This issue's topics:
Slow seasons in real estate call for business plan
Holdover clause is an ounce of prevention
Conference focuses on going green
Market Watch: Stable resale market predicted
On the Markets: Retiring baby boomers may generate activity
RECO: Registrant fails to check status of listing
Legal Beat: Case illustrates how not to represent a buyer
Looking for volunteers
Donation to human rights museum
Assembly Meeting open to members
Foundation Meeting open to members
Leadership speakers featured at conference
Slow seasons in real estate call for business plan
It’s a field known for seasonal ups and downs and market shifts.
As many real estate professionals can attest, this line of work is often marked by lean seasons when market activity slows greatly. The dead of winter can present a challenge to even the most experienced real estate professional, who still has bills to pay and mouths to feed -- even when it seems no-one is house hunting.
If you earned your registration during a booming market in the past decade, the prospect of a downturn or slow season may seem overwhelming. The state of the economy can also play a role in determining whether a market is “soft” or slow at this time of year.
Experienced REALTORS® who have been through it many times offer some reassurance. They note that real estate has highs and lows -- just as the harvest has fertile and fallow seasons -- but having a plan is crucial to manage in lean times.
Dianne Usher of Toronto and Jan Provence of Muskoka have experienced their share of market ups and downs over the years. The key to success in real estate, they emphasize, is to treat it like a business.
“Having a business plan is the only way to succeed under any market conditions,” says Usher, a former OREA president who has worked in the field for 30 years. She advises her sales staff -- especially newcomers -- to conduct formal business planning each year. Plans should outline in detail the goals salespeople want to achieve, how much income they need and how to earn it.
The plan should also include marketing activities and projected focus, prospecting and professional development. “It’s about setting a goal and then working back to figure out how to reach it,” she advises. “The plan must be detailed and you should revisit it often.”
Setting a budget is vital to a proper business plan, says Usher. As well, a savings plan set up early in your career can help you handle both taxes and lean times. “New people often get into trouble because they don’t put enough money away for contingencies like the HST, income tax or periods when you bring in very little.”
Usher advises REALTORS® to open separate bank accounts for savings and government repayments and to hire a good accountant. “It’s not good business to try to do it all yourself, either in terms of time management or expertise.”
In cottage country, winter is a slow time regardless of the state of the economy, says Provence. “Using a business plan, I‘ve been able to rely on my reserves for the past two winters, which have been extremely slow,” says the Muskoka REALTOR®, who has almost two decades of experience in the field.
Her business plan is quite detailed and includes provisions for the field’s peaks and valleys, perhaps more pronounced in areas known for recreational properties. “If you stick to your plan, you should be able to leave enough funds in your business accounts for the months when you bring in much less.”
After a two-and-a-half year recession in her region, Provence says her reserves are low and she will need to cut back on extras. Instead of booking an expensive vacation down south, she is planning a week off at home, but still expects to enjoy the break. “My grandmother used to say that you cut your coat according to your cloth. Given the state of the world economy, it doesn’t matter what profession you’re in -- you need to be practical. That may mean cutting down on some of the fun stuff until things turn around.”
Regardless of the swings in the market, Provence plans to carry on as a professional. Going into the office every day, connecting with clients, friends and neighbours, and being seen in her community, are strategies she employs to lay the groundwork for busier times ahead.
“It’s important to treat every day as a workday and not to sit around moping about the economy,” she says. “There’s always something you can do to further your business.”
The hard workers in her area are still making a living despite a tough economy and slow season, she adds. “If you disappear off the radar in tough times, it will take a long time to rebuild when the economy picks up again.”
Although Usher stresses the importance of planning for slow times, she believes opportunities exist in any market. She recalls fall 2008, when economists predicted a recession and some of her real estate colleagues left the field. However, others found it a great time to sell to investors and people who wanted to move up and take advantage of lower prices on more upscale homes.
“When there’s a slowdown or if you’re struggling a bit, you can always go back to your business plan and adjust it if it’s no longer realistic.”
Both Provence and Usher say they lacked a business plan at the start of their careers because back then it was not encouraged. Today, many brokerages offer formal training in business planning. “See what your firm offers, or even before you choose a firm, look at its professional development and ask specifically about business planning,” Usher advises.
Many resources are available to help today’s REALTOR®, notes Provence. Checking out various industry websites, connecting with your real estate board and networking with experienced colleagues may also yield tips and training on business planning and strategies to help you through the lean times so you’re ready for action when the market picks up again.
Six tips for business planning
Real estate is an entrepreneurial business that requires vision and goals. Here are six tips for business planning from real estate coach Rich Levin.
1. Respect that real estate is an actual business - To start and grow a successful business, you need to embrace the ideas of strategic planning and implementation. The good news is that with deliberate decisions, conscious effort, and persistence, you can make these your most valuable business skills.
2. Determine what you really want - Strategic planning and implementation require you to set some big goals. Choose what you want from your business. You might want to pay your bills, own a nice car, buy a house, take vacations or fund your retirement. Regardless of what you want, you must continually ask yourself: "Why do I want these things?" The “why” is the emotional driving force behind your success.
3. Determine your measures - Pick a reasonable amount of income. There are two parts to this. First, determine the sales volume you need to achieve that income. Then identify the activities needed to generate the leads and turn them into those sales.
4. Analyze your progress all the time - Look at those measures weekly. Take at least a half hour to look at your results and decide what is working and what isn’t. What do you need to adjust to make it work better? One note of caution here: Don’t base these judgments on activities but rather on results.
5. Make time for the people and activities you love - Too many real estate pros burn out and leave the industry because they fail to meet their goals and are overcome by the stresses of the job. You have to schedule time for yourself and honour that time, or the business will leak over into your whole life.
6. Create a schedule of your daily habits, and stick to it - Your daily habits will directly determine whether you meet your goals. Set aside one hour a week dedicated to each of these priorities: Contact people to make appointments, advance your use of technology, implement a mix of traditional and new marketing methods, contact your pending clients and listed sellers to update them, rehearse your presentations, think and strategize about your business.
For more details, visit www.richlevin.com.
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Holdover clause is an ounce of prevention
Although many OREA standard clauses are designed to protect your clients, the holdover clause in a listing agreement was specifically created to protect REALTORS® by ensuring that you receive the commission you’ve earned if a house sells.
“The holdover clause is like an ounce of prevention, giving us some recourse against sellers who may not be playing fair,” says Ron Abraham, a King City broker, OREA instructor and president-elect. “If I show someone a property I’ve listed -- or even if another salesperson introduces a buyer -- this clause gives me some protection if the buyer and seller hook up in a private deal after my listing expires. It recognizes that I’ve put time and effort into finding that buyer.”
If agreed to by the seller, a holdover clause may be included in the listing agreement between seller and brokerage. If a buyer who was shown or introduced to a property when it was originally listed later approaches the seller directly once a listing expires and purchases it during the holdover period, the listing brokerage may make a claim for commission.
As well, if a seller re-lists a property with a different brokerage and sells it to someone shown or introduced to the property during the original listing period, the first brokerage may make a claim for commission -- but only if the commission on the new listing is less than it was in the previous listing. Most often, the claim would be limited to the difference between the two amounts.
If the eventual buyer was not shown or introduced to the property during the original listing’s term, no claim for commission can be made. Moreover, if negotiations begin between a buyer and seller during the listing’s term but conclude after the holdover period’s expiry, it is more likely that a court would find that the contract was outside the holdover period, and a claim for commission would be less likely to succeed in those circumstances. The listing brokerage may wish to have its lawyers review section 23 of the Ontario Regulation 567/05 – General to see whether a claim for commission would have more success under that section.
All commission terms are negotiable. The exact wording and time limit of the holdover period in a listing agreement can vary so the time period is left blank until the broker or salesperson discusses it with the client. No maximum limit exists for the holdover period -- it can last any duration, as long as the client consents after being fully informed. (References to the holdover clause can be found in clauses 2 and 5 of the listing agreement.) Some brokerages develop specific policies to address the holdover period.
Abraham notes that problems with the holdover clause are uncommon, but the clause should be explained to clients when the listing agreement is discussed.
“Most people realize the amount of time and effort you put into selling their home and that you deserve to be paid,” says Abraham. “The holdover clause is there not only to protect your commission but also that of the cooperating brokerage.”
Explaining the holdover clause thoroughly will ensure that your clients understand its purpose and help to prevent future problems, says Abraham. “Issues about the holdover clause usually don’t arise if a salesperson discloses and explains all of the documents thoroughly in a transaction.”
Similar holdover provisions may also be included in a Buyer Representation Agreement (BRA) and in seller customer service agreements if the buyer or seller agrees.
Summaries of relevant court cases can be found in OREApedia under Holdover Clause/Holdover Period. Cases such as Culligan Real Estate v 1336459 Ontario Ltd. can be viewed there and in EDGE newsletter’s January 2007 issue. See also the case of Homelife/Vision Realty v Clubine, noted in EDGE newsletter’s June 2010 issue.
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Conference focuses on going green
The Real Estate Forum’s Green Real Estate conference will examine the economics, benefits and value of green buildings. Developers, investors, shareholders, lenders, brokers and valuators can find out how to create sustainable value by improving performance in new and existing buildings with a focus on practical information that can be applied to today’s market conditions. The conference takes place April 4 at the Metro Toronto Convention Centre. Visit www.realestateforums.com and click on Green Real Estate Conference under “Forums and Conferences.”
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Market Watch: Stable resale market predicted
Ontario housing demand is expected to slow in the coming months due to fewer first-time buyers and a modest pace in economic and job growth, says a recent CMHC report. The report predicts stability for the less expensive resale market, with nearly 196,000 unit sales for 2012. Slow job growth is projected to temper increases in activity. However, steady sales and higher home listings will move Ontario’s resale markets into balance, with the average price predicted at $366,100 for 2012. Visit www.cmhc.ca and type “provincial forecasts” into the top right search box and then click on #1, Housing Market Outlook – Canada.
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On the Markets: Retiring baby boomers may generate activity
Forty per cent of baby boomers in Ontario plan to move for their retirement, but many are waiting to sell their homes in the hope that values will increase, according to a recent report.
Baby boomers -- those born between 1946 and 1964 -- indicated their top motivating factors to move in a TD Canada Trust Boomer Buyers Report. They reported that their home is part of their retirement strategy (37%) or their current home is too big (29%). Although many respondents delayed their downsizing plans because of house value, nearly one in five indicated that they need the extra space to accommodate adult children still living with them. Those adult children are also keeping some boomers (17%) from moving at all.
Almost half of boomers (45%) in the province still have a mortgage on their home and the majority (57%) revealed they will need another to finance their next home purchase. Seven in ten respondents indicated that they plan to make a large down payment on their next home purchase, while almost half (49%) will try to save on interest payments by making more frequent mortgage payments and shortening the amortization period.
Although 63 per cent of Ontario boomers say they believe they will be able to retire mortgage-free, 37 per cent say it’s not likely because of other expenses.
Baby boomers -- whether mortgage-free or not -- will continue to drive demand in the national housing market over the next 20 years, according to the Conference Board of Canada. The board predicts that by 2030, more than 60 per cent of new households will be aged 75 and older. If younger seniors are included, that figure jumps to 81 per cent. Seniors are expected to look for smaller, less burdensome housing, boosting demand for multiple housing units, especially condos and apartments.
The board’s Canadian Long Term Economic forecast predicts that the share of multiple housing units will increase from the current rate (47%) upwards (to 68%) in 2030. “As the population ages, construction will shift from single family dwellings in the suburbs to multifamily developments catering to the needs and desires of the soon-to-retire baby boom generation,” the article concludes.
Visit www.tdcanadatrust.com and insert “boomer buyers report” in the search box or www.conferenceboard.ca and insert “baby boomers housing market” in the search box.
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RECO: Registrant fails to check status of listing
The following decision from RECO Discipline and Appeals Hearings has been condensed. All names have been changed.
THE FACTS
Sarah wanted to sell her house. She signed a listing agreement for six months with the help of Ken, a salesperson at Dolsin Brokerage. After nearly three months, the list price had been reduced, the house remained unsold and the listing was cancelled. Sarah then entered into a second listing agreement with Dolsin for another six months. However, Sarah was again dissatisfied, and after two months she and Dolsin signed a suspension of the second listing.
Meanwhile Ross, a salesperson with Zeshur Realty, had a buyer for Sarah’s house. Before approaching her, he conducted a search of conditional sales and expired (terminated) listings on the real estate board’s MLS® System and came across the first cancelled listing between Sarah and Dolsin. When Ross approached Sarah with a printout, she verified that it was her terminated listing, but she did not have a copy of the cancellation agreement.
Ross drafted a new listing agreement between Zeshur Realty and Sarah. Sarah’s house sold just one day after she signed the new listing agreement with Zeshur, which represented both Sarah and the buyer in the transaction.
When Ken learned that Sarah’s house had sold, he sent a letter of complaint to RECO stating that his brokerage still held an active listing on the property at time of sale. Although suspended, the second listing agreement between Sarah and Dolsin Brokerage was still in effect when Sarah signed the listing agreement with Zeshur Realty and when her property sold. In his response to RECO, Ross admitted that he made a mistake by searching only expired (terminated) listings for the address of Sarah’s property and not checking active listings.
THE FINDINGS
The RECO panel determined that Ross acted unprofessionally when he failed to conduct a search of active listings by address and only searched under expired and conditional sales. Ross’ actions put Sarah in a position to be potentially liable for two commissions on the same property. The panel ruled that Ross breached four sections of the REBBA 2002 Code of Ethics: (4) Best Interests, (5) Conscientious and competent service etc., (38) Error, misrepresentation, fraud etc. and (39) Unprofessional conduct.
PENALTY
Ross was ordered to pay $5,000. The full case is among those dated 2011/04/11 and can be viewed at www.reco.on.ca. Look under "Complaints and Enforcement" and scroll down to "Disciplines and Appeals Hearings and Decisions." Choose the appropriate year and search by date only.
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Legal Beat: Case illustrates how not to represent a buyer
This case involved the sale of a Niagara Falls motel. The registrant, Neelam Bhalla and her brokerage, Sutton Group Results, acted in a multiple representation (dual agency) situation in the sale of the motel by Surma, the seller, to the buyers.
Bhalla's husband Narinder assisted in the transaction. He was not a real estate registrant but the buyers believed that he was. He was a former real estate salesperson and a previous motel owner.
The seller misrepresented the income and value of the motel, which sold for $2.6 million. The buyers moved into the motel and tried to operate it, although the revenue was significantly lower than they expected. They spent money on renovations and eventually sued.
The judge ruled that Narinder was Neelam's agent. He was described as “the front man, shepherding the deal through on his wife's behalf.” The judge found that, “Given their marital relationship and his extensive involvement in the negotiations,” Neelam knew what her husband was doing and accepted him as co-agent. He ruled that both she and her brokerage were responsible for any damages resulting from Narinder's actions. The trio (comprised of the seller, Narinder and Neelam) all grossly misrepresented the motel's value, exaggerating and falsely stating its worth. The seller was found liable for fraudulent misrepresentation.
The judge then considered the breach of duty of Bhalla and Sutton, finding that “the Bhallas failed miserably in carrying out their fiduciary duties.” Neelam admitted that she was concerned about the discrepancy between the financial statements and the seller’s previous estimate of revenues, but she failed to alert the buyers or recommend that they obtain an independent valuation.
Neela and Narinder Bhalla were thus found to have facilitated the seller’s misrepresentations of the motel's annual revenues. The couple also suggested a price that they knew or should have known far exceeded the motel's value. The judge said he inferred that that the Bhallas misrepresented both the motel’s value and revenues “in order to earn the sizable commission involved, which, at 3.5 per cent, equalled $91,000.”
The judge noted that Neelam “recommended a purchase price that bore little relation to market value.” In addition, she "failed to alert the plaintiffs of the huge discrepancy between the financial statements and what [the seller] had told her he was earning."
The defendants were found liable for damages, jointly and severally. That amounts to more than $946,000, plus costs.
1505986 v Surma 2010 ONSC 3907
MERV'S COMMENTS
This is an amazing story and cautionary tale of how not to represent buyers and how not to handle a multiple representation scenario. Commercial REALTORS® may want to read the entire decision to see what was done improperly. Some residential REALTORS® might also want to read this to learn more about how to avoid commercial deals with deceitful sellers.
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Looking for volunteers
Joining a committee or task force is a great way to meet colleagues and make a contribution to the real estate profession. Serving your profession in this way works to enhance your knowledge of and connections to the field. Members of OREA are invited to apply online for positions by visiting www.orea.com/VolunteersApplicationForm or click on Members and then Volunteer Application Form. New committees will be struck after the February 29 Assembly. The application deadline is March 14.
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Donation to human rights museum
Ontario REALTORS® have made a significant contribution to human rights with a donation of $55,000 to the Canadian Museum of Human Rights in Winnipeg, Manitoba. The Ontario Real Estate Association joins the real estate community around the country in contributing to this important institution. Boards and associations across Canada have been supporting this endeavour through the Friends of the Canadian Museum for Human Rights campaign, whose goal is to raise $150 million. To date, $125 million has been raised for the first national museum to be built outside of Ottawa. The museum’s mission is to enhance the understanding of human rights, to promote respect for others and to encourage reflection and dialogue. Visit http://www.beginswithyou.net/.
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Assembly Meeting open to members
All members are invited to attend the OREA Annual Assembly Meeting on Wednesday, February 29 at Toronto’s Sheraton Centre Hotel, 123 Queen Street West. An Open Forum will take place at 9:15 a.m. and the Assembly Meeting will take place immediately following the Open Forum, but no earlier than 9:45 a.m. All members are welcome to attend both the Open Forum and Assembly Meeting. For more information about the Assembly Meeting, contact your local real estate board.
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Foundation Meeting open to members
Immediately following the OREA Annual Assembly Meeting (see previous item) on February 29 will be the first REALTORS Care Foundation Annual General Meeting and elections for the foundation board of directors, with real estate boards being the voting members. This meeting reflects approved changes to the foundation’s structure for the future. All members are welcome to attend. For more information, contact your local real estate board.
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Leadership speakers featured at conference
The 2012 OREA Leadership Conference takes place from Feb. 28 to March 1 and features various motivating speakers at the event at Toronto’s Sheraton Centre Hotel. The keynote speaker is Stefan Swanepoel, a business executive, author and motivational speaker, who will speak on “Safari of self-discovery: seven skills to master business and life and overcome adversity.” Other speakers are: Dr. Chris Bart, an expert on corporate governance and leadership on “Achieving great governance at your board,” and “Timeless leadership lessons for success;” Enette Pauzé, an expert on leadership, professional training and coaching, on “Leading with integrity;”, and Piers Steel, a professor at the University of Calgary’s Haskayne School of Business on “The science of motivation and procrastination”. For more information, visit www.orea.com/conference.
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