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December 2014 Report from Council Newsletter
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Paying Referral Fees to Unlicensed Lead Generation Businesses is Prohibited
We all know that sales leads are important for a growing real estate business. But if you’re tempted to use a lead generation service, stop to consider this: the Real Estate Services Act (RESA) prohibits the payment of referral fees to unlicensed people operating such services.
Recently, the Council has noticed an increase in both the numbers and the variety of websites whose main business is to identify people who wish to buy, rent or sell real estate. Typically, the unlicensed operators of these online lead generation services refer potential clients to licensees in exchange for a referral fee from the licensee. Some lead generation services position themselves as “immigration advisors,” and seek payment from licensees in return for introducing them to off-shore buyers. Others, the Council has found, are licensees operating lead generation websites that do not identify their brokerages or even reveal the fact that the site’s operators are licensed.
The problem? This activity-soliciting for the purpose of providing real estate services-requires a real estate licence. Websites that find people who are interested in buying, renting, or selling real estate, and that refer those people to licensees for a fee, are soliciting for the purpose of providing real estate services. As a licensee, you may only solicit names of persons who are interested in acquiring or disposing of real estate in the name of the brokerage with which you are licensed. You must not accept any remuneration in relation to real estate except through your brokerage. Licensees found to be operating lead generation services, outside of their brokerage, will be subject to discipline for contraventions of RESA and the Council Rules.
An unlicensed person can only make a referral to a licensee and be paid for it under the following circumstances:
- they do not engage in activities to solicit the names of persons who may be interested in acquiring or disposing of real estate, and
- the practice of making referrals and receiving referral fees is incidental to their main business.
So before you accept and pay for a referral from an online lead generation service, remember that licensees are prohibited from paying people who are not licensed, and who are not exempt from the requirement to be licensed, for the provision of real estate services.
With the holiday season almost here, many of us find our thoughts turning to family and friends, and to enjoying the celebrations of the season with our loved ones. But even in the midst of the fun and festivities, we can always spare a thought or two for our professional responsibilities. That’s why I encourage you to take the time to carefully review the articles in this Report from Council newsletter and consider how the advice and guidance contained in these pages can help you to ensure that your professional practices are always in compliance with the Real Estate Services Act and its regulations, as well as with the Council Rules and Bylaws.
In this issue we draw your attention to the growing problem of unlicensed lead generation services, which are proliferating online. Make sure that you’re not paying for referrals from any unlicensed lead generation services whose main business is soliciting for the purpose of providing real estate services. These businesses require a real estate licence. Licensees who operate lead generation services outside of their brokerages are also in contravention of the Council Rules and at risk of being investigated and possibly disciplined for their activities.
Project marketing for real estate developers is another risky area that licensees should be aware of, and in this issue we tell you why: licensees cannot provide real estate services outside of their brokerage, and all remuneration for real estate services must be paid into the brokerage’s trust accounts, never directly to a licensee.
By turning to the Disciplinary Decisions at the back of the newsletter you’ll note that there are cases in this issue of licensees disciplined for providing services separate from their brokerage, and for providing services for which they were not properly licenced. If you’re tempted to provide real estate services outside of your brokerage, whether it’s as a favour for a friend or for profit, remember: as a real estate licensee you may conduct real estate activities only in the name of your related brokerage, and only in the specific categories for which you are licenced.
Finally, if you’ll be renewing your licence in the New Year, you should be aware that because of recent changes to the Council Rules you must report additional details about any bankruptcy proceedings (either personal or business-related) that were initiated over the past two years. Carefully review the expanded questions #2 and #3 in the “Information Respecting Reputation and Suitability” section of your renewal form to be sure you’re including all the necessary information.
On behalf of Council members and staff, I wish you and your family a Merry Christmas, a happy holiday season, and best wishes for the New Year.
Susan McGougan, Chair
The Council office will be closed on
- Thursday, December 25 for Christmas Day
- Friday, December 26 for Boxing Day
- Thursday, January 1, 2015 for New Year’s Day
- Friday, January 2, 2015
Understand the Risks of Project Marketing
As a real estate licensee, you know how to market and sell real estate. So it may seem like a natural extension to your business to begin offering project marketing services to real estate developers.
And, in fact, the Council has become aware that over the last few years, an increasing number of licensees are doing just that: setting up unlicensed companies that operate separately from the brokerages with which they are licensed, in order to provide project marketing solutions to developers.
Licensees who take this step need to be aware that they can easily find themselves on the wrong side of the Real Estate Services Act and the Council Rules. They may even potentially be the subject of a complaint or investigation by the Council.
The risk arises because, although designing a marketing plan may be an activity that does not require licensing, executing that plan is considered a licensed activity. In fact, it is by definition real estate advertising.
Project Marketing is Real Estate Advertising
Here is how real estate advertising is defined in the Council Rules:
“real estate advertising” means any form of identification, promotion, solicitation or representation relating to
- real estate,
- a trade in real estate, or
- the provision of real estate services, including a sign or other notice relating to real estate, a trade in real estate or the provision of real estate services;
(See Council Rules, www.recbc.ca/licensee/rules.html#section1-1)
In most instances, it is trading services that relate specifically to project marketing. According to section 1 of the Real Estate Services Act, “trading services” means
- advising on the appropriate price for the real estate;
- making representations about the real estate;
- finding the real estate for a party to acquire;
- finding a party to acquire the real estate;
- showing the real estate;
- negotiating the price of the real estate or the terms of the trade in real estate;
- presenting offers to dispose of or acquire the real estate;
- receiving deposit money paid in respect of the real estate
As a licensee, when you execute a marketing plan, you are making representations about real estate and you are finding parties to acquire real estate. As the definitions above make clear, these are licensed activities that must only be done in the name of your brokerage.
Remember, once licensed under the Real Estate Services Act, you are “once a licensee, always a licensee.” None of the exemptions from licensing set out in the Real Estate Services Regulation apply. You may only provide services defined as real estate services in the name of and on behalf of the brokerage with which you are licensed and you may only receive related remuneration that is first paid into the trust of your brokerage-never directly.
Although the world of real estate development marketing may be attractive, remember to keep in mind these legislated restrictions, and avoid the risks of engaging in real estate advertising or providing real estate services outside of your brokerage.
New Consent Order in Relation to Unlicensed Real Estate Services
The Office of the Superintendent of Real Estate at the Financial Institutions Commission (FICOM) has advised that a new consent order in relation to unlicensed real estate services has been posted to the FICOM website here. The order commits Jason Gee Sing Pao and Jason Gee Sing Pao dba M G Property Management Co. to cease conducting real estate services as defined in the Real Estate Services Act unless and until becoming appropriately licensed.
How does designated agency affect your co-listing agreement?
Co-listings-when two brokerages or licensees agree to work together to sell a property-can sometimes result in complicated situations. As a licensee, you should be aware of the potential complications that can arise, and know how to handle these situations. For instance, take the case of Felix and Hector:
Felix and Hector are both licensees. Felix is licensed with ABC Realty Ltd. and Hector is licensed with XYZ Realty Ltd.
When Sally decides to sell her property, she chooses to co-list it with both brokerages. Felix and Hector are appointed as designated agents for Sally by their respective brokerages.
A week later, Felix begins working as a designated agent for buyers who decide they want to make an offer on Sally’s home. Felix does not share any of the buyer’s confidential information with Hector.
What are Felix’s responsibilities to his clients?
Felix must obtain the consent of both Sally and the buyers before he can represent both parties in relation to this transaction. He must inform them about the limits to his duties and obligations to them that will result from this arrangement. If Felix is to become a dual agent with respect to both the seller and the buyers, he must treat both parties impartially. If the buyers want independent representation, they will not be able to get that from Felix.
In obtaining this consent, it is important for Felix to inform the buyers that he and Hector have co-listed Sally’s property for sale and that Hector will be representing Sally in the negotiations. However, Felix must not allow the buyers to think that Felix will solely represent the buyers.
How is Hector affected?
So long as Felix does not share any of the buyers’ confidential information with Hector, Hector is able to retain his sole agency status and can continue to act as the designated agent of the seller. In this situation, Hector is the designated agent of the seller only and has no duties to the buyers, other than to act honestly and with reasonable care and skill.
Felix, however, is a designated agent for both the seller and the buyers, has received the consent of the two parties to act as a dual agent, and must treat them impartially.
Would this scenario be different if both Felix and Hector are with ABC Realty, and Sally co-lists her property with Felix and Hector acting as designated agents?
No. So long as Felix does not share any of the buyers’ confidential information with Hector, Hector is still able to retain his sole agency status and continue to act as the designated agent of the seller only. Felix, however, is already a designated agent for both the seller and the buyers, has received the consent of the two parties to act as a dual agent, and must treat them impartially.
How is this different if Felix and Hector are a team that is licensed with ABC Realty Ltd.?
The essence of the team concept is that team members work together, using their combined years of experience and knowledge to assist their clients. This is part of the value-added proposition that teams typically promote to their clients. Because the Hector and Felix Team share information about all their clients, Hector and Felix are not able to separate their agency relationships.
This means that Hector is not able to act as designated agent for Sally while Felix acts as designated agent for the buyers.
What if Felix and Hector are licensed with a brokerage that does not practice designated agency?
While most brokerages in BC practice designated agency, some continue to act under the system of brokerage agency. This means that whenever a client enters into an agency relationship with the brokerage, all licensees at that brokerage take on the same duties in relation to that client.
In brokerage agency, there is no designation of one licensee to act as a designated agent on behalf of one client while a different licensee acts as a designated agent on behalf of a different client. There are no information barriers created to retain a client’s confidential information. Therefore, under brokerage agency, Felix and Hector, with the seller’s and buyers’ consent, would both be acting as dual agents.
Selling Properties with Onsite Wastewater Treatment Systems
In BC, many homes outside major urban areas don’t have access to a public sewer system. This means wastewater must be treated on the property, in accordance with the provincial Sewerage System Regulation, using what is known as an “onsite wastewater treatment system.” According to statistics collected by the Ministry of Environment, there are currently about 250,000 onsite systems across the province.
For licensees representing sellers of properties with onsite wastewater treatment systems, there are a number of details they should be familiar with, in order to provide informed and competent service to their clients. Licensees may wish to consider the following questions when listing a property with an onsite wastewater treatment system:
Does the Sewage System Regulation (SSR) apply to my client’s property?
The Sewerage System Regulation (SSR), which came into force on May 31, 2005, covers onsite wastewater systems that:
- process a sewage flow of less than 22,700 litres per day;
- serve single-family systems or duplexes;
- serve different buildings on a single parcel of land; and
- serve one or more parcels on strata lots or on a shared interest of land.
The SSR requires that records of the construction of the onsite system, and of any subsequent alterations to it, be filed with the local health authority. This applies to all properties, including those in remote areas or unorganized territories, whether a building permit is required or not.
What about properties with systems constructed prior to May 31, 2005?
The SSR is not retroactive. However, the seller should be able to prove that the system was in compliance with the regulation in effect at the time the system was constructed. Permits were required for systems built prior to May 31, 2005 and should be available at the local health authority. Please keep in mind that many documents have been lost/destroyed through the years, so the lack of information at the health unit may not necessarily mean that a permit was not taken.
Has the system been planned and installed according to the regulations?
Owners who have constructed a new onsite wastewater treatment system on or after May 31, 2005, or whose systems have been altered or repaired since that date, must have retained the services of an authorized person to plan, install and maintain the system. An authorized person is either a professional engineer or a Registered Onsite Wastewater Practitioner (ROWP). Although systems constructed prior to May 31, 2005 are not subject to this requirement, it is highly recommended that system maintenance be performed by a ROWP.
ROWPS are registered with the Applied Science Technologists & Technicians of British Columbia (ASTTBC), which recognizes four categories of practitioners:
- Planners, who perform site and soil assessments, design systems, and create maintenance plans for systems,
- Installers, who install systems according to design plans,
- Maintenance Providers, who monitor and maintain systems, and
- Private Inspectors, who inspect and assess existing systems.
Before beginning construction of an onsite wastewater treatment system, the authorized person must file the system’s plans and specifications with the local health authority. Within 30 days of completing the installation of the system, the authorized person must file the following documents with the local health authority, and provide copies of all documents to the owner:
- a letter of certification;
- a plan of the system including an As-Built Drawing; and
- the Operating and Maintenance Manual.
Has the Use Changed?
Where a new use will be made of an existing onsite wastewater treatment system previously permitted under the 1985 Wastewater Treatment Regulation (for example, a house being built to replace a temporary or seasonal dwelling), an authorized person should conduct a site evaluation and a documented inspection of the system to determine if it is suitable for the new use.
If the system requires upgrading, all regulatory filing provisions apply, including plans, specifications and a site evaluation with report.
Has the system been adequately maintained?
All onsite wastewater treatment systems need regular ongoing maintenance. Once an onsite system is installed, upgraded or repaired, it is the homeowner’s responsibility to ensure that the maintenance plan is followed. If the homeowner does not maintain the wastewater treatment system properly, malfunction and possible failure of the system can result, and the homeowner may need to pay for costly repairs or replacement of the disposal system.
The Sewerage System Regulation and the Sewerage System Standard Practice Manual (created by the Ministry of Health) stipulate who may design, install or maintain sewage systems. All work on onsite systems, such as repairs to systems, and any maintenance on systems, must be performed by an authorized person. This includes the regular monitoring and maintenance of septic tanks, treatment plants or processes and dispersal fields (which may be required up to three times per year depending on usage and other conditions that may affect performance).
Have I obtained all required documentation for the system?
As a licensee acting for the seller of a property with an installed onsite wastewater treatment system, you should obtain the pertinent records from the local health authority in order to verify that:
- for a wastewater treatment system installed prior to May 2005, the appropriate permit has been issued and the system was installed with the approval and inspection of the appropriate department of the B.C. government; or
- for any wastewater treatment system installed after May 2005, that it was installed by an authorized person as defined in the Sewerage System Regulation and a Letter of Certification was filed with the local health authority; and
- records of any major repairs and/or upgrades to the system have been filed with the health authority.
Wastewater treatment systems may be subject to periodic inspections by the local government or the health authority may have issued a work order for a particular system. Licensees should check with the local health authority for the existence of such work orders and inspection reports.
What if the inspection reveals problems with the system?
Existing systems that require repairs and/or replacement must be brought into compliance with the Sewerage System Regulation, with limited exceptions. In addition to determining that the system was appropriately installed, a buyer should determine whether any maintenance on the system is in compliance with the Maintenance Plan filed with the health authority.
What disclosure is required?
Sellers must disclose any known problems with a septic system. Typically, a record of pumping (of the septic tank) and a copy of the septic permit (if applicable) is usually sufficient for disclosure purposes. Filing with the health authority is only required if there has been a substantive change to the septic system.
If a Seller has confirmed that an existing wastewater treatment system has been properly installed, inspected and approved, the following clause should be suggested by buyers’ agents for inclusion in an offer:
Seller Sewage System Representation and Warranty Clause
The Seller represents and warrants that:
- the wastewater treatment system on the property (”System”) was installed, inspected and approved by an authorized person as defined in the British Columbia Sewerage System Regulation; and
- a permit/letter of certification respecting the System is on file with the local health authority.
If an inspection reveals that the wastewater treatment system for the property does not meet the necessary standards, the contract should provide a clause such as the following:
The Buyer acknowledges and agrees that the onsite wastewater treatment system (“System”) does not meet the approved standards as required and defined in the British Columbia Sewerage System Regulation, and/or that a permit and/or letter of certification respecting the System is not on file with the local health authority. The Buyer acknowledges and agrees that the Seller has not made any representations nor given any express or implied warranties with respect to the System. The Buyer accepts the System, in its present condition, “as is, where is.”
What if there’s no wastewater system on the property?
In the case of a property without sewage services, the contract should provide a clause allowing the buyer to obtain a site assessment by an authorized person for an onsite wastewater treatment system.
Assessing Property for Wastewater Treatment System Clause
Subject to the Buyer, at the Buyer’s expense, having the property assessed (”Assessment”) by an appropriate authorized person (as defined in the British Columbia Sewerage System Regulation), to determine the feasibility of installing an onsite wastewater treatment system on the property (”System”), along with the cost associated with the installation of the System, and the Buyer being satisfied with the Assessment on or before (date).This condition is for the sole benefit of the Buyer.
Our thanks to the Applied Science Technologists and Technicians of BC for their review and feedback on this article.
The Council, at a meeting on November 12, 2014, approved a revision to a rule adopted at its September 30, 2014 meeting. This rule, as revised, will take effect January 1, 2015.
The revision relates to section 2-21(2)(f) of the Council Rules: the word “licensee” is deleted at the end of subsections (i), (ii) and (iii) and replaced with the word “business.” Use of the word “licensee” was a typographical error.
Amendments to section 2-21 of the Council Rules, including this revision, clarify the information required from existing licensees regarding any bankruptcy, insolvency, or receivership proceedings in which they are involved, either personally or as the director, officer or partner of a business.
Sec. 2-21 Licensee must give notice of discipline, bankruptcy, or criminal proceedings.
(2) A licensee must promptly notify the council, in writing, if any of the following circumstances apply:
(f) any business that the licensee owns, or of which the licensee has been a director, officer or partner at any time during the past 2 years, is the subject of any bankruptcy, insolvency or receivership proceedings, including:
(i) an application for a bankruptcy filed against the
licenseebusiness,(ii) an assignment in bankruptcy made by the
licenseebusiness,(iii) a bankruptcy order made against the
licenseebusiness,(iv) a proposal under Division I of Part III, or a consumer proposal made under Division II of Part III, of the Bankruptcy and Insolvency Act, or
(v) an insolvency proceeding, including a receivership or an arrangement under the Companies’ Creditors Arrangement Act;
Over the past year, the Council has suspended the licences of 29 licensees, for periods ranging from a few days to several months. A licence suspension can be for any length of time, but regardless of how long the suspension is for, one thing does not change: an individual whose licence has been suspended must cease all licensed real estate activity for the period of the suspension.
While your licence is suspended, you cannot be involved in any listing, selling, property management, or strata management activities. Your brokerage must promptly assign any listings or clients to another licensee. You must not communicate with any clients or any consumers about real estate services during the period of your suspension. You must also stop all advertising and promotions. You’ll need to cancel or remove all print, TV and radio ads, information on your website and social media channels and/or your brokerage’s websites and social media, advertisements on buses, bus benches, bus shelters, any signage on your car, and certainly any “for sale” and “sold” signage.
This list isn’t exhaustive-there are other forms of advertising not mentioned here, and if your licence has been suspended you must think carefully about all the ways in which you have advertised your services, to be sure that these advertisements are cancelled during the suspension.
If you are suspended, you will be subject to a Council suspension audit that searches out any real estate activity, including advertising, that occurred during the suspension period. If it is discovered that any real estate activities have been conducted, this could result in further discipline against you. To make sure you don’t suffer the consequences of violating a suspension, take steps to be certain that you’ve complied fully with the terms of the suspension and have stopped all licensed activities.
Discipline
The Council has the ability to impose a number of different sanctions against licensees who have committed professional misconduct or conduct unbecoming a licensee. These range from:
- Reprimanding the licensee
- Suspending the licensee’s licence for a period of time and/or until certain conditions are met
- Cancelling the licensee’s licence
- Imposing restrictions or conditions on the licensee’s licence
- Requiring the licensee to cease or carry out any specified activity related to the licensee’s real estate business
- Enroll in and complete a course of study or training
- Pay for enforcement expenses incurred by RECBC
- Pay a disciplinary penalty in an amount of not more than $20,000 in the case of a brokerage or former brokerage, or not more than $10,000 in any other case.
All discipline findings, whether arrived at through a Consent Order or hearing, are summarized and published in the Report from Council newsletter and on the Council’s website.
Licence Suspension/Cancellation Procedure
When the licence of an individual (representative, associate broker, or managing broker) is suspended, the licensee must cease all licensed activity for the period of the suspension. A licensee may attend the office during the terms of the suspension. However, he/she must not:
- be involved in any listing, selling, or management activity (including managing broker activities);
- host open houses or solicit sellers, buyers, landlords, or tenants in any manner;
- provide advice or guidance to a consumer with regards to a listing contract, property management contract, or a Contract of Purchase and Sale;
- meet with owners to obtain new listing or property management contracts;
- present or negotiate offers;
- enter into a rental contract on behalf of the brokerage;
- communicate with consumers about any real estate transaction or service agreement;
- present or negotiate an offer or any form of service agreement; or
- perform any other activity for which a licence under the Act is required.
Since the October 2014 Report from Council newsletter, the following actions have been taken as a result of disciplinary hearings and Consent Orders conducted by the Council.
Trading Services
- Robert James Harrington Harrington Homes Realty Incorporated dba Price Smart Realty
- Necker Tsz Wing Kwok
- Marianna Murphy
- Jess Francis Laframboise Tantalus Mountain Realty & Management Ltd.
- Jason David Upton Aedis Realty Limited
- Blaine Angus Nicholson Blaine Nicholson Personal Real Estate Corporation
- Marianne Zaragoza Fernandez (King) now known as Miller
Strata Management Services
- Allan Charles Browne Homelife Glenayre Realty Chilliwack Ltd.
- Kevin Donald Green Supplemental Hearing Decision With Respect To Enforcement Expenses
Rental Property Management
- Natalia Garbuzova Kevin John Shaughnessy
- Suzana Honjo