February 1st - 2011

RECO Case: Failure to disclose commission agreement proves costly

The following decision has been condensed from RECO Complaints, Compliance and Discipline Hearings and Appeals. All names of individuals, brokerages and other businesses have been changed.

The following decision has been condensed from RECO Complaints, Compliance and Discipline Hearings and Appeals. All names of individuals, brokerages and other businesses have been changed.

THE CASE
Mr. and Mrs. Walsh wanted to sell their home. They listed it with Morista Brokerage, where Sonny was the broker of record. Sonny received a phone call from Graham, a sales representative with Classinger Brokerage, to arrange a showing of the Walsh house to a potential buyer. Sonny told Graham that he had “nothing going” in terms of prospective buyers for the house and that the Walshes were motivated to sell because they had already bought another property.

After showing the house, Graham called Sonny, saying that he had a signed offer from his buyer. They set up a meeting to present Graham’s offer to the sellers. Right before the meeting, Sonny contacted Graham to inform him that he had also obtained an offer from another buyer and would be presenting it at the same meeting.

The Walshes listened as Sonny presented his buyer’s offer of $124,000 with a $5,000 deposit plus a down payment of 30 percent. Then Graham presented his buyer’s offer of $125,000 with a $1,000 deposit plus a five percent down payment.

After Graham’s presentation, Sonny asked the Walshes for an opportunity to discuss both offers with them privately. Sonny reminded the Walshes that, as per their commission agreement with Morista Brokerage, the commission would be reduced if they chose his buyer’s offer. The Walshes decided to accept the offer from Sonny’s buyer.

Sonny then called Graham, advising him that the Walshes had accepted the offer from his buyer. He also told Graham that both offers were very close in price, but that the Walshes had preferred the offer from Sonny’s buyer because it was a few hundred dollars more and had a much larger down payment than the offer from Graham’s buyer.

Shortly after, Graham learned that the property had actually sold for $1,000 less than his clients had offered. When Graham asked Sonny for an explanation, he was told that one of the reasons the offer from Sonny’s buyer was more attractive was that he has reduced his commission, meaning the Walshes “netted more.” Graham advised Sonny that his conduct violated the law, and he questioned Sonny’s ethics. Graham also asked about the commission charged in this transaction, but Sonny informed him that it was “none of his business.”

THE FINDINGS
The RECO panel determined that Sonny acted unprofessionally by:

  • Failing to disclose the existence of terms of a commission agreement that may affect whether an offer to buy is accepted, at the earliest practicable opportunity, and before any offer is accepted; and
  • Failing to treat sales representative Graham fairly, honestly and with integrity.

The panel determined that Sonny had breached the following sections of the REBBA Code of Ethics:

(3) Fairness, honesty, etc. - Registrants shall treat everyone they deal with in the course of a trade in real estate fairly, honestly and with integrity.

25 (1) Agreements relating to commission - If a brokerage has a seller as a client and an agreement between the brokerage and the seller contains terms that relate to a commission or other remuneration and that may affect whether an offer to buy is accepted, the brokerage shall disclose the existence of any details of those terms to any person who makes a written offer to buy, at the earliest practicable opportunity and before any offer is accepted.

39 - Unprofessional conduct, etc. - A registrant shall not, in the course of trading in real estate, engage in any act or omission that, having regard to all of the circumstances, would reasonably be regarded as disgraceful, dishonourable, unprofessional or unbecoming a registrant.

PENALTIES
Sonny was ordered to pay a fine of $6,000.

MORE
The full case is dated 2009/07/24. It can be viewed at www.reco.on.ca. Look under “Complaints and Enforcement” and then scroll down to the “Disciplines and Appeals Hearings and Decisions” section. Choose the appropriate year, uncheck all other search boxes, and search by date only. For more information on Section 25 of the REBBA Code, see the OREApedia topic on commission at www.orea.com.

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416-445-9910 ext. 246

Ontario Real Estate Association
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