William McCarthy is a private developer and consultant and a former president of the Real Estate Institute of Canada.
The preamble of the Realtor Code of Ethics and Professional Standards states that, "Under all is the land. Upon its wise utilization and widely allocated ownership depend the survival and growth of free institutions and of our civilization."
Conscientious and skilled realtors know that sustainable real estate is always based on proven fundamentals, and that fiduciary duty to their client is paramount. Many of their clients are making the biggest financial and lifestyle decision of their lives. If you lose control of your housing market, you lose control of your economy – and future.
In British Columbia, the politicization of our markets and the lowering of professional standards have coincided with a deepening housing affordability crisis. Nowhere is real estate practised like it is right now in Greater Vancouver.
Each province is responsible for regulating its own Real Estate Act. While the real estate industry promotes itself as a body of professionals, its boards and associations operate more as a trade association. By their own recent admissions, realtors have acknowledged that real estate boards and associations are "private member organizations whose primary obligation is to our members." The public has to grasp this.
Realtors lobby governments they financially support for the benefit of their members first and foremost. In British Columbia, both the centre-right provincial government and the centre-left City of Vancouver share the same group of fundraisers and "advisers" from the real estate and development industries. Politicians do not seem to understand what they have created. Jurisdictions which truly aspire to be "world class" do not follow the wisdom of condo sales people.
Rather than moderate access to our real estate markets and raising professional standards, the opposite occurred in Greater Vancouver, driven by the following key developments.
1. The licensing requirements in British Columbia have consistently been lowered. When I applied for my salesman's licence in 1987, and then my agent's licence in 1989, I had to attend lectures at the University of British Columbia and pass written assignments before I was even eligible to write the licensing exam. Even if I completed all of these requirements, I still had to secure an agent to "hang my licence with." This was not a given, as the agent was assuming full responsibility for my actions. After two years I could repeat the cycle to earn my agency (brokerage) licence. Nowadays, you need only complete very basic chapter assignments online before writing a multiple-choice exam (based upon an established data base of questions) to earn your licence.
2. The real estate brokerage industry has changed dramatically. Many agency business models are based upon the number of sales people licensed with them, who in turn pay the agency a desk fee, and/or a partial commission to hold their licence. Hence, new licensees can easily find an agency to place their licence with. In turn, the higher the housing price, the higher the real estate commission. This is not how a professional team is led or operates.
3. Real estate promotes itself as a profession and career, but in 2003, the requirement that you had to be employed solely as a realtor was waived. It can now be a part-time endeavour. Other legislation, such as members adjudicating complaints between fellow members and the public (instead of member disputes only) favour the industry, not the consumer.
4. The real estate industry, financial institutions and governments together have forgotten basic housing metrics which worked efficiently for generations: markets and prices aligned to local incomes and financial stability. Minimum down payments used to be one-third of the actual sale price and total mortgage debt servicing could not exceed one-third of your household income. It should be no surprise that lowering the threshold to enter the housing market has seen a simultaneous rise in personal debt as well as housing prices. Any entity whose fees, commissions, and taxes rise in conjunction with housing prices is in a perpetual conflict of interest.
The real estate business as currently constituted is a sunset industry. The many excellent realtors, agencies, and officials who serve the public with skill and dedication will leverage their knowledge, ethics and reputations to succeed in whatever business model arises in the future. Their efforts and expertise will be needed to address the consequences of today's actions.