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TRESA has promised more professionalism, stronger consumer protection and better education for buyers and sellers
Published on January 1, 2024 • Last updated 30 minutes ago • 4 minutes reading time
Three provisions in Ontario's TRESA attracted the most interest: open bidding, the introduction of “designated representation,” and new sales commission rules. Photo by Tony Caldwell/Postmedia
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The rules governing real estate brokerage in Ontario changed in December when the Trust In Real Estate Services Act (TRESA) came into effect, promising greater professionalism, stronger consumer protection, transparency and education for both buyers and sellers.
TRESA, which replaces the Real Estate & Business Brokers Act of 2002, contains numerous changes to the way consumers could interact with their real estate agents and is intended to improve property management, which appears to be missing. The Auditor General of the Province presented in 2022 the “Activities (the (Real Estate Council of Ontario) “…are not always effective and timely” and found that 88 percent of the 2,643 complaints about alleged violations by real estate agents were summarily closed without any follow-up or escalation to the investigations department.
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However, three provisions in TRESA attracted the most interest: open bidding, the introduction of “designated representation,” and new sales commission rules.
The first is intended to address the bidding wars that erupted in the early stages of the pandemic, when prices rose rapidly and potential buyers were forced to bid excessive amounts above the list price for fear of missing out. Subsequently, many buyers discovered that they had been tricked into bidding hundreds of thousands of dollars more than the second highest offer. This gave rise to the demand for open disclosure of competitive offers.
TRESA only partially addresses this problem. Rather than clearing the veil, the seller has discretion to disclose competing offers. The law allows buyers to require sellers to disclose written offer details (price, terms and conditions), but this will only happen if the seller agrees.
Michael Walsh, owner and registered broker at Exclusively Buyers Inc. (EBI), an Oakville, Ontario-based real estate brokerage that, as the name suggests, exclusively represents homebuyers, said: “Publication of information about prices, terms and conditions is not the case.” is mandatory according to the revised guidelines. It’s at the seller’s discretion.”
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Do these changes ease homebuyers' fears of blind bidding? Walsh disagrees.
Another change to the law is called “designated representation.” TRESA allows consumers to appoint one or more agents with a real estate agent to represent their interests. The broker is now named in the contract with the broker, which helps to improve transparency in the case of so-called multiple representations, i.e. when brokers from the same broker represent the buyer and the seller.
Walsh advised consumers (TRESA calls them customers) to be careful here. “Historically, home sellers were guaranteed that no broker at the brokerage firm would ever suggest that the seller's home was overpriced or by how much, or that they would negotiate against the seller's interests in any way. The new law changes that.”
According to the law, the buyer's agent can advise the buyer whether and for how much he wants to make an offer on the seller's property and has an appropriate representative, and can suggest to him terms and conditions to be added to the offer at the expense of the buyer's interests of the seller. This is the case even if the buyer and seller are clients of the same real estate brokerage firm.
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TRESA also addresses sales commissions, which are controversial and currently being challenged in court.
In the United States, a $5 billion verdict against the National Association of Realtors and two co-defendants brokerage firms has set a precedent for sellers to challenge the practice in which their agent promises to give the buyer's agent a portion of the Commission to be split or paid in full.
Several significantly larger class action lawsuits are currently in court. These lawsuits accuse the industry of artificially inflating real estate commissions beyond the level of a “freely competitive” market.
Walsh believes past practices allowed the seller's agent to offer compensation directly to the buyer's agent, even though the buyer was not privy to that offer. The buyer cannot stop or change the commission offered. “That’s the problem,” he said. “The buyer is left out.”
In practice, most buyers are happy with this arrangement because they don't have to dig into their pockets to pay brokerage fees. That's perhaps why home sellers took the first legal action in the United States
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“The sellers didn’t like the idea of being “forced” to pay for the buyer’s agent. So they sued. And they won,” Walsh said. “But here’s the strange thing. Sellers were not forced at all. You always had the option of not offering to pay the buyer's agent. Or pay a minimum amount. The offers were made on the advice of the seller’s representatives.”
TRESA requires a seller's agent to clarify that the amount a seller pays for the seller's brokerage services “does not include any amount that the seller might offer to a buyer as compensation for his buyer's brokerage fees.”
Additionally, Walsh said, “A listing agent will still be permitted to offer compensation directly to a buyer's agent by including the amount in the listing commission.” A buyer will still not be able to change the payment and may have to (through the Purchase price) pay a broker, even if you didn’t use one.”
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It's still early days and the real estate industry is trying to understand the new regulations. TRESA may not have gone far enough, but it is a small step towards greater transparency and trust in the industry.
Murtaza Haider is director of Regionomics Inc., a consulting firm specializing in predictive analytics and machine learning. Stephen Moranis is a real estate industry veteran. They can be accessed on the Haider-Moranis Bulletin website at www.hmbulletin.com.
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