The organization that regulates real estate agents in Ontario has laid charges against three realtors for allegedly accepting money from prospective home buyers in exchange for preferential access to preconstruction condo units.
The Real Estate Council of Ontario (RECO) launched investigations after receiving five complaints about condo presale practices in recent months and has notified the police about its findings, said Kelvin Kucey, deputy registrar of regulatory compliance.
"Some people are being told, 'Just bring me cash, and no, there's no receipt offered and there's no money returned. This is simply your ticket in to get you access. And what you do after that access is up to you but this is how much it's going to cost you to get in,'" he said. "So that obviously is of grave concern to us because that appears to be nothing more than a shakedown."
Mr. Kucey said some of the complaints were sparked by a recent Globe and Mail investigation into the system of exclusionary preconstruction sales that has quietly become standard practice in the Greater Toronto Area's condo market. In addition, he said an article in the Chinese-language newspaper Sing Tao about so-called entry fees also resulted in complaints.
Insider real estate agents are often granted early access to sell condos in new developments before the units are made available to the broader community based on past sales performance and personal relationships, The Globe found. Condo developers typically increase prices as each batch of units is released.
The Ontario government has said it is considering a review of preferential sales practices for preconstruction homes as part of its wide-ranging policy changes for the housing market, which will include a review of the Real Estate and Business Brokers Act (REBBA), the 2002 legislation that governs the conduct of Ontario realtors.
RECO charged the three realtors under a provision of REBBA that bans agents from demanding or receiving payments for trading in real estate from anyone other than the brokerages that employ them. Convictions under REBBA carry a maximum penalty of a $50,000 fine and two years in jail for individual agents.
In addition, one complaint is still being probed and investigators were unable to proceed on the other because of a lack of co-operation from the complainant, according to a RECO spokesman.
RECO investigators have been in touch with local police about one or two of the files on suspicion of fraud, Mr. Kucey said.
"People are entering these agreements not really knowing what happens with the money because they're so eager to get in line to look at the units, they're not taking the time to say, 'Okay, but if I give you $5,000, what happens to my $5,000? Do I get that back?,'" he said.
One complainant said she paid $30,000 to a broker to get front-of-the-line access to a condo development and ultimately bought a unit, Mr. Kucey said. "But then her husband said, 'You spent $30,000 doing what?' And so now … the husband is asking questions about, 'Well, where did this $30,000 come into it? What's happening?' And she didn't have a receipt for it … and so she's concerned about that and obviously we're very concerned about that."
Another woman showed investigators a "Willy Wonka-style ticket" she was given after paying $5,000 to a real estate agent for access to an early bird VIP sales event for a condo development, Mr. Kucey said.
Some Toronto-area realtors say they suspected the payments were becoming more common in preconstruction condo sales as the GTA's real estate market hit record highs earlier this year before falling into a slump in recent months.
"I'm not surprised. I think any time there's substantial demand in the city, there's people that seek to exploit it," said David Fleming, a realtor who writes a blog about the industry. "There is an absolute value to having early access for the agents and their careers and there's definitely a value for the buyers, so you put one together with the next and it [stands] to reason that that value's going to be monetary. The only problem with that is that it's illegal."
Herman Yuan, president of the Canada-China Realty Professional Association, said he first heard about the practice of entry fees from clients early this year.
"I don't know how common the practice was because we don't have any data, but I heard that many realtors were doing that," he said. "I have been a realtor for over 20 years. I think this practice damages [realtors'] reputation. Meanwhile, it harms the [interests of] customers."
With a report from Xiao Xu