  broker and real estate industries (except for a
  financial institution, its agents or employees or
  employee of principal (private).
• Mortgage term is broad under the Act but is
  generally an interest in land created by written
  instrument providing security for payment of a
  debt.

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Industry Related Legislation

• Competition Act
• Dont collude, discriminate or mislead.
• NAFTA and the FTA
• North America/Free Trade Agreement.
• GST
• No general rule for application of GST
• Human Rights, Citizenship and Multiculturalism Act

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Industry Related Organizations

• Local Boards /w AREA and CREA.
• Promote integrity and professionalism.
• All industry members are required to comply with
  the Real Estate Act.
• AREA, AREIX, AREF, AMBA, CREA, BOMA, REIC, IREM,
  AIC, SIOR
• Brokers MUST know these.

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Industry KEY Players

• Industry member under the Real Estate Act
  includes real estate and mortgage brokers and all
  must be licensed by RECA. Rule 4 states the
  licence categories
• Brokerages
• Brokers
• Associate Brokers
• Agents

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Brokerage

• A legal entity in real estate or mortgage broker
  business, a person, partnership or corporation,
  authorized by license (expiring September 30 each
  year).
• Must maintain trust account for all monies
  resulting of a trade.
• MUST strictly adhere to ACT.
• MUST notify Executive Director with changes in
  writing.

17
Broker

• Broker holds qualifications, has proper licence
  and RECA registration certificate to operate a
  brokerage.
• MUST strictly adhere to ACT, the Code of Conduct
  and the Rules.
• Is accountable for all industry members in
  Brokerage.

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Associate Broker

• Has fulfilled all of the educational and
  experience requirements of a Broker, but chooses
  to work as an Agent.
• Is licensed to trade only as an associate broker
  on behalf of the brokerage where registered.

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Agent

• An individual who holds the qualifications, is
  licensed by RECA, is associated with a licensed
  brokerage and is registered with and authorized
  to trade in real estate on behalf of that
  brokerage.
• Responsibilities / accountabilities of associate
  brokers and agents are the same.

20
Notify RECA Immediately

• Licensee MUST immediately notify, in writing, the
  Executive Director of Notice of Discipline,
  Bankruptcy or Criminal Conviction
• Associate Brokers or Agents must also give their
  Broker a copy of any written notice provided to
  RECA.

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Prohibitions

• Broker, Associate Broker or Agent MUST not
• trade on behalf of a brokerage other than one
  with which they registered.
• pay or accept commission or other remuneration,
  except from brokerage with which they are
  registered.
• Advertise, communicate or offer an incentive
  unless Brokerage approves.

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Prohibitions continued

• Any inducement provided MUST be detailed in
  writing, provided to the Broker and the Broker
  provides written approval.
• Any incentive or inducement CANNOT be money or a
  sharing of commissions or other remuneration.

23
Cancellation and Suspension

• Licence can be cancelled or suspended by the
  Executive Director for false information, failure
  to comply with rules, failure to pay required
  monies, failure to file or submit records
  required or person contravenes a term, condition
  or restriction of the licence.

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Licence Renewal

• All licences expire yearly Sept. 30.
• Written renewal applications must be received by
  RECA Aug. 31.
• RECA-ON-LINE deadline Sept. 30.
• MUST meet continuing education requirements.
• Time extension MAY be granted for a conditional
  license (lt8 months).

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Changing Brokerages

• Process initiated in 2 ways
• Existing Broker signs Cancellation of
  Registration form submits to RECA.
• Associate Broker or Agent completes own
  Cancellation of Registration form, signs it and
  submits it to RECA.
• Associate Broker or Agent completes application
  to register, new Broker complete acknowledgement,
  signs and submits.

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Things to be careful of

• Processing of application by RECA may take 2-3
  days and applicant is not authorized during
  transition.
• Property listed with former brokerage must have
  listing cancelled by written approval of
  Brokerage and the client (may or may not be an
  option).

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Re-entering the Industry

• An individual who has left the industry must
  re-qualify to re-enter.
• If period has been up to 36 months, individual
  may apply for exemption from education
  requirements or Provincial exam.
• Continuing education requirements would still
  have to be met.

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Industry Critical Issues

• 6 issues of significance and critical to a
  brokerages success are
• Agency relationships
• Advertising
• Trust accounts
• Commissions
• Guaranteed sales
• Disclosure of interest in trade.

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Agency

• The legal relationship between the Brokerage and
  the client.
• Law of Agency based on court precedents from
  common law.
• Written agreement avoids any potential
  misunderstanding.
• Remember, if it walks like a duck, talks like a
  duck, acts like a duck

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Fiduciary Duties

• Reasonable care and diligence
• Accounting - Full
• Non-delegation
• Confidentiality
• Obedience
• Loyalty - Undivided
• Disclosure - Full

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Single vs. Dual Agency

• Single (most common) where seller and buyer is
  represented by a different brokerage
• Dual is where brokerage or an industry member
  represents both the seller and the buyer or
  represents more than one party in a transaction
  (such as 2 buyers).
• Landlord and tenant duties same.

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No Agency Relationship

• A seller can act on his/her own behalf and
  understands the brokerage (all) represents the
  buyer and owes no duties Commission Agreement
  used to negotiate commission.
• A Buyer can act on his/her own behalf and
  understands the brokerage (all) represents the
  seller and owes no duties
• Ethical duties are to be honest and fair and
  legal duties are to exercise due care and not to
  misrepresent.

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Advertising

• Advertising MUST not be false or misleading (only
  necessary to show that the ad is capable of
  misleading a reasonable consumer).
• Use of RECAs logo on industry members
  advertising is prohibited.
• Advertising MUST include the name as it appears
  on the members licence and the brokerage with
  which that member is registered.

34
Incentives

• Incentive means anything that is advertised,
  communicated or offered by a Brokerage to the
  public for the purpose of attracting business to
  the brokerage and includes a promise, good,
  service, game of chance, contest, or any thing
  else of value.

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Inducements

• Inducement means anything that is offered or
  provided by an industry member to a person who
  is, or could be, a party to a real estate or
  mortgage transaction and is intended to either
  assist, persuade, or cause that person to enter
  into the transaction.

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Trust Accounts

• Trust accounts MUST be
• Interest bearing
• Maintained in a financial institution
• Kept in the name of the Brokerage
• Designated as a trust account
• Kept in deposit in Alberta
• Kept separate from any money belonging to
  industry member
• Disbursed ONLY in accordance with the terms of
  trust

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Trust Accounts continued

• Any deposit monies received in trust must be
  deposited within 2 days unless agreed to in
  writing.
• Money released from trust are done ONLY in
  accordance with the terms and conditions of the
  contract.
• Brokerage pays its agents from its general
  account ONLY.

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Reconciliation Procedures

• 2 procedures of monthly process
• Reconciling the balance held in all trust
  accounts maintained by the Brokerage, including
  any term deposits to the trust liability balance
  recorded in the general ledger or trust liability
  listing.
• Reconciling the trust liability balance to the
  Brokerages trust ledger files at date.
• MUST be done within 30 days of receipt.

39
Property Management

• Real Estate Act requires all books be maintained
  and readily available for minimum of 3 years (or
  longer).
• All money received as security deposits MUST be
  in separate trust account from funds received for
  rent from the property.
• MUST be interest bearing and in Alberta financial
  institution.

40
Commissions

• Brokerage agreement MUST exist between brokerage
  and client whereby client agrees to hire
  brokerage to act on its behalf.
• The services that the brokerage contracts for is
  real estate trading.

41
Recovery of Commission

• Section 22 of the Real Estate Act stipulates the
  circumstances necessary to permit an action to be
  brought before the courts for the collection of
  commissions for a trade in real estate.
• Member MUST have licence from RECA and the amount
  of the commission is in writing or has effected a
  sale with executed and delivered documentation.

42
Shared Commission Recovery

• Only the member who is party to a brokerage
  agreement is entitled to bring an action for
  commission recovery.
• If the brokerage is entitled and does not wish to
  enforce the contract, then the brokerage may
  assign the contract to the other brokerage, thus
  allowing that brokerage to enforce the contract.

43
Calculation of Commission

• Commission or other remuneration payable to a
  real estate broker MUST be in writing on the
  brokerage agreement and MUST be based on
• An agreed amount, or
• A percentage of the sale price.
• Commission canNOT be a net commission as they are
  prohibited.

44
Payments of Commission

• ALL payments received by a brokerage as or on
  account of commission or other remuneration shall
  be classified as trust money and be paid into the
  brokerages trust account.
• Does NOT apply to payments received from another
  brokerage.

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Commissions Earned Rules

• When money in trust is no longer required to be
  held in trust, shall be paid as follows
• Any share payable to another brokerage shall be
  paid directly out of the trust account.
• After other brokerage is paid, the commission
  shall be transferred into the brokerages general
  account to be disbursed from there.

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Rules continued

• If commission is to be shared and client has not
  fully paid, brokerages sharing may agree on the
  split and no money may be withdrawn from trust
  until the cooperating brokerage is paid in full.
• No Associate Brokers or Agents are paid from a
  trust account.

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Rules continued

• No personal or general office expenses are paid
  from trust.
• If there is a trust shortage, the broker is
  responsible for the shortage and MUST deposit the
  brokers own money into the trust account AS SOON
  as shortage is found.

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Guaranteed Sales

• MUST deposit 5 of the total amount payable under
  the guaranteed sale agreement into separate trust
  account.
• Only a brokerage can execute a guaranteed sale
  with an owner.
• The brokerage MUST hold money in trust for the
  seller
• The brokerage canNOT charge a commission on the
  guaranteed sale

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Disclosure of Interest

• Industry members buying or selling real estate
  for themselves MUST make written disclosure of
• Any interest the member has in the transaction,
  and
• That the member is licensed and employed by or
  association with a brokerage
• There is NO listing contract with any brokerage.
• NO commissions would by payable by the seller to
  the member.

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More on Member Interest

• There MUST be no perception of the public being
  disadvantaged by the industry.
• With proper written disclosure and if the
  property is listed by a different brokerage,
  agency relationship is clear to all parties.
• If property is listed by same brokerage, the
  listing contract is cancelled so there is no
  agency relationship.

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Code of Conduct

• ALL real estate industry members in Alberta are
  bound by RECAs Code of Conduct or other codes of
  ethics depending on association.
• A Broker is a role model and sets an example for
  their brokerage.
• Code of Conduct is part of the Rules and ALL
  members MUST adhere to them.

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7 Codes Understand Follow

• 1st Code is the Definitions.
• 2nd Fiduciary Duties to their clients.
• 3rd Disclosure of Role and Dual Agency clearly
  understood by all.
• 4th Duty to Avoid Misrepresentation not to be
  reckless or mislead.
• 5th Duty to Disclose Cost of Services.
• 6th Duty to Provide Competent Service.
• 7th Dealings With the Public MUST be
  professional in ALL dealings.

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Conduct Deserving Sanction

• What constitutes such Conduct?
• Breach of the Code of Conduct (failure to act in
  clients best interests or fiduciary duties).
• Contravention of the Act, Rules Regulations or
  Bylaws.
• Harm or potential harm to the public.
• Harm or tendency to harm the integrity or
  standing of the industry.
• Display of lack of knowledge, skill or judgement
  in the business of a member.
• Lack of adherence to the standards of practice
  established by competent members.

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Examples of such Conduct

• Could include by not limited to
• Fraud or forgery.
• Theft of money or information.
• Misleading advertising or such contrary to the
  Act, Rules, Regulations or Bylaws.
• Misrepresentation of property or mortgage
  information.
• Secret commissions collected by member and not
  disclosed to all parties of the contract or to
  the Broker.
• Acting as a dual agent withOUT the proper
  disclosure and informed consent of all parties in
  writing.

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Examples continued

• Breach of fiduciary duties to client.
• Referring client to unlicensed person.
• Swearing false affidavits to RECA in licence
  application.
• Failure to provide competent service during
  multiple offer negotiations.
• Failure to work in clients best interest.
• Failure to give proper disclosure.
• Failure to obey lawful instruction of client.
• Payment of referral fees to unlicensed persons.
• Failure to keep client information confidential.

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Investigations (Formal Process)

• If a complaint is made to the Executive Director
  about the conduct of a member, it MUST be in
  writing.
• Immediately, the Executive Director will start an
  investigation.
• Investigations may require anything that is
  relevant to the investigation and member MUST
  co-operate.

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Completion of Investigation

• Executive Director will
• Direct no further action, or
• Refer the matter to a Hearing Panel or impose an
  administrative penalty on the member in
  accordance with Section 82 and the bylaws.
• Make notice of a decision be served on the member
  and the complainant.

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Powers and Responsibilities

• The Real Estate Act entrusts RECAs investigators
  with significant powers.
• Responsibilities, include
• Gathering all relevant facts (carefully, fairly
  and objectively)
• Professional attitude (courteous and unobtrusive)
• Meetings, confidentiality,
• Reporting their findings to the Executive
  Director.

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Steps to an Investigation

• Complaint
• Investigation
• Decision by Executive Director
• A complainant who is notified that no further
  action will be taken may decide to appeal the
  decision to a Hearing Panel. This appeal MUST be
  in writing to the Executive Director and within
  30 days.

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Sufficient Evidence

• Before issuing a Notice of Hearing, the Executive
  Director may ask RECAs legal counsel to contact
  the member to see if he/she is interested in a
  Consent Agreement.
• Consent Agreement is voluntary.
• Hearing Panel has same powers as Court of Queens
  Bench for civil actions.

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Hearing Panel Orders

• Cancel or suspend members licence or
  registration.
• Reprimand member.
• Impose conditions or restriction on member.
• Pay a fine not exceeding 25,000costs for each
  finding of deserving conduct.
• Any other order agreed by the parties.

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Appeals

• A member after being served a copy of the
  decision of the hearing panel may appeal the
  decision to the appeal panel by written notice to
  the Executive Director within 30 days after the
  date of service of the decision stating the
  reasons for the appeal.

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Appeal Panel

• The appeal panel may
• Grant adjournment of the proceedings
• Receive additional evidence
• Make a decision that it believes the hearing
  panel should have made
• The appeal panel may either confirm or quash the
  original finding, or refer the matter back to the
  hearing panel for further consideration.

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Appeal to Court

• The member served with the appeal panels
  decision may appeal the decision by filing a
  Notice with the Clerk of the Court of Queens
  Bench describing the decision and stating the
  reasons for the appeal within 30 days of
  receiving the decision.
• The Executive Director MUST be served a copy of
  the Notice of Appeal not less than 15 days before
  the hearing.

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Decision of the Court

• The Court may vary, confirm, quash the finding of
  the appeal panel, refer the matter back to the
  appeal panel for further consideration, or direct
  that a trial be held.

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Compliance Audits

• Periodic Inspection is to provide constructive
  feedback to a brokerage as to legislative
  deficiencies in record and book keeping. Most are
  at random, but may be selected.
• Advance warning to a broker is NOT necessary.
• Intent is to be constructive, but serious cases
  are referred to Investigations Unit of RECA.

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Process of Compliance Audit

• Arrival brief discussion, access to
  documentation and files.
• Examination 2 phases trust bank account and
  review of client files.
• Exit Interview field auditor will discuss the
  results with broker.
• Follow-Up usually one week to 6 months after
  visit to ensure that broker is consistent with
  proper controls.

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Administrative Penalties

• Assessments to members for specific
  contraventions of the Act or Rules
• Applied where findings are clear breaches of the
  Act
• or member has contravened conduct listed in
  Schedule 1 of the Bylaws
• Or resulting from an investigation or during a
  periodic inspection.

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Notification and Payment

• When member is assessed administrative penalty,
  the Executive Director issues a written notice,
  either served personally or by registered mail,
  specifying
• Contravention believed and details.
• Payment required to satisfy penalty.
• That failure to pay may result in legal action,
  and
• That member has right to appeal.

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Administrative penalty cont

• The Executive Director may issue a notice and
  assess an administrative penalty for a
  contravention that occurred up to 3 years ago,
  but no longer.
• Penalties MUST be paid within 30 days of the date
  the written notice was issued (may be extended by
  the Executive Director if believed that the
  penalty may cause undue hardship).
• Member may choose to appeal this penalty by a
  process including a security of costs of up to a
  max of 1000.

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More to KNOW!

• The Real Estate Act
• The RULES of the Real Estate Act
• Bylaws and Schedule 1
• Regulations
• Real Estate Mrtg Financing Services
• Agency Disclosure Brochure
• Informed Dual Agency Consent Form
• Electronic Marketing Interpretation Guidelines
• Complaints Investigations