Broker - COURSE 4 - ONGOING OVERSIGHT

Table of contents :
Cover
c4-m1-monitoring-trade-processing-and-trust-accounts-for-a-brokerage
c4-m2-monitoring-remuneration
c4-m3-monitoring-advertising-and-business-promotion-of-a-brokerage
Module 3: Monitoring Advertising and Business Promotion of a Brokerage
c4-m4-ensuring-fair-open-and-transparent-real-estate-transactions
c4-m5-monitoring-the-business-enviroment-of-a-brokerage
Module 5: Monitoring the Business Environment of a Brokerage

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COURSE 4: ONGOING OVERSIGHT – ELEARNING

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Module 1: Monitoring Trade Processing and Trust Accounts for a Brokerage Disclaimer: This is a reference document which contains pages from the Accessible eLearning module. You should complete the eLearning module to proceed to the next step. Please note that the accessible module on the LMS only contains the interactive pages and you need to go through the content of this document thoroughly to attempt the interactive activities in the module. Please use Adobe Acrobat Reader (Recommended version 9 or above) to navigate through this PDF. Real Estate Broker Program © 2021 Real Estate Council of Ontario. All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or in any means – by electronic, mechanical, photocopying, recording or otherwise without prior written permission, except for the personal use of the Real Estate Broker Program learner.

© 2021 Real Estate Council of Ontario

Module 1: Monitoring Trade Processing and Trust Accounts for a Brokerage This module discusses the importance of complying with various regulatory obligations for trade processing and the handling of consumer deposits. This module also describes REBBA requirements for establishing and maintaining a real estate trust account, the process of trust account reconciliation, and insurer requirements regarding the commission trust account. It goes on to explain the procedures for disbursement of funds from the commission trust account. The module further discusses quality control procedures to ensure that the actions you take as a broker of record, as well as the actions taken by the administrative staff, are consistent, error-free, and follow accepted practices. It also covers interest-bearing deposits and regulatory requirements concerning trust ledger entries. To check your understanding of this module, you must complete all the activities in the online module. While navigating through the online module, click the Legislation button to view laws and regulations related to this module. The contents of the thumbnails and References from the module are added to support your learning throughout this Accessible PDF. © 2021 Real Estate Council of Ontario

Menu: Monitoring Trade Processing and Trust Accounts for a Brokerage Number of Lessons

Lesson Number

9 Lessons

Lesson Name

Lesson 1

REBBA Requirements for Trade Processing

Lesson 2

FINTRAC Requirements

Lesson 3

REBBA Requirements for Real Estate Trust Accounts

Lesson 4

Monitoring Real Estate Trust Accounts

Lesson 5

Reconciling Real Estate Trust Accounts

Lesson 6

Monitoring Commission Trust Accounts

Lesson 7

Training Administrative Staff

Lesson 8

Summary Practice Activities Module Summary © 2021 Real Estate Council of Ontario

Lesson 1 | Page 1 of 19

Lesson 1: REBBA Requirements for Trade Processing

This lesson describes REBBA requirements related to trade record sheets. It also describes the process for reviewing and signing a trade record sheet, identifies brokerage policies and procedures regarding trade processing, and explains the purpose and provides a sample of a trade processing checklist.

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Lesson 1 | Page 2 of 19

This lesson provides an overview of trade record processing and describes your responsibility as a broker of record to identify the Real Estate and Business Brokers Act (REBBA) requirements related to trade record sheets, such as creating policies and procedures regarding trade processing and reviewing and signing a trade record sheet. Upon completion of this lesson, you will be able to: • Identify REBBA requirements related to trade record sheets • Describe the purpose of a trade input system and its use in trade processing • Identify brokerage policies and procedures regarding trade processing • Describe the process for reviewing and signing a trade record sheet Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented. © 2021 Real Estate Council of Ontario

Lesson 1 | Page 3 of 19

All brokerages must comply with trade processing requirements. As a broker of record, it is important to ensure that you understand REBBA requirements regarding trade processing and that you can identify REBBA requirements related to trade record sheets. Trade record sheets are essential for documenting and completing all trades in real estate that your brokerage is involved in. © 2021 Real Estate Council of Ontario

Lesson 1 | Page 4 of 19

Preparing the Trade Record Sheet A trade record sheet is a form that is required for documenting details of any income-producing activity, such as agreements that deal with the conveyance of an interest in real estate, appraisals, and referrals. Procedures for preparation of the trade record sheet are as follows: • Broker or salesperson provides information required for the trade record sheet • When no conditions remain to be satisfied, the broker or the salesperson: o Reviews the trade record sheet © 2021 Real Estate Council of Ontario

o Makes all necessary corrections to it, and initials the corrections o Signs the trade record sheet • Broker of record reviews the trade record sheet: o If they are not satisfied that the information is accurate, they return it to the broker or the salesperson to make corrections o Once the broker of record is satisfied that the information in the trade record sheet is accurate, they sign it

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Lesson 1 | Page 5 of 19

REBBA Requirements for Trade Record Sheets The trade record sheet is retained with the trade file, and later referred to when the transaction is completed for the disbursement of funds from the real estate trust account and the commission trust account. For this reason, it is crucial that a broker of record understands REBBA’s mandated requirements regarding trade record sheets. The following four sections contain information about the REBBA requirements for trade record sheets.

When a trade record sheet is required A trade record sheet is required for every trade in a brokerage. A trade record sheet can also record activities around referral and appraisal fees. In cases where an agreement is not reached, it is especially important for the trade record sheet to be completed as fully as possible, for example: • When a deposit is placed in the trust account and the offer is not accepted • When a non-trade activity is involved, such as an appraisal

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Signatures The signatures required for a trade record sheet depend on the trade and the parties involved. A listing broker or salesperson must sign for a trade involving a co-operating brokerage. (The cooperating brokerage also prepares a trade record sheet.) When the listing and the sale are in the same brokerage, or two or more brokers or salespersons are involved, one trade record sheet may contain signatures of all participants. Preparing a separate trade record sheet for each broker or salesperson detailing individual commission distributions is also acceptable. Separate trade records typically occur when differing commission plans apply to individual brokers or salespersons. When all conditions in an agreement have been satisfied, the broker or the salesperson must review the trade record sheet, make any necessary corrections, initial the corrections, and sign the trade record sheet. When making a correction, they must leave the previous entry legible. The broker of record then reviews the trade record sheet. Once the broker of record is satisfied that © 2021 Real Estate Council of Ontario

the information on the trade record sheet is correct, they must sign it.

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Minimum statutory requirements The following are the minimum statutory requirements that must be included on the trade record sheet, if applicable: 1. The nature of the trade (such as sale, lease, or referral) 2. A description of the real estate (such as a municipal address) sufficient to identify it 3. The true consideration for the trade (such as purchase price or lease price) 4. The names of all parties to the trade 5. The names and contact information of the lawyers, if any, who are representing parties to the trade 6. The names and contact information of all registrants who are representing or providing other services to parties to the trade 7. The following information, if a deposit is received: i.

The amount of the deposit if the deposit is money

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ii.

A description of the deposit sufficient to identify it if the deposit is not money (for example, an item of value)

iii.

A record of the disbursement or withdrawal of the deposit, as the case may be

8. The amount of the brokerage’s commission or other remuneration and the name of the party paying it 9. The amount of any commission or other remuneration payable to another brokerage and the name of that brokerage 10.The scheduled completion date for the conveyance of the interest in real estate and the amended completion date, if any A brokerage may decide to add other information to their trade record sheet (such as the MLS® number, conditions, or the expiry of the conditions).

Forms used REBBA sets out minimum content requirements for trade records. © 2021 Real Estate Council of Ontario

Altered and/or expanded forms or computergenerated forms from a software supplier are acceptable, provided the forms meet the minimum statutory requirements.

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Lesson 1 | Page 6 of 19

Other Actions for Trade Record Sheets Although not specified by REBBA, a brokerage should also follow specific actions regarding trade record sheets. The following two sections contain information about actions for Trade Record Sheets.

Filing with agreement of purchase and sale The listing brokerage should file the trade record sheet with the original record of the signed copy of the agreement of purchase and sale. If a cooperating brokerage is involved, both an original record and a trade record sheet are also maintained by that brokerage. If no acceptance occurs but the deposit is placed in trust, the brokerage holding the deposit must retain a signed copy of the agreement of purchase and sale. If the co-operating brokerage holds the deposit, it should follow the same procedure.

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Trade file contents For trade file contents, a brokerage should: • Create a separate file folder for each trade, including the trade record sheet, the agreement of purchase and sale, and related documentation. • Use trade numbers to correlate with all other trade processing documents, accounting entries in ledgers and journals, and account records (for example, bank deposit receipts and/or cheques). • Separate open files from closed files (This only applies if the brokerage maintains paper files.) You learned about maintaining a file management system for trade documents in an earlier course.

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Lesson 1 | Page 7 of 19

© 2021 Real Estate Council of Ontario

From Form 640—Trade Record Sheet ©2021 Ontario Real Estate Association. All rights reserved. Used under licence.

Sample Trade Record Sheet If a brokerage is not a member of a real estate board or association, they must create their own trade record sheet, containing the minimum statutory requirements as set out in REBBA. If a brokerage is a member of a real estate board or association, however, they will have access to OREA Form 640: Trade Record Sheet. Alternatively, they may also create their own trade record sheet and track additional information beyond the requirements set out in the regulation.

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Lesson 1 | Page 8 of 19

© 2021 Real Estate Council of Ontario

A broker of record is aware that trade record sheets can be modified, provided that the information mandated by REBBA is included. A new administrative staff person has created a trade record sheet and asks the broker of record to review it for them. The broker of record is analyzing the customized trade record sheet to ensure it complies with REBBA. The customised record sheets contains the following fields: • • • • • • • • • • • • • •

Trade Number Property Address Offer Date Firm Date Seller’s Contact Information Buyer’s Contact Information Listing Brokerage Salesperson Commission payable to listing brokerage Co-operating Brokerage Salesperson Commission payable to co-operating brokerage Deposit Amount Receipts from Deposit Holder if held By Other © 2021 Real Estate Council of Ontario

• • • •

If not money full description Sale Price Commission Payable by

Identify any missing regulatory requirements needed for the trade record sheet. There are six options. There are multiple correct answers.

1

Names and contact information of the lawyers

2

Nature of the trade

3

Completion date

4

Commission payable to another brokerage

5

True consideration

6

Disbursement of deposit

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Lesson 1 | Page 9 of 19

In cases where a brokerage’s administrative staff has exclusive access to a software program for producing trade record sheets, the brokerage may implement a system to collect key information from the applicable broker or salesperson. The brokerage will create what is commonly referred to as a “trade input form” for processing purposes.

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Lesson 1 | Page 10 of 19

Implementing a Trade Input System A brokerage can implement a trade input system to process a trade and generate a trade record sheet. The trade input system typically functions as follows:

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• The brokerage creates a trade input form based on the trade record sheet from their software program. This form is an internal processing document that contains the necessary information about a trade. • The broker or salesperson completes the trade input form. • Administrative staff transfers information from the trade input form into the software program to produce a trade record sheet.

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Lesson 1 | Page 11 of 19

© 2021 Real Estate Council of Ontario

Trade Input Form The broker of record is responsible for ensuring that their brokerage has a comprehensive procedure to collect all the information to produce the trade record sheet for each trade. The following three sections contain information that is typically collected in a trade input form, along with any necessary supporting documentation.

Typical format and content The format and content for trade input forms will vary from brokerage to brokerage. Typically, it matches information that is needed for the trade record sheet. However, information found on trade input forms should include the following: • Assigned listing number • Sale price, sale date, and closing date • Property address • Contact information for the seller and the buyer • Amount of deposit and other supplementary deposits © 2021 Real Estate Council of Ontario

• Conditions (if any) • Type of sale • Commission distribution • Brokerage distribution • Brokerage information • Seller and buyer solicitor information • Broker and/or salesperson signature and date of signature The signature of the broker or the salesperson preparing the trade input form may or may not be required but is strongly recommended to create a proper paper trail.

Additional information in a trade input form A brokerage may include additional information in a trade input form, such as: • A checklist of specific conditions and dates (for example, financing, home inspection, septic or well inspection, insurance, lawyer approval, and/or status certificate) • A checklist of documents to accompany trade input form

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• Type of transaction (for example, detached single-family, multiple, condominium, commercial, land, and/or lease) • Source of sale (for example, advertising call, previous client or customer, sign call, referral, internet, walk-in, and/or open house)

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Supporting documents The broker or the salesperson preparing the trade input form also provides various supporting documents to administrative staff. Supporting documents may include the following: • Agreement of purchase and sale • Additional schedules • Deposit (or deposit receipt) • Confirmation of co-operation and representation (or similar document, if applicable) • The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) receipt of funds • FINTRAC identification information record • Buyer representation agreement (or customer service agreement) • Listing agreement and related documents from the listing file.

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Lesson 1 | Page 12 of 19

A broker of record has recently hired three salespersons and is meeting with them to discuss office policy and procedures for trade input forms. They discuss the purpose of the trade input form, when it is to be completed, the attachment of other supporting documents, and the submission of the final package to the administrative staff. What statements about the office policy and procedures regarding trade input forms should the broker of record review with the salespersons? There are four options. There are multiple correct answers.

1

The trade input form is a replacement for the trade record sheet.

2

The signature of the broker or salesperson preparing the trade input form is not required under REBBA.

3

REBBA requires the use of a lead document, such as a trade input form, for the preparation of trade record sheets.

4

The brokerage may include additional information on the trade input form for brokerage records, such as the source of the sale or a checklist of conditions and dates.

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Lesson 1 | Page 13 of 19

As a broker of record, you will be responsible for developing and overseeing systems to ensure all trade processing activities comply with REBBA. Once a broker or salesperson has initiated trade activities and submits the related documentation and/or deposits to the brokerage, you will need to ensure that the administrative staff carries out their duties in assisting with trade processing.

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Lesson 1 | Page 14 of 19

Brokerage Policy and Procedures Regarding Trade Processing A brokerage’s policy and procedures should stipulate that brokers and salespersons must submit all documentation when a transaction is made. The accepted agreement of purchase and sale or agreement to lease and any other related documents (amendments, waivers, notices, and so on) must be provided to the brokerage without delay, whether they are conditional or firm. Failing to provide all documentation to the brokerage in a timely manner could result in a trade processing delay. For example: © 2021 Real Estate Council of Ontario

• If a brokerage is a deposit holder, they must deposit the funds into the real estate trust account within five days of receipt. Failure to do so is a violation of REBBA. • If a broker or salesperson fails to submit a notice of fulfillment or a waiver of condition in a timely manner, the brokerage may incorrectly believe that the trade is still conditional or that it has fallen apart. This can further delay any necessary legal work, as a lawyer may have limited time for title search and to prepare for the completion of the transaction. If the brokerage’s listing is on a local listing service, any change to status must be reported to the local listing service within the required time period. Many real estate boards or associations require that changes to the status be reported within two business days. As documents and/or deposits are submitted by the brokers and salespersons to the brokerage, the administrative staff will continue processing the documents and/or deposits.

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Lesson 1 | Page 15 of 19

© 2021 Real Estate Council of Ontario

Trade Processing Checklist © 2021 Real Estate Council of Ontario

A brokerage may benefit from creating their own trade processing checklist for quality assurance purposes. This checklist will guide the administrative staff in confirming that a trade has been processed completely and accurately, from initial file set-up to the completion of a transaction. The checklist can be modified as required to suit the brokerage’s specifications. A broker of record can review this trade processing checklist to quickly confirm the documentation included in the file, the names of the administrative staff members involved with trade processing, and when those processing activities took place. Although REBBA does not require a brokerage to use a trade processing checklist, it is considered a leading practice. Although none of items on this list are REBBA requirements, the brokerage chose to include them, as they are useful for tracking the process of the trade.

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Lesson 1 | Page 16 of 19

REBBA sets out requirements for when a broker or salesperson and a broker of record must review and sign trade record sheets. As a broker of record, you will be responsible for ensuring the brokerage’s process for reviewing and signing trade record sheets complies with REBBA. Your office policy and employment agreements should make it clear that if a broker or salesperson fails to sign the trade record sheet, commission will be withheld. A brokerage can withhold commission on these grounds to ensure that their trade record sheets are complete and contain accurate information.

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Lesson 1 | Page 17 of 19

Process for Reviewing and Signing a Trade Record Sheet As you learned earlier, a brokerage must complete a trade record sheet for every trade. When there are no conditions in the agreement that remain to be satisfied, the broker or the salesperson must do the following with the trade record sheet: • Review the entries • Make all necessary corrections © 2021 Real Estate Council of Ontario

• Initial the corrections • Sign to indicate that they are satisfied and everything is correct When making any corrections to the trade record sheet, the broker or the salesperson must ensure all previous entries remain legible. After the broker or the salesperson signs the trade record sheet, the broker of record must: • Review the trade record sheet and supporting documentation, such as the agreement, waivers, and fulfillment of conditions • Return the trade record sheet to the broker or the salesperson if they are not satisfied that the information in the sheet is accurate, noting the needed corrections (which should be initialled before the trade record sheet is resubmitted) • Sign the trade record sheet when they are satisfied that the information in the sheet is accurate

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Lesson 1 | Page 18 of 19

A broker of record is reviewing the brokerage policy and procedures regarding the completion of trade record sheets and REBBA compliance requirements with new administrative staff. What statements about the processing of trade record sheets to comply with REBBA requirements are accurate? There are four options. There are multiple correct answers.

1

A brokerage is permitted to have separate trade records for each salesperson involved in the same trade.

2

A trade record sheet must be issued if the deposit was placed in the brokerage’s real estate trust account, regardless of whether the offer was accepted.

3

Details of additional deposit(s) are not required on the trade record sheet when the brokerage is the deposit holder.

4

The broker or the salesperson is required to sign the trade record sheet before the broker of record reviews and signs it.

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Lesson 1 | Page 19 of 19

Congratulations, you have completed the lesson! Completion of this lesson has enabled you to: • Identify REBBA requirements related to trade record sheets • Describe the purpose of a trade input system and its use in trade processing • Identify brokerage policy and procedures regarding trade processing • Describe the process for reviewing and signing a trade record sheet There are four sections on this page with a summary of the key topics that were discussed in this lesson.

REBBA requirements related to trade record sheets

As a broker of record, it will be your responsibility to ensure that a trade record sheet is filled out properly for every trade. All the information regarding a trade is consolidated in a trade record sheet. Specific information must be included, along with procedures for preparation, corrections, signature by the broker or salesperson, and review and signature by the broker of record.

Purpose of a trade input A brokerage can implement a trade input system to process a trade and generate a trade record sheet. Brokerages typically use a trade input form as a system and its use in document that triggers the issuance of a trade record sheet. This form will trade processing assist the brokerage’s administrative staff in correctly entering information in the trade record sheet.

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Brokerage policy and procedures regarding trade processing

As a broker of record, you must ensure that your brokerage’s policy and procedures stipulate that brokers or salespersons must submit all documentation and/or deposits when activities are initiated, regardless of whether the agreement is conditional or firm. Failure to submit documentation and/or deposits at the earliest practicable opportunity could result in unnecessary trade processing delays, as well as violations of REBBA.

Process for reviewing and signing a trade record sheet

As a broker of record, you must review the trade record sheet to ensure that all information is accurate. If you are not satisfied with the accuracy of the information, you should return the trade record sheet to the broker or the salesperson for their further review and remedy. You must sign the amended trade record sheet once you are satisfied that it is complete and accurate.

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Lesson 2 | Page 1 of 18

Lesson 2: FINTRAC Requirements

This lesson describes brokerage compliance requirements with the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC), such as appointing a FINTRAC compliance officer, creating a policies and procedures manual, conducting ongoing training for staff, and periodically assessing high-risk areas in business activities.

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Lesson 2 | Page 2 of 18

A broker of record is responsible for ensuring their brokerage complies with all of the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) requirements, as set out in the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. As you learned earlier, the object of the Proceeds of Crime (Money Laundering) and Terrorist Financing Act is to implement specific measures to detect and deter money laundering and the financing of terrorist activities, and to facilitate the investigation or prosecution of money laundering and terrorist offences. This lesson provides highlights of the risk-based approach workbook, developed by FINTRAC for the real estate sector. This lesson also presents FINTRAC requirements that a brokerage’s compliance officer must follow. Upon completion of this lesson, you will be able to: • Identify the FINTRAC compliance requirements for a brokerage © 2021 Real Estate Council of Ontario

• Define FINTRAC-mandated procedures for the brokerage Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

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Lesson 2 | Page 3 of 18

As a broker of record, it is your responsibility to ensure that your brokerage complies with FINTRAC requirements. To do this, a brokerage must implement a compliance program based on FINTRAC requirements.

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Lesson 2 | Page 4 of 18

Compliance Program Requirements © 2021 Real Estate Council of Ontario

Establishing and implementing a comprehensive and effective compliance program based on FINTRAC requirements ensures brokerages meet the reporting, record-keeping, client identification, and know-yourclient requirements under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and associated regulations. The five required elements of a compliance program designed to address FINTRAC requirements are as follows: 1. The appointment of a person responsible for implementing the compliance program; that is, a compliance officer (who will most likely be the broker of record) 2. The development and application of written compliance policies and procedures that are kept up to date and include enhanced measures to mitigate high risks 3. The development and maintenance of a written ongoing compliance training program for all employees; that is, brokers, salespersons, and administrative staff 4. The completion of a written risk assessment of the brokerage’s activities and relationships every two years 5. The completion and documentation of an effectiveness review of the brokerage’s compliance program (policies and procedures, risk assessment, and training program) every two years (minimum) for the purpose of testing its overall effectiveness

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Lesson 2 | Page 5 of 18

Compliance Officer Duties FINTRAC sets out compliance duties for a brokerage. While the compliance officer is not personally required to perform these duties and may choose to delegate them, they are ultimately responsible for ensuring that their brokerage complies with them. The compliance duties are as follows: • Ensure that all brokers, salespersons, and administrative staff receive appropriate training and updates regarding FINTRAC procedures, as required. © 2021 Real Estate Council of Ontario

• Maintain records for all FINTRAC-related training, including topics, persons in attendance, and course dates. • Maintain a logbook of compliance-related activities, including the filing of any reports to FINTRAC. • Maintain a list of known terrorist groups and individuals, which must be available to all brokers, salespersons, and administrative staff. • File reports with FINTRAC on behalf of the brokerage, as needed. (This requires registration with FINTRAC.) • File necessary reports concerning suspicious transactions, terrorist property, and large cash transactions. Maintain copies of such reports and supporting documents in secure storage at the brokerage. • Make such reports and associated documents available to FINTRAC within 30 days of request. • Ensure that all forms prepared concerning FINTRAC compliance be retained for five years. • Update and/or improve the compliance program in the brokerage, as needed. • Assist brokers, salespersons, and administrative staff in the preparation of FINTRAC reports. • Remain current on all matters involving FINTRAC through routinely accessing the FINTRAC website, reading interpretation notices, and subscribing to the FINTRAC mailing list. • Complete the risk assessment.

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Lesson 2 | Page 6 of 18

Policies and Procedures Manual for FINTRAC Compliance One of the brokerage’s obligations under FINTRAC is that they must have written a policies and procedures manual specific to FINTRAC compliance, which will be tailored to the brokerage’s particular situation. These

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policies and procedures are used to guide decisions and actions to help ensure the brokerage, brokers, and salespersons meet their obligations. The policies and procedures manual for FINTRAC compliance should contain the following sections: • Compliance regime– Compliance officer, updates to policies and procedures manual, ongoing training program, risk assessment, and review process • Record-keeping procedures – Identification verification, receipt of funds, and large cash transactions • Reporting requirements – Suspicious transactions, large cash transactions, and terrorist reporting • Legislative overview – Brokerage, broker of record, brokers, salespersons, and administrative staff responsibilities More information on how to develop a policies and procedures manual is available on the FINTRAC website (https://www.fintrac-canafe.gc.ca/intro-eng).

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Lesson 2 | Page 7 of 18

Ongoing Training Program for FINTRAC Compliance A brokerage is required to develop, implement, and maintain an ongoing training program for brokers and salespersons who interact with sellers and buyers and/or manage transactions. The training program must be in writing, must be reviewed by the compliance officer, and must be kept up to date. If the brokerage is a sole proprietorship that employs no brokers or salespersons, the broker is not required to have a training program in place but must still be able to demonstrate that they have all the other required elements of a compliance program. © 2021 Real Estate Council of Ontario

Brokers and salespersons authorized to act on behalf of the brokerage need to be trained on specific duties and/or functions so that they understand the following: • Their obligations as a reporting entity under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and associated regulations • How real estate could be vulnerable to money laundering and/or terrorist financing activities • The brokerage’s policy and procedures stemming from their obligations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and associated regulations • Their roles in detecting and deterring money laundering and/or terrorist financing activities, which can range from day-to-day tasks to high-risk situations

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Lesson 2 | Page 8 of 18

Assessment and Review of High-Risk Areas The brokerage compliance officer is responsible for identifying brokerage services and activities that may be vulnerable to criminal activity, such as money laundering and terrorist financing. Assessing and documenting risk is a requirement under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. © 2021 Real Estate Council of Ontario

FINTRAC has designed a workbook to help the broker of record create a risk-based approach for their brokerage. This workbook is structured to help the broker of record identify risks in the following areas: • Services and delivery channels • Geography • Clients and business relationships • Other relevant factors The workbook will also help the broker of record implement effective measures and monitor the money laundering and terrorist financing risks they may encounter as part of their activities and business relationships. A compliance officer can also use this workbook to create guidance on how to implement effective measures that monitor transactions and business relationships in accordance with the assessed level of risk. You can access this workbook on FINTRAC’s website (https://www.fintrac-canafe.gc.ca/guidancedirectives/compliance-conformite/rba/rba-res-eng).

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Lesson 2 | Page 9 of 18

Creating a Written Risk Assessment, I A broker of record will need to identify the areas of their business that are vulnerable to being used by criminals for conducting money laundering or terrorist financing activities. This means that a broker of record is required to develop a risk assessment specific to their brokerage’s situation. The brokerage must also implement mitigation strategies associated with the risks and document the process and the results. Once the broker of record has identified the vulnerable areas of their brokerage, they should share this information with the compliance officer (if the compliance officer is someone other than themselves). The risk-based approach workbook breaks down several factors to consider when completing a risk assessment for a brokerage. The following four sections contain information on factors of the risk-based approach a brokerage should use to create their written risk assessment.

Identify inherent risks: Business-based

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The brokerage must identify risks and determine how serious they are in specific areas of the brokerage (products and services offered, delivery channels, geographies, clients). A business-based risk assessment includes assessing the following (this is not an exhaustive list): • The type of sellers and buyers – Corporate, individuals, families, third parties, and so on • The type of property listing – Residential, commercial, vacant land, agricultural land, and/or investment • The type of communication with the client – Face-to-face, email, and/or virtual • The geography – Whether the geographic locations of the brokerage or the clients pose a high risk (for example, property listings in high-crime areas and/or clients based in countries that are subject to sanctions, embargoes, or other measures) • Other factors such as: o Legal: Related to domestic laws, regulations, and potential threats

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o Structural: Related to specific business models and processes (size of brokerage and number of branches)

Identify inherent risks: Relationship-based A relationship-based risk assessment includes assessing the inherent characteristics of sellers and buyers, such as the following (this is not an exhaustive list): • Services and delivery channels used • Geography – Location the client is conducting the transaction from and source of financing • Clients’ activities and transaction patterns Examples of clients and transactions considered to be high risk include the following: • Client arriving at a real estate closing with a significant amount of cash • Client wants to purchase a residential property in the name of a nominee, other than a family member, for no apparent reason • Value of the property is not within the means of a client based on their stated occupation or income © 2021 Real Estate Council of Ontario

Set risk tolerance The brokerage must decide the extent to which they are willing to do business where higher risk is present so they can make informed decisions about when, and when not, to do business. Risk tolerance means determining the level of exposure a brokerage is willing and able to accept. A compliance officer should consider the following: • If the brokerage is willing and able to accept regulatory, reputational, legal, or financial risks • What risks the brokerage is willing and able to accept after implementing mitigation measures • What risks the brokerage is not willing and able to accept

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Create risk-reduction measures and key controls The brokerage must put strategies in place that mitigate the risk of money laundering or terrorist financing occurring through the brokerage. Risk mitigation means implementing controls to reduce the likelihood of engaging with individuals or organizations who are suspected of money laundering and/or terrorist financing. Risk-reduction measures and key controls should include the following: • Up-to-date client identification and beneficial information • Appropriate level of ongoing monitoring of brokerage relationships • Mitigation measures for situations where the risk of money laundering and/or financial terrorism is high • Consistent application of controls and procedures

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Lesson 2 | Page 10 of 18

Creating a Written Risk Assessment, II A broker of record will need to identify the areas of their business that are vulnerable to being used by criminals for conducting money laundering or terrorist financing activities. This means that a broker of record should develop a risk assessment specific to their brokerage’s situation. Once the broker of record has identified the vulnerable areas of their brokerage, they should share this information with the compliance officer (if the compliance officer is someone other than themselves). The risk-based approach workbook breaks down several factors to consider when completing a risk assessment for a brokerage. The following three sections contain information on additional factors of the risk-based approach a brokerage should use to create their written risk assessment.

Evaluate residual risks

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The brokerage must ensure the risk mitigation strategies reduce risk and provide the information necessary to address gaps. Residual risks are the risks that remain after mitigation measures and controls are considered. A compliance officer should ensure that the residual risks are not greater than what the brokerage is prepared to tolerate. If a brokerage is willing to handle high-risk situations and/or clients, the mitigation measures or controls must be commensurate to the level of risk.

Implement the risk-based approach The brokerage must them implement what was decided upon. The compliance officer must implement and communicate the compliance policies and procedures of the brokerage to brokers, salesperson, and other administrative staff. Compliance policies and procedures should incorporate requirements for reporting, recordkeeping, client identification, risk assessment, and special measures for high risks. Compliance policies and procedures should also: © 2021 Real Estate Council of Ontario

• Explain how to detect suspicious transactions and the process for addressing such situations • Determine and explain what type of monitoring is required for each type of situation (for example, determine if a brokerage has high-risk or low-risk clients and/or business relationships) • Describe all monitoring aspects (for example, when it is done, how it is conducted, and how it is reviewed)

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Review the risk-based approach The brokerage is required to monitor, review and address gaps. As part of the risk-based assessment, a compliance officer must also include a periodic review, a minimum of every two years, that tests the effectiveness of the compliance program. They will be reviewing the following for relevance: • Policies and procedures • Existing risk assessment related to money laundering and/or terrorist financing • Training program for brokers, salespersons, and administrative staff The result of the review must be documented. For more information on the risk-based approached, review Guidance on the Risk-Based Approach to Combatting Money Laundering and Terrorist Financing, and the Risk-Based Approach Workbook, both of which can be found on FINTRAC’s website.

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Lesson 2 | Page 11 of 18

© 2021 Real Estate Council of Ontario

© 2021 Real Estate Council of Ontario

© 2021 Real Estate Council of Ontario

© 2021 Real Estate Council of Ontario

© 2021 Real Estate Council of Ontario

© 2021 Real Estate Council of Ontario

OREA Form 639: Risk Assessment Form. ©2021 Ontario Real Estate Association. All rights reserved. Used under licence.

Assessment and Review of High-Risk Areas If a brokerage is not a member of a real estate board or association, they must create their own risk assessment form to help the compliance officer assess and document threats and vulnerabilities in relation to money laundering and terrorist financing that the brokerage may have been exposed to. If the brokerage is a member of a real estate board or association, however, the compliance officer can use OREA Form 639: Risk Assessment Form to assess areas of risk within their brokerage. Alternatively, they can also create their own risk assessment form.

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Lesson 2 | Page 12 of 18

FINTRAC Record-Keeping Brokerages are required to report suspicious transactions, (attempted or completed), large cash and virtual currency transactions of $10,000 or more, or the virtual currency value equivalent, and property in their possession or control that is owned or controlled by a terrorist or terrorist group to FINTRAC. FINTRAC also has obligations regarding private information forwarded to the organization. Reports filed with FINTRAC must be kept confidential. Brokerages must keep the following completed reports and records in a secure filing system:

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• Large cash transaction reports ($10,000 or more in cash in the course of a single transaction, to also include receipt of two or more cash amounts of less than $10,000 made within 24 consecutive hours of each other to total $10,000 or more) • Large virtual currency transaction reports (equivalent to $10,000 or more in virtual currency in the course of a single transaction, to also include receipt of two or more in currency amounts of less than the equivalent of $10,000 made within 24 consecutive hours of each other to total $10,000 or more in equivalent value) • Suspicious transaction reports • Terrorist property reports Note: These three transaction forms can be accessed electronically from FINTRAC’s website: https://www.fintrac-canafe.gc.ca/reporting-declaration/form/form-eng • Individual identification information records • Corporation and/or entity identification information records • Receipt of funds records • Self-assessed risk management reports (or similarly titled documents)

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Lesson 2 | Page 13 of 18

A broker is opening up their own brokerage, where they plan to be the broker of record, as well as the compliance officer. What FINTRAC compliance duties will the broker be required to fulfill for their brokerage? There are four options. There are multiple correct answers.

1

Create a FINTRAC compliance policies and procedures manual with a minimum of three sections: legislative overview, reporting requirements, and compliance program.

2

Develop and maintain a FINTRAC compliance program.

3

Report all large-cash transactions.

4

Complete a risk assessment for the brokerage, every six months.

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Lesson 2 | Page 14 of 18

As you learned in a previous course, FINTRAC mandates a procedure of identification verification and documentation of sellers and buyers working with the brokerage. Additionally, the collection of personal information (that is, identification verification) set out in the Personal Information Protection and Electronic Documents Act (PIPEDA) places added responsibility on brokerages, brokers, and salespersons to be diligent regarding privacy issues and requirements. As a broker of record, you will need to ensure your brokerage complies with the FINTRAC guidelines for identification verification and receipt of funds. You will learn about training in your brokerage to comply with REBBA, FINTRAC, and PIPEDA later in this module.

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Lesson 2 | Page 15 of 18

FINTRAC Requirements for Identification Verification The following are FINTRAC requirements for identification verification: • An identification form must be completed any time a broker or a salesperson facilitates the purchase or sale of real estate. • At minimum, identification must be made for the buyer when the offer is submitted and/or a deposit is taken, and for the seller when the offer is accepted. Brokerage policy may require identification to be secured at the start of entering into a representation, customer service, or commission agreement. • The listing brokerage is responsible for identifying the seller. © 2021 Real Estate Council of Ontario

• The co-operating brokerage is responsible for identifying the buyer. • In a multiple representation situation within one brokerage, applicable forms must be completed for all clients. • Brokerages must identify multiple customers to a trade involving one brokerage. • In the case of unrepresented sellers and buyers (for example, for sale by owners), brokers and salespersons must take reasonable measures to ascertain their identities. If an individual refuses, note this refusal on the form and proceed with the transaction. Such refusal, along with other factors, may constitute reasonable grounds to report a suspicious transaction. • Brokerages must verify the identities of any third party to a transaction. Remember that a third party is an individual or entity who the brokerage does not interact with directly and who is providing instructions or supplying funds for a real estate purchase. For example, a son (third party) who is acting on behalf of their parents (the sellers). • Brokers and salespersons do not have to re-verify the identity of an individual who they recognize and have previously identified in a past transaction. While making a notation in the transaction file (that a previous identification is on file) may be adequate, a broker or a salesperson should include a photocopy of the original identification record. If any information has changed regarding the individual, then the broker or the salesperson should complete the applicable form once again. • Property management activities (for example, rentals) and sales of businesses (provided that no real property is included) are excluded from these identification requirements.

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Lesson 2 | Page 16 of 18

FINTRAC Requirements for Receipt of Funds If a trade involves a deposit, a receipt of funds record must be completed. Exceptions are as follows: • When funds are received from a financial entity or a public body that is buying or selling • If a large cash transaction (more than $10,000) is involved and an appropriate record (including the completion of a large cash transaction report) is prepared © 2021 Real Estate Council of Ontario

• If the deposit does not go into the trust account of a brokerage, for example, is paid directly to a builder or developer (unless represented by a brokerage) or a lawyer The brokerage representing the buyer must prepare the receipt of funds record. If only a listing brokerage is involved, this brokerage must prepare the receipt of funds record.

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Lesson 2 | Page 17 of 18

A salesperson has finalized an accepted agreement of purchase and sale for a buyer client. The sale involves the purchase of a builder’s new home; the builder is not represented by a brokerage. The $40,000 deposit from the buyer’s mother will consist of a cheque for $30,000, $5,000 cash upon acceptance of the offer, and a further payment of $5,000 cash the following week. This payment will be paid directly to the builder as stated in the agreement. The salesperson consults their broker of record to make sure they understand the steps they need to take to comply with FINTRAC reporting requirements. What requirements should the broker of record remind the salesperson of? There are four options. There are multiple correct answers.

1

A receipt of funds record must be completed by the salesperson and provided to the brokerage for each deposit.

2

Identification verification for the buyer must be completed by the salesperson and provided to the brokerage.

3

A large cash transaction report for the cash deposits must be completed by the salesperson and provided to the brokerage. © 2021 Real Estate Council of Ontario

4

Identification verification for the buyer’s mother must be completed by the salesperson and provided to the brokerage.

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Lesson 2 | Page 18 of 18

Congratulations, you have completed the lesson! Completion of this lesson has enabled you to: • Identify the FINTRAC compliance requirements for a brokerage • Define FINTRAC-mandated procedures for the brokerage There are two sections on this page with a summary of the key topics that were discussed in this lesson.

FINTRAC compliance requirements for a brokerage

A brokerage must ensure compliance with all FINTRAC requirements as set out in the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. As a broker of record, you must create a FINTRAC policies and procedures manual for your brokerage, which will outline the training programs, the forms to use, and the checklists for brokers or salespersons to follow. You will also likely act as the compliance officer to ensure that all brokers, salespersons, and applicable administrative staff receive appropriate training and are kept up to date regarding FINTRAC procedures as required. You should assess the degree of risk within your brokerage and implement appropriate policies to mitigate such risks. A self-assessed risk management report provides guidance on important questions that should be addressed by all brokers of record during the review.

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FINTRAC-mandated procedures for the brokerage

Under FINTRAC, it is mandatory to complete identification verification documentation of sellers and buyers working with the brokerage. FINTRAC also mandates guidelines for receipt of funds. The co-operating salesperson needs to identify the buyer, receive the deposit funds, and complete the receipt of funds report, then deliver the funds to the brokerage named on the agreement of purchase and sale.

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Lesson 3 | Page 1 of 24

Lesson 3: REBBA Requirements for Real Estate Trust Accounts

This lesson describes REBBA requirements for establishing and maintaining a real estate trust account, including developing deposit procedures to ensure compliance with REBBA.

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Lesson 3 | Page 2 of 24

A broker of record is responsible for ensuring their brokerage complies with the Real Estate and Business Brokers Act (REBBA) requirements for real estate trust accounts. This lesson describes requirements for establishing and maintaining a real estate trust account and deposit procedures that comply with REBBA. It also identifies the procedures related to interest-bearing real estate trust accounts and interest-bearing certificates. As a broker of record, you will be responsible for establishing the policy for electronic funds transfers for your brokerage. You must also ensure that the brokerage maintains information in a real estate trust ledger as set out in REBBA. Upon completion of this lesson, you will be able to: • Describe REBBA requirements for establishing and maintaining a real estate trust account © 2021 Real Estate Council of Ontario

• Describe deposit procedures to ensure adherence to REBBA requirements • Identify the procedures related to interest-bearing real estate trust accounts and interest-bearing certificates to ensure adherence to REBBA requirements • Identify the procedures related to electronic funds transfers to ensure adherence to REBBA requirements • Identify the minimum information required in a real estate trust ledger to ensure adherence to REBBA requirements Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

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Lesson 3 | Page 3 of 24

As a broker of record, you must establish a real estate trust account in a bank, a loan or trust corporation, or a credit union in Ontario. You must ensure that all documentation relating to the real estate trust account is correctly named and identified, and that minimum books and records (or the electronic equivalent) are maintained as set out in REBBA. As the financial institution may not have experience with the real estate industry, it is your responsibility to ensure that they are aware of the criteria that they must follow upon setting up the brokerage’s real estate trust account. © 2021 Real Estate Council of Ontario

Lesson 3 | Page 4 of 24

REBBA Requirements for Establishing and Maintaining a Real Estate Trust Account REBBA requires that a brokerage maintain a real estate trust account into which all deposit monies placed with the brokerage in trust must be deposited. These funds must be kept separate and apart from other money belonging to the brokerage. The broker of record will be the signing authority for the real estate trust account. The real estate trust account must comply with all requirements set out in REBBA. The following five sections contain information about the REBBA requirements for real estate trust accounts.

Name and distinct identity The requirements for name and distinct identity include the following: • The trust account must be identified as a real estate trust account and be clearly distinguishable from the general account and the commission trust account. • All cheques, deposits, and general bank records must clearly state the brokerage name as it is registered with RECO. • The account must be maintained in Ontario, in any of the following: © 2021 Real Estate Council of Ontario

o A bank, or an authorized foreign bank within the meaning of Canada’s Bank Act o A loan or trust corporation o A credit union within the meaning of the Credit Unions and Caisses Populaires Act

Records and financial references The requirements for records and financial references include the following: • All trust records must be separate and distinct from other accounts. • Monies held in trust must at all times be kept separate and apart from the brokerage's own money. • Trust funds cannot be referred to in financial statements or pledged, either directly or indirectly, as part of normal brokerage operation. • No bank charges can be deducted from the trust account. If this account triggers any service charges, they must be deducted from the brokerage’s general account.

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• Any shortfall in the account must be immediately remedied by depositing sufficient funds to eliminate that shortfall.

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Minimum recommended books and records (or electronic equivalent) The requirements for minimum books and recommended records include the following: • Deposit book (or electronic equivalent) with duplicate pages (or slips) • Cheque book with stubs attached • Monthly bank statements with cancelled cheques (may be sent by bank electronically) • Real estate trust ledger • Monthly written bank reconciliation (signed and dated by the broker of record), including a written list of trust liability, which may be done either by hand or using the brokerage’s software • A proper audit trail for every transfer, including electronic funds transfers • Automated teller machine (ATM) receipts (or PDF version stored in appropriate electronic trade folder)

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Signing authority The requirements for signing authority include the following: • The broker of record is the signing authority for the real estate trust account in a sole proprietorship, partnership, or a corporation. • REBBA provides for an alternate signing authority in the case of a corporation or partnership; the alternate signing authority must be a broker employed by the brokerage. Remember that an alternate signing authority is not permitted for a sole proprietorship. • The alternate signing authority must be authorized by RECO; this alternate signs when the broker of record is absent or unable to act. • In a corporation or partnership, the alternate signing authority must be delegated via a corporate or partnership resolution.

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Set-up procedure The real estate trust account is typically set up at a bank branch. When arranging the account, the broker of record should ensure the following: • The name of the account must read as “real estate trust account”; no variations are permitted. • No bank charges or other charges must ever be applied against the real estate trust account, unless an automatic debit is set up for the general account to offset them. • A bank statement for the real estate trust account must be received by the brokerage every month. Smaller brokerages may encounter situations where there is no activity in the real estate trust account for several months. In these cases, the bank’s computer system may automatically assign a dormant status to the account. A broker of record must provide instructions to the bank that this account should never go into dormant status. If it does, the account must be re-activated immediately.

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Lesson 3 | Page 5 of 24

A broker is meeting with a bank representative to set up the real estate trust account in order to complete their application for their new brokerage, XYZ Realty Ltd., where they plan to be the broker of record. What arrangements does the broker have to make with the bank to establish this account? There are five options. There are multiple correct answers.

1

Establish the account under the name “XYZ Realty Ltd., Real Estate Trust Account”.

2

Order a deposit book with duplicate pages, a cheque book with duplicate cheques, and a monthly bank statement with cancelled cheques (or the electronic equivalent of these items).

3

Provide instructions that any charges resulting from the real estate trust account be applied to the general account.

4

Provide instructions that only they will have signing authority for the account.

5

Authorize automatic assignment of dormant status to the account after one month of inactivity.

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Lesson 3 | Page 6 of 24

As a broker of record, it is important to ensure that you understand REBBA requirements regarding trust deposits, as all trust deposits received by the brokerage must be processed in compliance with REBBA. You will also need to ensure that all brokers, salespersons, and administrative staff understand and comply with these requirements.

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Lesson 3 | Page 7 of 24

REBBA Requirements Related to Trust Deposits A broker of record must ensure that trust deposits received by the brokerage are processed in accordance with REBBA requirements. The following six sections contain information on the REBBA requirements related to trust deposits.

Current date Deposit cheques must be currently dated, valid, and capable of being immediately presented for payment at the banking institution upon which they were drawn.

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Maximum time requirement The following requirements apply to trust deposits: • Deposits by way of cheque or electronic funds transfer must be deposited within five business days of receipt. Business days include Monday to Friday, and exclude Saturdays, Sundays, and statutory holidays. • Receipt of the deposit by any employee of the brokerage would constitute receipt by the brokerage. • Delays by a co-operating brokerage to deliver the deposit to the listing brokerage in accordance with the terms of the agreement of purchase and sale will be closely scrutinized by RECO. If a salesperson holds onto their buyer’s deposit rather than delivering it to the brokerage named on the deposit cheque, this may leave the listing brokerage’s salesperson wondering if the property was really sold or not. If the deposit is not delivered, as per the agreement of purchase and sale, the buyer may be at risk of losing the property.

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Deposit receipt When a brokerage receives a deposit directed to another party (for example, the listing brokerage), a receipt must be obtained and retained with the other trade documentation. The agreement of purchase and sale and the trade record sheet must clearly indicate who is holding the deposit. The deposit cheque is typically made payable to the listing brokerage (although exceptions can apply, such as if the deposit is held by the lawyer). The deposit cheque is never made payable to the broker or the salesperson.

No-deposit transaction No-deposit transactions (for example, referral income, mortgage finder’s fees, and appraisals) require trade record sheets and must have appropriate entries in the trust ledger. Disclosure of referral fees and mortgage finder’s fees to the client is mandated under the Code of Ethics and any such fee must only be received by a broker or a salesperson through their employing brokerage.

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Failed agreements of purchase and sale In the case of a failed transaction, a brokerage is only permitted to disburse the deposit in accordance with a release or direction signed by all parties to the agreement (that is, a mutual release) or upon receipt of a direction from the court (that is, a court order).

No endorsement A cheque issued to a brokerage as a deposit cannot be endorsed to any other person.

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Lesson 3 | Page 8 of 24

A brokerage’s real estate trust account is not required to be interest-bearing. If a brokerage does earn interest on this account, they must meet certain disclosure requirements to comply with REBBA. Setting up an interestbearing real estate trust account will require your brokerage to prepare a disclosure document regarding the interest being earned on the account and who will be entitled to receive it. As a broker of record, you will be responsible for ensuring that your brokers and salespersons understand the disclosure document. This disclosure must be provided to buyers when the brokerage is the deposit holder and included in the agreement of purchase and sale. © 2021 Real Estate Council of Ontario

Lesson 3 | Page 9 of 24

Interest-Bearing Real Estate Trust Account: Requirement to Disclose If a brokerage has made arrangements for their real estate trust account to be interest-bearing, the brokerage must disclose to the buyer, in writing, the terms under which that brokerage is holding funds in trust. These terms include that the money will be placed in an interest-bearing real estate trust account and specify the interest rate that the brokerage will receive on that amount. A brokerage must disclose not only what interest is being paid on these funds but also the amount being paid to the party who submitted the deposit (for © 2021 Real Estate Council of Ontario

example, the buyer). Note that if the real estate trust account has a variable interest-rate, the brokerage need only disclose the current interest rate to the person for whom the money is held in trust if they ask. Where interest is earned on a real estate trust account, the brokerage must realize that this interest is trust money. The brokerage must be ready at all times to account for any interest earned on trust deposits. REBBA describes certain legal rights related to interest for the beneficial owners of the trust monies. These rights apply regardless of whether the parties to the agreement had originally requested payment of the interest. If the brokerage intends to do anything with the interest other than pay it to the beneficial owner, then the parties to the transaction must have contractually agreed to those payments.

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Lesson 3 | Page 10 of 24

Interest-Bearing Real Estate Trust Account: Contractual Requirements Interest on trust money accrues to the beneficial owner of the trust money, unless otherwise directed by contract terms. In most transactions, the buyer would be the beneficial owner of the trust money until closing. The payment of interest obligates the brokerage to issue a T5 slip reporting interest paid to the beneficiary, as required by the Canada Revenue Agency (CRA). To minimize issues associated with disbursement of interest related to trust deposits, a brokerage should ensure that its contracts are clear about interest terms and payments related to trust monies. The determination of interest payment should be explicitly described in the agreement of purchase and sale to © 2021 Real Estate Council of Ontario

minimize potential misunderstandings. Contracts should be straightforward about how any interest received on trust monies will be paid (for example, directly to the buyer, directly to the seller, used to increase the value of the deposit to a like amount, or something similar). Example: The brokerage deposits trust monies in an interest-bearing account with a two per cent interest rate. The rate paid to the beneficial owner is one per cent. The brokerage must disclose to the beneficial owner that the interest rate of the account is two per cent and that their contractual consent is required for the one per cent interest payment. As demonstrated in this example, the difference of interest is retained by the brokerage.

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Lesson 3 | Page 11 of 24

Sample Disclosure Clauses for Real Estate Trust Accounts A brokerage determines if their real estate trust account is non-interest-bearing or interest-bearing. The account may require disclosures, which will vary depending on the type of account. The disclosures required will address the interest earned on the account (if any) and who will receive it. If a brokerage is not a member of a real estate board or association, they must create their own disclosure clauses, and should consult a third-party legal professional. However, if a brokerage is a member of a real estate board or association, they are permitted to use the OREA clauses (but they are not obligated to do so, and may still choose to create their own). The following OREA clause excerpts have been included for the sake of example, with permission from OREA. The following four sections contain information about these disclosures.

Non-interest-bearing real estate trust account If a brokerage places a deposit into a non-interestbearing real estate trust account, the brokerage is required to disclose in writing that the brokerage’s financial institution does not pay the brokerage any interest on the real estate trust account. If a brokerage is a member of a real estate board or association and is using OREA Form 100 Agreement of Purchase and Sale, the following pre-printed wording is included below the deposit holder line: © 2021 Real Estate Council of Ontario

“The parties to this Agreement hereby acknowledge that, unless otherwise provided for in this Agreement, the Deposit Holder shall place the deposit in trust in the Deposit Holder’s non-interest bearing Real Estate Trust Account and no interest shall be earned, received or paid on the deposit.” OREA Form 100: Agreement of Purchase and Sale © 2021, Ontario Real Estate Association. All rights reserved. Used under licence.

Interest-bearing real estate trust account: full interest paid to beneficial owner If a brokerage places a deposit into an interestbearing real estate trust account and they intend to pay all of the interest to the buyer, the brokerage must disclose in writing the terms of the interest earned and who will be entitled to it. This disclosure must be added to the agreement of purchase and sale. If the brokerage is a member of a real estate board or association, they will have the following clause wording available to them to include in a Schedule B of the agreement of purchase and sale: “The parties to this Agreement hereby acknowledge that the Deposit Holder shall place the deposit in © 2021 Real Estate Council of Ontario

trust in the Deposit Holder’s interest bearing real estate trust account, which earns interest at_____, and the Deposit Holder shall pay any interest it earns or receives on the deposit to _____ at the same rate of interest the Deposit Holder earns or receives on the Deposit Holder’s real estate trust account.” OREA Clause: DEP/PAY-6: Deposit Interest – Payment of All Interest Earned. ©2021 Ontario Real Estate Association. All rights reserved. Used under licence. For income tax purposes, the listing brokerage is required to have the social insurance number(s) (SIN) of the recipient(s) in order to pass on the interest on deposits to the beneficial owner(s).

Exceptions to entitlement: Lower rate of interest

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Rather than simply disclose the interest rate and pay the accrued amount to the beneficial owner of the trust money, some brokerages may choose to focus on the exception to entitlement. In this case, the brokerage is required to prepare a disclosure document stating the interest rate the brokerage earns and a lower rate of interest to be paid to the beneficial owner of the money. If the brokerage is a member of a real estate board or association, they will have the following clause wording available to them to include in a Schedule B to the agreement of purchase and sale: “The parties to this Agreement hereby acknowledge and agree that the Deposit Holder shall place the deposit in the Deposit Holder’s interest bearing real estate trust account, which earns interest at_____, and the Deposit Holder shall pay interest at a rate of ____on the deposit to ______. The parties to this Agreement hereby acknowledge and agree that the Deposit Holder shall be entitled to retain the difference between the interest earned on the deposit and the agreed rate of interest payable.” OREA Clause: DEP/PAY-7: Deposit Interest – Payment of Interest at a Rate Less Than Earned.

© 2021 Real Estate Council of Ontario

©2021 Ontario Real Estate Association. All rights reserved. Used under licence.

Exceptions to entitlement: Minimum payment threshold Rather than simply disclose the interest rate and pay the accrued amount to the beneficial owner of the trust money, some brokerages may choose to focus on the exception to entitlement. In this case, the brokerage is required to prepare a disclosure document stating the interest rate the brokerage earns and a minimum payment threshold for the brokerage. If the brokerage is a member of a real estate board or association, they will have the following clause wording available to them to include in a Schedule B to the agreement of purchase and sale: “The parties to this Agreement hereby acknowledge and agree that the Deposit Holder shall place the deposit in the Deposit Holder’s interest bearing real estate trust account, which earns interest at_____, and the Deposit Holder shall pay any interest it earns or receives on the deposit to_____, provided the amount of the interest that the Deposit Holder earns or receives on the deposit is equal to or greater than ____. The parties to this Agreement hereby acknowledge and agree © 2021 Real Estate Council of Ontario

that the Deposit Holder shall be entitled to retain any interest earned or retained on the deposit, which is less than_____.” OREA Clause: DEP/PAY-8 Deposit Interest – Payment of Interest Earned Provided Minimum Amount Earned ©2021 Ontario Real Estate Association. All rights reserved. Used under licence.

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Lesson 3 | Page 12 of 24

Sample Disclosure Clause for Interest-Bearing Real Estate Trust Account The broker of record has established an interest-bearing real estate trust account for the brokerage and is now preparing the necessary disclosure clause that must be included in Schedule B – Agreement of Purchase and Sale when the brokerage is the deposit holder. The account generates interest at two per cent. The brokerage policy states that they are prepared to pay any interest from the deposit in excess of $75 to the beneficial owner of the deposit, provided the beneficial owner supplies their SIN to the brokerage. The brokerage is a member of a real estate board. The best wording that satisfies the terms stated above is as follows: © 2021 Real Estate Council of Ontario

The parties to this Agreement hereby acknowledge and agree that the Deposit Holder shall place the deposit in the Deposit Holder’s interest-bearing real estate trust account, which earns interest at 2%, and the Deposit Holder shall pay any interest it earns or receives on the deposit to the buyer, provided the amount of the interest that the Deposit Holder earns or receives on the deposit is equal to or greater than $75. The parties to this Agreement hereby acknowledge and agree that the deposit holder shall retain any interest earned on the deposit, which is less than $75.” OREA Clause: DEP/PAY-8 Deposit Interest – Payment of Interest Earned Provided Minimum Amount Earned ©2021 Ontario Real Estate Association. All rights reserved. Used under licence.

This is because: • The Act requires that the brokerage disclose in writing where the deposit is being placed (interestbearing or non-interest-bearing account) to persons depositing trust monies. When the brokerage is in receipt of the deposit, these monies must be kept separate and apart from the brokerage’s money (the general account). • Interest on trust monies will accrue to the beneficial owner of the trust monies, unless otherwise directed by contract terms. In the case of a typical transaction, the buyer would be the beneficiary owner of the trust monies until closing. • The brokerage policy states that the deposit holder is entitled to retain interest earned on the deposit, as long as it is less than $75. • The brokerage policy states that they are prepared to pay any interest from the deposit in excess of $75. The words used in the clause provide direction by contract that the brokerage is permitted to retain interest when it is less than $75.

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Lesson 3 | Page 13 of 24

As a broker of record, you will encounter situations where a buyer will provide a deposit to your brokerage (the deposit holder) and want to earn interest on their deposit. Regardless of whether your brokerage’s real estate trust account is interest bearing or non-interest bearing, you will need to know how to accommodate this request.

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Lesson 3 | Page 14 of 24

Interest-Bearing Certificates If a brokerage is named as the deposit holder in an agreement of purchase and sale, and the buyer has included a clause stating that they want to keep the full amount of interest on the deposit, the brokerage must purchase an interest-bearing certificate (sometimes referred to as an interest-bearing security, guaranteed investment certificate, term certificate, or term deposit) for that deposit. If a buyer wants to gain interest on their deposit (and keep the full amount), the agreement of purchase and sale must include a clause specifying this intention. The brokerage will arrange for the deposit to earn interest through the purchase of an interest-bearing certificate. © 2021 Real Estate Council of Ontario

Remember that if a brokerage is not a member of a real estate board or association, they must write their own clause wording. However, if they are a member of a real estate board or association, they will have the following clause wording available to them: “The parties to this Agreement hereby acknowledge that the Deposit Holder shall place all deposit monies in an interest-bearing security with any accrued interest on the deposit to be paid to the Buyer as soon as possible after completion or other termination of this Agreement. The deposit holder will immediately inform the person depositing the trust money as to the interest rate received on the deposit. In the event that the closing date is advanced, or the transaction is terminated, the party receiving the interest agrees to accept the short-term rate for deposits withdrawn before maturity.” From OREA Clause: DEP/PAY-9: Deposit Interest – Term Deposit Bearing Interest. ©2021 Ontario Real Estate Association. All rights reserved. Used under licence.

REBBA does not set procedures for matters concerning interest-bearing certificates. Therefore, the brokerage should ensure that their policy regarding interest-bearing requests on deposits are included in the brokerage’s policy and procedures and uniformly applied. The brokerage must also ensure that interest-bearing certificates are included in the required monthly reconciliations of consumer deposits.

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Lesson 3 | Page 15 of 24

Procedures Associated with Interest-Bearing Certificates When purchasing an interest-bearing certificate, the brokerage should adhere to the following steps: Step 1: State in the agreement of purchase and sale that the brokerage will deposit monies into an interestbearing certificate, and identify the party who is to receive the interest. (This party must provide their SIN to the brokerage and/or their CRA taxation number if they are a business entity.) Step 2: Follow normal procedure to place the buyer’s deposit into the brokerage’s real estate trust account. (Prepare the deposit book and record the deposit in the real estate trust ledger.) If the buyer provided a regular cheque (as opposed to a certified cheque or electronic funds transfer), the brokerage must wait for the cheque to clear before proceeding. Step 3: Prepare a cheque or electronic funds transfer from the real estate trust account to purchase the interest-bearing certificate. Record the cheque or electronic funds transfer in the real estate trust ledger (indicating that it was used for the purchase of the interest-bearing certificate). Step 4: Instruct the bank to endorse the interest-bearing certificate as follows: • Brokerage Name in trust for Buyer’s Name regarding purchase of Property Address. Step 5: Instruct the bank to deposit the interest-bearing certificate plus the accrued interest in the real estate trust account, upon the certificate’s maturity. The bank will transfer the original deposit and accrued interest into the real estate trust account. At this time, the brokerage will enter these details into the real estate trust ledger.

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Step 6: Make the payment of interest from the real estate trust account to the beneficial owner of the trust money. Record the cheque or electronic funds transfer used for this payment in the real estate trust ledger.

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Lesson 3 | Page 16 of 24

Additional Considerations Associated with Interest-Bearing Certificates If a buyer wants to retain the full interest on their deposit, the brokerage’s work will extend beyond purchasing the interest-bearing certificate. The following leading practices are strongly recommended to address other considerations of interest-bearing certificates. A broker of record should include these leading practices in their written policy and provide training to brokers and salespersons so that they can share expectations and relevant information with buyers when they request to receive interest on their deposits. The following four sections contain information about leading practices associated with interest-bearing certificates.

Administration fees Charging an administration fee to offset the costs of an interest-bearing certificate transfer is acceptable, provided that full disclosure is given, the person being charged agrees to this fee, the fee is fair and reasonable under the circumstances, and the fee is applied uniformly to all such transfers within the brokerage.

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Minimum interest-bearing certificate amounts and time periods A minimum deposit requirement and/or time period is acceptable, provided that the limiting requirement is reasonable given administration and other costs, and that this minimum applies to all deposits taken by the brokerage.

Electronic transfers Electronic funds transfers to and from the trust account must be supported by a proper audit trail.

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Taxation Payment of interest qualifies as income pursuant to the Income Tax Act. A person receiving interest must supply their SIN to the brokerage prior to the deposit being placed in an interest-bearing certificate. A T5 is required for interest earned and forwarded to the applicable party. This can be completed immediately following the closing of the transaction. However, it is often generated by the brokerage’s software as part of the year-end process.

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Lesson 3 | Page 17 of 24

As a broker of record, your brokerage will accommodate buyers by making arrangements with the brokerage’s financial institution and enabling buyers to send deposits electronically for real estate transactions. However, the brokerage must be able to provide a proper audit trail for each transfer in and out of their accounts. As a broker of record, you must ensure that your brokerage is able to provide a proper audit trail for each transfer.

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REBBA does not have rules that specifically address electronic funds transfers, but a brokerage is required to comply with record-keeping requirements when trust money is received or disbursed.

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Lesson 3 | Page 18 of 24

Requirements Related to Receiving and Disbursing Electronic Funds Transfers for Deposits The use of electronic funds transfers is a permissible and efficient way to transfer money for real estate transactions. A brokerage must document every transfer in and out of their real estate trust account. If a brokerage has agreed to receive an electronic deposit, the following requirements must be met:

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• The payment must be in the form of an electronic funds transfer and should be noted as a clause in the agreement of purchase and sale. This can be accomplished by including a clause in Schedule A or by recording that the deposit is by way of electronic funds transfer on the first page in the deposit line. Again, if a brokerage is not a member of a real estate board or association, they will be responsible for creating their own clauses. If they are a member of a real estate board or association, they will be permitted to use the following OREA clause: “In addition to any other provision in this Agreement or any Schedule thereto the parties agree that any deposit to be delivered by the Buyer to the Deposit Holder may be delivered by Electronic Funds Transfer (EFT) to an account designated by the Deposit Holder. Provided further that the Buyer making the EFT shall, with respect to the said EFT, provide such information to the Deposit Holder as required by the Deposit Holder to comply with the requirements of the Real Estate and Business Brokers Act, 2002, as amended from time to time and or to comply with other relevant statutory requirements.” OREA Clause: DEP/PAY-10 Deposit by Electronic Funds Transfer. ©2021 Ontario Real Estate Association. All rights reserved. Used under licence.

• When a brokerage accepts an electronic funds transfer trust deposit, the broker of record must obtain and maintain written confirmation from the brokerage’s financial institution. Once the brokerage receives the details of the electronic funds transfer deposit, this information must be documented in the brokerage’s real estate trust ledger (which may be electronic) identifying the trade number, property address, and a notation that it is an electronic funds transfer. As a leading practice, it is recommended that the brokerage also documents this information in their deposit book. • The trade record sheet must record the deposit as an electronic funds transfer and list any bank reference numbers acknowledging the same deposit, in addition to the date of the electronic funds transfer. © 2021 Real Estate Council of Ontario

The following electronic disbursements from the real estate trust account must be recorded in the real estate trust ledger: • In cases of a mutual release, the document must indicate to whom funds will be provided and that the funds will be transferred by way of an electronic funds transfer. • In cases of a completion of a transaction: o The deposit will be applied to reduce commission payable, and an electronic funds transfer will be made to the commission trust account o When the deposit is greater than commission payable, excess could be transferred electronically to the seller When conducting a brokerage inspection, RECO inspectors will review the brokerage’s electronic funds transfer procedures to ensure that there is proper documentation for audit purposes.

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Lesson 3 | Page 19 of 24

As a broker of record, it is important to ensure that you understand the purpose of a real estate trust ledger and REBBA requirements regarding minimum information required in a real estate trust ledger. Then, you must ensure your brokerage complies with these requirements. You will be responsible for reviewing the trust ledger regularly to check that details of all trades and deposits that have come into the brokerage are entered as per REBBA requirements.

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Lesson 3 | Page 20 of 24

Purpose of a Real Estate Trust Ledger The real estate trust ledger is the basis of record-keeping for brokerage documents, as any income producing activity is recorded in this ledger. It controls the issuance of trade record numbers, among other things. Any consumer deposit received by the brokerage involving a trade is also recorded in this ledger. If a deposit is held by another party, such as the listing brokerage or a lawyer, then that information is recorded. If the brokerage is the deposit holder, then this is recorded in the deposit column and disbursements are also recorded. This ledger details all trust money transactions (written record) in accordance with REBBA. Each month, the ledger is referred to when completing a reconciliation for the real estate trust account. A list of all trades where the brokerage is holding consumer deposits is generated from this ledger. © 2021 Real Estate Council of Ontario

Lesson 3 | Page 21 of 24

© 2021 Real Estate Council of Ontario

From Form 610 – Disclosure of Benefit/Payment to Registrant – Finders Fees, Rewards, Referral Fees, Incentives ©2021 Ontario Real Estate Association. All rights reserved. Used under licence. © 2021 Real Estate Council of Ontario

Information Required in a Real Estate Trust Ledger A broker of record must ensure that all entries in the real estate trust ledger comply with REBBA requirements. The following minimum information is required: • Date: The date of the trust deposit recorded in the trust ledger and trade record sheet should match the date stamped in the bank deposit book and not the date the brokerage receives the trust deposit • Description: This includes the address of the property being traded and the buyer’s name(s) • Trade number (issued sequentially) • Deposit amount • Cheque number • Disbursement date • Disbursement reference (cheque or electronic funds transfer number) • Disbursement amount • Explanation of disbursement Deposit entries should be recorded in the real estate trust account ledger, as follows: • Each deposit is entered as a single entry, with all entries in chronological order by trade. • With non-deposit transactions, deposit and cheque columns should be left empty. • Deposits held by another brokerage or the seller’s lawyer should be recorded. • Deposits and disbursements must equal at the point when the trade is closed or cancelled. © 2021 Real Estate Council of Ontario

Brokerage software packages often include expanded trust ledgers (for example, additional space for comments, information concerning miscellaneous trades, cheque number, balance, and transfer details to an interest-bearing certificate).

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Lesson 3 | Page 22 of 24

© 2021 Real Estate Council of Ontario

Sample of Entries in a Real Estate Trust Ledger A brokerage is required to ensure that trust monies are appropriately managed and maintained. Several sections of REBBA describe how monies held in trust must be managed and disbursed. REBBA specifically details how trust money transactions must be recorded. The following eight sections contain information about the different sections of the trust ledger and view sample entries.

Section 1 The amount of money that came into the brokerage’s possession in trust for another person in connection with the brokerage’s business

Section 2 The date the money came into the brokerage’s possession

Section 3 The name of the person from whom the money was received and, if the money was received on another person’s behalf, the name of the person on whose behalf the money was received

Section 4 The purpose of receiving the money

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Section 5 The name of the broker or salesperson who received the money

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Section 6 The information entered here refers to every deposit into the real estate trust account: • A way of identifying the money that came into the brokerage’s possession in trust to which the deposit relates, including the name of the person from whom the money was received and the real estate, if any, to which the money relates • The amount of the deposit • The date the deposit was made

Section 7 The information entered here refers to every disbursement from the real estate trust account: • The amount of the disbursement • The date the disbursement was made • The name of the person to whom the money was disbursed • The real estate, if any, to which the disbursement relates • The purpose of the disbursement • The name of the person who authorized the disbursement

Section 8 The information entered here refers to every payment of interest on money held in the real estate trust account:

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• A way of identifying the money that came into the brokerage’s possession in trust to which the payment relates • The amount of the payment • The date the payment was made • The name of the person who authorized the payment of interest

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Lesson 3 | Page 23 of 24

A listing brokerage receives a request from a buyer who wants to submit an offer on a property that they have just viewed. The buyer, who will be traveling out of town, requests that the deposit be sent as an electronic funds transfer. The brokerage makes arrangements with their financial institution to accommodate the buyer. How can the broker of record acknowledge receipt of the electronic funds transfer? There are four options. There are multiple correct answers.

1

Record the electronic funds transfer in the real estate trust account deposit book.

2

Include a clause to the agreement of purchase and sale stating that the deposit is by way of electronic funds transfer.

3

Email a notification to the seller confirming that the deposit has been received by way of electronic funds transfer.

4

Make a note on the trade record sheet that the deposit was received by way of electronic funds transfer.

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Lesson 3 | Page 24 of 24

Congratulations, you have completed the lesson! Completion of this lesson has enabled you to: • Describe REBBA requirements for establishing and maintaining a real estate trust account • Describe deposit procedures to ensure adherence to REBBA requirements • Identify the procedures related to interest-bearing real estate trust account and interest-bearing certificate to ensure adherence to REBBA requirements • Identify the procedures related to electronic funds transfers to ensure adherence to REBBA requirements • Identify the minimum information required in a real estate trust ledger to ensure adherence to REBBA requirements There are six sections on this page with a summary of the key topics that were discussed in this lesson.

REBBA requirements for establishing and maintaining a real estate trust account

A brokerage must ensure that all documentation relating to the real estate trust account is named correctly and identified. As a broker of record, you must ensure that the minimum books and records (or electronic equivalent) are maintained to adhere to REBBA requirements. You will also be the signing authority for the real estate trust account. Upon setting up the real estate trust account, you will need to ensure that the financial institution is aware of the criteria that must be followed for the brokerage.

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Deposit procedures to ensure adherence to REBBA requirements

As a broker of record, you will ensure that all brokers, salespersons, and administrative staff comply with REBBA requirements for trust deposits, as follows: • Deposits by way of cheque or electronic funds transfer must be deposited within five business days of receipt • Receipt of the deposit by any employee of the brokerage would constitute receipt by the brokerage • If the deposit is not delivered, as per the agreement of purchase and sale, the buyer may be at risk of losing the property

Procedures related to interest-bearing real estate trust account to ensure adherence to REBBA requirements

If your brokerage has an interest-bearing real estate trust account, you must disclose the interest rate that the brokerage will receive on that amount and also the amount being paid to the beneficiary (for example, the buyer). Interest on trust money accrues to the beneficial owner of the trust money, unless otherwise directed by contract terms. In most transactions, the buyer would be the beneficial owner of the trust money until closing. As a broker of record, you must prepare a disclosure document detailing the interest being earned on the account and who will be entitled to receive it. Brokers and salespersons will add this disclosure document to the agreement of purchase and sale when the brokerage is the deposit holder. All parties must agree to the terms of the disclosure; otherwise, the interest must be paid to the beneficial owner of the trust money.

Procedures related to interest-bearing certificate

If a brokerage is named as the deposit holder in an agreement of purchase and sale and the buyer has included a clause stating that they want to keep the full amount of interest on the deposit, the brokerage must purchase an © 2021 Real Estate Council of Ontario

to ensure adherence to REBBA requirements

interest-bearing certificate for that deposit. As a broker of record, you must ensure that your brokerage has a policy regarding interest-bearing certificates including administration fees to offset any costs associated with purchasing interest-bearing certificates, minimum deposit amounts, and minimum periods of time that the deposit will be held.

Procedures related to electronic funds transfers to ensure adherence to REBBA requirements

The brokerage must have a complete written record of all funds that come into the brokerage in trust for other persons in connection with the brokerage’s business and of every transaction relating to that money. This includes electronic funds transfers.

Information required in a real estate trust ledger to ensure adherence to REBBA requirements

As a broker of record, you will be responsible for ensuring that all entries in the trust ledger meet REBBA requirements. The brokerage will record all entries in the real estate trust ledger from the deposit entry to full disbursement. Making these entries in the real estate trust ledger will help to hold the brokerage accountable for consumer deposits.

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Lesson 4 | Page 1 of 10

Lesson 4: Monitoring Real Estate Trust Accounts

This lesson identifies leading practices for real estate trust accounts. It also identifies potential actions to take in case of unclaimed money in a real estate trust account when the entitlement is unclear or when the entitlement is clear, but the person cannot be located.

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Lesson 4 | Page 2 of 10

As you learned earlier, brokerages are required to establish and maintain real estate trust accounts. This lesson highlights potential issues or incidents related to real estate trust accounts and provides a series of leading practices to avoid them. The lesson also describes procedures related to unclaimed monies in a real estate trust account, both when the entitlement is unclear and when it is clear, but the person cannot be located. As a broker of record, you must be aware of the steps to be taken for handling dormant trust monies. Upon completion of this lesson, you will be able to: • Identify leading practices for real estate trust accounts © 2021 Real Estate Council of Ontario

• Identify potential actions to be taken when there is unclaimed money in a real estate trust account Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

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Lesson 4 | Page 3 of 10

As a broker of record, it is important to be aware of potential issues that can arise when setting up and maintaining a real estate trust account for your brokerage. It is helpful to understand the leading practices you can use to identify and avoid potential issues. These issues typically relate to fees, service charges, or misapplied interest or deposits. As a broker of record, you will be responsible for providing instructions to your brokerage’s financial institution for proper handling of service charges to the real estate trust account.

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Lesson 4 | Page 4 of 10

Potential Issues and Incidents Related to Real Estate Trust Accounts When a broker of record establishes the trust account with their financial institution, they must provide clear instructions to the financial institution that no service charges may ever be charged against the trust account. There will be costs, but they must be charged against the brokerage’s general account. Examples of potential issues related to the real estate trust account could include the following:

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• Fees being charged by the financial institution to operate the account. These fees are part of a brokerage’s operating costs and need to be replaced immediately by the financial institution reversing the charges. This is the most common reason a shortfall may occur. • Service charges that have been deducted from the brokerage’s real estate trust account, even though instructions were given to the financial institution that they are never permitted to take service charges out of this account. These service charges can occur when: o A deposit cheque is returned due to insufficient funds. o There is a stop payment. o A deposit is made through an electronic funds transfer. • Misapplied interest that is incorrectly posted by the financial institution to the real estate trust account, instead of to the general account. • A misapplied deposit that is incorrectly posted by the financial institution to the real estate trust account, instead of to the general account, or vice versa to the general account, instead of to the real estate trust account.

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Lesson 4 | Page 5 of 10

Real Estate Trust Account Leading Practices The following leading practices can help a broker of record identify and avoid a selection of the more common errors associated with real estate trust accounts. The following six sections contain information about these leading practices.

Reviewing trade files before signing trust cheques When signing trust cheques, the broker of record should review the contents of individual files to ensure that correct trade notations and full details of transfers and deposits are recorded, along with complete cross-referencing to source documents.

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Reviewing the trust ledger upon signing reconciliation When signing the monthly trust account reconciliation, the broker of record should carefully review the trust ledger to ensure that trades are successfully closed out and pending notations are addressed. They should also conduct a general check of pending trades awaiting final disposition to ensure that everything is in order. While legislation requires the broker of record to sign the reconciliation, it is a leading practice to have an administrative staff member (usually the bookkeeper) sign as well.

Confirming proper cross-referencing The broker of record should review cheque stubs, electronic funds transfers, and returned copies of cheques to verify that the trade number is included, and that other cross-referencing is being done correctly. They should also check the deposit book to confirm that appropriate cross-referencing is being completed.

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Looking for misapplied interest and/or bank charges The broker of record should carefully inspect monthly trust account statements for interest and/or bank charges. As mentioned previously, this error is typically a result of incorrect posting by the financial institution to the trust account, instead of to the general account.

Following up on stale-dated cheques Occasionally, buyers forget to cash interest cheques that subsequently become stale-dated after six months. The broker of record should ensure that follow-up is completed, as these entries remain open and unnecessarily complicate the reconciliation process.

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Carefully reviewing all open entries in the trust ledger The broker of record should review all trust ledger entries that remain open for an extended period of time. While some trades are open due to long closings, others remain open due to problems. For example: • Incorrect entries and closing of wrong trade files • Cases in which the conditions were not met but the parties have not yet signed the mutual release

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Lesson 4 | Page 6 of 10

The broker of record at ABC Real Estate Inc. has just entered into an agreement with another broker who has been with the brokerage for three years. The broker has agreed to be the alternate broker of record when the broker of record is absent or unable to fulfill their duties. This decision has been reported to RECO and approved by them. The broker of record is reviewing the leading practices for real estate trust account procedures that should be followed in their absence with the alternate broker of record. Which leading practices should the broker of record ask the alternate broker of record to follow should the broker of record be away or unable to fulfil their duties? There are four options. There are multiple correct answers.

1

Obtain a signature from a financial institution’s representative for monthly reconciliation (in addition to their own signature).

2

Review cheque stubs, electronic funds transfers, and returned copies of cheques.

3

Follow up on stale-dated cheques.

4

Review the trust ledger to ensure that trades are successfully closed out and pending notations are addressed. © 2021 Real Estate Council of Ontario

Lesson 4 | Page 7 of 10

There may be times when money is left unclaimed in a real estate trust account. As a broker of record, it is important to ensure that you understand the procedures established by the Real Estate and Business Brokers Act (REBBA) regarding unclaimed money in a real estate trust account. You must also ensure your brokerage complies with these requirements. REBBA requires that monies in a brokerage’s real estate trust account be disbursed only in accordance with the terms of the trust.

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Lesson 4 | Page 8 of 10

Procedures Regarding Unclaimed Monies in a Real Estate Trust Account On occasion, monies may be left unclaimed in the real estate trust account. REBBA identifies two situations when a brokerage is required to pay unclaimed trust monies to RECO. A broker of record must ensure that the brokerage complies with these REBBA procedures. If the trust monies in question were held in an interest-bearing account, the unclaimed monies paid to RECO will include both the original trust deposit and any interest accrued to the original trust monies up until the time these monies are paid out to RECO. If the amount is less than $25, the brokerage is not required to forward this sum to RECO but has the option to do so. The following two sections contain information about REBBA procedures in situations related to unclaimed monies.

Entitlement unclear If a brokerage holds money in trust for a period of two years and the entitlement to the money has not been determined or is unclear, the brokerage must pay the money to RECO and submit the following documentation: • A cheque, representing the deposit amount, payable to RECO

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• A copy of the relevant agreement of purchase and sale and any related documents • A copy of the trade record sheet related to the transaction • A copy of the relevant trust account transaction record or records • Any additional information the brokerage is aware of regarding why entitlement to the trust money has not been determined or is unclear

Entitlement clear but person cannot be located If a brokerage holds money in trust for a period of one year after the person for whom it is held first became entitled to it and the person cannot be located, the brokerage must pay the money to RECO. Along with these funds, they must submit the following documentation: • A cheque, representing the deposit amount, payable to RECO • Copy of the agreement of purchase and sale and any related documents • Copy of the trade record sheet related to the transaction © 2021 Real Estate Council of Ontario

• Copy of the relevant trust account transaction record or records • Proof of unsuccessful attempts to contact the entitled person(s) during the 12 months following the determination of the entitlement to the trust money, usually indicated by two postmarked, returned envelopes

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Lesson 4 | Page 9 of 10

A broker of record is conducting their monthly general review of pending trades and cross-checking entries in the real estate trust ledger. During this review, they identify dormant trust monies in the real estate trust account in the amount of $10,000. The deposit has a clear entitlement, but the individual cannot be located. What must the broker of record do with the unclaimed monies? There are four options. There are multiple correct answers.

1

Forward the unclaimed funds to RECO after one year.

2

Forward the unclaimed funds to RECO after two years.

3

Provide proof to RECO of their unsuccessful attempts to contact the individual.

4

Submit a copy of the agreement of purchase and sale to RECO.

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Lesson 4 | Page 10 of 10

Congratulations, you have completed the lesson! Completion of this lesson has enabled you to: • Identify leading practices for real estate trust accounts • Identify potential actions to be taken when there is unclaimed money in a real estate trust account There are two sections on this page with a summary of the key topics that were discussed in this lesson.

Leading practices for real estate trust accounts

A brokerage may encounter issues related to their real estate trust account, such as fees being charged by the financial institution to operate the account, service charges that have been deducted from the brokerage’s real estate trust account, misapplied interest that is incorrectly posted by the financial institution to the trust account, or misapplied deposits that are incorrectly posted by the financial institution to the trust account. Brokers of record can identify and avoid trust account related issues by exercising the following leading practices: • Reviewing the document at point of signing trust cheques • Checking trust ledger when signing the reconciliation • Confirming proper cross-referencing • Looking for misapplied interest or bank charges • Following up on stale-dated cheques © 2021 Real Estate Council of Ontario

• Carefully reviewing all open entries in the trust ledger

Actions to be taken when there is unclaimed money in a real estate trust account

Monies in a brokerage’s real estate trust account must be disbursed only in accordance with the terms of the trust as per REBBA requirements. The Act identifies two situations when a brokerage is required to pay unclaimed trust monies to RECO: • If a brokerage holds money in trust for a period of two years and the entitlement to the money has not been determined or is unclear, the brokerage must pay the money to RECO. • If a brokerage holds money in trust for a period of one year after the person for whom it is held first became entitled to payment of the money and the person cannot be located, the brokerage must pay the money to RECO.

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Lesson 5 | Page 1 of 13

Lesson 5: Reconciling Real Estate Trust Accounts

This lesson identifies considerations for reconciling a real estate trust account, including the purpose of and basic principles for preparing reconciliation statements, with sample schedules and figures. It also describes common causes that may result in the inability to reconcile a real estate trust.

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Lesson 5 | Page 2 of 13

As a broker of record, you must complete a reconciliation each month to confirm that all consumer deposits held by your brokerage are accounted for. This lesson describes the basic principles to prepare reconciliation statements, including sample schedules and figures. It also provides a sample format of a real estate trust account bank reconciliation. Finally, this lesson describes common causes that can result in the inability to reconcile a real estate trust account. Upon completion of this lesson, you will be able to: • Identify the considerations for reconciling a real estate trust account Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented. © 2021 Real Estate Council of Ontario

Lesson 5 | Page 3 of 13

Purpose of Real Estate Trust Account Reconciliation A bank reconciliation involves comparing and matching figures from the accounting records of a brokerage to those shown on the bank statement. When making the comparison, any transactions of the brokerage not found on the bank statement (or vice versa) are considered outstanding. The underlying purpose is to provide assurances that the financial institution and the brokerage are in agreement concerning monies on deposit. A bank statement total may vary from the brokerage records due to issued cheques that have been recorded but not cashed and deposits that have been recorded but have not been received by the bank. Reconciliation is necessary because the financial institution and the brokerage are maintaining independent records of bank account activity and the differences must be accounted for (reconciled). At any point of time, the brokerage © 2021 Real Estate Council of Ontario

must be able to produce monthly trust account reconciliations to be in compliance with the Real Estate and Business Brokers Act (REBBA). The real estate trust account reconciliation involves a comparison of the bank statement for the real estate trust account and the trial balance for the real estate trust ledger (the trust liability). The trust liability, consisting of deposits held in the trust account (including interest-bearing certificates), is prepared at the end of each month or to coincide with the date of the monthly real estate trust account bank statement. All deposits are recorded by date, trade number, and address. All cheques are recorded by date, cheque number, and trade number. The broker of record must sign and date the reconciliation.

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Lesson 5 | Page 4 of 13

© 2021 Real Estate Council of Ontario

Real Estate Trust Account Reconciliation The reconciliation compares the bank account statement to the deposits being held for pending real estate trades, as noted in the real estate trust ledger. When in balance, the two amounts will be the same. If the amounts do not balance (reconcile), it must be determined why this is the case. If there is a shortfall, the brokerage must immediately deposit sufficient funds to eliminate the shortfall. Reconciliations can be completed in any number of ways. The formality of the reconciliation usually depends on the size of the brokerage and the number of trades the brokerage processes. Larger brokerages with higher trade volumes will typically use a formal report to ensure that all pending trades can be noted for the real estate trust account liability. Smaller brokerages with lower trading volumes may use a less formal method and complete a reconciliation on the real estate trust account statement itself. No matter how formally or informally the reconciliation is presented, the process of completing the reconciliation is done in the same way.

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Lesson 5 | Page 5 of 13

Basic Principles to Prepare Reconciliation Statements Two basic principles apply for preparing a reconciliation statement: 1. The reconciliation of the account is prepared for a fixed point in time. Brokerages are required to prepare reconciliation statements each month. These reconciliation statements must be completed within 30 days of the date the brokerage receives their monthly bank account statement. 2. The reconciliation does not need to detail all activity that occurs on the statement. In other words, the brokerage does not need to list every deposit and every cheque on the reconciliation. © 2021 Real Estate Council of Ontario

A brokerage must complete several steps to reconcile its real estate trust account as required.

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Lesson 5 | Page 6 of 13

Completing the Reconciliation Statement The brokerage must prepare a real estate trust account reconciliation each month. These reconciliation statements must be completed within 30 days of the date the brokerage receives their monthly bank account statement. A brokerage may delegate the completion of the trust account reconciliation to an administrative staff person (usually the bookkeeper). Remember that it is a leading practice to have two signatures on the reconciliation. The administrative staff person will sign and date the reconciliation once they have completed it; the broker of © 2021 Real Estate Council of Ontario

record will then be required to review the reconciliation for accuracy and ensure that it satisfies the regulatory responsibility before signing and dating it as well. Ultimately, the broker of record is responsible for the completion of the reconciliation statement.

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Lesson 5 | Page 7 of 13

© 2021 Real Estate Council of Ontario

Reconciled Bank Account Balance The following five sections contain information about the steps in the reconciliation process.

Step 1 The broker of record locates the real estate trust account bank balance. This is the last balance entry on the bank statement for the month they are reconciling. In this example, it is mid-April, and the broker of record is completing the reconciliation for the previous month. The bank statement for the previous month reports the activity from March 1 to March 31. Therefore, the broker of record must identify what the balance in the real estate trust account was on March 31. The bank balance on March 31, 2020 (closing date) is $23,553.33.

Step 2 The broker of record identifies any outstanding disbursements (cheques written at or before the end of the month being reconciled that did not clear the account by the end of that month). They list outstanding cheques by date written, and they reference the cheque number, the appropriate trade record number, the payee, and the amount of the cheque. The total amount of these cheques is the sum of the broker of record’s outstanding disbursements. In this example, the total amount for outstanding disbursements is $3,000.

Step 3 © 2021 Real Estate Council of Ontario

The broker of record identifies any outstanding deposits of trust monies that have been received and deposited but not yet processed by the bank. Typically, outstanding deposits are rare. They may occur if a brokerage makes a deposit on the last business day of the month and after the financial institution’s recording time. The broker of record lists them by date received, cheque number, trade record number, the name of the individual who issued the cheque, and the amount of the cheque. They do not include any amounts that were received but not deposited. The total amount of these cheques is the sum of the broker of record’s outstanding deposits. In this example, the total amount for outstanding deposits is $5,000.

Step 4 If the broker of record is using interest-bearing certificates, they identify their value on the reconciliation date (in this example, March 31). They should consider establishing online view access and/or request a month-end statement of the interest-bearing certificates from the bank, just like for regular monthly bank statements. The interest-bearing certificate statements should be attached to the monthly reconciliation as supporting documentation. They will also help the broker of record to catch redemption errors, which are common. Otherwise, it can be extremely difficult and very costly to attempt to retrieve this information for past periods should RECO request a reconciliation submission review from the brokerage. In this example, the total amount for interest-bearing certificates at the month’s end (March 31, 2020) is $40,000.

Step 5 The broker of record subtracts the sum of any outstanding disbursements (calculated in Step 2) from the bank balance on the reconciliation date (identified in Step 1). To this new sum, they add the sum of any outstanding deposits (calculated in Step 3). These are rare. © 2021 Real Estate Council of Ontario

Then, they add the total value of any interest-bearing certificates (identified in Step 4). The final total here is the reconciled real estate trust account bank balance. In this example, the reconciled real estate trust account bank balance is $65,553.33.

© 2021 Real Estate Council of Ontario

Lesson 5 | Page 8 of 13

Calculating the Total Real Estate Trust Liability The second part of the reconciliation process is the calculation of the total real estate trust liability. This includes a list of all the clients and customers the brokerage was holding deposits for as of the end of the month. Clients and customers from whom the brokerage has taken deposits after the last day of the month should not be included in this calculation. © 2021 Real Estate Council of Ontario

Lesson 5 | Page 9 of 13

© 2021 Real Estate Council of Ontario

Total Real Estate Trust Liability and Reconciled Amount The following six sections contain information about the reconciliation steps to ascertain the total real estate trust liability and the reconciled amount.

Step 6 The broker of record identifies all real estate trust account deposits being held by the brokerage as of the reconciliation date (in this example, March 31). They list them by trade number and include the type of deposit (bank), as well as the property address and the amount of the deposit. In this example, the total of these amounts is the real estate trust account liability.

Step 7 The broker of record identifies all real estate trust account deposits being held by the brokerage in interestbearing certificates as of the reconciliation date (in this example, March 31). They list them by trade number and include the type of deposit (term), as well as the property address and the amount of the deposit. In this example, the total of these amounts is the real estate trust interest-bearing certificate liability.

Step 8 The broker of record identifies the total interest accrued in the real estate trust account (the interest liability of the brokerage) on the last day of the month they are reconciling (in this example, March 31).

Step 9 © 2021 Real Estate Council of Ontario

The broker of record adds the sum of the real estate trust account liability (calculated in Step 6) to the sum of the real estate trust interest-bearing certificate liability (calculated in Step 7), plus the sum of the interest liability (calculated in Step 8). The total in this example is the real estate trust account liability.

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Step 10 To determine the reconciled amount, the broker of record subtracts the total real estate trust liability from the reconciled real estate trust account bank balance. The result should equal zero ($0).

Step 11 If the result of Step 10 does not equal zero, any discrepancies must be explained on the reconciliation and must be addressed immediately. The final reconciliation must be reviewed, signed, and dated by the broker of record.

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Lesson 5 | Page 10 of 13

© 2021 Real Estate Council of Ontario

Simplified Reconciliation Some brokerages may not need sophisticated accounting procedures. In this sample reconciliation statement, the broker of record has completed the monthly reconciliation on their monthly bank statement. This format is acceptable because the brokerage has a small volume of transactions.

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Lesson 5 | Page 11 of 13

Challenges when Reconciling a Real Estate Trust Account A broker of record may encounter challenges when first attempting to reconcile a real estate trust account (and interest-bearing certificates, if applicable). If a broker of record is unable to reconcile at their first attempt, they can check for and resolve one or more errors that sometimes can occur: • Deposits placed in the wrong account (either a brokerage or a financial institution error) • Numbers transposed within the amount (for example, $12,238 instead of $12,283, which is also known as reversion) © 2021 Real Estate Council of Ontario

• Deposits assigned to incorrect trades (for example, two trades for the same address or notations made to the wrong trade) • Bank fees and service charges for non-sufficient funds and stop-payments allocated to the real estate trust account • Deposits transferred to an interest-bearing certificate without any notations recorded in the real estate trust ledger • Interest-bearing certificate matures and money is transferred back to the real estate trust account without being properly recorded in the real estate trust ledger • Interest-bearing certificates not redeemed

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Lesson 5 | Page 12 of 13

© 2021 Real Estate Council of Ontario

The broker of record of ABC Real Estate Inc. is completing the June 30, 2021 reconciliation of the real estate trust account. The bank balance, per the bank statement, is $143,000. According to the brokerage records, there are outstanding cheques for $19,000 and outstanding deposits of $22,000 What must the total amount of deposits be in the real estate trust ledger indicated on Schedule B if all amounts have been reconciled? There are three options. There is only one correct answer.

1

$146,000

2

$200,000

3

$180,000

© 2021 Real Estate Council of Ontario

Lesson 5 | Page 13 of 13

Congratulations, you have completed the lesson! Completion of this lesson has enabled you to: • Identify the considerations for reconciling a real estate trust account There are two sections on this page with a summary of the key topics that were discussed in this lesson.

Purpose of a real estate trust account reconciliation

The purpose of the real estate trust account reconciliation is to account for all the monies held in trust for consumer deposits at the financial institution, and ensure that it is in balance with internal recordkeeping in the real estate trust ledger. At any point of time, the brokerage must be able to produce monthly trust account reconciliations to be in compliance with REBBA. As the broker of record, you will be required to review, sign, and date the trust account reconciliation.

Common causes resulting in the inability to reconcile a real estate trust account

As a broker of record, you must consistently check the real estate trust ledger and the monthly reconciliation of the trust account to identify and rectify errors with a full written description of the occurrence. Errors that sometimes occur when reconciling a real estate trust account may include: • Deposits placed in the wrong account • Numbers transposed within the amount • Deposits assigned to incorrect trades © 2021 Real Estate Council of Ontario

• Bank fees and service charges for non-sufficient funds and stoppayments allocated to the real estate trust account • Deposits transferred to an interest-bearing certificate without any notations recorded in the real estate trust ledger • Interest-bearing certificate matures and money is transferred back to the real estate trust account without being properly recorded in the real estate trust ledger • Interest-bearing certificates not redeemed

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Lesson 6 | Page 1 of 10

Lesson 6: Monitoring Commission Trust Accounts

This lesson identifies leading practices and processes related to operating a commission trust account in accordance with the Professional Liability Insurance Program administered by RECO.

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Lesson 6 | Page 2 of 10

This lesson provides an overview of the commission trust account and its purpose. It reviews procedures for setting up a commission trust account and identifies steps for how to disburse commission funds. Although this account is not required under REBBA, as a broker of record, you will likely choose to maintain a commission trust account for your brokerage, as the disbursement of funds will be a regular occurrence. Upon completion of this lesson, you will be able to: • Identify leading practices related to operating a commission trust account © 2021 Real Estate Council of Ontario

Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

© 2021 Real Estate Council of Ontario

Lesson 6 | Page 3 of 10

The Commission Trust Account As you learned in an earlier course, the Real Estate and Business Brokers Act (REBBA) requires that consumer deposits be kept separate and apart from the brokerage’s general account; the brokerage must maintain a real estate trust account for consumer deposits. Although not required by REBBA, brokerages are encouraged to also maintain a third account: a commission trust account. Commission funds can be disbursed from the commission trust account to the brokers and salespersons employed at the brokerage and to co-operating © 2021 Real Estate Council of Ontario

brokerages, aligning with information stated on trade record sheets. Furthermore, if a brokerage is a member of a real estate board or association, they will be required to maintain a commission trust account. A leading practice in the real estate industry is for a brokerage to enter into a commission trust agreement for each transaction that they are involved with: • The commission trust agreement is established between the listing brokerage and the co-operating brokerage by way of the following documents: o Co-operation agreement o Agreement of purchase and sale • The commission trust agreement is also established between the individual brokerage and their brokers and salespersons by way of: o Office policy (or a separate written statement) o Contract (either employment agreement or independent contract) o Trade record sheet A brokerage maintains a commission trust account to ensure that the terms of the commission trust agreements are followed, thereby protecting commissions owed to other parties, as the other parties become beneficiaries of the commission monies. Commission monies owed to other parties must not be pledged by the brokerage as security for any loan or other use. If a brokerage were to receive commission monies and immediately deposit them into their general account, and were experiencing financial difficulties, there would be a risk of creditors taking action to collect all monies in the general account. © 2021 Real Estate Council of Ontario

Lesson 6 | Page 4 of 10

Establishing a Commission Trust Account As you learned in a previous course, when setting up the account, the broker of record should follow these procedures: • Assign a proper name to the account (for example, ABC Real Estate Inc., Commission Trust Account). • Establish the account at a Canadian chartered bank, loan corporation, trust corporation, or credit union. • Use the account only for the receipt and disbursement of commission trust funds. • Separate funds from the statutory real estate trust account (requirement), where one account may be used for commissions received. This is the case for both a listing brokerage and co-operating brokerage. © 2021 Real Estate Council of Ontario

• Maintain the minimum number of recommended books and records, or their electronic equivalent: o Duplicate bank deposit book (or slips) o Cheque book with stubs attached, duplicate cheque book, or copy of electronic funds transfer o Monthly bank statements with copies of cancelled cheques (sent from bank electronically) o Monthly written bank reconciliation • Instruct the bank to not make deductions for service charges from this account. (Such charges should be deducted from the general account.) All accounting entries must be identified with the respective trade to which they pertain. Identification should include the trade number. This includes all trust account activity, as well as commissions earned and disbursements to co-operating brokerages.

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Lesson 6 | Page 5 of 10

© 2021 Real Estate Council of Ontario

Range of Possible Disbursements: Real Estate Trust Account and Commission Trust Account This diagram represents the typical flow of funds for a listing brokerage in possession of a consumer deposit in their real estate trust account. Once a brokerage receives a consumer deposit, they must deposit it into the real estate trust account within five business days. The deposit may only be withdrawn under specific circumstances, as illustrated. As you learned earlier, consumer deposits received as a result of a transaction by the listing brokerage will be deposited into the real estate trust account. Once the transaction is closed and any monies have been paid to sellers and/or buyers (such as interest due to the buyer or refund of excess deposit to the seller), the brokerage is at liberty to transfer the remaining amount to the commission trust account, as this is deemed to be commission earned. This would have also been identified in the invoice sent to the seller’s lawyer. REBBA does not set out the order of payment of commission from the commission trust account. A brokerage that is a member of a real estate board or association should check with its local real estate board’s or association’s rules and regulations to determine whether there is a requirement regarding the order of payment. In the absence of such, it is a leading practice to disburse commission payments in the following order: • Co-operating brokerage • Brokers and salespersons employed by the brokerage Note: If broker or salesperson has created a Personal Real Estate Corporation (PREC), entered into an agreement with the brokerage, and notified RECO, remuneration can be paid to the PREC. You will learn more about this in the next module. © 2021 Real Estate Council of Ontario

• Brokerage’s general account Should the listing brokerage not receive all remuneration as invoiced, the leading practice would be to prorate the remuneration that is received between the listing brokerage and the co-operating brokerage. Should there ever be a situation in which commission monies are not received due to brokerage insolvency, theft, fraud, misappropriation, or wrongful conversion by a registrant, Coverage B: Commission Protection Insurance under the Professional Liability Insurance Program administered by RECO, will allow the broker or salesperson to make a claim for loss of commission. The commission trust account can be used as a reliable source of information during an investigation of a claim.

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Lesson 6 | Page 6 of 10

Range of Possible Disbursements: Real Estate Trust Account and Commission Trust Account - Example The following is an example of how the listing brokerage would close out a trade: ABC Real Estate Inc., the listing brokerage, received a deposit of $5,000 from XYZ Realty Ltd., the co-operating brokerage, regarding the sale of 2817 West Ridge Road in Anycity – Trade #173. The $5,000 was deposited in ABC Real Estate Inc.’s real estate trust account. The total commission was $10,000 (plus the harmonized sales tax). Accordingly, ABC Real Estate Inc. prepared a trade record sheet for $11,300, and XYZ Realty Ltd. prepared a corresponding trade record sheet for $5,650. © 2021 Real Estate Council of Ontario

ABC Real Estate Inc.’s trade record sheet showed a commission distribution to XYZ Realty Ltd. in the amount of $5,650 and to salesperson Lane (an independent contractor with ABC Real Estate Inc.) in the amount of $3,390 (based on a 60/40 split). ABC Real Estate Inc. had sent an invoice statement to the seller’s lawyer outlining the balance due on closing as $6,300 ($11,300 less the $5,000 deposit). Today, following the closing of the West Ridge Road property, they received a cheque from the seller’s lawyer in that amount. Assuming that ABC Real Estate Inc. is a member of a real estate board or association, the leading practice for distribution of commission can be performed as follows. (These steps are specific to this scenario and will vary based on the individual situation.) • Step 1: Now that the transaction has closed, $5,000 is transferred from the real estate trust account to the commission trust account, as this is now deemed to be commission earned. The listing brokerage records this in the real estate trust ledger and the trade record sheet. • Step 2: A cheque for $6,300 is received from the seller’s lawyer and is deposited into commission trust account. Full remuneration has now been received by the listing brokerage. • Step 3: The listing brokerage prepares a cheque for $5,650 from the commission trust account and sends it to XYZ Realty Ltd. The listing brokerage records this in the trade record sheet. • Step 4: The listing brokerage prepares a cheque from the commission trust account for $3,390 and gives it to salesperson Lane. The listing brokerage records this in the trade record sheet. • Step 5: The listing brokerage transfers $2,260 to ABC Real Estate Inc.’s general account from the commission trust account. The listing brokerage records this in the trade record sheet.

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Lesson 6 | Page 7 of 10

Steps to Close Out Trade: Example 1 ABC Real Estate Inc., as the listing brokerage, received a deposit of $11,500 from XYZ Realty Ltd., relating to a trade. The listing brokerage deposited this amount into the real estate trust account. The total commission for this transaction was $18,000 plus the harmonized sales tax. The commission distribution between brokerages is 50/50, and the listing salesperson has a commission split of 60/40. The listing salesperson is an independent contractor. ABC Real Estate Inc. receives the balance of the commission and the harmonized sales tax from the lawyer three days after closing. The broker of record of ABC Real Estate Inc. should complete the following steps to close out the trade:

© 2021 Real Estate Council of Ontario

1. Write a cheque to the commission trust account from the real estate trust account in the amount of $11,500, and deposit it. Upon written notification of successful completion from the seller’s lawyer, the broker of record will issue a cheque to the commission trust account from the real estate trust account in the amount of $11,500 for commission earned. 2. Deposit the cheque to the commission trust account from the seller’s lawyer for the remaining commission balance of $8,840 plus the harmonized sales tax. The broker of record will prepare a deposit to the commission trust account for both the cheque from the real estate trust account and the cheque from the seller’s lawyer for the balance of commission plus the harmonized sales tax. 3. Issue a cheque from the commission trust account to XYZ Realty Ltd. in the amount of $9,000 plus the harmonized sales tax. Now that the full commission amount is in the commission trust account, the broker of record can disburse it to the beneficiaries, beginning with the co-operating brokerage. 4. Issue a cheque to the listing salesperson from the commission trust account for the amount of $5,400 plus the harmonized sales tax. Next, the broker of record will disburse commissions due to the listing salesperson from the commission trust account. 5. Issue a cheque to ABC Real Estate Inc. from the commission trust account for the amount of $3,600 plus the harmonized sales tax. Lastly, the broker of record will be free to transfer any remaining balance to their brokerage’s general account.

© 2021 Real Estate Council of Ontario

Lesson 6 | Page 8 of 10

Steps to Close Out Trade: Example 2 ABC Real Estate Inc., as the listing brokerage, received a deposit of $15,000 from XYZ Realty Ltd. relating to Trade 311 – 4823 Leslie Street, Anycity. The total commission for this transaction was $10,000 plus 13 per cent of the harmonized sales tax. The commission distribution between the brokerages is 50/50 and salesperson Jason Sewell, the listing salesperson and an independent contractor, is on a 65/35 split. ABC Real Estate Inc. has invoiced the seller’s lawyer. The lawyer has notified ABC Real Estate Inc. in writing that the sale has closed and to disburse the funds. © 2021 Real Estate Council of Ontario

The broker of record of ABC Real Estate Inc. should complete the following steps to close out the trade: 1. Write a cheque from the real estate trust account payable to the commission trust, and deposit it. Upon written notification of successful completion of the transaction from the seller’s lawyer, the broker of record will issue a cheque from the real estate trust account payable to the commission trust account in the amount of $11,300 for commission earned. $10,000 (total commission) x 13% (harmonized sales tax) = $11,300 2. Write a cheque from the real estate trust account payable to the seller. The broker of record will issue a cheque from the real estate trust account payable to the seller in the amount of $3,700. This disbursement of excess deposit is paid to the seller. $15,000 (deposit from XYZ Realty Ltd.) - $11,300 (commission earned) = $3,700 (excess deposit) 3. Issue a cheque from the commission trust account to XYZ Realty Ltd. in the amount of $5,650. The broker of record can disburse commission to the beneficiaries, beginning with the co-operating brokerage. $10,000 (total commission) x 50% (50/50 split) = $5,000 $5,000 + 13% of harmonized sales tax = $5,650 4. Issue a cheque from the commission trust account to Jason Sewell in the amount of $3,672.50. Next, the broker of record will disburse commissions due to the listing salesperson from the commission trust account. $5,000 (listing brokerage commission) x 65% (65/35 split) = $3,250 $3,250 + 422.50 (harmonized sales tax) = $3,672.50 5. Issue a cheque from the commission trust account to ABC Real Estate Inc. in the amount of $1,977.50. © 2021 Real Estate Council of Ontario

Lastly, the broker of record will be free to transfer any remaining balance to their brokerage’s general account. $5,000 (listing brokerage commission) x 35% (65/35 split) = $1,750 $1,750 + 227.50 (harmonized sales tax) = $1,977.50

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Lesson 6 | Page 9 of 10

Steps to Close Out Trade: Example 3 XYZ Realty is the listing brokerage. ABC Real Estate Inc. is the co-operating brokerage and will be receiving a 3 per cent commission plus the harmonized sales tax from the listing brokerage, relating to Trade 281 – 727 Church Street, Anycity. Salesperson Rita Simmonds, an independent contractor and on a 70/30 split, sold the property to a buyer client for $640,000. ABC Real Estate Inc. has received commission payment from the listing brokerage, today. © 2021 Real Estate Council of Ontario

The broker of record of ABC Real Estate Inc. should complete the following steps to close out the trade: 1. Deposit the cheque from XYZ Realty into the commission trust account. The commission cheque from XYZ Realty for $21,696 will be deposited into the ABC Real Estate Inc. commission trust account. $640,000 (sale price) x 3% (commission offered to co-operating brokerage) = $19,200 $19,200 + $2,496 (harmonized sales tax) = $21,696 2. Issue a cheque from the commission trust account to Rita Simmonds in the amount of $15,187.20. The broker of record can disburse commission to the beneficiary, Rita Simmonds, from the commission trust account. $19,200 (commission paid to co-operating brokerage) x 70% (70/30 split) = $13,440 $13,440 + $1,747.20 (harmonized sales tax) = $15,187.20 3. Issue a cheque from the commission trust account to ABC Real Estate Inc. in the amount of $6,508.80. Lastly, the broker of record will be free to transfer the remaining balance to their brokerage’s general account. $19,200 (commission paid to co-operating brokerage) x 30% (70/30 split) = $5,760 $5,760 + $748.80 (harmonized sales tax) = $6,508.80

© 2021 Real Estate Council of Ontario

Lesson 6 | Page 10 of 10

Congratulations, you have completed the lesson! Completion of this lesson has enabled you to: • Identify leading practices relating to operating a commission trust account There are three sections on this page with a summary of the key topics that were discussed in this lesson.

Overview of a commission trust account

Although not required by REBBA, many brokerages operate a commission trust account for the payment of commission to co-operating brokerages and to their own brokers and salespersons. A brokerage maintains a commission trust account to ensure that the terms of the commission trust agreements are followed, thereby protecting commissions owed to other parties.

Minimum books and records (or electronic equivalent) recommended for a commission trust account

When the brokerage has a commission trust account for the payment of commission, the minimum books and records to be maintained include: • Duplicate bank deposit book (or electronic equivalent) or slips • Cheque book with stubs attached, duplicate cheque book, or copies of electronic funds transfer • Monthly bank statements with copies of cancelled cheques (sent from the bank electronically) • Monthly written bank reconciliation

Procedures for disbursement from a

It is a leading practice for a brokerage to disburse commission payments in the following order: © 2021 Real Estate Council of Ontario

commission trust account

• Co-operating brokerage • Brokers and salespersons employed by the brokerage • Brokerage’s general account Should the listing brokerage not receive all remuneration as invoiced, prorate the remuneration that is received between the listing brokerage and the cooperating brokerage. Should commission monies not be received due to brokerage insolvency, theft, fraud, misappropriation, or wrongful conversion by a registrant, Coverage B: Commission Protection Insurance under the Professional Liability Insurance Program allows the broker or salesperson to make a claim for loss of commission.

© 2021 Real Estate Council of Ontario

Lesson 7 | Page 1 of 11

Lesson 7: Training Administrative Staff

This lesson describes requirements for a brokerage to retain trade processing documents. It identifies training requirements for administrative staff related to trade processing, real estate trust accounts, commission trust accounts, and general accounts, to ensure compliance with REBBA, PIPEDA, and FINTRAC.

© 2021 Real Estate Council of Ontario

Lesson 7 | Page 2 of 11

As a broker of record, it is important to understand the requirement for your brokerage to retain trade processing documents and the importance of an effective and ongoing training program for designated administrative staff. The training requirements for each staff member of your brokerage will vary depending on their role. You will be responsible for ensuring that training is conducted for the administrative staff to ensure their actions, executed in accordance with their role and on behalf of the brokerage, comply with the Real Estate and Business Brokers Act (REBBA), the Personal Information Protection and Electronic Documents Act (PIPEDA), and brokerage policies and procedures regarding the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). Upon completion of this lesson, you will be able to: • Identify the requirement for a brokerage to retain trade processing documents © 2021 Real Estate Council of Ontario

• Identify the training requirements for administrative staff related to trade processing and real estate trust, commission trust, and general accounts Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

© 2021 Real Estate Council of Ontario

Lesson 7 | Page 3 of 11

Retaining trade processing documents is of utmost importance for the brokerage. The documents must be retained for a minimum of six years as set out in REBBA. Many brokerages go further and retain these documents for longer periods in case there are legal or insurance issues associated with the trade that may arise well into the future.

© 2021 Real Estate Council of Ontario

Lesson 7 | Page 4 of 11

Retention of Trade Processing Documents In addition to REBBA, the Income Tax Act and PIPEDA also set requirements for retaining trade processing documents. As a broker of record, you will be responsible for ensuring that their brokerage’s retention of trade processing documents complies with REBBA, the Income Tax Act, and PIPEDA. According to REBBA:

© 2021 Real Estate Council of Ontario

• A brokerage must retain all documents and records (hard copy trade files or electronic trade files) for a minimum of six years. The only exception is when an offer has not been accepted, in which case the brokerage must retain the related documentation for a minimum of one year. • A brokerage that does not conduct business from its branch office must keep all original records at the location specified by RECO or, if RECO has not specified a location, at the brokerage’s main office. • A brokerage that conducts business from a branch office must transfer, at the earliest opportunity, all original records from the branch office to the location specified by RECO or, if RECO has not specified a location, to the brokerage’s main office. According to the Income Tax Act, a brokerage must retain all documents and records for a minimum of six years from the end of the last taxation year to which the records and book of account relate. Should the Canada Revenue Agency (CRA) ever question a tax matter, it may require the brokerage to refer back to their trade files, as they should contain sufficient record-keeping evidence of remuneration received and paid. According to PIPEDA: • If a brokerage retains hard copy trade files, these files must be kept in a secure, locked location with limited access, except for key brokerage individuals. If a brokerage retains electronic copies, these files are also subject to PIPEDA requirements, such as regarding location of the server, ease of retrieving files, and so on. • The brokerage must retain personal information only for as long as necessary to satisfy the purposes for which it was collected. Regular reviews of personal information on file should be conducted to determine whether such information is still required. If the information is no longer needed, proper disposal methods must be followed.

© 2021 Real Estate Council of Ontario

Lesson 7 | Page 5 of 11

Select the statement that correctly identifies the appropriate document retention requirement as per legislation. There are three options. There is only one correct answer.

1

As per PIPEDA, brokerages are required to retain all documentation related to offers that have not been accepted for a minimum of one year.

2

As per REBBA, brokerages are required to retain documentation only for as long as necessary.

3

As per the Income Tax Act, brokerages are required to retain all documentation and records for a minimum of six years from the end of the last taxation year to which the records and books of account relate.

© 2021 Real Estate Council of Ontario

Lesson 7 | Page 6 of 11

Effective training for its staff (including administrative staff, brokers, and salespersons) can be beneficial for the brokerage. Well-trained administrative staff can assist the broker of record with many of the brokerage’s day-to-day activities.

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Lesson 7 | Page 7 of 11

Effective and Ongoing Training Program for Administrative Staff A broker of record will be responsible for conducting and overseeing a significant amount of work in the brokerage’s day-to-day activities. To do this efficiently, it is important to understand which tasks can be delegated to other staff members and what training they will need to accomplish these tasks successfully. The brokerage’s administrative staff can be an effective resource for helping to achieve the work that the brokerage has committed to, including trade processing and maintenance of accounts (the real estate trust account, the commission trust account, and the general account). © 2021 Real Estate Council of Ontario

When delegating to administrative staff, the broker of record must ensure the individuals are trained and monitored appropriately. The brokerage should have an effective and ongoing training program for administrative staff to teach them any essential skills that they will need to assist the broker of record. However, keep in mind that although delegation of duties is encouraged, the broker of record will ultimately be responsible for the results. Although the broker of record is not required to create and conduct an administrative training program, they will be responsible for sourcing the appropriate training (whether it be through printed material, videos, or a third party) and ensuring that the staff has access to it. As a leading practice, the broker of record should keep record of training attendance. All training that the broker of record decides to provide will depend on the requirements and expectations they set for their administrative staff. Although the minimum required training must focus on regulatory and legislative requirements, other training will vary from brokerage to brokerage.

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Lesson 7 | Page 8 of 11

Administrative Staff Training on REBBA Compliance Training for administrative staff should be aimed at helping them understand why certain procedures must be followed, how records must be maintained, and what the brokerage is obligated to fulfill to comply with REBBA. RECO offers a Mandatory Continuing Education (MCE) Non-Registrant program that is ideal for this type of training. It includes training on:

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• The obligations all brokerage employees (including non-registrants) must uphold in respect to a typical residential real estate transaction • The obligations all brokerage employees (including non-registrants) must uphold in respect to a typical commercial real estate transaction • The key elements of an inspection and the necessary steps to prepare for an inspection • How to complete everyday brokerage activities, such as making entries in the real estate trust ledger and completing a real estate trust account reconciliation Information on this training is available on RECO’s website: https://www.reco.on.ca/educationblog/mce-nonregistrant-courses/ Additionally, a broker of record can access several essential resources directly from RECO’s website, including videos and Registrar’s Bulletins. A broker of record can incorporate the following into their brokerage’s administrative staff training on REBBA compliance: • A Guide to Brokerage Inspections: This guide provides insight on the books and records a brokerage is required to maintain in order to comply with REBBA. • Working Electronically Part I (Electronic Signatures and Online Advertisements) and Part II (Document Storage and Funds Transfer): This two-part video explains the technology that a brokerage can use to assist with trade processing and account maintenance.

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Lesson 7 | Page 9 of 11

Administrative Staff Training on PIPEDA Compliance Due to the sensitive nature of information contained in brokerage records, administrative staff members must be trained on compliance with PIPEDA. This includes topics such as consent, the Digital Privacy Act, privacy breach reporting, and how to protect personal information, just to name a few.

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The Office of the Privacy Commissioner of Canada has developed a number of resources to help businesses better understand their obligations under PIPEDA and how the Act applies in certain situations and to specific issues. A broker of record can direct their administrative staff to the following resources: • Introduction to PIPEDA for your business: A short video introduction designed to help businesses that are subject to PIPEDA understand their basic obligations • Issue-specific guidance for businesses: Provides guidance related to the application of PIPEDA in certain situations or with respect to particular issues • PIPEDA compliance and training tools: Contains training materials for organizations and their staff who handle personal information, which includes guidance on maintaining privacy, how to build a privacy plan, a self-assessment tool, and more • PIPEDA interpretation bulletins: Explains how certain key concepts in PIPEDA have been interpreted by the Office of the Privacy Commissioner and the courts All of these resources can be accessed from PIPEDA’s website: https://www.priv.gc.ca/en/privacytopics/privacy-laws-in-canada/the-personal-information-protection-and-electronic-documents-actpipeda/pipeda-compliance-help/

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Lesson 7 | Page 10 of 11

Administrative Staff Training on FINTRAC Compliance Record-keeping is one of the brokerage’s obligations, which is often delegated to their administrative staff. Therefore, it is important for the administrative staff to be properly trained on the brokerage’s obligations for FINTRAC compliance. FINTRAC has a number of available publications that can be leveraged for training administrative staff on FINTRAC. These resources include: © 2021 Real Estate Council of Ontario

• Guidance publications: Provides guidance on understanding and complying with FINTRAC in daily activities, assessing a brokerage’s business risks (specific to sectors), and interpreting the legislation • Technical publications: Breaks down technical processes, such as batch reporting, the FINTRAC web reporting system (F2R), and report validation • General information: A collection of helpful documents that explain the basic FINTRAC principles, FINTRAC assessment manual, FINTRAC examinations (your responsibilities and what you can expect from FINTRAC), and The Proceeds and Crime (Money Laundering) and Terrorist Financing Act: What you need to know, and Frequently Asked Questions in relation to Politically Exposed Persons in Canada and Heads of International Organizations • Multimedia: A number of multimedia resources, including videos on fighting money laundering and terrorist financing, and public service renewal All of these resources can be accessed from FINTRAC’s website: https://www.fintraccanafe.gc.ca/publications/pub-eng.

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Lesson 7 | Page 11 of 11

Congratulations, you have completed the lesson! Completion of this lesson has enabled you to: • Identify the requirement for a brokerage to retain trade processing documents • Identify the training requirements for administrative staff related to trade processing and real estate trust, commission trust, and general accounts There are two sections on this page with a summary of the key topics that were discussed in this lesson.

Required record-keeping As a broker of record, in order to comply with REBBA, you must ensure that

trade processing documents are retained in the brokerage’s files for a minimum of six years; or, if an offer has not been accepted, you must retain the related documentation for a minimum of one year. As per PIPEDA, you must maintain any personal information from individuals only for as long as it is relevant to your business.

As per the Income Tax Act and the CRA, you must retain all tax-related documents and records for a minimum of six years from the end of the last taxation year to which the records and book of account relate.

Importance of an effective and ongoing training program for administrative staff

The administrative staff should be well-trained and informed about how to handle the necessary tasks at their brokerage. Administrative duties will vary from brokerage to brokerage. Effective ongoing training for administrative staff helps maintain a well-informed staff team. © 2021 Real Estate Council of Ontario

You must monitor to ensure that administrative staff members complete their work in compliance with REBBA, PIPEDA, and FINTRAC requirements.

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Lesson 8 | Page 1 of 7

Lesson 8: Summary Practice Activities

This lesson provides a series of activities that will test your knowledge on the entire module.

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Lesson 8 | Page 2 of 7

This lesson provides summary practice activities. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

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Lesson 8 | Page 3 of 7

Today’s date is May 16, 2020, and the broker of record for ABC Real Estate Inc. has updated the real estate trust ledger, based on the following details: Closing of Trade 100: • Deposit in real estate trust account: $10,000 when trade was created two months earlier • Instruction received from seller’s lawyer: May 13 - sale has closed; disbursed funds held in trust • Excess due to seller: $1,275 • Seller name: P. Renzo Amendment Trade 105: • Supplementary deposit received: May 15 • Amount of deposit: $5,000 New Trade 110: • Buyer: J. and W. Davidson • Seller: B. Brown • Deposit: $1,000 (non-interest bearing) May 16 © 2021 Real Estate Council of Ontario

• Closing date: August 30 • Deposit held by XYZ Realty Ltd. • Property Address: 24 Ridgeway Road Which trade has an incorrect entry? There are three options. There is only one correct answer.

1

Trade 100

2

Trade 105

3

Trade 110

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Lesson 8 | Page 4 of 7

A broker of record is creating a FINTRAC policies and procedures manual for their brokerage. What information should the broker of record include in their policies and procedures manual for FINTRAC compliance? There are four options. There are multiple correct answers.

1

A suspicious transaction must be reported when an unrepresented person refuses to provide identification relating to a real estate transaction.

2

Third parties involved in a transaction must be identified.

3

Rentals and sale of business are exempt from identification verification requirements.

4

The compliance officer’s performance must be evaluated for effectiveness every two years.

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Lesson 8 | Page 5 of 7

A broker of record has hired a new administrative staff person and is training them to complete the reconciliation for the real estate trust account. The broker of record explains that sometimes it may take multiple attempts to correctly reconcile a real estate trust account. The broker of record is presenting potential challenges that can arise with reconciliation. Identify common challenges that can lead to a brokerage’s initial inability to reconcile a real estate trust account. There are four options. There are multiple correct answers.

1

A deposit is assigned to the wrong trade.

2

An entry is made to the real estate trust ledger for the purchase of an interest-bearing certificate.

3

Numbers are transposed when entering amounts in the real estate trust ledger.

4

The cheque from the real estate trust account for an aborted sale is not recorded properly.

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Lesson 8 | Page 6 of 7

A broker of record is training their new administrative staff person on processing trades to ensure compliance with REBBA. What topics does the broker of record need to include in this training session? There are four options. There are multiple correct answers.

1

Completing a trade record sheet

2

Entering information in the real estate trust ledger

3

Following deposit procedures

4

Obtaining signing authority for the real estate trust account

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Lesson 8 | Page 7 of 7

Congratulations, you have completed the lesson!

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Module Summary | Page 1 of 3

Module Summary This lesson contains a summary of the entire module.

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Module Summary | Page 2 of 3

Congratulations, you have completed this module! This lesson will present a summary of the lessons in this module.

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Module Summary | Page 3 of 3

There are seven sections on this page with a summary of the key topics that were discussed in this module.

REBBA Requirements for A trade record sheet is a form that is required for documenting details of any income-producing activity, such as agreements that deal with the conveyance Trade Processing of an interest in real estate, appraisals, referrals, and so on.

As a broker of record, you will review the trade record sheet to ensure that all information is accurate, and you will sign it if you are satisfied. If you are not satisfied with the accuracy of the information, you will return the trade record sheet to the appropriate broker or salesperson for further review. A brokerage must have policies and procedures in place for trade processing. Completion of this lesson has enabled you to: • Identify REBBA requirements related to trade record sheets • Describe the process for reviewing and signing a trade record sheet • Identify brokerage policy and procedures regarding trade processing • Describe the purpose of a trade input system and its use in trade processing

FINTRAC-Mandated Procedures and Requirements for a Brokerage

Brokerages must ensure compliance with all FINTRAC requirements as set out in the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. Completion of identification verification and documentation of sellers and buyers working with the brokerage is mandatory under FINTRAC. FINTRAC also has mandated guidelines for receipt of funds. © 2021 Real Estate Council of Ontario

Completion of this lesson has enabled you to: • Identify the FINTRAC compliance requirements for a brokerage • Define FINTRAC-mandated procedures for the brokerage

REBBA Requirements for REBBA requirements for establishing and maintaining a real estate trust account are as follows: Real Estate Trust • Name or distinct identity Accounts • Records or financial references • Minimum books and records • Signing authority • Set-up procedure To ensure adherence to REBBA requirements for deposit procedures, as the broker of record, you must ensure that amounts received by the brokerage are deposited into the trust account within five business days of receipt. If the brokerage wishes to accept deposits through electronic funds transfer, you will set up the process with your bank and follow the recording details of the deposit. As a broker of record, you must be aware of procedures related to an interestbearing real estate trust account to ensure compliance with REBBA. The beneficiary must be informed about any interest earned on their money and the brokerage’s policy on the payment of that interest. It is important to emphasize that a brokerage is under no statutory obligation to establish a trust account that earns interest.

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You may establish an alternative to interest-bearing trust accounts by having a policy that an interest-bearing certificate may be purchased on behalf of the buyer who made the deposit. It is very important that the brokerage has a written audit trail for all money coming into the trust account and for all disbursements from the trust account. You must continually ensure that all entries into the trust ledger meet REBBA requirements. Completion of this lesson has enabled you to: • Describe REBBA requirements for establishing and maintaining a real estate trust account • Describe deposit procedures to ensure adherence to REBBA requirements • Identify procedures related to an interest-bearing real estate trust account and interest-bearing certificate to ensure adherence to REBBA requirements • Identify procedures related to electronic funds transfers to ensure adherence to REBBA requirements • Identify the minimum information required in a real estate trust ledger to ensure adherence to REBBA requirements

Monitoring Real Estate Trust Accounts

As a broker of record, you will establish a policy about all aspects of monitoring the real estate trust account and the real estate trust ledger. Following are the leading practices that can be used to avoid various real estate trust account problems: • Document review at point of signing trust cheques. © 2021 Real Estate Council of Ontario

• Check trust ledger when signing reconciliation. • Confirm proper cross-referencing. • Look for misapplied interest or bank charges. • Follow up on stale-dated cheques. • Carefully review all open entries in the trust ledger. Dormant monies in a brokerage’s real estate trust account should be disbursed only in accordance with the terms of the trust as per REBBA requirements. The Act identifies two situations when a brokerage is required to pay unclaimed trust monies to RECO: • If a brokerage holds money in trust for a period of two years and entitlement to the money has not been determined or is unclear • If a brokerage holds money in trust for a period of one year after the person for whom it is held first became entitled to payment of the money and the person cannot be located Completion of this lesson has enabled you to: • Identify leading practices for real estate trust accounts • Identify potential actions to be taken when there is unclaimed money in a real estate trust account

Reconciling Real Estate Trust Accounts

The step-by-step guide to reconciling real estate trust accounts is an ideal reference material that, as a broker of record, you may use for training administrative staff to complete a reconciliation. You must consistently check the real estate trust ledger and the monthly reconciliation of the trust account to identify and rectify common mistakes with a full written description of the © 2021 Real Estate Council of Ontario

occurrence. If this is not done, even banking errors may not be quickly realized. It is extremely important for you to be well informed about all aspects of the brokerage financials. Completion of this lesson has enabled you to: • Identify considerations for reconciling a real estate trust account

Monitoring Commission Trust Accounts

Many brokerages operate a commission trust account for the payment of commission to co-operating brokerages and their own salespersons. If a brokerage is a member of a real estate board or association, they will be required to maintain one. When the brokerage has a commission trust account for the payment of commission, the minimum books and records for a commission trust account are very similar to the real estate trust account, but there is no commission trust ledger. Completion of this lesson has enabled you to: • Identify leading practices relating to operating a commission trust account

Training Administrative Staff to Ensure Compliance with REBBA, PIPEDA, and FINTRAC

Administrative staff should be well informed about the services that the brokerage offers to brokers and salespersons. Effective ongoing training for the administrative staff helps maintain a well-informed staff. As the broker of record, you must ensure that the trade processing documents are retained in the brokerage’s files for a minimum of six years. You will monitor activities to ensure administrative staff members complete their work in compliance with REBBA, the PIPEDA, and FINTRAC requirements. © 2021 Real Estate Council of Ontario

Completion of this lesson has enabled you to: • Identify the requirement for a brokerage to retain trade processing documents • Identify the training requirements for administrative staff related to trade processing and real estate trust, commission trust, and general accounts

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Module 2: Monitoring Remuneration

V6

Disclaimer: This is a reference document which contains pages from the Accessible eLearning module. You should complete the eLearning module to proceed to the next step. Please note that the accessible module on the LMS only contains the interactive pages and you need to go through the content of this document thoroughly to attempt the interactive activities in the module. Please use Adobe Acrobat Reader (Recommended version 9 or above) to navigate through this PDF. Real Estate Broker Program © 2021 Real Estate Council of Ontario. All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or in any means – by electronic, mechanical, photocopying, recording or otherwise without prior written permission, except for the personal use of the Real Estate Broker Program learner.

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Module 2: Monitoring Remuneration Brokerages receive remuneration when performing various services, as set out in written representation and service agreements or in other arrangements as negotiated in the course of trading in real estate. As a broker of record, you will need to ensure that such agreements meet regulatory requirements and are based on sound business practices. Written agreements will help you avoid any misunderstanding with sellers and buyers, as well as any damage to your brokerage’s reputation. They will also help your brokerage have the necessary documentation should you be required to pursue payment for your services through the court. Brokerages that are members of a real estate board can refer to the various forms created by the Ontario Real Estate Association (OREA). However, brokerages may also choose to create their own forms. This module explains the REBBA compliance requirements that must be followed by a brokerage when creating clauses for remuneration. It also explains the remuneration wording contained in various representation and service agreements. It further describes the topics to be included for training administrative staff regarding remuneration-related requirements. As a broker of record, you will need to ensure that your brokers and salespersons fully understand the compliance requirements and follow them in © 2021 Real Estate Council of Ontario

their real estate activities. You will also need to understand that your role, as a broker of record, is not only limited to writing policies and procedures but also includes training your staff and monitoring their activities regularly to ensure compliance with REBBA. To check your understanding of this module, you must complete all the activities in the online module. While navigating through the online module, click the Legislation button to view laws and regulations related to this module. The contents of the thumbnail this Accessible PDF.

and References from the module are added to support your learning throughout

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Menu: Monitoring Remuneration

Number of Lessons

Lesson Number

8 Lessons

Lesson Name

Lesson 1

REBBA Requirements for Remuneration Provisions

Lesson 2

REBBA Compliance Requirements

Lesson 3

Competition Act Compliance Requirements

Lesson 4

Remuneration Clause Wording in Representation Agreements, Service Agreements, and Commission Agreements

Lesson 5

Remuneration Disputes

Lesson 6

Training Administrative Staff on Remuneration-Related Requirements

Lesson 7

Summary Practice Activities Module Summary

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Lesson 1 | Page 1 of 7

Lesson 1: REBBA Requirements for Remuneration Provisions This lesson identifies the key provisions set out in REBBA related to remuneration. It also explains the remuneration-related disclosures and restrictions.

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Lesson 1 | Page 2 of 7

REBBA sets out provisions related to remuneration that must be followed by all brokerages. In order to comply with these provisions as a broker of record, you must incorporate these requirements when you develop brokerage policies and establish procedures related to remuneration provisions. Upon completion of this lesson, you will be able to: • Identify key provisions set out in REBBA related to remuneration Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

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Lesson 1 | Page 3 of 7

Remuneration is compensation paid to the brokerage by the seller or buyer in exchange for services that have been provided. Remuneration can be charged as a percentage of the sale price, a flat fee, or a combination of both. REBBA sets out key provisions related to remuneration. As a broker of record, you will need to ensure that your brokerage has a policy that clearly addresses the procedures for everyday activities related to remuneration, which the brokers and salespersons must follow. This policy will help you ensure that your brokers and salespersons understand and comply with the REBBA requirements.

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Lesson 1 | Page 4 of 7

REBBA Remuneration Provisions, I A broker of record should be fully knowledgeable and current in their understanding of all remuneration provisions and obligations set out in REBBA. They must ensure that their brokers and salespersons comply with these provisions and obligations. The following five sections contain information about these key provisions and obligations.

Remuneration negotiations Where an agreement between a brokerage and a seller client contains remuneration terms that may affect whether an offer is accepted, such terms must be promptly disclosed to all persons making an offer to buy and before any offer is accepted. This requirement also applies when a brokerage and a seller customer have an agreement whereby the brokerage is authorized to receive written agreements on behalf of this seller customer. In this situation, the remuneration is typically reduced. This written arrangement where remuneration is reduced may make the buyer’s offer more attractive to the seller and is commonly referred to as a collateral agreement.

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This remuneration reduction could happen from a co-operating brokerage. The listing brokerage would then be required to disclose the terms of the remuneration reduction to any person who makes a written offer at the earliest practicable opportunity and before any offer is accepted. You will learn more about collateral agreements later in this module.

Remuneration calculations Remuneration payable to the brokerage can be an agreed amount, a percentage of the sale or rental price, or a combination of both. A brokerage can charge remuneration based on a declining percentage as the sale price increases. For example, the remuneration could be four per cent on the first $350,000 and 2.5 per cent on the balance. The sliding scale cannot increase as the sale price rises but can only decrease. Furthermore, a brokerage’s remuneration cannot be based on the difference between the purchase price and the listing price. For example, an agreement that provides for 15 per cent of the difference between the purchase price and a listing price of $350,000 would be prohibited.

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Prohibition regarding reference to fixed or approved remuneration Brokers and salespersons must not indicate to any person, directly or indirectly, that remuneration is fixed or approved by administrative or government authorities, real estate boards, or real estate associations. Remuneration for services offered to the public, including division of such amounts with cooperating brokerages, rests solely with the brokerage.

Remuneration-related disclosures involving the same trade A brokerage cannot receive compensation under separate agreements involving the same trade (for example, a seller representation agreement and a buyer representation agreement) unless this fact and the terms of all such agreements are disclosed in writing to both the seller and the buyer.

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Remuneration from employing brokerage only Brokerages are not permitted to pay any remuneration to brokers or salespersons employed by another brokerage nor to any unregistered person who performs a function for which registration is required. Similarly, brokers and salespersons must only accept remuneration from their employing brokerage. However, a brokerage can pay a broker or salesperson who has left the brokerage for a trade that was made when they were employed by the brokerage. A brokerage is also permitted to pay remuneration owed to a broker or salesperson for trading in real estate to a personal real estate corporation (PREC) that meets specific criteria. Before any remuneration is paid to the PREC, the brokerage must satisfy itself that the PREC is exempt from registration under REBBA and that conditions for exemption have been made by the PREC. The broker or salesperson must enter into an agreement with the PREC and the brokerage regarding the use of the PREC and payment of remuneration to the PREC.

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Lesson 1 | Page 5 of 7

REBBA Remuneration Provisions, Il In addition to the provisions covered on the previous screen, brokers and salespersons must comply with other REBBA requirements for entitlement to remuneration. The following four sections contain information about the other key remuneration provisions as per REBBA.

Entitlement to remuneration A broker or a salesperson is not entitled to remuneration unless a written agreement is signed by the person who is required to pay the remuneration. The entitlement to remuneration may also arise under an agreement when the broker or salesperson has performed at least one of the following actions: • They have conveyed an offer in writing that is accepted. • They have shown the property to a buyer. • They have introduced the seller and the buyer to one another in relation to the buying or the selling of an interest in real estate.

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These activities must be properly documented to ensure credible evidence if defence for a remuneration claim is necessary.

Right to pursue legal action for remuneration No legal action can be taken for collecting remuneration involving a trade in real estate unless the person making a claim for remuneration was either registered or exempt from registration at the time the service was provided.

Disclosure of financial benefits A broker or a salesperson must disclose any direct or indirect financial benefit received from another person arising from services provided to the client (such as a finder’s fee or referral fee) in writing to their client. General disclosure provisions can be included in seller and buyer representation agreements to inform the consumer that such a fee may be obtained at some future time. While this preliminary step has merit, the disclosure requirement in the Code of Ethics requires specifics regarding the fee that will be or has been © 2021 Real Estate Council of Ontario

obtained. These specifics include details such as the amount of remuneration, points that can be redeemed for merchandise, or a ballot for a contest with details of the prize.

Obligation to show property and present offers regardless of remuneration payable REBBA addresses negotiation-related issues and remuneration when showing property. Brokers and salespersons are obligated to inform buyer clients of all properties that meet their criteria without regard to remuneration payable in relation to such properties. The Code also requires that brokers and salespersons convey written offers in a timely fashion to sellers and buyers regardless of what remuneration arrangements are established for such offers.

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Lesson 1 | Page 6 of 7

The broker of record is conducting a training session for newly hired salespersons. The session addresses a brokerage’s obligations regarding key remuneration-related provisions set out in REBBA. The broker of record comes up with several scenarios to test the salespersons’ knowledge. Which of the following scenarios comply with the remuneration-related provisions as per REBBA? There are four options. There are multiple correct answers.

1

A seller enters into a listing agreement with the brokerage and agrees to pay remuneration to the brokerage. The salesperson shows the property, and this results in an accepted agreement of purchase and sale.

2

A salesperson discloses the details of remuneration from both the seller and the buyer involving the same trade in writing, prior to the agreement of purchase and sale being presented.

3

In a competing offer situation, a salesperson with the co-operating brokerage reduces their remuneration payable to their brokerage from the listing brokerage, and the listing brokerage does not disclose it to all parties who have submitted competing offers.

4

A salesperson indicates that remuneration charged for their services is a standard rate approved by their association.

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Lesson 1 | Page 7 of 7

Congratulations, you have completed the lesson! Completion of this lesson has enabled you to: • Identify key provisions set out in REBBA related to remuneration Here is a summary of the key topics that were discussed in this lesson: REBBA sets out various requirements for brokerages regarding remuneration. Some of these requirements include:

© 2021 Real Estate Council of Ontario

• Remuneration terms between a brokerage and a seller must be disclosed if these terms impact negotiations and the acceptance or rejection of an agreement. This written arrangement where remuneration has been reduced to make the buyer’s offer more attractive to the seller is commonly referred to as a collateral agreement. The remuneration terms must be disclosed to any person who makes a written offer at the earliest practicable opportunity and before any offer is accepted. • Remuneration payable to a brokerage can be an agreed amount, a percentage of the sale or rental price, or a combination of both. Furthermore, a brokerage’s remuneration cannot be based on the difference between the purchase price and the listing price. • A broker or a salesperson must not indicate to any person, directly or indirectly, that remuneration is fixed or otherwise approved by an authority. • A brokerage cannot receive compensation under separate agreements involving the same trade unless such agreements are fully disclosed to both the seller and buyer in writing. • Brokers and salespersons can only be paid remuneration by their employing brokerage. • Legal action for remuneration can only be undertaken if the brokerage and applicable broker or salesperson were registered or if the entity in question was exempt under REBBA.

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Lesson 2 | Page 1 of 13

Lesson 2: REBBA Compliance Requirements

This lesson identifies the compliance requirements related to rebates and incentives as set out in REBBA. It also includes REBBA requirements for referrals and finder’s fees.

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Lesson 2 | Page 2 of 13

As a broker of record, you will need to ensure that your brokers and salespersons follow the correct procedures regarding: • Offering rebates and incentives to sellers and buyers • Referral and finder’s fees being offered to your brokerage Brokers and salespersons must properly disclose these details to the clients in order to comply with REBBA. Your brokerage should have a written policy to guide brokers and salespersons on these disclosures. Brokers and salespersons sometimes create advertisements and promotional materials offering rebates and incentives. These materials must be clearly written so as not to mislead sellers and buyers in any way. You © 2021 Real Estate Council of Ontario

should review all advertising related to rebates and incentives that has been initiated by brokers and salespersons, prior to publication. You will learn more about REBBA advertising requirements later in the course. Upon completion of this lesson, you will be able to: • Identify compliance requirements related to rebates and incentives as set out in REBBA • Identify REBBA requirements for referral or finder’s fees Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

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Lesson 2 | Page 3 of 13

As a broker of record, you should ensure that your brokers and salespersons fully understand that paying any form of compensation to a third party for a real estate transaction is not permitted under REBBA. However, payment of rebates or other remuneration to a party to the real estate transaction (seller or buyer) is permitted. As a broker of record, you should include the REBBA requirements for rebates, incentives, and finder’s fees in the policy manual of your brokerage and address them in training sessions. This will help you ensure that your brokers and salespersons understand the importance of and know how to follow these requirements. You

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learned about the need for providing ongoing training for brokers and salespersons in an earlier course. The content detailed in this module should also be considered in those training sessions.

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Lesson 2 | Page 4 of 13

Rebates and Incentives As a general requirement, paying any form of compensation to an unregistered person or company (who is not exempt from registration) for activities that would be defined as “in furtherance of a trade” is strictly prohibited. This prohibited compensation is sometimes referred to as a bird dog fee. It refers to some form of compensation “paid to a third party to a real estate transaction” in recognition of that person’s referral of a

© 2021 Real Estate Council of Ontario

lead. This referral results in a seller or buyer working with the brokerage or a specific broker or salesperson. Such payment is prohibited regardless of the amount of money or form of compensation. However, the prohibition involving payment to unregistered persons does not apply to rebates or other remuneration paid to a party to a real estate transaction (that is, the seller or the buyer in that transaction). For example, a brokerage may offer an incentive program that provides a rebate to a buyer if that buyer acquires a property listed by the brokerage. Seller rebate programs are also acceptable. A brokerage should weigh the advantages and disadvantages of rebates and incentives before deciding to use them. Offering rebates and incentives could result in a brokerage attracting more sellers and buyers using their services. This could result in the brokerage putting more real estate transactions together and increasing their market share. However, this could also result in less revenue being retained by the brokerage.

© 2021 Real Estate Council of Ontario

Lesson 2 | Page 5 of 13

Advertising: Rebates and Other Remuneration-Related Claims Acceptability of a rebate program is contingent on the premise that brokerage rebate policies are clearly set out in promotional materials, are not misleading in any way, and are fully explained to the seller or buyer. This requirement extends to all claims that refer to remuneration rates. Unless the remuneration rate referred to is charged in all transactions, such claims must be accompanied by disclosure of any situations in which the remuneration rate is not charged. For example, in competing offers, if the listing salesperson has a collateral © 2021 Real Estate Council of Ontario

agreement and is the writer of one of the competing offers, it may be stipulated that the remuneration reduction will not take effect in order to create fairness for all participants in the negotiation. The collateral agreement may go on to include: “In the event of multiple offers, any offer made by the listing salesperson to reduce the remuneration rate payable by the seller is null and void”. As all representation agreements belong to the brokerage and not to its brokers and salespersons, rebates and incentives should be carefully worded, addressed in the brokerage rebate policies, and approved in advance by the broker of record. Furthermore, all claims of savings or comparisons regarding remuneration must be accompanied by sufficient information for an informed comparison to be made by the consumer.

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Lesson 2 | Page 6 of 13

Disclosure Requirements Relating to Offer Negotiations While rebates or other remuneration negotiations involving sellers and buyers are acceptable, the Code of Ethics requires that if a brokerage has a remuneration arrangement with a seller that could affect whether an offer to purchase is accepted, the terms of this arrangement must be promptly disclosed to any person making an offer to purchase, before the offer is accepted. This is commonly referred to as a collateral agreement or a remuneration reduction. This type of agreement may also occur when a co-operating brokerage reduces their remuneration entitlement and the seller could be influenced to accept the offer

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because of the reduced remuneration. This would require the listing brokerage to promptly disclose this reduction to any other person making an offer to purchase, before the offer is accepted. The purpose of this provision is to ensure that parties making offers are aware of any remuneration details that might affect the actual amount of the offer (for example, the net amount to the seller). As such, other parties are made aware of these pertinent facts concerning competing offers to ensure fairness and can voluntarily make adjustments to improve their competitive position. Examples of adjustments include amending the purchase price, remuneration arrangements, other terms to the agreement, and so on.

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Lesson 2 | Page 7 of 13

A broker of record is conducting a training session with newly hired salespersons. The session addresses the brokerage’s compliance obligations regarding rebates and incentives as per REBBA. The broker of record comes up with several scenarios to test the salespersons’ knowledge. Which of the following scenarios are compliant with REBBA requirements related to rebates and incentives? There are three options. There are multiple correct answers.

1

A salesperson has an arrangement with the owner of a car dealership who refers sellers and buyers interested in real estate. For each transaction that results from these referrals, the salesperson pays the dealership owner $500 upon the closing of the transaction.

2

A salesperson advertises an incentive to buyers stating that if buyers purchase a property through them, they will pay $500 towards the buyer’s legal fees on the date set for completion of the transaction.

3

A brokerage offers to lower their remuneration by one per cent if they list and sell the property. Three competing offers are received, including one from the listing brokerage. Disclosure of the collateral agreement is made to all competing brokerages prior to presentation of offers to the seller.

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Lesson 2 | Page 8 of 13

As a broker of record, you will need to be vigilant and ensure that your brokers and salespersons abide by certain requirements regarding payment and receipt of referral or finder’s fees. You will also need to ensure that full disclosure is made to the client and that written confirmation is obtained regarding referral fees or any other benefits being paid to the brokerage. In some cases, written consent may be required; for example, if it requires changes to an existing commission agreement. This will ensure that clients are fully aware of this information and that your brokerage complies with the necessary disclosure requirements as set out in REBBA. © 2021 Real Estate Council of Ontario

Lesson 2 | Page 9 of 13

Referral or Finder’s Fees Under REBBA, it is acceptable for a broker or salesperson to be paid or to receive referral or finder’s fees, subject to certain requirements. If a broker or salesperson is receiving remuneration when directing a person to a lender, another brokerage, or a service provider, full disclosure of this fact must be made to the client. Referral or finder’s fees can only be received by brokers or salespersons through their employing brokerage. The requirement for full disclosure is consistent with the general legal principle under agency law that brokerages and their employed brokers and salespersons cannot make a secret profit when representing a client (that is, acting in a fiduciary capacity). A secret profit is best described as a profit that would not have been realized if it had not been for the existing client relationship with the seller or the buyer. Failing to

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properly disclose such profit is a breach of fiduciary duty and can result in forfeiture of remuneration, discipline by the regulatory body, and civil liability resulting in damage awards, if applicable.

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Lesson 2 | Page 10 of 13

Full Disclosure Requirement Full disclosure must be in writing and must clearly set out that compensation may or will be paid to the broker or salesperson, including the amount and any other relevant details. Such disclosure applies regardless of whether the amount involves money or another financial benefit, such as gifts. As a general requirement, the broker or salesperson must disclose any direct or indirect financial benefit in writing to the clients and receive an acknowledgement from them. In order to comply with the Code, it is not sufficient to use templated wording included in an agreement (for example, a seller representation agreement) stating that a referral fee may be received. The seller and buyer representation agreements disclose in a general way that finder’s fees may be provided by various third parties. However, when it is known that a finder’s fee will be payable, then written disclosure must be made to the client. The written disclosure can be in the form of a document stating © 2021 Real Estate Council of Ontario

the details of the financial benefit, such as a sum of money, points that can be redeemed for merchandise, gift cards, and so on.

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Lesson 2 | Page 11 of 13

© 2021 Real Estate Council of Ontario

From Form 610 – Disclosure of Benefit/Payment to Registrant – Finders Fees, Rewards, Referral Fees, Incentives ©2020 Ontario Real Estate Association. All rights reserved. Used under licence.

Disclosure Form Brokerages use different disclosure forms, but as a general guideline, the form should specifically detail a description of the benefit received, the actual or estimated value of this benefit, the signature of an authorized brokerage representative, and an acknowledgement by the seller or buyer that this disclosure has been made and that they have received a true copy of the disclosure statement. A broker of record who is a member of a real estate board can refer to OREA Form 610: Disclosure of Benefit/Payment to Registrant for the purpose of disclosure of financial benefits. However, a brokerage may also create their own disclosure document.

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Lesson 2 | Page 12 of 13

The broker of record at ABC Realty Ltd. is conducting a training session with newly hired salespersons on the brokerage’s compliance obligations regarding payment and receipt of referral or finder’s fees as per REBBA. The broker of record comes up with several scenarios to test the learners. Which of the following scenarios comply with REBBA requirements for payment and receipt of referral or finder’s fees? There are four options. There are multiple correct answers.

1

A salesperson adds a clause in Schedule A of the Agreement of Purchase and Sale that states, “The parties to the transaction acknowledge and consent to the fact that the salesperson may receive a referral or finder’s fee”.

2

A salesperson prepares a document making full disclosure of all the details of a mortgage finder’s fee offered to them and obtains the buyer’s written consent.

3

A salesperson sends an email informing their buyer that they will be receiving a finder’s fee from their mortgage broker.

4

A salesperson refers a home inspector to a buyer and discloses that the home inspector provides a $50 coffee house gift card to the salesperson for each referral. The salesperson documents the details and obtains the buyer’s acknowledgement.

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Lesson 2 | Page 13 of 13

Congratulations, you have completed the lesson! Completion of this lesson has enabled you to: • Identify compliance requirements related to rebates and incentives as set out in REBBA • Identify REBBA requirements for referral or finder’s fees There are two sections on this page with a summary of the key topics that were discussed in this lesson.

REBBA requirements related to rebates and incentives

Unregistered persons or companies (who are not exempt from registration) cannot receive compensation for activities generally defined as “in furtherance of a trade”.

REBBA requirements related to referral or finder’s fees

Payment of referral and finder’s fees to brokerages are acceptable, provided that the broker or salesperson meets disclosure requirements as set out in the Code. Full disclosure must be in writing and clearly set out that compensation may or will be paid to the broker or salesperson, including the amount and any other relevant details. Such disclosure applies regardless of

Rebates involving parties to the transaction are acceptable under REBBA. Acceptability of a rebate program is contingent on the premise that brokerage rebate policies are clearly set out in promotional materials, are not in any way misleading, and are fully explained to the seller or buyer. This requirement extends to all claims that refer to remuneration rates. Unless the remuneration rate referred to is charged in all transactions, such claims must be accompanied by disclosure of any situations in which the remuneration rate is not charged.

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whether the amount involves money or other financial benefit. As a general requirement regarding all such fees, brokers and salespersons must disclose any direct or indirect financial benefit to clients in writing and receive an acknowledgement from the client. In some cases, written consent may be required, for example, if it requires changes to an existing commission agreement.

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Lesson 3 | Page 1 of 11

Lesson 3: Competition Act Compliance Requirements

This lesson identifies violations of the Competition Act related to remuneration for a brokerage. It also includes leading practices to assist with these compliance issues.

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Lesson 3 | Page 2 of 11

The Competition Act is designed to maintain and encourage competition in the marketplace and to ensure that consumers are provided with competitive prices and choices. As a broker of record, it is important for you to have a thorough understanding of Canada’s competition laws and how they are applied to the real estate industry. This will help you ensure that your brokerage complies with the legislation. Upon completion of this lesson, you will be able to: • Identify violations of the Competition Act related to remuneration Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

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Lesson 3 | Page 3 of 11

As a broker of record, it is important for you to understand that competition issues can arise in everyday interactions and in conversations with sellers, buyers, and competitors. Statements and actions may be misunderstood or taken out of context, which can lead to an expensive and time-consuming investigation. It is important for you to ensure that the Competition Act is reflected in your brokerage policies and that your brokers and salespersons abide by them. This will help you ensure that your brokerage operates in compliance with the legislation.

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Lesson 3 | Page 4 of 11

The Competition Act Related to Remuneration The Competition Act promotes fair competition in the marketplace. A broker of record is responsible for the compliance of their brokerage with the Competition Act and, as such, must ensure that policies and procedures are consistent with both the spirit and wording of this legislation. Brokers and salespersons compete aggressively to secure listings and to find buyers for transactions. At the same time, brokers and salespersons must regularly co-operate to carry on a real estate business. This balance between co-operation and competition can create instances for anti-competitive activities. An example of a prohibited activity is discriminating against a competitor because of their low pricing policies. © 2021 Real Estate Council of Ontario

To comply with the Competition Act, a brokerage must: • Not collude – They must make independent business decisions without discussion, consultation, or agreement with competitors. • Not discriminate – They must treat competitors fairly and with integrity. By understanding and following these requirements in dealing with competitors, sellers, and buyers, a brokerage can avoid issues that generate concerns involving compliance with the Competition Act.

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Lesson 3 | Page 5 of 11

Violations of the Competition Act Agreements between competitors can violate provisions of the Competition Act. In particular, a broker of record should focus on provisions involving conspiracy, price maintenance, and bid-rigging. The following three sections contain information about the various kinds of violations of the Competition Act.

Conspiracy Conspiracies are unlawful agreements between competitors to fix or increase prices, manipulate markets, or control output in some way. In the case of real estate, this could involve agreements to establish commission or other fees, or amounts paid to co-operating brokerages. It is important to note that such agreements need not be in writing to prove that a conspiracy exists. The Competition Bureau, which is the federal government agency that administers the Competition Act, may rely on circumstantial evidence. Even if a conspirator has not had any discussions with the other conspirators, the existence of a tacit agreement may be inferred by the Competition Bureau. Of course, the burden rests on the

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prosecution to prove guilt beyond a reasonable doubt.

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Price maintenance Price maintenance involves a person attempting to influence prices either in an upward direction or by discouraging individuals who are offering lower prices. A broker of record must ensure that no one in the brokerage is attempting to escalate prices or discourage fee reductions, rebates, or other lowprice offerings in the marketplace in any way. Price maintenance provisions also extend to situations where a broker or salesperson refuses to negotiate with or otherwise deal with a competitor because of that competitor’s pricing policy, commission structure, or business model.

Bid-rigging Bid-rigging is an agreement, in response to a call or request for bids or tenders, in which one or more bidders agrees not to submit a bid or two or more bidders agree to submit pre-arranged bids. Bidrigging is a criminal offence. It is most prevalent in commercial real estate brokerages that submit bids to perform services.

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Lesson 3 | Page 6 of 11

Leading Practices to Avoid Compliance Issues The following guidelines can help brokers of record avoid compliance issues relating to the Competition Act: • Remuneration (fees and commissions): As a broker of record, you must ensure that all details of the brokerage’s policies and expectations for establishing fees and commissions are fully documented in all contractual agreements between the brokerage and employed brokers and salespersons as well as independent contractor brokers and salespersons.

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• Compensation to co-operating brokerages: Compensation should be determined on a case-by-case basis; that is, differing procedures apply depending on the circumstances surrounding a particular transaction. • Negotiations with co-operating brokerages: A listing brokerage and a co-operating brokerage may negotiate remuneration regarding a specific situation (for example, commission negotiations leading to an accepted agreement). Such negotiations must never include another brokerage beyond those directly impacted (that is, the listing and co-operating brokerages). A conspiracy can be inferred if any additional brokerage is involved. • Discussions with other brokerages: As a broker of record, you must avoid any discussions with other brokerages about plans to introduce or modify fees and commissions. When making such decisions, ensure that the rationale is fully documented and retained by the brokerage. • Other brokerage’s pricing policies: Pricing policies of other brokerages are established independently from your brokerage and have no bearing on how you conduct business. Furthermore, you should not, in any way, discriminate against other brokerages based on their pricing policies or business models. • No standard or set rate: Brokers and salespersons must not state or otherwise imply, at any time, that there are industry or market area standards or set rates of commission and other fees charged to sellers and buyers, or standard or set rates payable to co-operating brokerages. • Developing and submitting bids: As a broker of record, you must establish and submit any bids unilaterally and independently, relating to services being provided by the brokerage. • Explaining services and remuneration: All brokers and salespersons within the brokerage must be capable of fully explaining what services are provided to sellers and to buyers in relation to commissions and fees charged for such services. The particular mix of brokerage services and fees is a matter for individual brokerages to formulate in an independent and unilateral manner. © 2021 Real Estate Council of Ontario

• Disparaging competitors: Brokers and salespersons should never suggest to others in the real estate industry (including competitors and potential sellers or buyers) that they should not do business with a particular competitor. • Discriminating against competitors: Brokerages should not discriminate unfairly against competitors. • Broker of record responsibility for employee activities: Brokers of record are accountable for the actions of brokers and salespersons regarding remuneration issues. As a broker of record, you must ensure that all brokers and salespersons are knowledgeable about applicable regulatory requirements in REBBA and its regulations, provisions in the Competition Act, and internal brokerage policies and procedures. • Brokerage compliance policy: A broker of record must ensure that appropriate brokerage compliance policies are established for remuneration-related provisions of the Competition Act and REBBA.

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Lesson 3 | Page 7 of 11

A broker of record wants to direct their employees to follow leading practices regarding remuneration. This is to avoid violations of the Competition Act. Which of the following situations comply with the Competition Act? There are four options. There are multiple correct answers.

1

The broker of record refuses a competing brokerage’s offer to create a local real estate community group and set minimum commissions.

2

The broker of record warns their brokers and salespersons not to be influenced by a competitor trying to discourage other brokerages in the area from offering a lower commission rate.

3

Brokers and salespersons from different brokerages agree to submit a pre-arranged response to a request for services posted by the Canada Mortgage and Housing Corporation.

4

Competing brokerages enter into an agreement to not show another competing brokerage’s listings because of their low pricing policy.

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Lesson 3 | Page 8 of 11

Types of Business Scams The Competition Bureau provides businesses and not-for-profit organizations with the facts necessary to avoid becoming victims of fraud. A broker of record should develop policies that incorporate these facts and descriptions of common tactics used by fraudsters in business scams. They should present this information to employees at regular intervals. This will ensure that all individuals who work in the brokerage are prepared and protected should they encounter such a situation. A broker of record should also stay actively involved in the day-to-day functioning of the brokerage and keep the brokerage staff educated and alert on such matters to decrease the risk of becoming victims of fraud. The following four sections contain information about the common types of business scams that brokerage staff may encounter.

Office supply scams Office supply scams, also referred to as "assumed sale" scams, involve one or more unsolicited phone calls to a targeted brokerage. The goal of the first call is to gather information about the brokerage, such as the names of its employees, a corporate mailing address, or types of office equipment used. A second or third phone call is then placed to a colleague at the brokerage, where the caller uses the acquired information to imply an existing business relationship. Thus, the colleague is misled © 2021 Real Estate Council of Ontario

into agreeing to accept a shipment of supplies that were never ordered in the first place. When the supplies are delivered, the employee realizes that they are not what was ordered – they are of poor quality and cost as much as 10 times above the market rate. If they send the box back, they find that the return mailing address does not accept deliveries. When the brokerage refuses to pay the invoice, countless aggressive collections calls are received, threatening to report the brokerage to credit agencies and local business associations that may damage the brokerage’s reputation. If the brokerage pays the amount, the problem can get worse, as the scammers continue their attempts to get even more money from the brokerage. Typical products used in this type of scam include paper, ink toner, first aid kits, light bulbs, paper rolls for debit and credit machines, and other commonly used office supplies.

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Directory scams In directory scams, businesses are asked if they want to either advertise in or purchase a print directory specifically designed for their brokerage. They agree to buy it. Either it does not exist, it contains no reliable information, or there is no real value to the advertising. Sometimes a telemarketer will contact a brokerage to ask if they want to renew their two-year subscription to their directory when, in fact, the brokerage’s office never had such an account. Many people are fooled into paying for an invoice without checking their records to confirm if they placed a previous order or ensuring that the directory exists in the first place and that the business is one they have hired. These scams rely on the fact that all businesses want to promote themselves. If an organization does receive a directory, it may feature some real but mostly fake information. However, if not looked into closely, the organization may never come to realize that it is a scam.

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Phony invoice scams Phony invoice scams follow the "assumed sale" tactic by sending an invoice or bill requesting payment to an unsuspecting target. In this scam, the brokerage receives an invoice or bill requesting payment. The phony invoice may arrive with a product. The invoice appears credible with a professional layout and on high-quality paper. The brokerage is misled into believing this invoice requires payment. Over time, these fraudulent operations may appear on the vendor lists, which means that the next invoice is more likely to be paid without question. This scam often impersonates a legitimate business, and at a quick glance, the invoice a brokerage receives can often be mistaken for a bill for real charges. Invoice scams typically are for low amounts that are more likely to go undetected, but small quarterly or monthly losses add up over time.

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Internet scams A lot of internet scams take place without the victim even noticing. Scammers can use the internet to promote fraud through unsolicited or junk emails, known as spam. Even if they only get a handful of replies from the millions of emails they send out, it is still worth their while. Brokerage staff members should be wary of replying, even just to unsubscribe, because this will give a scammer confirmation that they have reached a real email address. Brokerage staff members should be made aware that any email they receive that comes from a sender they do not know, is not specifically addressed to them, and promises them some benefit is likely to be spam. Malicious software (also referred to as malware, spyware, key loggers, trojan horses, or trojans) poses online security threats. Scammers try to install this software on a computer so that they can gain access to files stored on the computer and other personal details and passwords. Phishing scams are all about tricking brokerage staff members into handing over their personal and banking details to scammers. The emails they © 2021 Real Estate Council of Ontario

receive might look and sound legitimate, but genuine organizations like a bank or a government authority will never expect them to send their personal information by an email or online.

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Lesson 3 | Page 9 of 11

Leading Practices to Avoid Business Scams Some leading practices to avoid business scams include: • Educating all brokerage staff members to be cautious of unsolicited calls and of common tactics used by fraudsters • Creating a list of businesses that are typically used by their brokerage and sharing internally with brokerage staff • Limiting the number of administrative staff who can approve purchases and pay bills © 2021 Real Estate Council of Ontario

• Clearly defining procedures for verification, payment, and management of accounts and invoices • Carefully inspecting invoices before making any payments, as fraudsters often use company names or logos similar to those of known businesses to make their invoices seem real • Deleting phishing emails and not opening any attachments or following any links in phishing emails • Reporting any suspicion of a business scam to the Canadian Anti-Fraud Centre and the local police Brokers of record should visit the Government of Canada website for more tips to avoid business scams.

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Lesson 3 | Page 10 of 11

A broker of record is conducting a training session with the brokerage staff members regarding the leading practices to be followed in order to avoid business scams. Which of the following practices should the broker of record consider in this training session? There are four options. There are multiple correct answers.

1

Create a list of businesses that are typically used by the brokerage.

2

Allow all administrative staff to approve purchases.

3

Define procedures for verification, payment, and management of invoices.

4

Inspect invoices before making any payments.

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Lesson 3 | Page 11 of 11

Congratulations, you have completed the lesson! Completion of this lesson has enabled you to: • Identify violations of the Competition Act related to remuneration There are three sections on this page with a summary of the key topics that were discussed in this lesson.

Competition Act

The Competition Act is designed to maintain and encourage competition in the marketplace and ensure that consumers are provided with competitive prices and choices. A broker of record must understand Canada’s competition laws and how they are applied to the real estate industry. Agreements between competitors can violate provisions of the Competition Act. Violations of the Competition Act include: • Conspiracies: Conspiracies are unlawful agreements between competitors to fix or increase prices, manipulate markets, or control output in some way. • Price maintenance: Price maintenance involves a person attempting to influence prices either in an upward direction or to discourage individuals who are offering lower prices. • Bid-rigging: Bid-rigging is an agreement, in response to a call or request for bids or tenders, in which one or more bidders agree not to submit a bid or two or more bidders agree to submit pre-arranged bids.

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Types of business scams The Competition Bureau provides businesses and not-for-profit organizations

with the facts necessary to avoid becoming victims of fraud. A broker of record should develop policies that incorporate these facts and descriptions of common tactics used by fraudsters in business scams, and present this to the brokers, salespersons, and administrative staff. This will ensure that their brokerage and all individuals who work there are protected. Common types of business scams include: • Office supply scams: This scam involves one or more unsolicited phone calls to a targeted business. Business information is acquired by a series of calls, and the acquired information is then used against the business. • Directory scams: Organizations are asked if they want to either advertise within or purchase an online CD-ROM, or print directory specifically designed for their sector or industry. They agree to buy it. Either the directory does not exist, it contains no reliable information whatsoever, or there is no real value to the advertisement. • Phony invoice scams: In this scam, a business receives an invoice or bill requesting payment. The phony invoice may arrive with a product. The invoice appears credible with a professional layout and on high-quality paper. The business is misled into believing this invoice requires payment. Over time, these fraudulent operations may appear on the vendor lists, which means that the next invoice is more likely to be paid without question. • Internet scams: Scammers can use the internet to promote fraud through unsolicited or junk emails, known as spam. Brokerage staff members should be wary of replying, even just to unsubscribe, because this will give a scammer confirmation that they have reached a real email © 2021 Real Estate Council of Ontario

address. Brokerage staff members should be made aware that any email they receive that comes from a sender they do not know, is not specifically addressed to them, and promises them some benefit is likely to be spam.

Leading practices to avoid business scams

Some leading practices to avoid business scams include: • Educating all brokerage staff members to be cautious of unsolicited calls • Creating a list of companies that are typically used by their brokerage • Limiting the number of administrative staff who can approve purchases and pay bills • Clearly defining procedures for verification, payment, and management of accounts and invoices • Carefully inspecting invoices before making any payments • Deleting phishing emails and not opening any attachments or following any links in phishing emails • Reporting any suspicion of a business scam to the Canadian Anti-Fraud Centre and the local police

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Lesson 4 | Page 1 of 14

Lesson 4: Remuneration Clause Wording in Representation Agreements, Service Agreements, and Commission Agreements This lesson examines remuneration clause wording in representation agreements and service agreements. It also describes the requirements for direct remuneration from seller to co-operating brokerage.

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Lesson 4 | Page 2 of 14

Although the remuneration clause wordings in representation, service, and commission agreements have some similarities, they also possess distinct differences. As a broker of record, you will need to ensure that the remuneration clause wording complies with REBBA requirements. You will need to develop policies and procedures regarding remuneration and fee schedules, and ensure that your brokers and salespersons understand them. This will confirm that they can accurately explain the remuneration clause to a seller or a buyer prior to the document being signed. This practice will help avoid any misunderstandings or remuneration disputes. Upon completion of this lesson, you will be able to: • Examine remuneration clause wording in representation agreements and service agreements • Describe requirements for direct remuneration from seller to co-operating brokerage © 2021 Real Estate Council of Ontario

Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

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Lesson 4 | Page 3 of 14

As a broker of record, if you develop customized representation, service, or commission agreements for your brokerage, you should include a clause for remuneration. The remuneration clause wording must comply with REBBA. It is also important for you to ensure that your brokers and salespersons clearly understand the wording and that they are able to explain the meaning of all such clauses to sellers and buyers. Brokerages that are members of a real estate board or association may use the various forms created by OREA or create their own custom forms.

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It is strongly recommended that any forms you create be reviewed by a lawyer prior to use by the brokerage. In addition, you should create a policy that requires your approval for any alterations made to the custom forms by your brokers or salespersons. Taking these actions will ensure that the wording is complete and complies with REBBA.

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Lesson 4 | Page 4 of 14

Remuneration Clause Wording in a Seller Representation Agreement Seller representation agreements should include a remuneration clause. If a brokerage is a member of a real estate board or association, they can use OREA Form 200: Seller Representation Agreement. If the brokerage is not a member of organized real estate, they can create their own seller representation agreement that © 2021 Real Estate Council of Ontario

includes a remuneration clause. If the brokerage chooses to create their own form, the remuneration clause wording must comply with all REBBA requirements for the brokerage to lawfully claim remuneration for the services provided. As an example, the commission clause wording in a seller representation agreement is explained using OREA Form 200: Seller Representation Agreement as follows: 1. The first section states the amount of compensation payable to the brokerage on any valid offer to purchase the property from any source whatsoever obtained during the listing period or other terms and conditions acceptable to the seller. This section also establishes how this compensation will be calculated. The compensation can be calculated as a percentage of the sale price, a flat fee, or a combination of both. 2. The second section establishes how the commission will be shared with a co-operating brokerage, if applicable. 3. The third section establishes a period after the expiry of the agreement where the brokerage would be entitled to commission if a buyer were introduced to or shown the property during the contract period and the buyer then purchased the property. This is called the holdover period. The amount of commission entitlement during the holdover period can be reduced or eliminated if the seller signs a representation agreement with another brokerage. 4. The fourth section establishes that commission is typically payable on completion of the transaction. However, should the transaction not be completed as a result of the default or neglect of the seller, then the brokerage is entitled to receive remuneration owed from the seller. 5. The fifth section establishes that any deposit held by the brokerage will be used to reduce the commission payable and that all amounts set out as commission plus applicable taxes are to be paid.

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Lesson 4 | Page 5 of 14

© 2021 Real Estate Council of Ontario

Remuneration Clause Wording in a Buyer Representation Agreement The requirements for clause wording in the buyer representation agreement are similar to the requirements for the seller representation agreement. If the brokerage is a member of a real estate board or association, they can use OREA Form 300: Buyer Representation Agreement. If the brokerage is not a member of organized real estate, they can create their own buyer representation agreement that includes a remuneration clause. If the brokerage chooses to create their own form, the remuneration clause wording must comply with all REBBA requirements for the brokerage to lawfully claim remuneration for the services provided. As an example, the commission clause wording in a buyer representation agreement is explained using OREA Form 300: Buyer Representation Agreement as follows: 1. The first section states that the buyer agrees to pay commission to the brokerage if during the term of this agreement: • The buyer enters into an agreement to purchase or lease a property of the general description indicated in the agreement. • The buyer agrees the brokerage is entitled to receive and retain any commission offered by the listing brokerage or by the seller. It also states that the buyer understands that: • The amount of commission offered by the listing brokerage or by the seller may be greater or less than the commission stated in the agreement. • The brokerage will inform the buyer of the amount of commission to be paid to the brokerage by the listing brokerage or the seller at the earliest practical opportunity.

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The section further states the amount of compensation payable to the brokerage and how that compensation will be calculated. The compensation can be calculated as a percentage of the sale price, a flat fee, or a combination of both. 2. The second section establishes the buyer will make up the difference in the commission amount if the amount received by the brokerage from the listing brokerage or by the seller is less than what the buyer originally agreed to pay the brokerage. 3. The third section establishes a period after the expiry of the agreement where the brokerage would be entitled to commission if a buyer client purchases a property that was shown to them or they were introduced to during the contract period. This is called the holdover period. The amount of commission entitlement during the holdover period can be reduced or eliminated if the buyer signs a representation agreement with another brokerage. 4. The fourth section establishes that commission is typically payable on completion of the transaction. However, should the transaction not be completed as a result of the default or neglect of the buyer, the brokerage is entitled to receive remuneration owed from the buyer. All amounts set out as commission plus applicable taxes are to be paid.

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Lesson 4 | Page 6 of 14

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Clause Wording in a Seller Customer Service Agreement The seller customer service agreement outlines specific services but does not involve the broader obligations associated with a client representation agreement. It would be used when the seller is not represented by another brokerage. The seller customer service agreement is a non-exclusive agreement. This means that a seller may have entered into other such agreements with other brokerages. The seller must be sure that each agreement identifies a different buyer. A broker or salesperson must clarify with the seller if they have an existing obligation to pay commission to another brokerage for the same buyer. The remuneration clause wording in the seller customer service agreement states that the brokerage is entitled to commission when the specific buyer identified in the agreement buys the property. The terms and conditions of the remuneration clause closely follow the requirements of the remuneration clause in a representation agreement. If a brokerage is a member of a real estate board or association, they can use OREA Form 201: Seller Customer Service Agreement. If the brokerage is not a member of organized real estate, they can create their own seller customer service agreement that includes a remuneration clause. If the brokerage chooses to create their own form, the remuneration clause wording must comply with all REBBA requirements for the brokerage to lawfully claim remuneration for the services provided. As an example, the commission clause wording in a seller customer service agreement is explained using OREA Form 201: Seller Customer Service Agreement as follows: 1. The first section states the amount of compensation payable to the brokerage and how this compensation will be calculated. The compensation can be calculated as a percentage of the sale price, a flat fee, or a combination of both.

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2. The second section establishes that the brokerage is entitled to commission when the specific buyer identified in the agreement buys the property. Should the seller decide to list the property with another brokerage, they should exclude this buyer from their listing to ensure that only one commission is paid. 3. The third section establishes a period after the expiry of the agreement where the brokerage would be entitled to commission if the specific buyer identified in the agreement purchases the property. This is called the holdover period. The amount of commission entitlement during the holdover period can be reduced or eliminated if the seller signs a new agreement with another brokerage. 4. The fourth section establishes that commission is typically payable on completion of the transaction. However, should the transaction not be completed as a result of the default or neglect of the seller, then the brokerage is entitled to receive remuneration owed from the seller. 5. The fifth section establishes that any deposit held by the brokerage will be used to reduce the commission payable and that all amounts set out as commission plus applicable taxes are to be paid.

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Lesson 4 | Page 7 of 14

Custom Wording for a Remuneration Clause in a Representation or Service Agreement The previous screens have described the commission clause wording in three OREA forms. However, if a brokerage chooses to create their own custom clause wording for remuneration in a seller representation agreement, a buyer representation agreement, or a seller customer service agreement to be used by the brokerage: • It must include a statement stating that the calculation of commission may be a percentage of the sale price, a flat fee, or a combination of both. © 2021 Real Estate Council of Ontario

• It must include the details of the payment to the co-operating brokerage if the listing brokerage is to cooperate with other brokerages to sell the property. • It must include proof of sufficient involvement, which would be evidenced by: o A written agreement signed by the party required to pay the commission o A written agreement for the conveyance of an offer that is accepted o The broker or salesperson showing the property to the buyer o The broker or salesperson introducing the seller and buyer to one another regarding the selling and/or buying of an interest in real estate • It should include a holdover provision in order to be able to collect a commission after the expiry of the agreement. A holdover provision, if included, will add clarity for the seller or buyer regarding their ongoing obligation for payment of commission to the brokerage after the expiry of the agreement. As a leading practice, the holdover period should be stated in days, not in months, to avoid any possible confusion. • It should include a statement regarding the obligation to pay commission if the transaction is not completed because of default or neglect. o This pertains to the seller in case of a seller representation agreement or a seller customer service agreement. o This pertains to the buyer in case of a buyer representation agreement. • It should include a statement regarding the following: o Seller representation agreement and seller customer service agreement: The deposit is to be applied to reduce commission payable. If the amount paid to the brokerage from the deposit or by the seller’s solicitor is not sufficient, the seller will be liable to pay the listing brokerage, on demand, any deficiency in commission. © 2021 Real Estate Council of Ontario

Seller is obligated to pay commission for any valid offer to purchase the property on any terms and conditions set out in the agreement or on any terms and conditions that the seller may accept. o Buyer representation agreement: The buyer agrees the brokerage may receive a commission from another brokerage or from the seller. However, if the amount received, if any, is less than what the buyer originally agreed to pay the brokerage, the buyer will make up the difference. The brokerage must inform the buyer of the amount of commission to be paid to the brokerage by the listing brokerage or by the seller at the earliest practical opportunity. It is important for the buyer to know this information prior to signing an offer, as it may influence the purchase price. • It must include a statement stating that all amounts of commission, plus any applicable taxes, are to be paid. As stated earlier, it is strongly recommended that any customized forms be reviewed by a lawyer prior to use by the brokerage.

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Lesson 4 | Page 8 of 14

As a broker of record, you may encounter situations in which your brokerage, acting as a co-operating brokerage, will not be offered compensation from the listing brokerage. In these circumstances, your brokerage will be paid directly by either the seller or the buyer. It is important for you, as well as your brokers and salespersons, to understand these situations to ensure that appropriate measures are taken to comply with REBBA and that your brokerage has secured and clearly defined the compensation details for any rendered services.

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Lesson 4 | Page 9 of 14

Consent Agreement The consent agreement is an agreement between the commissioner of the Competition Bureau and the Canadian Real Estate Association to permit mere postings being published on the local listing service boards. A mere posting refers to a listing on a local listing service board where a member of the board has agreed not to provide services to the seller other than submitting the listing to be posted on the local listing service board.

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Lesson 4 | Page 10 of 14

REBBA Requirements and How They Relate to the Consent Agreement While the national consent agreement (entered into between the Canadian Real Estate Association and the Commissioner of Competition and filed with the Competition Tribunal) specifically refers to not providing services, all brokers and salespersons in Ontario must abide by REBBA. No broker or salesperson can opt out of its provisions, which address certain mandated services. In particular, REBBA requires that brokers and salespersons verify the accuracy of listing information. From a buyer’s perspective, REBBA also stipulates that a buyer client must be informed of all properties meeting their criteria, regardless of the amount of remuneration. The listing brokerage must also comply with all real estate board or association rules for the efficient operation of the board’s local listing service and all FINTRAC and REBBA requirements, if applicable. © 2021 Real Estate Council of Ontario

Co-operating brokerages cannot contact a mere posting seller directly without written authorization from the listing brokerage. Brokers and salespersons should refer to the listing information to see what, if any, authority has been granted by the listing brokerage. This includes whether the listing information provides authority to contact the seller directly to arrange appointments or to show the property, and if this extends to remuneration negotiations and offer presentations. If there are any questions, the co-operating brokerage should contact the listing brokerage directly for clarification and to obtain written consent to contact the seller.

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Lesson 4 | Page 11 of 14

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Clause Wording in a Seller Commission Agreement with a Co-operating Brokerage for a Listed Property If the listing brokerage has provided consent for a co-operating brokerage to contact the seller directly for commission negotiations, the co-operating brokerage documents the arrangement with the seller in the form of a seller commission agreement. The seller commission agreement with a co-operating brokerage for a listed property establishes that the seller acknowledges the brokerage is not representing the seller and is not providing services to the seller. The brokerage may be representing the interests of the buyer or may be providing customer services to the buyer for the transaction. The seller has listed the property with a different brokerage; therefore, this agreement is not a representation agreement or an agreement to provide services to a seller customer, as contemplated by REBBA. If a brokerage is a member of a real estate board or association, they can use OREA Form 202: Seller Commission Agreement with Co-operating Brokerage for a Listed Property. If the brokerage is not a member of organized real estate, they can create their own seller commission agreement with co-operating brokerage for a listed property that includes a remuneration clause. If the brokerage chooses to create their own form, the remuneration clause wording must comply with all REBBA requirements for the brokerage to lawfully claim remuneration for the services provided. The remuneration clause wording in this agreement closely follows similar clause wordings that have been discussed in this module. As an example, the commission clause wording in a seller commission agreement is explained using OREA Form 202: Seller Commission Agreement with Co-operating Brokerage for a Listed Property as follows:

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1. The first section states the amount of compensation payable to the co-operating brokerage if the specific buyer identified in the agreement buys the property and how this compensation will be calculated. The compensation can be calculated as a percentage of the sale price, a flat fee, or a combination of both. 2. The second section establishes that the seller acknowledges that this commission is separate and apart from what they owe to the listing brokerage. 3. The third section establishes a period after the expiry of the agreement where the co-operating brokerage would be entitled to commission if the specific buyer identified in the agreement purchases the property. This is called the holdover period. The amount of commission entitlement during the holdover period can be reduced or eliminated if the seller signs a new agreement with another brokerage. 4. The fourth section establishes that commission is typically payable on completion of the transaction. However, should the transaction not be completed as a result of the default or neglect of the seller, then the co-operating brokerage is entitled to receive remuneration owed from the seller. 5. The fifth section establishes that any deposit held by the co-operating brokerage will be used to reduce the commission payable and that the seller is obligated to pay any deficiency in commission. It also states that all commission amounts plus applicable taxes are to be paid by the seller. Note that the co-operating brokerage would be the deposit holder if they enter into a seller commission agreement for a listed property.

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Lesson 4 | Page 12 of 14

Custom Clause Wording for Remuneration from Seller to Co-operating Brokerage for a Listed Property The previous screen has described the commission clause wording in OREA Form 202: Seller Commission Agreement with Co-operating Brokerage for a Listed Property. However, if a brokerage chooses to create their own custom clause wording for direct remuneration from the seller to the co-operating brokerage:

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• It must include a statement that the agreement is only an agreement to pay commission (remuneration) with the seller acknowledging that the co-operating brokerage is not representing the seller or providing services to the seller. • It must include a statement stating that the calculation of commission may be a percentage of the sale price, a flat fee, or a combination of both. • It must include a section for the seller to acknowledge that the commission, as stated in the agreement, is payable to the co-operating brokerage, even if the seller enters into an agreement to pay commission to another brokerage during the term of the agreement or any extension thereof. The seller further acknowledges that the commission described in the agreement is payable to the co-operating brokerage in addition to any commission payable by the seller to the seller’s listing brokerage. • It must include proof of sufficient involvement, which would be evidenced by a written agreement signed by the party required to pay the commission or a promise or agreement to pay commission. The broker or salesperson has shown the property to the buyer specified in the agreement and/or the broker or salesperson has introduced the seller and buyer to one another regarding the selling and/or buying of an interest in real estate. • It should include a holdover provision in order to be able to collect a commission after the expiry of the agreement if the specific buyer identified in the agreement purchases the property. Note that a holdover provision, if included, will add clarity for the seller regarding their ongoing obligation for payment of commission to the co-operating brokerage after the expiry of the agreement. As a leading practice, the holdover period should be stated in days, not in months, to avoid any possible confusion. • It should include a statement stating the seller’s obligation to pay commission if the transaction is not completed because of the seller’s default or neglect. • It should include a statement stating that any deposit held by the co-operating brokerage is to be applied to reduce the commission payable. If the amount paid to the brokerage from the deposit or by the © 2021 Real Estate Council of Ontario

seller’s solicitor is not sufficient, the seller will be liable to pay the co-operating brokerage, on demand, any deficiency in commission. • It must include a statement stating that all amounts of commission, plus any applicable taxes, are to be paid.

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Lesson 4 | Page 13 of 14

The broker of record from XYZ Realty Ltd. is practicing with a salesperson in a mock meeting, prior to their meeting with the prospective seller. Which of the following statements about commission made by the salesperson in their practice session would be correct? There are four options. There are multiple correct answers.

1

The seller is obligated to pay commission to XYZ Realty Ltd. beyond the expiration of the agreement, as stated in the holdover provision of the commission clause.

2

The seller is always obligated to pay commission to XYZ Realty Ltd. if an agreement to purchase, agreed to or accepted by the seller, is not completed.

3

Any deposit held by XYZ Realty Ltd., in respect of an agreement of purchase and sale, shall be applied towards commission payable.

4

The seller is obligated to pay commission to XYZ Realty Ltd. for any valid offer to purchase the property from any source whatsoever during the authority period (term) when signing the seller customer service agreement.

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Lesson 4 | Page 14 of 14

Congratulations, you have completed the lesson! Completion of this lesson has enabled you to: • Examine remuneration clause wording in representation agreements and service agreements • Describe requirements for direct remuneration from seller to co-operating brokerage There are three sections on this page with a summary of the key topics that were discussed in this lesson.

Remuneration clause wording in a representation agreement

If a brokerage creates their own representation agreement, it must include a remuneration clause. The clause wording must comply with all REBBA requirements for the brokerage to lawfully claim remuneration for the services provided. Clause wording requirements are similar in a buyer representation agreement and a seller representation agreement. The remuneration clause wording in a representation agreement should state the amount of compensation payable to the brokerage, how this compensation will be calculated, and the duration of a holdover period. A holdover provision, if included, will add clarity for the seller or buyer regarding their ongoing obligation for payment of commission to the brokerage after the expiry of the agreement. The clause wording in a seller representation agreement should also include how commission will be shared with a co-operating brokerage.

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Remuneration clause wording in a seller customer service agreement

The seller customer service agreement outlines specific services but does not involve the broader obligations associated with a client representation agreement. It would be used when the seller is not represented by another brokerage (property not listed for sale). The seller customer service agreement is a non-exclusive agreement, meaning a seller may have entered into other such agreements with other brokerages. The seller must be sure that each agreement identifies a different buyer. The remuneration clause wording in a seller customer service agreement should state that the brokerage is entitled to commission when the specific buyer identified in the agreement purchases the property, the amount of compensation payable to the brokerage, and how that compensation will be calculated. The clause should also include the duration of a holdover period. The terms and conditions of the remuneration clause closely follow the requirements of the remuneration clause in a representation agreement.

Remuneration clause wording in a seller commission agreement with a co-operating brokerage for a listed property

The seller commission agreement with a co-operating brokerage for a listed property establishes that the seller acknowledges the brokerage is not representing the seller and not providing services to the seller. The brokerage may be representing the interests of the buyer or may be providing services to the buyer for the transaction. The seller has listed the property with a different brokerage; therefore, this agreement is not a representation agreement or an agreement to provide services to a customer, as contemplated by REBBA. The co-operating brokerage must obtain written consent from the listing brokerage in order to directly contact the seller for commission negotiation. The remuneration clause wording should state the amount of compensation payable to the co-operating brokerage if the specific buyer identified in the

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agreement buys the property and how that compensation will be calculated. The clause should also include the duration of a holdover period.

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Lesson 5 | Page 1 of 10

Lesson 5: Remuneration Disputes

This lesson identifies common problems related to remuneration that manifest in representation and service agreements.

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Lesson 5 | Page 2 of 10

As a broker of record, you will need to develop policies and procedures to mitigate remuneration disputes arising from miscommunication or poorly worded agreements. In the previous lesson, you learned about the important wording that must be included in remuneration clauses. When using these clauses in agreements, it is important for you to ensure that your brokers and salespersons have a thorough understanding of the wording so that they can explain them to sellers and buyers. This will help you alleviate many problems by ensuring that all remuneration-related matters are fully documented and clearly understood by all parties prior to signing representation and service agreements. Upon completion of this lesson, you will be able to: • Describe key reasons for remuneration disputes Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

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Lesson 5 | Page 3 of 10

As a broker of record, you should prepare your brokerage against any remuneration disputes. You should ensure that your brokers and salespersons demonstrate their knowledge and competence by: • Fully discussing the terms with every seller or buyer prior to the signing of a representation, service, or commission agreement • Advising every seller or buyer about specific event(s) that will trigger payment of remuneration • Documenting contract terms, having the agreement signed, and providing a copy to all parties These measures should help prevent remuneration disputes.

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Lesson 5 | Page 4 of 10

Remuneration Disputes As a general rule of agency law, the seller client or the buyer client is obligated to pay for services rendered. However, payment of remuneration may be from a party not represented by the brokerage. Remuneration disputes can arise from lack of communication or poorly worded agreements. The broker of record can alleviate many problems by ensuring that all remuneration-related matters are fully documented, clearly understood, and fully explained to sellers and buyers.

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Several common problem areas are identified in relation to representation and service agreements in the following screens. These highlight disputes and supportive case law summaries involving sellers and buyers. Being aware of these situations will help you build policy and avoid these situations in the brokerage.

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Lesson 5 | Page 5 of 10

Explaining Remuneration Clause Wording A broker of record may face disputes if brokers and salespersons fail to fully explain remuneration clause wording in representation and service agreements. Wording in a seller representation agreement states that commission is due upon an acceptable and valid offer, which meets the terms and conditions of the representation agreement, being obtained. The seller does not have to accept the offer, but if the brokerage has provided the service they were hired for (to bring the offer), they are entitled to commission. Remuneration provisions vary in the marketplace. The broker of record should confirm what wording should be used for their brokerage and ensure that brokers and salespersons explain the wording to sellers and buyers and obtain their written confirmation prior to agreements being signed. © 2021 Real Estate Council of Ontario

Example: Residential Case Law Forest Hill Real Estate Inc. v. Harvey Kalles Real Estate Limited, 2010 ONCA 884, Docket No. C51557 This appeal to the Court of Appeal for Ontario highlights the importance of precise wordings when developing remuneration agreements. A dispute involving two real estate brokerages centred on one of the brokerages claiming that it was entitled to share commissions earned by the other. The matter arose in relation to the brokerages acting as co-listing agents and two associated agreements relating to commission sharing, advertising expenses, and other commission issues. Without delving into case particulars, this decision highlights the importance of clear, well-written agreements. The lower court judge found that the agreement in question was unambiguous in the context of the commercial arrangement and that there was no ambiguity to the clause at issue that would justify looking to extrinsic evidence. On that basis, one brokerage was ordered to pay the other brokerage in accordance with the agreement. Upon appeal by the brokerage having to make the payment, the court of appeal reviewed the language used and found it not ambiguous. Given no ambiguity, the interpretive process ends there from the court’s perspective. The appeal was dismissed, and the lower court’s ruling was upheld, thereby confirming that commission was due and payable as stated in the original agreement.

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Lesson 5 | Page 6 of 10

Sufficient Involvement According to REBBA, a broker or a salesperson is not entitled to remuneration unless (1) a written agreement has been signed by the party required to pay remuneration or there is a promise or agreement to pay remuneration, (2) the broker or salesperson has shown the property to the buyer, or (3) the broker or salesperson has introduced the seller and buyer to one another regarding the selling and/or buying of an interest in real estate.

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However, the court may hold the brokerage to a higher standard in instances where nothing has been signed or the agreement terms no longer apply (for example, the representation and holdover periods have expired) by requiring evidence of sufficient involvement. Legally, the brokerage may be required to substantiate direct involvement in sequential events leading to the agreement of purchase and sale, and brokerage records should clearly document such involvement. A brokerage may have difficulty proving sufficient involvement when a break in the negotiations occurs and the parties choose to pursue other options but later re-commence their original negotiations without the involvement of the brokerage. An effective causal connection must exist with unbroken continuity. Brokers of record should ensure that employed brokers and salespersons understand this requirement and maintain accurate records of ongoing contact and negotiations. Example: Commercial Case Law J.J. Barnicke Limited v. 1471422 Ontario Limited (2007), Court File No. CV-06-1935-SR (Ont. S.C.) A brokerage entered into a representation agreement with the seller. A buyer was introduced during the term of this agreement. Several offers were presented on behalf of that buyer, but an agreement was not concluded either during the term of the agreement or during the holdover period. After the expiration of both, the brokerage continued to actively pursue the sale of the property with the seller’s knowledge. Ultimately, the seller sold the property to a corporation of which the principal was the buyer previously introduced. The court awarded a commission of $38,339.44. In arriving at that decision, the presiding judge relied on several precedent cases, including William Allen Real Estate Co. v. Robichaud, where Justice Arbour decided that the rights of an agent will depend on whether they “can prove that he was more than a mere instrumentality to the pre-contractual stage of the negotiations between the parties and that an acceptable offer was eventually executed in a direct consequence of events in which the agent was intimately involved”.

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This case illustrates the importance of the salesperson being an active participant in the transaction or the catalyst who was instrumental in the creation of the agreement between the seller and the buyer.

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Lesson 5 | Page 7 of 10

Holdover Provisions Holdover provisions, if part of the agreement, can be a common source of confusion that may result in disputes with consumers. Brokers and salespersons typically understand that the holdover clause provides that remuneration is due if an agreement of purchase and sale is accepted by the seller (or anyone on the seller’s behalf) from anyone who was introduced to the property from any source whatsoever during the listing period or shown the property during this period.

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However, for the holdover to have legal effect, a second event must also occur; that is, the introduced person must buy the property within the defined holdover period. Of course, this does not typically apply if the property is subsequently listed and sold through another brokerage. Holdover wording varies in the marketplace, and a broker of record should ensure that brokers and salespersons fully understand conditions under which remuneration would and would not be due. However, a broker of record should be cautious and ensure that all conditions of the holdover clause are complied with. As the following court case illustrates, if the holdover clause provides that the seller be supplied with a list of buyers introduced to the property and this is not done, the brokerage can forfeit its legal right to collect remuneration under that holdover provision. Example: Commercial Case Law First City Realty Limited v. Hermans (2004), Court File No. 00-BN-4179 (Ont. S.C.) A seller signed two seller representation agreements with a brokerage: one concerning the sale of a 24-acre parcel of land and a subsequent agreement for the sale of the business occupying this land. A land sale was successfully negotiated through a co-operating brokerage but fell through due to zoning concerns. The seller subsequently negotiated directly with the buyer after the listing expired and an agreement was reached for both the land and the business. The first representation agreement (relating to the land) included a holdover provision, as did the second (relating to the business). However, the second agreement had an added provision that the brokerage notify the seller of any persons introduced to the business during the term of the agreement. This was not fully complied with. In regard to the first agreement, the court found that the listing and co-operating brokerages were the true cause of the land sale and were awarded the commission. However, the brokerage failed to provide a list of buyers introduced to the business. The brokerage argued that various written information had been sent to © 2021 Real Estate Council of Ontario

satisfy the notice requirement. However, the court found that the requirement to provide a list was specific and intended to put the seller on notice as to potential ongoing liability for commission. In the reasons for judgment, Justice Dawson spoke to the issue, and his words are worthy of note by all registrants who elect to include additional provisions in a holdover clause: [32] …[O]n the evidence before me I have concluded that the notice provision I have just referred to has not been complied with and accordingly, no commission is payable under the IC [local listing service] agreement of the sale of the business. [33] The cases [as reported in the Reasons for Judgment] make it clear that before commission can be recovered, an agent or broker[age] must not only comply with the Real Estate and Business Brokers Act, but must also comply and come within the terms of the contract… This case illustrates how a court may interpret the meaning of “holdover” and goes on to discuss the importance of a brokerage complying with their contractual obligations, namely, providing a list of buyers who were introduced by the brokerage. Otherwise, their commission may be denied.

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Lesson 5 | Page 8 of 10

Documentation and Credibility in Remuneration When involved with any remuneration dispute, a broker of record must ensure that proper documentation and credible evidence is presented. The following court case highlights the importance of having a signed agreement and a broker or salesperson as a reliable witness. Example: Residential Case Law Homelife/Vision Realty Inc. v. Clubine (2008), Court File No. 06-CV-322729-SR (Ont. S.C.) © 2021 Real Estate Council of Ontario

A salesperson showed various properties to a buyer, prior to obtaining a signed buyer representation agreement. Subsequent negotiations involving a specific property ended after the buyer could not secure the home at an acceptable price. The buyer blamed the salesperson, and ultimately, the relationship with the salesperson deteriorated. The buyer’s boyfriend informed the salesperson that they were signing with another brokerage. The salesperson reminded the boyfriend that the buyer was still bound by a buyer representation agreement. The buyer proceeded to buy through another brokerage and was advised in writing that a commission was due for $21,774.50. In the resulting court case, the buyer claimed that the buyer representation agreement was never explained to them, that they did not read it as they trusted the salesperson, and lastly, that the salesperson acted in an unprofessional manner. The court, based on the salesperson’s reliability and solid recall of salient events, found their conduct professional and their actions not in breach of the fiduciary relationship. Given the existence of a signed agreement, the court awarded the commission of $21,774.50, plus interest. This case illustrates the importance of ensuring that the agreement has been explained to the seller or buyer and of obtaining an acknowledgement that they understand the content. It was the salesperson’s “reliability and solid recall of salient events” that led the court to believe that the salesperson acted professionally and was entitled to commissions as described in the original agreement with the buyer. Detailed file notes probably assisted the salesperson with their ability to recall the important facts and events surrounding this case.

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Lesson 5 | Page 9 of 10

Brokers of record should be able to identify possible cases of remuneration disputes and mitigate such situations. Which of the following cases could result in a remuneration dispute? There are four options. There are multiple correct answers.

1

A seller meets a salesperson to discuss the sale of their property and wants the brokerage’s assistance. The seller does not want to sign any listing agreement but assures the salesperson that they will fully co-operate with allowing the property to be shown and pay the remuneration for an accepted offer.

2

A buyer client regularly receives a computer-generated email of newly listed properties that meet their criteria from the brokerage. They purchase one of these properties privately after the expiration of the buyer representation agreement. The brokerage invoices them for remuneration payable.

3

A buyer is shown a property at an open house conducted by the listing brokerage. They purchase the property directly from the seller during the holdover period. The listing brokerage prepares an invoice for remuneration.

4

A seller client from the listing brokerage accepts an agreement of purchase and sale from a cooperating brokerage representing the buyer. On the completion date of the transaction, the buyer breaches the agreement and fails to close the agreement.

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Lesson 5 | Page 10 of 10

Congratulations, you have completed the lesson! Completion of this lesson has enabled you to: • Describe key reasons for remuneration dispute There are four sections on this page with a summary of the key topics that were discussed in this lesson.

Remuneration disputes

Remuneration disputes can arise from lack of communication or poorly worded agreements. A broker of record can alleviate many problems by ensuring that all remuneration-related matters are fully documented, clearly understood, and fully explained to sellers and buyers.

Explaining remuneration A brokerage may face disputes if brokers and salespersons fail to fully explain remuneration clause wording in representation, service, or commission clause wording agreements. A broker of record may create custom clause wording for remuneration to be used by the brokerage.

It is strongly recommended that any agreements created by the broker of record be reviewed by a lawyer prior to use by the brokerage. In addition, brokerages should have a policy that requires the broker of record’s approval to any alterations made to clause wordings by the brokers or salespersons.

Sufficient involvement

A brokerage may have difficulty proving sufficient involvement when a break in negotiations occurs and the parties choose to pursue other options but later re-commence their original negotiations without the involvement of the brokerage. An effective causal connection must exist with unbroken continuity. A broker of record should ensure that employed brokers and © 2021 Real Estate Council of Ontario

salespersons understand this requirement and maintain accurate records of ongoing contact and negotiations.

Documentation and credibility

When involved with any remuneration dispute, a broker of record must ensure that proper documentation and credible evidence is presented. They should understand that written documentation is the best defence when involved with any remuneration dispute.

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Lesson 6 | Page 1 of 8

Lesson 6: Training Administrative Staff on Remuneration-Related Requirements This lesson includes topics for training administrative staff on remuneration-related requirements.

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Lesson 6 | Page 2 of 8

Brokerages are advised to have a checklist to ensure that all paperwork is in place when a trade is created. Administrative staff whose duties include compiling trade files must ensure that files are complete with all required paperwork. However, as a broker of record, ultimate responsibility regarding the accuracy of files lies with you. Upon completion of this lesson, you will be able to: • Identify the topics for training administrative staff on remuneration-related requirements Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

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Lesson 6 | Page 3 of 8

Brokerages must have a policy that all paperwork for trades must be submitted to the brokerage immediately after the transaction has been accepted. Administrative staff must review all paperwork that is submitted to ensure that all required documents listed in the checklist have been received by the brokerage and are in the trade file. This will help the administrative staff identify any missing documents so that they can immediately follow up with the individual broker or salesperson. As a broker of record, you should realize that administrative staff are key people in helping you ensure that brokerage procedures are followed. Therefore, it is important for your brokerage to set aside time to train the administrative staff. © 2021 Real Estate Council of Ontario

Lesson 6 | Page 4 of 8

Documentation Required When a Trade is Created When training the administrative staff, the broker of record should introduce the various documents that need to be examined in order to address remuneration, while completing trade record sheets and preparing invoices for remuneration owed to the brokerage. Documentation required when a trade is created to confirm remuneration obligations are: • Listing Agreement Seller Representation Agreement – Authority to Offer for Sale or Lease • Seller Customer Service Agreement – Commission Agreement for Property Not Listed © 2021 Real Estate Council of Ontario

• Seller Commission Agreement with Co-operating Brokerage for a Listed Property • Buyer Representation Agreement – Authority for Purchase or Lease • Confirmation of Co-operation and Representation

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Lesson 6 | Page 5 of 8

Documentation Required When a Trade Has Closed When training the administrative staff, the broker of record should introduce various documents that need to be examined prior to the disbursement of funds from the real estate trust account and payment of remuneration from the commission trust account. It is important for a broker of record to explain the importance of reviewing these documents to the administrative staff, as this will ensure that disbursements made from the real estate trust account comply with REBBA requirements. The following documentation is required when a trade has closed in order to pay remuneration: © 2021 Real Estate Council of Ontario

• Trade Record Sheet • Referral Agreement • Notification of Completion of Sale In addition to these forms, other documentation would include: • Invoice(s) from the co-operating brokerage to the listing brokerage, to the seller’s lawyer, to the seller, or to the buyer • A letter from the client’s lawyer confirming the closing and providing direction for the transfer of the deposit from the real estate trust account

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Lesson 6 | Page 6 of 8

Procedures for Payment of Remuneration as per the Trade Record Sheet As you learned in an earlier module, the trade record sheet is reviewed and signed by the broker or salesperson when no conditions remain to be satisfied. The payment of remuneration is disbursed in accordance with the trade record sheet usually from the brokerage’s commission trust account. It is important for the brokerage to pay out trades as per REBBA requirements. A broker of record should train their administrative staff on the procedures to be followed for payment of remuneration to co-operating brokerages and brokers and salespersons as they prepare the disbursements and make appropriate entries into the trade record sheet. © 2021 Real Estate Council of Ontario

A brokerage may act as a listing brokerage or a co-operating brokerage in a transaction; the process for remuneration disbursement, which is similar for both, is as follows: 1. Remuneration received is deposited into the commission trust account. 2. Disbursement of funds from the commission trust account is processed in accordance with the trade record sheet. 3. The brokerage disburses funds to the co-operating brokerage and/or referring brokerage, if applicable. 4. The brokerage pays their own brokers and/or salespersons involved in the transaction. 5. The remaining funds for the trade are transferred to the brokerage’s general account. Detailed steps and the process for disbursement of funds from the real estate trust account and the commission trust account were discussed in an earlier module.

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Lesson 6 | Page 7 of 8

ABC Real Estate Inc. is the co-operating brokerage representing a buyer and has sold a property listed by XYZ Realty Ltd. XYZ Realty Ltd. has indicated that they will cooperate and have offered to pay remuneration to ABC Real Estate Inc. Identify the documents that must be examined by the administrative staff person at ABC Real Estate Inc., prior to an invoice being prepared for remuneration purposes. There are six options. There are multiple correct answers.

1

Seller Representation Agreement

2

Confirmation of Co-operation and Representation

3

Seller Customer Service Agreement

4

Commission Agreement with Co-operating Brokerage for a Listed Property

5

Buyer Representation Agreement

6

Referral Agreement

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Lesson 6 | Page 8 of 8

Congratulations, you have completed the lesson! Completion of this lesson has enabled you to: • Identify the topics for training administrative staff on remuneration-related requirements There are three sections on this page with a summary of the key topics that were discussed in this lesson.

Documentation required Various documents need to be examined in order to address remuneration when a trade is created when a trade is created. A broker of record can use the following to confirm remuneration documentation when training administrative staff on confirming remuneration obligations:

• Listing Agreement Seller Representation Agreement – Authority to Offer for Sale or Lease • Seller Customer Service Agreement – Commission Agreement for Property Not Listed • Seller Commission Agreement with Co-operating Brokerage for a Listed Property • Buyer Representation Agreement – Authority for Purchase or Lease • Confirmation of Co-operation and Representation

Documentation required A broker of record can use the following documentation when training when a trade has closed administrative staff for disbursement of funds from the real estate trust account and commission trust account. The review of these documents in order to pay remuneration © 2021 Real Estate Council of Ontario

ensures that disbursements made from the real estate trust account comply with REBBA: • Trade Record Sheet • Referral Agreement • Notification of Completion of Sale In addition to these forms, other documentation would include: • Invoice(s) from the co-operating brokerage to the listing brokerage, to the seller’s lawyer, to the seller, or to the buyer • Written direction from lawyer

Procedures for payment The process for disbursement of remuneration funds is similar for both the of remuneration as per listing brokerage and co-operating brokerage: 1. Remuneration received is deposited into the commission trust account. the trade record sheet 2. Disbursement of funds from the commission trust account is processed in accordance with the trade record sheet. 3. The brokerage disburses funds to the co-operating brokerage and/or referring brokerage, if applicable. 4. The brokerage pays their own brokers and/or salespersons involved in the transaction. 5. The remaining funds for the trade are transferred to the brokerage’s general account.

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Lesson 7 | Page 1 of 8

Lesson 7: Summary Practice Activities

This lesson provides a series of activities that will test your knowledge on the entire module.

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Lesson 7 | Page 2 of 8

This lesson provides summary practice activities. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

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Lesson 7 | Page 3 of 8

Scenario: The broker of record of ABC Real Estate Inc. receives a call from a disgruntled seller client following a listing appointment with a salesperson from their brokerage. The seller complains that the salesperson refused to offer a flat fee as remuneration and, as such, has displayed anti-competitive behaviour. The seller tells the broker of record that two other brokerages were prepared to work under this arrangement and that the salesperson was trying to force prices upward. At the same time, they acknowledge their preference for services provided through ABC Real Estate Inc. and have ultimately signed the seller representation agreement based on solid recommendations from two neighbours. The exclusive representation agreement involves a 60-day term, along with a 90-day holdover provision. The seller further complains that the salesperson would not adjust the 5.75 per cent remuneration rate, and they insist that the standard rate for the area is in fact five per cent. The seller communicates that the salesperson advised the seller that 2.5 per cent would be paid to co-operating brokerages. The seller wanted that increased to three per cent because they wanted ABC Real Estate Inc. to make the deal more attractive. But the salesperson deferred on this until they could speak with the broker of record, as the decision involves brokerage policies. However, as an incentive, the salesperson personally offered a $1,000 seller rebate if the property was sold by ABC Real Estate Inc. The seller agreed, provided that no one was made aware of this fact. In concluding their phone call, the seller makes it perfectly clear to the broker of record that this was a one-time event and that they would be under no further obligation to the brokerage once the representation agreement has expired in two months.

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Lesson 7 | Page 4 of 8

Scenario: Question 1 of 3 Which responses from the broker of record to the seller are correct regarding the remuneration fee and the amount offered to the co-operating brokerage? There are four options. There are multiple correct answers.

1

“Remuneration can be calculated as a percentage of the sale price.”

2

“A co-operating brokerage must inform buyer clients of any property that meets their criteria without having any regard to the amount of remuneration offered.”

3

“Increase in the remuneration offered to co-operating brokerages can only be authorized by the broker of record.”

4

“You have no further obligation to pay remuneration to the brokerage after the expiration of the representation agreement.”

© 2021 Real Estate Council of Ontario

Lesson 7 | Page 5 of 8

Scenario: Question 2 of 3 Which responses from the broker of record to the seller are correct regarding the salesperson’s offer of a $1,000 seller rebate if the property is sold by ABC Real Estate Inc.? There are four options. There are multiple correct answers.

1

“The brokerage will follow the seller’s instruction to not make anyone aware of the rebate.”

2

“The rebate would need to be disclosed to any person making an offer.”

3

“The terms of the seller rebate have been documented in the listing agreement.”

4

“The salesperson has the authority to offer a seller rebate.”

© 2021 Real Estate Council of Ontario

Lesson 7 | Page 6 of 8

Scenario: Question 3 of 3 Which actions comply with the Competition Act and remuneration? There are four options. There are multiple correct answers.

1

The salesperson refused brokerage compensation as a flat fee.

2

The salesperson did not participate in fixing real estate fees with other competitors.

3

The salesperson secured a 60-day listing authority with a 90-day holdover period.

4

The brokerage sets remuneration at 5.75 per cent of the sale price.

© 2021 Real Estate Council of Ontario

Lesson 7 | Page 7 of 8

A seller is not willing to sign a brokerage’s seller representation agreement but agrees to pay remuneration relating to the sale of their commercial property. Following this, a salesperson prepares the following commission agreement and asks their broker of record to review it. “The Seller agrees to pay ABC Real Estate Inc. a commission of ………….% of the sale price and/or a fee of $........................... for any valid offer to purchase submitted to the seller for the property known as …………………………………………………….. The commission is due on completion of the sale and shall be paid out of the proceeds of the sale. The seller also agrees to pay remuneration as outlined above if an agreement of purchase and sale is agreed to and accepted by the seller within three months following the expiration of this agreement to anyone introduced to the property by the brokerage, provided that a list of such persons is provided to the seller.” Identify the errors in the stated customized commission agreement. There are four options. There are multiple correct answers.

1

The terms relating to the commission are vague.

2

The holdover period is stated in months. © 2021 Real Estate Council of Ontario

3

The terms related to “any valid offer to purchase submitted to the seller” is not precisely defined.

4

The seller is liable to pay commission on any valid offer.

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Lesson 7 | Page 8 of 8

Congratulations, you have completed the lesson!

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Module Summary | Page 1 of 3

Module Summary This lesson contains a summary of the entire module.

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Module Summary | Page 2 of 3

Congratulations, you have completed this module! This lesson will present a summary of the lessons in this module.

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Module Summary | Page 3 of 3

There are six sections on this page with a summary of the key topics that were discussed in this module.

REBBA Requirements for Remuneration terms and details impacting negotiations and the acceptance or rejection of an agreement must be disclosed to any person who makes a Remuneration written offer to buy. This written arrangement where remuneration has been Provisions reduced to make the buyer’s offer more attractive to the seller is commonly referred to as a collateral agreement. Remuneration should be calculated as per the standards set out by REBBA. Only the employing brokerage can pay remuneration to their brokers and salespersons. A brokerage is also permitted to pay remuneration owed to a broker or salesperson for trading in real estate to a PREC that meets specific criteria. A broker or a salesperson is not entitled to remuneration unless a written agreement is signed by the person who is required to pay the remuneration. The entitlement to remuneration may also arise under an agreement when the broker or salesperson has performed at least one of the following actions: • Conveyed an offer in writing that is accepted • Shown the property to a buyer • Introduced the seller and the buyer to one another in relation to the buying or the selling of an interest in real estate Completion of this lesson has enabled you to: • Identify key provisions set out in REBBA related to remuneration

© 2021 Real Estate Council of Ontario

REBBA Compliance Requirements

Unregistered persons or companies (who are not exempt from registration) cannot receive compensation for activities generally defined as “in furtherance of a trade”. Payment of referral and finder’s fees to brokerages is acceptable, provided that the broker or salesperson meets disclosure requirements as set out in the Code. Full disclosure must be in writing and clearly set out that compensation may or will be paid to the broker or salesperson, including the amount and any other relevant details. Such disclosure applies regardless of whether the amount involves money or other financial benefit. As a general requirement regarding all such fees, brokers and salespersons must disclose to clients, in writing, any direct or indirect financial benefit and receive an acknowledgement from the client. Completion of this lesson has enabled you to: • Identify compliance requirements related to rebates and incentives as set out in REBBA • Identify REBBA requirements for referral or finder’s fees

Competition Act Compliance Requirements

A broker of record is responsible for their brokerage’s compliance with the Competition Act. Violations of the Competition Act include: • Conspiracies: Unlawful agreements between competitors to fix or increase prices, manipulate markets, or in some way control output • Price maintenance: A person attempting to either influence prices in an upward direction or discourage individuals who are offering lower prices • Bid-rigging: An agreement, in response to a call or request for bids or tenders, in which one or more bidders agree not to submit a bid or two or more bidders agree to submit pre-arranged bids © 2021 Real Estate Council of Ontario

The Competition Bureau provides businesses and not-for-profit organizations with the facts necessary to avoid becoming victims of fraud. A broker of record should develop policies that incorporate these facts and descriptions of common tactics used by fraudsters in business scams, and present these to the brokers, salespersons, and administrative staff. Some of these tactics are office supply scams, directory scams, phony invoice scams, and internet scams. Completion of this lesson has enabled you to: • Identify violations of the Competition Act related to remuneration

Remuneration Clause Wording in Representation Agreements, Service Agreements, and Commission Agreements

• Representation agreements: If a brokerage creates their own representation agreement, it must include a remuneration clause. The clause wording must comply with all REBBA requirements for the brokerage to lawfully claim remuneration for the services provided. Clause wording requirements are similar in a buyer representation agreement and a seller representation agreement. The remuneration clause wording in a representation agreement should state the amount of compensation payable to the brokerage, how this compensation will be calculated, and the duration of a holdover period. A holdover provision, if included, will add clarity for the seller or buyer regarding their ongoing obligation for payment of commission to the brokerage after the expiry of the agreement. The clause wording in a seller representation agreement should also include how commission will be shared with a co-operating brokerage. • Seller customer service agreement: The remuneration clause wording in a seller customer service agreement should state that the brokerage is entitled to commission when the specific buyer identified in the © 2021 Real Estate Council of Ontario

agreement purchases the property, the amount of compensation payable to the brokerage, and how that compensation will be calculated. The clause should also include the duration of a holdover period. The terms and conditions of the remuneration clause closely follow the requirements of the remuneration clause in a representation agreement. • Seller commission agreement with co-operating brokerage for a listed property: The remuneration clause wording should state the amount of compensation payable to the co-operating brokerage if the specific buyer identified in the agreement buys the property and how that compensation will be calculated. The clause should also include the duration of a holdover period. The co-operating brokerage must obtain written consent from the listing brokerage in order to directly contact the seller for commission negotiation. Completion of this lesson has enabled you to: • Examine remuneration clause wording in representation agreements and service agreements • Describe requirements for direct remuneration from seller to cooperating brokerage

Remuneration Disputes

A broker of record should ensure that all remuneration-related matters are fully documented, clearly understood, and fully explained to sellers and buyers. Brokers and salespersons must clearly explain remuneration clause wording in representation and service agreements to avoid misunderstanding and remuneration disputes. When involved with any remuneration dispute, a broker of record must ensure that proper documentation and credible evidence is presented. They © 2021 Real Estate Council of Ontario

should understand that written documentation is the best defence when involved with any remuneration dispute. Completion of this lesson has enabled you to: • Describe key reasons for remuneration disputes

Training Administrative Staff on RemunerationRelated Requirements

Various documents need to be examined in order to address remuneration. Documentation required when a trade is created to confirm remuneration obligations are: • Listing Agreement Seller Representation Agreement – Authority to Offer for Sale or Lease • Seller Customer Service Agreement – Commission Agreement for Property Not Listed • Seller Commission Agreement with Co-operating Brokerage for a Listed Property • Buyer Representation Agreement – Authority for Purchase or Lease • Confirmation of Co-operation and Representation A broker of record can use the following documentation when training administrative staff for disbursement of funds from the real estate trust account and commission trust account. The review of these documents ensures that disbursements made from the real estate trust account comply with REBBA: • Trade Record Sheet • Referral Agreement • Notification of Completion of Sale

© 2021 Real Estate Council of Ontario

• Invoice(s) from the co-operating brokerage to the listing brokerage, to the seller’s lawyer, to the seller, or to the buyer • Written direction from lawyer The process for disbursement of remuneration funds is similar for both the listing brokerage and co-operating brokerage: 1. Remuneration received is deposited into the commission trust account. 2. Disbursement of funds from the commission trust account is processed in accordance with the trade record sheet. 3. The brokerage disburses funds to the co-operating brokerage and/or referring brokerage, if applicable. 4. The brokerage pays their own brokers and/or salespersons involved in the transaction. 5. The remaining funds for the trade are transferred to the brokerage’s general account. Completion of this lesson has enabled you to: • Identify the topics for training administrative staff on remunerationrelated requirements

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V6

Module 3: Monitoring Advertising and Business Promotion of a Brokerage Disclaimer: This is a reference document which contains pages from the Accessible eLearning module. You should complete the eLearning module to proceed to the next step. Please note that the accessible module on the LMS only contains the interactive pages and you need to go through the content of this document thoroughly to attempt the interactive activities in the module. Please use Adobe Acrobat Reader (Recommended version 9 or above) to navigate through this PDF. Real Estate Broker Program © 2021 Real Estate Council of Ontario. All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or in any means – by electronic, mechanical, photocopying, recording or otherwise without prior written permission, except for the personal use of the Real Estate Broker Program learner.

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Module 3: Monitoring Advertising and Business Promotion of a Brokerage As a broker of record, you should be prepared to face the realities and risks inherent in using different forms of advertising: print, radio, television, electronic media, or publications on the internet (including websites and social media platforms). To do so, you should develop procedures to properly integrate advertising practices within the brokerage that comply with regulatory requirements, while meeting the brokerage’s marketing goals. A broker of record is responsible for ensuring that the advertising activities in the brokerage meet provincial and federal requirements. This module identifies REBBA requirements and federal statutes for advertising and business promotion. It emphasizes the importance for you, as a broker of record, to establish brokerage policies and procedures as well as to create checklists. This will further help the brokerage staff comply with regulations and will help you review advertisements before they are published. Furthermore, the module discusses ways in which brokerages can integrate social media into their advertising and promotional activities. Finally, it identifies topics for training administrative staff to ensure advertising compliance. To check your understanding of this module, you must complete all the activities in the online module. While navigating through the online module, click the Legislation button to view laws and regulations related to this module. The contents of the thumbnails Accessible PDF.

and References from the module are added to support your learning throughout this

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Module 3: Monitoring Advertising and Business Promotion of a Brokerage Number of Lessons

Lesson Number

7 Lessons

Lesson Name

Lesson 1

REBBA Requirements for Business Promotion

Lesson 2

Ensuring REBBA-Compliant Advertising by a Brokerage

Lesson 3

Advertising on Social Media Platforms

Lesson 4

Federal Statutes for Business Promotion

Lesson 5

Training Administrative Staff on Advertising Compliance

Lesson 6

Summary Practice Activities Module Summary

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Lesson 1 | Page 1 of 13

Lesson 1: REBBA Requirements for Business Promotion

This lesson identifies REBBA requirements related to advertising and business promotion for brokerages, brokers, and salespersons.

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Lesson 1 | Page 2 of 13

Business promotion is the sum of all favourable communication delivered through many different advertising tools. REBBA addresses advertising and business promotion for both the brokerage and the individual broker or salesperson, including day-to-day advertising requirements and responsibilities. As a broker of record, you should establish policies and procedures within your brokerage to ensure brokers and salespersons prepare all advertising and promotional materials carefully and comply with REBBA requirements. This lesson examines REBBA requirements related to advertising, promoting properties and services, and disclosure of information while listing and selling properties. It identifies considerations regarding advertising a property as sold. Upon completion of this lesson, you will be able to: • Identify the primary regulatory obligations related to advertising and business promotion mentioned under REBBA • Identify REBBA requirements related to advertising a property as sold Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

© 2021 Real Estate Council of Ontario

Lesson 1 | Page 3 of 13

As a broker of record, you should have policies and procedures in place to establish and closely monitor advertising activities of brokers and salespersons. These policies and procedures should be based on six primary regulatory obligations to: 1. 2. 3. 4. 5.

Prevent false, misleading, or deceptive statements in advertisements Prevent falsifying information and furnishing false information Ensure promises and inducements are documented Ensure appropriate identification of the brokerage, broker, and salesperson Obtain requisite consent to include the particulars about property, parties, and agreements in advertisements 6. Prevent inaccurate representations

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Lesson 1 | Page 4 of 13

Advertising and Business Promotion: Broker of Record Responsibilities A broker of record should proactively implement policies and procedures regarding advertising and business promotion. These policies and procedures are enforced in a brokerage through continuous vigilance along with checks and controls. It is the broker of record’s responsibility to ensure: • REBBA compliance of all advertising and business promotion by the brokerage and its brokers and salespersons • Compliance with requirements related to false or misleading representation within the federal Competition Act and rules concerning telemarketing, such as the Personal Information Protection and Electronic Documents Act (PIPEDA) and the Do Not Call List (DNCL) • Compliance with municipal signage requirements and provincial regulations related to signs near highways, intersections, secondary roads, and other thoroughfares You will learn more about these compliance requirements later in this module.

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Lesson 1 | Page 5 of 13

REBBA Requirements for Advertising Properties A broker of record should monitor advertisements and business promotion materials created by brokers, salespersons, and administrative staff to ensure they are compliant with REBBA. The broker of record is accountable even when they delegate the review of advertisements to another staff member. RECO may impose a disciplinary fine; require an educational course; order the cessation of false, misleading, or deceptive advertising; and/or require a brokerage, broker, or salesperson to retract statements and publish corrections. RECO may also require the pre-approval of a brokerage’s, broker’s, or salesperson’s advertising for a set period of up to one year once it has been determined that they have been in violation of REBBA advertising requirements. The following six sections contain information on different requirements of REBBA related to advertising and business promotion.

Prevent false, misleading, or deceptive statements in advertisements REBBA provides that brokers and salespersons cannot make false, misleading, or deceptive statements in any advertising related to a trade in real estate. For example, a broker or salesperson must not advertise that a buyer can earn extra income, in an attempt to increase the appeal of the listing, without verifying if the property has a legal basement apartment.

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Prevent falsifying information and furnishing false information The Act states that it is an explicit offence for a broker or salesperson to: • Falsify information or counsel someone else to do so in regard to a trade in real estate • Furnish, assist in furnishing, or counsel an individual to furnish any false or deceptive information For example, a broker or salesperson explains to the seller that all information provided will be verified, where it is reasonably possible to do so, before the information is included in any type of advertising.

Ensuring promises and inducements are documented A broker or salesperson must not, as an inducement to purchase, lease, or exchange real estate, make any representation or promise that they or any other person will sell, lease, or exchange the real estate. However, this requirement does not apply if the broker or salesperson has entered into a written contract with the person to whom the promise is made, which obligates them to comply with that promise. For example, a broker or salesperson promises a seller, “I will sell your home in three weeks’ time, and if I cannot, I will buy it from you.” This promise must be made in writing to the seller with specific details to avoid misunderstanding.

© 2021 Real Estate Council of Ontario

Ensuring appropriate identification of the brokerage, broker, and salesperson Two regulations address compliance regarding how brokers and salespersons must advertise their registered names: • REBBA details requirements at the time of registration of how the broker’s or salesperson’s name must be identified and subsequently used in all forms of advertising. • The Code of Ethics also focuses on ongoing advertising. For example, the broker’s or salesperson’s registered name and their category of registration must be included in advertisements, along with the prominent identification of the employing brokerage. Brokers and salespersons must clearly and prominently include four key identification requirements when representing themselves: 1. The broker’s or salesperson’s name as registered with RECO 2. A description of the individual’s category of registration (for example, “broker” or “salesperson”) 3. The name of the brokerage the broker or salesperson works for 4. The brokerage’s category of registration (for example, “brokerage” or “real estate brokerage”) Brokers and salespersons must not use any term in their advertising that could cause confusion as to their category of registration under REBBA. You will learn

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more about acceptable descriptions of categories of registration later in this module.

© 2021 Real Estate Council of Ontario

Obtaining requisite consent to include the particulars about property, parties, and agreements A broker or salesperson cannot include anything in an advertisement that would identify a specific property unless the owner’s consent has been obtained. In addition, a party to an agreement cannot be identified in an advertisement, unless written consent is obtained. Lastly, nothing regarding the agreement between the parties can be disclosed without their written consent. If a party is represented by another brokerage, communication to obtain written consent must go through that other brokerage. For example, a broker or salesperson must not include the selling price in an advertisement for a sold property without obtaining consent from the seller and buyer.

Preventing inaccurate representations The Code requires that a broker or salesperson must not knowingly make an inaccurate representation regarding a trade in real estate. Also, a broker or salesperson must use their best efforts to prevent any error, misrepresentation, fraud, or any other unethical practice related to a trade in real estate. For example, a broker or salesperson must not include incorrect information about a property’s lot type or any other facts that can influence a buyer’s decision to purchase the property, either intentionally to attract more buyers or unintentionally through incorrect choice of words.

© 2021 Real Estate Council of Ontario

Lesson 1 | Page 6 of 13

Common Advertising Infractions and Remedies The brokerage staff needs to be vigilant to avoid errors from occurring in brokerage-related advertisements and promotional materials. Even with heightened vigilance, mistakes can sometimes be made. Awareness of common advertising mistakes related to legislative requirements can assist brokerage staff in avoiding them. A broker of record should proactively train their staff to avoid common advertising infractions, which would further assist them in ensuring compliant advertising in their brokerage. The requirements for the following advertising infractions are: • Missing information that a franchise brokerage is independently owned and operated: Franchisees are required to make it clear they are independently owned and operated. This information must be included with the brokerage’s identification. • Missing, incomplete, or not prominently displayed brokerage name: All advertisements are required to include the registered name of the brokerage. • Missing brokerage category of registration: Brokerages are required to use the term “brokerage” or “real estate brokerage” with their identification. • Incorrect or missing individual broker’s or salesperson’s category of registration: Brokers and salespersons are required to use terms such as “broker of record”, “broker”, “broker real estate agent”, “salesperson”, or “real estate agent” (or the French equivalent) with their registered full name and category of registration. • Incorrect claims: Claims cannot be ambiguous, inaccurate, or incomplete. Comparative business claims must explicitly identify details (area, time, source, and so on) or not be used. The broker of record can avoid these infractions by: • Having templates prepared for advertising materials, such as business cards, announcement advertisements, classified advertisements, feature property advertisements, feature sheets, and social media banners, which include the broker’s or salesperson’s name, category of registration, brokerage name, category of registration, and franchise requirements (if applicable) • Preparing checklists to ensure that various requirements and inclusions have been addressed • Developing a procedure for reviewing all advertising materials before publication • Providing ongoing training to ensure all advertising materials are compliant with all regulatory requirements

© 2021 Real Estate Council of Ontario

Lesson 1 | Page 7 of 13

Advertising sold properties can be an effective way for marketing your brokerage and attracting potential clients. As a broker of record, in order to avoid penalties resulting from non-compliance with REBBA requirements, you should ensure all your brokers and salespersons understand the requirements for advertising sold properties. A broker of record must ensure that all the advertisements that include sold properties prepared by their brokers or salespersons do not include anything that would identify a specific property, a party to an agreement, or terms of an agreement unless written consent is obtained. Determining whose written consent to seek (the seller’s, the buyer’s, or both) will depend on when the advertisement is being distributed, what is to be included, and who is placing the advertisement.

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Lesson 1 | Page 8 of 13

Advertising Sold Property: Consent Requirements for Identifying a Property A broker or salesperson must not include anything in an advertisement (such as an image or text) that could reasonably be used to identify a specific property, unless the brokerage has written consent from the owner of the property to do so. The provisions of most listing agreements signed by the seller are typically drafted to give authority to the listing brokerage to advertise the property. Listing agreement provisions may include permission for that property to be advertised on a real estate board or association system and/or other media. A broker or salesperson, with the seller’s written consent, may advertise that a property has sold (for example, using a sold sign or distribution of sold cards) once a transaction has been entered into, provided that no information related to terms of the agreement is included in the advertisement and provided that the seller is the owner of the property at the time of the advertisement. Once title to the property has been transferred to the buyer (that is, the transaction has completed), the broker or salesperson will need the buyer’s written consent to make any reference to the property in sold cards or other advertisements. The broker of record must ensure that written consent is obtained. If the seller or buyer is represented by another brokerage, consent must be obtained and communicated through that brokerage. • Scenario: A seller’s brokerage wants to advertise that a property is sold (with or without the image of the property). o Required consent BEFORE the transaction is completed: A seller’s written consent is required. o Required consent AFTER the transaction is completed: A buyer’s written consent is required. • Scenario: A seller’s brokerage wants to advertise that a property is sold (with or without the image of the property) and wants to include price information. o Required consent BEFORE the transaction is completed: Both the seller’s and buyer’s written consent are required. o Required consent AFTER the transaction is completed: Both the seller’s and buyer’s written consent are required.

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• Scenario: A buyer’s brokerage wants to advertise that a property is sold (with or without the image of the property). o Required consent BEFORE the transaction is completed: Both the seller’s and buyer’s written consent are required. o Required consent AFTER the transaction is completed: The buyer’s written consent is required. • Scenario: A buyer’s brokerage wants to advertise that a property is sold (with or without the image of the property) and wants to include price information. o Required consent BEFORE the transaction is completed: Both the seller’s and buyer’s written consent are required. o Required consent AFTER the transaction is completed: Both the seller’s and buyer’s written consent are required.

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Lesson 1 | Page 9 of 13

Advertising a Sold Property: Consent Requirements for Including the Contents of an Agreement The broker of record must ensure their brokers and salespersons do not include anything in an advertisement, such as an image or text, that could reasonably be used to determine any of the contents of an agreement (such as price) regarding a real estate transaction, unless they have the written consent of all the parties to the agreement to do so. For example, a broker or salesperson wishing to distribute sold cards that indicate a property sold for 95 per cent of the asking price must have the written consent of both the seller and the buyer, regardless of who is the owner of the property at the time of the advertisement, to ensure compliance with REBBA requirements for advertising a sold property. The broker of record must ensure that written consent is obtained through the appropriate brokerage. When obtaining written consent from the parties to include the price and/or terms of the agreement in an advertisement, such consent is often separate and distinct from any representation or service agreement. • Scenario: A seller’s brokerage wants to advertise that a property is sold and include the price and/or terms of the agreement. o Both the seller’s and buyer’s written consent are required BEFORE and AFTER the transaction is completed. • Scenario: A buyer’s brokerage wants to advertise that a property is sold and include the price and/or terms of the agreement. o Both the seller’s and buyer’s written consent are required BEFORE and AFTER the transaction is completed.

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Lesson 1 | Page 10 of 13

Advertising a Sold Property: Consent Requirements for Including the Identification of a Party The broker of record must ensure that their brokers and salespersons do not include anything in an advertisement (such as an image or text) that could reasonably be used to identify any party to a real estate transaction, unless their written consent has been obtained. When obtaining written consent from the parties to include their identity in an advertisement, such consent is often separate and distinct from any representation or service agreement. The broker of record must ensure that written consent is obtained. If the seller or buyer is represented by another brokerage, consent must be obtained and communicated through that brokerage. • Scenario: A seller’s and/or the buyer’s brokerage wants to advertise that a property is sold and include the name and/or the photograph of the seller. o The seller’s written consent is required BEFORE and AFTER the transaction is completed. • Scenario: A seller’s and/or the buyer’s brokerage wants to advertise that a property is sold and include the name and/or the photograph of the buyer. o The buyer’s written consent is required BEFORE and AFTER the transaction is completed.

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Lesson 1 | Page 11 of 13

The broker of record of XYZ Realty Ltd. is reviewing the advertisements and promotional materials submitted to them. Which of the following advertisements and promotional materials comply with the REBBA requirements? There are four options. There are multiple correct answers.

The proposed advertisement states: 1

“List your property for sale with me, and I will provide $500 towards your legal fees on closing of your transaction.” This offering made to a seller is also included in the schedule to the listing agreement.

2

The proof received from the printing company for the business cards and “Just Listed” postcards for Jonathan Brewer, a salesperson with XYZ Realty Ltd., states: “Jon Brewer: Real Estate Consultant” A proposed “For Sale” flyer by a listing salesperson includes the photograph of the home exterior and reads:

3

“123 AnyCity, AnyRegion $549,900 All dressed up and waiting… 3-bedroom backsplit with a walkout from third level to a well-landscaped backyard.”

4

Online municipal property taxes state the current year’s taxes to be $5,530.46. A proposed newspaper classified advertisement for a listed property states:

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“Property taxes: $5,500.”

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Lesson 1 | Page 12 of 13

What if the following happened? A signed seller representation agreement includes the following clause: “The parties to this transaction acknowledge that the listing brokerage and/or its broker or salesperson shall be permitted to advertise the sale of the subject property including the property details and its sale price for a period of one calendar year.” The property sold six weeks later. Before the transaction is completed, the listing salesperson wants to print and distribute flyers advertising the sale of the property. They submit the proof for the “Just Sold” flyers received from the printing company to the broker of record for approval. The flyer contains the picture of the house with the seller standing in front of the sold sign, the sold price, and the address. Which of the given elements in the flyer are correct? There are four options. There are multiple correct answers. 1

Picture of the property

2

Sold price

3

Property address

4

Seller’s photo

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Lesson 1 | Page 13 of 13

Congratulations, you have completed the lesson! The completion of this lesson has enabled you to: • Identify the primary regulatory obligations related to advertising and business promotion mentioned under REBBA • Identify REBBA requirements related to advertising a property as sold There are two sections on this page with a summary of the key topics that were discussed in this lesson.

REBBA requirements related to advertising and business promotion

Brokerages regularly aim to attract new sellers and buyers by advertising and promoting themselves and their services. The responsibility lies with the broker of record to ensure all advertising and promotional materials prepared by brokers and salespersons working for their brokerage to comply with REBBA requirements. The broker of record must understand their obligation and should educate their brokers and salespersons on six primary regulatory obligations to: 1. 2. 3. 4. 5.

Prevent false, misleading, or deceptive statements in advertisements Prevent falsifying information and furnishing false information Ensure promises and inducements are documented Ensure appropriate identification of the brokerage, broker, and salesperson Obtain requisite consent to include the particulars about property, parties, and agreements in advertisements 6. Prevent inaccurate representations The brokerage staff needs to be vigilant to avoid errors from occurring. Even with heightened vigilance, mistakes can sometimes be made. Knowing about common mistakes ahead of time can assist in avoiding them. A broker of record should train their staff to understand advertising-related compliance requirements with various legislation to avoid common advertising infractions with legislative requirements. Understanding advertising-related compliance may assist in avoiding common infractions, such as:

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1. Missing identification of the brokerage as independently owned and operated if affiliated with a franchise company 2. Incomplete or missing brokerage name that lacks prominence in the advertisement 3. Missing terms like “brokerage” or “real estate brokerage” in the brokerage identification 4. Incorrect or missing individual broker or salesperson registration category 5. Ambiguous, unsupported claims

REBBA requirements for advertising a property as sold

Sold property advertisements cannot include anything that would identify a specific property, a party to an agreement, or terms of an agreement, without the written consent of the concerned party or parties. A broker of record must ensure brokers and salespersons understand whose consent is needed, which varies based on when the advertisement is being distributed and who is placing the advertisement. Before a transaction is completed, the broker or the salesperson needs consent from the seller for advertising a property. After the transaction is completed, the buyer’s consent is required. The broker of record must ensure their brokers and salespersons are aware that if the seller or buyer is represented or is a party to an agreement in connection with a trade in real estate with another brokerage, the communication for obtaining consent for advertising should go through that brokerage.

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Lesson 2 | Page 1 of 10

Lesson 2: Ensuring REBBA-Compliant Advertising by a Brokerage This lesson discusses responsibilities of a broker of record to ensure advertising by brokers and salespersons meets compliance requirements.

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Lesson 2 | Page 2 of 10

As a broker of record, you will be responsible for establishing and enforcing policies and procedures that promote accountability of brokers and salespersons when creating advertising materials for use and distribution. Advertising checklists can serve as effective tools to support a brokerage’s policies and procedures to ensure advertising and promotional materials meet REBBA requirements. These checklists can help guide brokers and salespersons understand the requirements they must meet before sending their advertising materials to you as the broker of record, for your review. Advertising checklists will also help reduce errors and ensure consistency in advertising and business promotion, thus building a professional image of the brokerage among potential sellers and buyers. This lesson will identify key guidelines to develop advertising checklists, which will assist in elevating overall advertising compliance. Upon completion of this lesson, you will be able to: • Identify REBBA-compliant advertising guidelines regarding broker and salesperson identification • Identify RECO guidelines related to claims, promises, or any other offerings in advertisements Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented. © 2021 Real Estate Council of Ontario

Lesson 2 | Page 3 of 10

As a broker of record, when developing advertising checklists for the brokerage, you should consider the common advertising errors made by brokers and salespersons. As you learned earlier in this module, you should consider common REBBA infractions to proactively establish remedies and prepare checklists to train the brokerage staff. This will help you avoid these errors and ensure advertising compliance within your brokerage. All advertisements must include identification details as per the defined minimum requirements. As a broker of record, you should develop advertising checklists for the brokerage to ensure that minimum identification requirements are part of all advertisements. These minimum requirements include: • • • •

Broker’s or salesperson’s full name as registered with RECO Broker or salesperson category of registration Brokerage name Brokerage category of registration

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Lesson 2 | Page 4 of 10

Checklist for Identification Requirements A broker of record should establish advertising checklists to avoid common advertising infractions related to individual and brokerage identification. When preparing advertising checklists and/or completing routine checks on advertising created by brokers, salespersons, or the brokerage itself, a broker of record must ensure that: • A broker’s or salesperson’s name appears as registered with RECO, including the appropriate category of registration. To confirm registration details, the broker of record can complete a cross-check with certificates of registration on file at the brokerage or via the RECO website. o The category of registration must be as follows:  A broker of record can be identified as “broker of record” or “real estate broker of record”.  A broker can be identified as “broker” or “real estate broker”. As per recent updates to REBBA, brokers and salespersons can now use alternate terms to describe themselves in advertising materials. Brokers, other than the broker of record, are now permitted to use additional descriptors, such as “real estate agent”, “broker real estate agent”, “REALTOR®” (limited to CREA members in good standing), and “REALTOR® broker” (limited to CREA members in good standing).

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 A salesperson can be identified as “salesperson”, “real estate salesperson”, “sales representative”, or “real estate sales representative”. As per recent updates to REBBA, salespersons are now permitted to use alternate descriptors, such as “real estate agent”, “REALTOR®” (limited to CREA members in good standing), and “REALTOR® salesperson” (limited to CREA members in good standing). Brokers of record, brokers, and salespersons can also use the French equivalent of the given categories of registration. o A broker or salesperson must not use any terms or titles that may be confused with the approved categories of registration, such as “sales agent”, “sales associate”, “sales consultant”, “real estate consultant”, or “agent”. The term agent must not be used when referring to brokers of record, brokers, or salespersons, as the brokerage is the agent under agency law in a principal-agent relationship. If the term “specialist” is used, the claim must be substantiated if challenged. o Repetition of category of registration can be avoided by indicating the broker and salesperson categories of registration using a unique mark with a clearly visible reference on the same page (for example, **Broker and *Salesperson). o Brokers and salespersons with a common last name and category of registration may be identified jointly (for example, “Keiko & Jordan Smith: Brokers”). Otherwise, each broker or salesperson (including their category of registration) must be listed separately. o Any affiliations with groups or real estate boards or associations (for example, professional designations) do not appear as a substitute for the REBBA category of registration. o Corporate titles used are confirmed (if applicable), and brokers and salespersons using these titles are officially officers of the corporation and registered as such with RECO. • All advertising clearly and prominently displays the brokerage name, and the term “brokerage” or “real estate brokerage” accompanies the brokerage name. Brokers and salespersons sometimes use font styles and sizes to deliberately highlight their name, while minimizing the brokerage name. This does not comply with the intent or literal meaning of relevant requirements of REBBA. All text must be clearly legible to the intended audience. What is “clear and prominent” will depend on what is appropriate to the medium used. • The phrase Independently Owned and Operated is included if applicable (that is, franchisees and licensees only). • A broker’s or salesperson’s advertising, when describing a number of brokers and salespersons working together, uses the term “team”, “group”, “crew” (for example, “The Jake Thompson Crew”), or any other term

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that does not imply that they are a separate business entity from the brokerage. For example, “The Jake Thompson Company” would be inappropriate. If the advertising for such a group includes a statement about business volumes, trading activity, comparative claims, or awards, then the size of the group should be indicated, or all the members of that group should be identified using their names and registration category exactly as registered with RECO (for example, “The Jake Thompson Team—Jake Thompson: Salesperson; Anna Thompson: Broker; Heather Andrews: Salesperson”).

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Lesson 2 | Page 5 of 10

Claims, promises, and other offerings are often included by salespersons and brokers to increase the effectiveness of their advertising. In addition to providing compliance training for all brokers and salespersons, as a broker of record, you should outline requirements for including such claims and offers in your advertising checklists to ensure the advertisement is compliant with REBBA requirements. Having a detailed checklist clearly stating all requirements will encourage brokers and salespersons to be conscientious when including such claims and offers in their advertisements.

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Lesson 2 | Page 6 of 10

Compliance When Making Claims A brokerage should provide a checklist to the brokerage staff involved in advertising to ensure that any claims made in advertisements are true. The checklist could include the following: • The wording of the claim in the advertisement must not be ambiguous, inaccurate, or incomplete.

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• Disclosures must be on the same page as the claim. In the case of a website, a unique identifier can be used to link the claim on one page to the disclosure on another. • The comparative claim being made must include the provider or source (for example, the brokerage, real estate board, private research, or otherwise), the basis of the claim (for example, sales volume or commission earned), and the date or time period (as applicable). • If the claim involves business volume and trading activity, the wording must be specific regarding how the claim was determined and broker or salesperson identification about whom the claim is being made. If a team is involved, the size of the team should be noted, or the identities of the members of the team must be provided. • If a remuneration claim is being made, the wording must include a disclosure of any circumstances in which the commission is not charged (unless this commission is charged for all transactions). • If a remuneration claim involves savings or comparisons, the wording must include sufficient information to permit an informed comparison by the consumer. • If an honour or an award is involved, the wording must include the source, the basis for the honour or award, and the date of that award. Purchased honours or awards cannot be advertised. • Permission from other brokers and salespersons must be first obtained when advertising a shared honour or award.

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Lesson 2 | Page 7 of 10

Checklist to Ensure Compliance when Making Promises and Special Offerings Offerings are representations made by brokers and salespersons intended to create a competitive advantage, thereby encouraging the recipient of the offering to work with them and/or the brokerage. A broker of record must ensure that any promise or special offering made by a broker or salesperson regarding the purchase, lease, or exchange of real estate is consistent with the following: • The promise or special offerings must be in writing, signed by both the seller and the broker or salesperson, and kept on file by the brokerage, should a subsequent dispute arise. • The advertised promise must be complete in its terms and presented on the same page (or linked, if applicable, in the case of a website). • The terms of an advertised promise must be readily available to consumers without an obligation by the consumer to provide confidential or personal information.

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• If a rebate or incentive is offered, this rebate must only be offered to parties involved in the subject transaction. • The advertised promise or offer must be clear as to who is making the promise or offer. If a broker or salesperson is obligating the brokerage, this must be supported by the brokerage’s written authority. All representation agreements and trades are with the brokerage and not the broker or the salesperson. • If a special offering includes terms and conditions, the advertisement must clearly indicate the same. All terms or conditions should ideally be stated in the advertisement. If there is insufficient space, the consumer must be clearly directed to call an appropriate telephone number or access a particular website to obtain the remaining information. These terms and conditions should also be available in hard copy at the brokerage office. • If a person is accessing a free offering, they must not be required to provide confidential information.

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Lesson 2 | Page 8 of 10

Checklist to Include Appropriate Disclaimers and Disclosures When incorporating any disclaimers and disclosures that can impact the decision of a consumer, a broker of record must ensure that advertisements created by a broker, salesperson, or brokerage include: • Easily readable and clearly worded disclaimers in the advertisement • Disclaimers on the same screen as the promotional material to which they relate • Disclosures on the billboard, bench advertisement, or road sign, along with the full brokerage identification and contact information in fonts easily readable by a motorist travelling at the posted speed limit viewing the billboard, advertisement, or road sign • Disclosures in a broadcast or electronic advertising message (either oral or visual) that are presented for a sufficient length of time to be noticed and understood

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Lesson 2 | Page 9 of 10

A broker of record wants to prepare an advertising checklist for the brokers and salespersons in their brokerage. They want brokers and salespersons to refer to this document when preparing different promotional and marketing materials to minimize common errors. Which of the following options should be included in the checklist? There are four options. There are multiple correct answers.

1

If the claim made in the advertisement relates to business volume and trading activity, add specific wording regarding how the claim was determined, and include sufficient details about information used to make the claim.

2

Include brokerage identification only on the first screen of a broker’s or salesperson’s website.

3

Do not use professional designations (such as “Senior Real Estate Specialist”) as a substitute for the REBBA category of registration.

4

Make the terms of an advertised promise available to consumers after they submit their names and contact details.

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Lesson 2 | Page 10 of 10

Congratulations, you have completed the lesson! Completion of this lesson has enabled you to: • Identify REBBA-compliant advertising guidelines regarding broker and salesperson identification • Identify RECO guidelines related to claims, promises, or any other offerings in advertisements There are four sections on this page with a summary of the key topics that were discussed in this lesson.

Checklist for identification requirements

As a broker of record, you should prepare checklists to guide brokers and salespersons when they are advertising or promoting themselves, services, or properties. Minimum identification requirements are: • Broker’s or salesperson’s full name as registered with RECO • Broker or salesperson category of registration • Brokerage name • Brokerage category of registration A broker or salesperson must ensure that their name appears as registered with RECO, including the appropriate category of registration. All advertising must clearly and prominently display the brokerage name, and the term “brokerage” or “real estate brokerage” must accompany the brokerage name.

Checklist to ensure compliance of claims

As a broker of record, you should provide a checklist to the brokerage staff involved in preparing advertisements to ensure that any claims made in the advertisements are true. The wording of the claim in the advertisement must not be ambiguous, inaccurate, or incomplete.

Checklist to ensure

Brokers and salespersons often include promises and special offerings in listings and advertisements to attract consumers. As a broker of record, you should include

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compliance when making promises and special offerings

requirements regarding such promises and offerings in your advertising checklist to avoid disputes arising from misleading statements. All promises or special offerings made by a broker or salesperson regarding the purchase, lease, or exchange of real estate must be in writing, signed by the seller or buyer and the broker or salesperson, and kept on file by the brokerage. The advertised promise must be complete in its terms and must be readily available to consumers without an obligation by the consumer to provide confidential or personal information.

Checklist to include appropriate disclaimers and disclosures

An advertising checklist to include appropriate disclaimers and disclosures should guide brokers and salespersons to not include any offering without a proper disclaimer. All disclaimers or disclosures included in an advertisement must be easily readable and clearly worded.

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Lesson 3 | Page 1 of 18

Lesson 3: Advertising on Social Media Platforms

This lesson discusses REBBA and other legislation-related requirements regarding use of social media for advertising. It also describes the key considerations while integrating social media within the brokerage.

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Lesson 3 | Page 2 of 18

Brokerages today use social media to expand their client database and share important information, such as real estate market updates and new listings, with consumers. Social media marketing has become an integral part of nearly every brokerage’s business strategy. Taking into account the rapid growth and use of social media sites, brokerage policies and procedures should be developed to ensure that all social media advertising is compliant with legislative and brokerage requirements. In a previous course, you learned that obtaining and registering a unique and identifiable domain name is essential for brokerages to establish a presence on the internet. Even though most brokerages outsource the requirement of creating a brokerage website, it is the responsibility of the broker of record to ensure that all content used

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complies with legislative requirements. Usually, all brokerage-related advertising and content on social media platforms direct consumers to the brokerage website. Therefore, you should be actively involved in providing input and reviewing the content included on your brokerage’s website and other social media platforms. You can delegate the task of maintaining and updating content on all platforms and the brokerage website to the administrative staff. However, it is still your responsibility to ensure compliance with REBBA and other legislation. You will learn more about this later in this module. Upon completion of this lesson, you will be able to: • Identify the realities and risks accompanying the use of social media for brokerage-related activities • Identify regulatory guidelines when using social media platforms to ensure compliance with REBBA and other legislation • Identify the key considerations while integrating social media within the brokerage Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

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Lesson 3 | Page 3 of 18

Technological innovations keep fueling social media growth. The ever-growing use of smart phones and tablet computers has boosted the popularity of social media, providing consumers with greater accessibility and user functionality. As a broker of record, when using social media for brokerage activities, the challenges you will face will centre on two primary areas: risks and compliance issues accompanying the use of social media and successful integration of social media within the brokerage. You must ensure that all advertising (across any and all platforms that your brokerage may choose to use) complies with the legislative requirements.

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Lesson 3 | Page 4 of 18

Impact of Social Media on Brokerage Activities Social media is most commonly associated with Facebook (social networking with an increasing business presence), LinkedIn (business networking), Twitter (microblogging), YouTube (video presentations), and Instagram (photo and video sharing). But its expanding scope stretches to many other networking platforms, blogs, wikis, and discussion forums, as well. Many of these platforms are well suited to real estate brokerage activities, given that they have the potential to generate business. Many brokerages enthusiastically embrace social media because it: • Helps to establish a presence, increase market visibility, and expand business • Offers opportunities for building and expanding relationships with sellers and buyers • Allows easy, frequent interactions with consumers • Helps listing and selling activities by allowing advertisement of properties through many platforms, free of cost • Helps advertise their services and achievements to attract new recruits © 2021 Real Estate Council of Ontario

Given the speed at which information is transmitted on social media, brokers of record should view the medium not just as a distinct marketing platform but also as an extension of existing activities with certain inherent risks. Extra caution should be observed because no reasonable expectation of privacy exists when posting comments, and these postings, whether accurate or not, may never be fully deleted. Archived materials can theoretically exist forever and be constantly available for retrieval by sophisticated search engines.

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Lesson 3 | Page 5 of 18

REBBA Requirements: Use of Websites and Social Media As you learned earlier in this module, REBBA outlines the six primary regulatory obligations that brokerages, brokers, and salespersons must meet when creating advertisements. This applies to all advertisements regardless of the medium used, such as print, radio, television, electronic media, or publications on the internet (including websites and social media platforms). Recall, the six primary regulatory obligations are to: 1. 2. 3. 4. 5.

Prevent false, misleading, or deceptive statements in advertisements Prevent falsifying information and furnishing false information Ensure promises and inducements are documented Ensure appropriate identification of the brokerage, broker, and salesperson Obtain requisite consent to include the particulars about property, parties, and agreements in advertisements 6. Prevent inaccurate representations When representing themselves on their websites and all social media platforms, brokerages, brokers, and salespersons must meet all four key identification requirements, which you learned about earlier in this module. The brokerage website and social media pages do not deviate from current business practices. Instead, they act to enhance these practices. They offer alternative ways to communicate with consumers and the brokerage staff. A brokerage website is a valuable marketing channel that provides an opportunity for data collection and lead

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generation. Most brokerage profiles on various social media platforms link users back to the brokerage website. The brokerage website and social media profiles must follow the same REBBA advertising requirements and other statutory requirements concerning advertising that apply to traditional, print-based advertising and promotion. Just like in print, written consent of the owner is required for advertising a property on social media, whether for attracting buyers or for advertising the property as sold. Details about the agreement of purchase and sale must not be advertised on the brokerage website and/or social media without the written consent of both the seller and the buyer.

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Lesson 3 | Page 6 of 18

Considerations for Sharing Content on Social Media Social media is designed to allow people to read each other’s publications and posts. Brokerages, brokers, and salespersons can come across relevant posts that they may want to share with their network. However, a broker of record must ensure that the staff engaged in social media activities understand that there are strict rules against plagiarism and copyright infringement. The use of someone else’s content, images, or other intellectual property requires the consent of the source owner or an appropriate reference. Brokerages, brokers, and salespersons must not post or share content on social media platforms that: • Infringes or otherwise violates copyright, trademark, or other rights associated with such content (If such content is used, appropriate permissions must be obtained from content owners and retained as proof of compliance.) • Contains any private, confidential, or trade secret-related information, or proprietary information • Contains defamatory, harassing, discriminatory, or derogatory materials • Misrepresents or falsifies information in any way • Violates privacy requirements as set out in PIPEDA (You will learn more about PIPEDA later in this module.)

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Lesson 3 | Page 7 of 18

Ensuring Separation Between Personal Social Networking and Business Activities As a broker or record, you should be aware and exercise caution, as sometimes the line between personal social networking and business activities can get blurred for brokers and salespersons and REBBA advertising requirements may not be met. Therefore, a broker of record should encourage brokers and salespersons to set up business profile pages. All business media profiles and pages must include their registered name and category of

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registration, as well as their brokerage’s name and category of registration. They should also include their respective contact information. Sometimes, a broker or salesperson may make non-trade related posts using their business social media profiles, such as promoting a charitable event. They must still ensure that all REBBA requirements for advertising be included in the post to avoid any controversy and confusion. Furthermore, notification about any listing-related information via personal messages (across different platforms, such as WhatsApp, Facebook, iMessage, and so on) must also comply with all REBBA requirements. The broker of record will likely not have access to the personal social media accounts of the brokers and salespersons working for them at the brokerage and would not be able to moderate the posted content either. This means a broker or salesperson could unwittingly put their brokerage into a serious violation of REBBA. To ensure that appropriate separation between personal and professional social media accounts is maintained, the broker of record should consider the following leading practices: • Establish policies and procedures detailing the difference between the use of personal versus businessrelated social media sites • Include a term in the employment contract with brokers and salespersons to state that they should only use business pages for trade-related communication • Oversee that the compliance requirements for all brokerage, broker and salesperson websites and social media pages are being adhered to These leading practices are part of the due diligence by the broker of record. It can also be produced as a defence in the event of prosecution or a civil action.

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Lesson 3 | Page 8 of 18

Social Media Platforms Twitter, Facebook, YouTube, Instagram, and LinkedIn are some of the commonly used social media platforms in the real estate industry. Each platform serves a different purpose and helps the brokerage to cultivate client relationships, obtain leads, and market their business. Brokerages can use these platforms to establish an identity and engage with a purpose. Social media platforms are marketing tools and can be leveraged to drive traffic to the brokerage website. To this end, it is important for any broker of record to encourage a culture where the staff is cautious about the content they post and share across these platforms. Social media activities can positively establish but can also adversely impact a brokerage’s reputation. The following five sections contain information on different social media platforms.

Twitter Twitter allows users to share 280-character messages with subscribers to their account or “followers”. While it may be difficult to sell a property using 280 characters, brokerages can certainly generate leads, promote listings, and build credibility. Twitter users can use hashtags to create searchable links. Twitter is the easiest social media platform for a brokerage to establish a compliant profile. The Twitter “handle” or username does not have to meet the advertising guidelines. However, the profile name must display the brokerage’s, broker’s, or salesperson’s name as registered with RECO. To comply with the remaining requirements, brokerages must include their category of registration, that is the term “brokerage” or “real estate brokerage” in the bio section. Brokers and salespersons must

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include their registered name and category of registration, as well as their brokerage’s name and its category of registration, in the bio section of their profiles.

Facebook Facebook is an essential component of any comprehensive marketing campaign. Facebook’s basic profile details do not comply with the advertising guidelines for either a personal or business page. The broker of record must ensure that brokers and salespersons take the extra step to make their Facebook pages REBBA compliant. To comply, the broker or the salesperson must create a custom cover that displays the minimum identification requirements. Custom covers are easy to create. Brokers and salespersons may use the Facebook Help Center to assist with this process. Brokerages, brokers, and salespersons can leverage Facebook ads and groups to directly amplify their message to users who have shown specific interest in their services. Brokerages can also use Facebook groups for internal communication purposes.

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YouTube YouTube is a video sharing platform and is the secondmost popular search engine on the internet. It allows its users to easily upload, share, and view content without any restrictions. Brokerages can use YouTube to generate links and direct consumers from other platforms and brokerage websites to their videos and vice versa. They can also set up a separate channel for their brokerage and use the Analytics tab to gain insights about consumer behaviour. Apart from quantitative insights, brokerages can also gain qualitative insights through comments posted by users on the videos. By making appropriate use of search engine optimization (for getting organic or unpaid traffic from the search engine results page), brokerages can use their videos to gain maximum traction and demonstrate their expertise. Brokerages can also use the YouTube Ads feature to maximize visibility. To attract consumers, they can post videos of home tours, walk-throughs, neighbourhood guides, seller and buyer testimonials (with requisite consent), local events, and so on. Brokerages, brokers and salespersons must ensure that the channel’s cover page and description include the minimum identification requirements and that the content shared is compliant with REBBA requirements.

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Instagram Instagram is a photo and video sharing platform that allows brokerages to reach consumers. It is great for leveraging the selling power of quality images of properties and specific features of homes. Photos used on Instagram can be shared on the brokerage website and other social media platforms, like Facebook and Twitter, too. Brokerages can use the messaging feature to contact and maintain relationships with both their consumers and staff. They can also post sponsored content in the form of Instagram ads to reach out to a wider audience. Using relevant hashtags can help drive relevant traffic to the brokerage page. Brokerages, brokers and salespersons must use the Instagram username and bio to meet the minimum identification requirements and ensure that all content posted and shared meets REBBA requirements.

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LinkedIn Linkedln is a professional social media site for people to learn about a broker’s or salesperson’s business experience, and to see who they are connected with. Its most basic function is a digital resume that displays the broker’s or salesperson’s current position. Joining LinkedIn groups, building business pages, and networking with other LinkedIn users can significantly expand a brokerage’s presence. To ensure that the profiles are compliant with the advertising guidelines, brokerages, brokers and salespersons must ensure that their names are displayed as registered with RECO and that the professional headline states their category of registration, as well as their brokerage’s name and its category of registration. A page for the brokerage must include the brokerage name and its category of registration in the page headline and profile.

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Lesson 3 | Page 9 of 18

Legal Risks Associated with Using Social Media A broker of record should ensure that brokers and salespersons understand the risks associated with posting and disseminating information through social media. If brokers and salespersons are not aware of these risks, they can make errors that can cause legal issues, such as: • Copyright or other intellectual property infringement (including usernames that cause confusion with existing trademarks) • Defamation, harassment, or discrimination arising from comments • Misrepresentation (negligent or fraudulent) and tort liability (for example, providing inaccurate details about a property) • Privacy violations (for example, posting a video house tour on YouTube without the owner’s permission or including private details about property sales, individuals involved in such sales, or terms of applicable agreements)

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The broker of record can minimize these risks through continuous monitoring of social media activities of brokers and salespersons. They can further minimize risks associated with using social media by applying the following leading practices: • Implementing email management through the Internet Message Access Protocol (IMAP) and a centralized server to effectively implement and control social media through in-house brokerage systems • Establishing policies addressing the legal issues associated with posts that are in violation of REBBA advertising requirements • Setting out contractual terms regarding the use of social media in brokers’ and salespersons’ employment agreements

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Lesson 3 | Page 10 of 18

Monitoring Social Media Activities: Responsibilities of the Broker of Record When engaging with social media platforms, to ensure compliance with all regulatory and federal requirements, a broker of record should implement the following leading practices: •

Exercise control over what is being posted on their brokerage’s social media platforms and on the accounts of their brokers and salespersons, as well as how this information is being updated

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•

• •

Assign specific staff members to the task of posting quality information, responding to consumer posts (of which trade-related queries and comments must only be answered by brokers and salespersons), and updating website information on behalf of the brokerage Assign gatekeepers to ensure that all posts meet brokerage standards Provide training for brokers, salespersons, and administrative staff on what constitutes acceptable postings, along with the consequences of inappropriate messages placed on social media platforms

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Lesson 3 | Page 11 of 18

What if the following happened? Mark Carroll is a new salesperson at XYZ Realty Ltd. Mark and the broker of record are reviewing an advertisement prepared by Mark for his first listing on behalf of the brokerage, which will be signed in a couple of days. The advertisement will be posted on Mark’s Facebook and Instagram business pages after receiving the broker of record’s approval. Mark’s Facebook custom cover and Instagram bio include the following information: Mark Carroll: Salesperson 555-567-3214 Contact me to buy or sell residential properties in AnyCity, AnyRegion. The broker of record is impressed by the photographs in the post. Mark mentions that the photographs have been downloaded from another brokerage’s expired listing. What activities must be completed before Mark posts the advertisement? There are five options. There are multiple correct answers. Reference: Scenario_BREP_04_03_03_10.pdf 1

Obtain the seller’s consent to advertise their property on social media platforms.

2

Change “Salesperson” to “Sales Agent” in the Facebook custom cover and Instagram bio.

3

Remove the statements “Easily accessible by public transportation” and “2 storey on quiet cul-de-sac”.

4

Obtain written consent from the other brokerage for using their photographs in the advertisement.

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5

Include XYZ Realty Ltd. and the word “brokerage” in their Facebook custom cover and Instagram bio.

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Lesson 3 | Page 12 of 18

Advertising-related policies are gradually being developed by social media platforms to ensure consumer protection and promotion of ethical conduct across platforms. It is critical for brokerages to adhere to these policies in order to continue using these platforms. Furthermore, if your brokerage is a member of organized real estate, as a broker of record, you should ensure that the rules and regulations established by the real estate board or association are followed in your brokerage. If the brokerage is a franchise, you should also learn about the requirements outlined by the franchise related to advertising in the franchise agreement. When developing a brokerage policy, as well as establishing brokerage procedures and review mechanisms for effective use of social media, you should consider all the regulatory and platform-specific requirements. The policy, procedures, and review mechanisms should also include franchise-specific and real estate board or association requirements, if applicable.

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Lesson 3 | Page 13 of 18

Establishing Brokerage Policies and Procedures for Social Media Advertising A brokerage may decide to establish policies and procedures regarding social media platforms used by brokers and salespersons for brokerage promotion and advertising activities. It may also provide internal social media sites to its brokers and salespersons. REBBA requirements will be applicable under all circumstances – whether the brokerage provides the platform and/or the brokers and salespersons set up their own social media presence. Some key considerations when developing brokerage policies and procedures for advertising on social media are: • Brokerage approval: Brokerage approval is required for any social media site established by a broker or salesperson for trade-related activities. Such approval can only be given if the site fully complies with all REBBA regulatory requirements, brokerage policies, and other statutory requirements applicable to real estate brokerage operations. • Terms of use: Terms of use for a social media site established by a broker or salesperson are subject to approval by the brokerage. • Maintenance: A broker or salesperson, when establishing a social media site, are required to diligently and consistently monitor the site, ensure that all content is current and accurate, respond appropriately to inquiries, remove inappropriate and prohibited postings, and generally oversee the content on the site in a professional manner consistent with brokerage policies and regulatory requirements. A broker of record could include this requirement in the employment contract. They could also include the requirement in the brokerage policy and obtain a written acknowledgement by brokers and salespersons. It is the broker of record’s responsibility to ensure that brokers and salespersons meet regulatory requirements. • Incorrect postings: The broker or the salesperson is required to immediately correct errors made by persons posting comments or other information on their site. • Brokerage access: The brokerage is permitted to have access at all times to the site, and the broker or the salesperson is required to immediately make any changes to fully comply with brokerage policies. • Brokerage trademarks, and so on: The broker or salesperson is not permitted to use any brokerage trademarks, logos, or other identifying marks without the express written consent of the brokerage.

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Lesson 3 | Page 14 of 18

As new technology becomes increasingly affordable, brokers and salespersons can readily acquire the latest equipment to advance their careers. Brokerages should similarly upgrade their capabilities to remain competitive, attract new recruits, and extend their marketing reach. Fortunately for many small brokerages, social media tends to level the playing field, as it provides an efficient and affordable method to get messages out, regardless of brokerage size. However, there are inevitable costs to any social media strategy, and the process can be time consuming with little immediate return.

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Lesson 3 | Page 15 of 18

Integrating Social Media Within the Brokerage A broker of record should prepare a properly structured capital budget to provide sufficient funds for research, purchase of the most suitable hardware and software, staff training, and review of advertisements created by brokers and salespersons. The broker of record should invest in: • Acquiring technology for monitoring and streamlining social media usage • Training brokers, salespersons, and administrative staff to ensure maximum efficiency Developing a well-designed system for social media integration can generate more payback through administrative efficiencies, increased internal control mechanisms, and enhanced brokerage communication. Training can directly impact return on investment and help ensure that all brokers, salespersons, and administrative staff understand and adeptly use system capabilities.

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Lesson 3 | Page 16 of 18

Intranet and Extranet Technologies Traditionally, information was held and often guarded by the brokerage. Now it is scattered through various forms of media, including social media, which may sometimes be beyond the control of the brokerage. Intranet and extranet networks provide an ideal platform to not only enhance internal communication and efficiencies but also to improve broker of record control over operations. These systems are only limited by software features or flexibility, the creativity of management and staff, and internal programming capabilities. Intranet Networks An intranet network is a local area network that uses internet technology secured behind a brokerage’s firewall. Intranet networks are commonly used by management and brokerage staff to share financial data, review internal files, and process trade-related documents. Larger brokerages expand the use of intranet networks in terms of internal video conferencing, audio file sharing, performance tracking, and so on. In fact, dashboard information for the broker of record and management team is typically sourced via a brokerage intranet network. Extranet Networks An extranet network extends the network beyond the firewall, allowing external users password-protected access to selected information. Extranet networks improve communication between the brokers and salespersons and the brokerage and its administrative staff. It can also be used to improve communication with sellers or buyers, to help centralize information, and to improve administrative control. Brokerage extranet networks can merge messaging, email services, and other social media networking platforms with existing online brokerage services. Brokers and salespersons, from a single access point, can review recent posts, update blogs, develop advertisements, check individual transaction details (including inspections and status of conditions), arrange or confirm showings, review brokerage calendar events and important notices, access real estate board or association services and exclusive property details, and browse brokerage resources. Internal Brokerage Communication

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Extranet networks have proven effective in expanding value-added services for both in-brokerage and home office brokers and salespersons, through shared and collaborative efforts. Online resources, such as web-based applications to design marketing materials, manage contacts, and prepare communications (like blog posts, mailout flyers, and so on), can be readily created using PDFs, PowerPoint presentations, and digital video. This includes various internal documents that can be posted so that they are readily available to brokers and salespersons.

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Lesson 3 | Page 17 of 18

A broker of record wants to integrate social media within the brokerage for advertising and promotion. They want to ensure all advertising activities of the brokerage, brokers, and salespersons meet all compliance requirements. What should the broker of record do to ensure the social media activities of their brokerage, brokers, and salespersons are compliant with REBBA? There are four options. There are multiple correct answers.

1

Require brokers and salespersons to obtain brokerage approval when establishing a business page on any social media platform

2

Require brokers and salespersons to provide the brokerage access to their business social media sites

3

Require brokers and salespersons to use the brokerage logo on all their social media sites to drive visibility for the brokerage

4

Require brokers or salespersons to include their membership status with the real estate board or association

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Lesson 3 | Page 18 of 18

Congratulations, you have completed the lesson! Completion of this lesson has enabled you to: • Identify the realities and risks accompanying the use of social media for brokerage-related activities • Identify regulatory guidelines when using social media platforms to ensure compliance with REBBA and other legislation • Identify the key considerations while integrating social media within the brokerage There are three sections on this page with a summary of the key topics that were discussed in this lesson.

Use of social media for brokerage-related activities

Social media has become a part of everyday life, which makes it an effective marketing tool for brokerages. As a broker of record, you should view social media not as a distinct marketing strategy but as an extension of your existing activities. Due to the rapid growth and use of social media sites, you should develop brokerage policies to ensure that all social media advertising is compliant with legislative and brokerage requirements. As a broker of record, you are responsible for ensuring that all advertisements, including social media, are compliant with regulatory requirements. You should ensure that brokers and salespersons understand risks associated with posting and disseminating information through social media. Some common legal issues that can arise from the use of social media are related to: • • • •

Copyright or other intellectual property infringement Defamation, harassment, or discrimination arising from comments Misrepresentation and tort liability Privacy violations

Brokerage, brokers, and salespersons must meet all six primary regulatory obligations Regulatory defined in REBBA on all social media platforms. These obligations are to: guidelines when 1. Prevent false, misleading, or deceptive statements in advertisements using social media 2. Prevent falsifying information and furnishing false information platforms to © 2021 Real Estate Council of Ontario

ensure compliance with REBBA and other legislation

3. Ensure promises and inducements are documented 4. Ensure appropriate identification of the brokerage, broker, and salesperson 5. Obtain requisite consent to include the particulars about property, parties, and agreements in advertisements 6. Prevent inaccurate representations To ensure that appropriate separation between personal and professional social media accounts is maintained, you should establish appropriate policies and ensure they are followed in the brokerage. Brokers and salespersons must also meet the minimum identification requirements on all social media platforms used for advertising-related activities for the brokerage. Brokerage policy should also include guidelines for brokers and salespersons to obtain consent from sellers and buyers when advertising properties on social media. Brokers and salespersons must avoid including content on social networking platforms that: 1. Infringes or otherwise violates copyright, trademark, or other rights associated with such content 2. Contains any private, confidential, trade secret-related, or proprietary information 3. Contains defamatory, harassing, discriminatory, or derogatory materials 4. Misrepresents or falsifies information in any way 5. Violates privacy requirements as set out in PIPEDA

Key considerations while integrating social media within the brokerage

As a broker of record, you should consider all the regulatory and platform-specific requirements when developing a brokerage policy, and when establishing brokerage procedures and review mechanisms for effective use of social media. The policy, procedures, and review mechanisms should also include franchise-specific and real estate board or association requirements, if applicable. Intranet is the internal network of devices within a brokerage that uses the brokerage’s network firewall as a safety measure against intruders. Intranet network features rely on internet technology for their functioning. Extranet network, on the other hand, makes use of external networks to allow brokerage employees to access the data from any location.

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As the broker of record, while integrating social media within your brokerage, you should invest not only in acquiring technology but also in training staff to ensure compliance and increase efficiency.

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Lesson 4 | Page 1 of 23

Lesson 4: Federal Statutes for Business Promotion

This lesson discusses policies and procedures required to ensure compliance with the Competition Act, the Do Not Call List (DNCL) Rules, the Personal Information Protection and Electronic Documents Act (PIPEDA), and Canada’s AntiSpam Legislation (CASL) in a brokerage.

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Lesson 4 | Page 2 of 23

Brokerages today use different online and offline marketing methods to connect with sellers and buyers and to gain a competitive advantage in the marketplace. Printing marketing materials, posting on social media platforms, cold calling, and email marketing are some of the most popular marketing techniques used by brokerages in the real estate industry. This lesson will discuss legislations, such as the Competition Act, the National Do Not Call List (DNCL), the Personal Information Protection and Electronic Documents Act (PIPEDA), and Canada’s Anti-Spam Legislation (CASL), that outline advertising requirements and procedures. As a broker of record, you may develop internal advertising checklists to provide guidance to brokers, salespersons, and administrative staff about advertising in the marketplace based on these legislations. Upon completion of this lesson, you will be able to: • Identify provisions under the Competition Act related to false or misleading representations • Describe National DNCL policies and procedures

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• Identify the considerations for using telemarketing activities in a brokerage • Describe compliant telemarketing procedures in a brokerage • Identify leading practices related to advertising that ensure compliance with PIPEDA and local or municipal requirements • Describe brokerage procedures for compliance with Canada’s Anti-Spam Legislation (CASL) Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

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Lesson 4 | Page 3 of 23

In a previous module, you learned that the Competition Act is a federal statute that aims to promote fair competition and efficiency in the Canadian marketplace and protect consumers against anti-competitive activities. As a broker of record, you need to understand how this legislation applies to the real estate industry, which will include the brokerage advertising and business promotion activities. To ensure that your brokerage complies with the Competition Act, you should develop brokerage policies and procedures, create checklists, and provide training to the brokerage staff.

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Lesson 4 | Page 4 of 23

The Competition Act The Competition Act is a federal law that contains guidelines for preventing anti-competitive practices in the marketplace. It prohibits false or misleading representations in the promotion of a service, or the supply or use of a product. It is administered and enforced by the Competition Bureau headed by the Commissioner of Competition. Certain unique factors about this legislation that warrant emphasis are: • The Competition Bureau does not have to prove that a person was deceived or misled in order to prove a contravention of the Competition Act. • Both the general impression conveyed by a representation and its literal meaning are considered in assessing whether a representation is false or misleading in a material way. This implies that care must be taken to ensure an advertisement is not only literally correct but that it also conveys the correct impression.

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Lesson 4 | Page 5 of 23

Leading Practices to Ensure Compliance with the Competition Act in Advertising As a broker of record, you and the brokerage staff can adopt the following leading practices when reviewing an advertisement to ensure compliance with the Competition Act: • Check to ensure that advertisement wording is clear and unambiguous and that the general impression aligns with the literal meaning • Be cautious with disclaimers; do not allow fine print disclaimers; make certain that any disclaimer is clearly visible and readable; also, ensure that the advertisement and any associated disclaimers are consistent (in other words, that a conflict does not exist between the two); lastly, fully describe any additional costs or important restrictions regarding the offering

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• Confirm that all information necessary is included so that the buyer can make an informed decision • Avoid phrases and wordings that are not meaningful and could cause confusion • When conducting a contest for your brokerage's business promotion, make sure to disclose all relevant details to participants; avoid any type of advertisement that gives a general impression that something has been won, but the recipient must pay or somehow incur a cost to receive the prize; If prizes are given, provide them to the winners in a timely fashion; brokers of record should seek expert advice before establishing any type of contest; REBBA, as well as the Criminal Code, could also apply to contests • Make certain that the product to be advertised is available; for example, if a real estate advertisement reads as “Homes Starting at $279,900” then there must be availability at that price • Performance claims of any type must be fully substantiated • Avoid abbreviations that could cause confusion • Be careful with the word “free”; free is taken at its literal meaning, meaning at no cost or obligation A broker of record should access the Competition Act directly for specifics. Some overlap exists with previously discussed REBBA advertising requirements. Both acts focus on several common themes, most notably false or misleading advertising as well as ensuring “truth in advertising” and consumer protection.

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Lesson 4 | Page 6 of 23

Brokerages use telemarketing and various electronic channels to connect with new prospects and existing clients. As a broker of record, you must ensure your brokers and salespersons who engage in telemarketing or cold calling do so in compliance with the National DNCL Rules established under the Telecommunications Act.

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Lesson 4 | Page 7 of 23

National Do Not Call List (DNCL) Telemarketing is defined as the use of telecommunications facilities to make unsolicited telecommunications for the purpose of solicitation. Essentially, anyone who makes a call for business purposes or sends a fax to someone who did not ask to be contacted would be considered a telemarketer conducting telemarketing activities (subject to limitations and exceptions set out in the legislation).

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The decision of whether the brokerage will be involved in telemarketing only impacts making unsolicited telecommunications for the purpose of solicitation, such as placing cold calls and sending unsolicited faxes as described in the National DNCL Rules. It does not affect other methods of contacts with consumers (for example, personally canvassing neighborhoods, sending emails, and arranging bulk or other mailings). Real estate brokerages that use cold calling are required under federal law to subscribe to the DNCL. The National DNCL permits registration of land lines, cellular phones, Voice over Internet Protocol (VoIP) telephone numbers, and fax machines. Bell Canada operates the service and provides lists to telemarketers by way of subscription or query services. If a consumer puts their name and telephone number on the National DNCL, a broker or salesperson cannot contact that individual by telephone to solicit business. Certain qualifications and exceptions apply. For example, a broker or salesperson may call a consumer who has an existing relationship with the brokerage. They may also contact a consumer if they have specifically asked to be contacted by telephone, even when registered on the National DNCL.

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Lesson 4 | Page 8 of 23

Exemptions from the Do Not Call List (DNCL) Brokerages that use cold calling and participate in telemarketing activities are required under federal law to subscribe to the DNCL. The Telecommunications Act, which establishes the National DNCL, allows for some exemptions to the National DNCL Rules. The National DNCL and associated telemarketing requirements do not apply to numbers that are used for commercial purposes. This means that if a broker or salesperson was to make a solicitation phone call to a business, they would not have to confirm that the telephone number was not on the DNCL before calling. There are additional exemptions to the DNCL Rules. For this reason, a broker of record should check the National DNCL Rules for more specifics. You will learn more about how a brokerage can implement and be compliant with the DNCL Rules later in this module. The following three sections contain information on exemptions from the DNCL.

When a consumer purchases services If a consumer purchases services from a brokerage, the legislation provides for an 18-month opportunity to contact that person, even though their telephone number is registered on the National DNCL.

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When a consumer makes an inquiry Consumer inquiries are exempted from the National DNCL Rules. An inquiry could involve a consumer contacting the brokerage to determine the price of a listed property, an individual calling to learn about brokerage services, or an open house guest giving permission to be contacted when viewing the property. Once an inquiry has been made, there is a six-month exemption permitting contact with the applicable consumer.

When a consumer signs an agreement An exemption also applies when a consumer signs a seller representation agreement, buyer representation agreement, or a customer service agreement. This entitles the broker or the salesperson to contact the consumer for up to a period of 18 months after expiry of the agreement.

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Lesson 4 | Page 9 of 23

As a broker of record, it is important for you to decide whether your brokers and salespersons will be involved in telemarketing activities. When making this decision, you should examine the considerations for the use of telemarketing against your brokerage goals and advertising needs. If you decide that your brokerage will not participate in telemarketing activities, it should be clearly stated in the office policy manual. Furthermore, you need to ensure that all brokers and salespersons understand that they cannot, under any circumstances, make unsolicited calls that would fall under the definition of telemarketing. You may also include this as a term in the employment agreement with brokers and salespersons. However, if you decide that your brokerage will engage in telemarketing, you will be required to develop a formal procedure for completing these activities. This procedure should be developed based on the National DNCL guidelines to ensure compliance and avoid legal penalties.

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Lesson 4 | Page 10 of 23

Brokerage Prerequisites for Telemarketing Activities If the broker of record determines that telemarketing will be a part of the overall brokerage marketing strategy, due diligence is essential for soliciting business and ensuring compliance with the Telecommunications Act. The following five sections contain information on the prerequisites for telemarketing activities in your brokerage.

Office policy considerations The broker of record should fulfill the following responsibilities when developing telemarketing procedures: • Establish appropriate responsibilities for brokers, salespersons, and administrative staff • Develop training for all employees • Create procedural policies • Put in place mechanisms for ongoing telemarketing list maintenance Key questions that a new brokerage should address when developing telemarketing procedures are: • Which brokers or salespersons in the brokerage will be actively involved in telemarketing? • What contact lists will be used and what area codes are involved? • How will the brokerage coordinate the updating process in line with National DNCL Rules? • If branches are involved, what processes should be put in place for inter-branch list updating? • Which administrative employee(s) will handle the daily compliance requirements?

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• What centralized system (preferably a software program) is needed to co-ordinate various lists within the brokerage? • What do the brokers and salespersons currently know about the National DNCL and what training needs to be provided?

Office policies and procedures Office policy manual should include the duties of the individual coordinating the program, including: • Responsibilities for the registration process • Arranging necessary National DNCL subscription or query services • Updating brokerage lists at least once every 31 days The brokerage policy should require that all telemarketing calls be recorded and that the National DNCL and the internal DNCL are checked before any calls are made. The policy should include the retention period for the call recordings. Brokers of record who are members of real estate boards or associations may be able to research policy wording provided through their real estate board or association. Others should rely on expert advice. Scrubbing companies may provide compliance guidance in addition to other services. Essentially, electronic scrubbing involves electronically submitting a list of numbers for comparison with the National DNCL and getting back a current list of numbers that can be called.

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Registration and subscription to the National DNCL The brokerage is required to register with the National DNCL Operator, subscribe to the National DNCL, and pay for subscription-related services before telemarketing calls can be made. The registration process begins with an identification validation through Dunn & Bradstreet. The brokerage can then register online with the National DNCL Operator and subscribe to the National DNCL. Upon registration, the brokerage is given a registration access number (including a download key to permit the sharing of the National DNCL with a third party, such as a scrubbing service). Subscription services cannot be otherwise shared. However, multi-branch business operations (including brokerages), owned by the same person or entity, can share one subscription. Otherwise, every telemarketer (like, the brokerage) must individually subscribe to the service. Upon registering and subscribing, the National DNCL can then be downloaded or otherwise accessed based on the specific service purchased. For example, subscription services are available by individual area code(s) or all Canadian codes. Subscription services can be purchased for up to a one-year period. Query services for specific numbers (to a maximum of 100 per query) are also available and can include multiple area codes.

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Development of an internal brokerage DNCL A brokerage that participates in telemarketing is required to register with the National DNCL and also maintain an internal brokerage list (internal DNCL). Persons who are contacted and do not want to receive calls or faxes from the brokerage are to be placed on this list. Brokers and salespersons should have request forms (paper or electronic) available to be completed and then forwarded to a coordinator (administrative staff member) for inclusion on the internal DNCL list. The internal DNCL should contain the date and time of the request, the person’s name and contact information, and the applicable 10-digit telephone number(s). Numbers recorded on the internal DNCL must be kept for a minimum of three years. The individual (administrative staff member) coordinating DNCL procedures for the brokerage is best suited to oversee ongoing maintenance of this list.

Brokerage list and ongoing compliance The brokerage must ensure that both the National DNCL and the internal DNCL are continuously maintained and updated. Calling lists must be scrubbed at least every 31 days. The brokerage must keep DNCL-related records for at least three years. These would typically include, as a minimum: • Registration information • Proof of subscription services purchased

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• Do not call request forms • Internal DNCL lists • Any call recordings • Brokerage contact lists

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Lesson 4 | Page 11 of 23

A brokerage subscribes to the National DNCL and uploads the list on their intranet network to be used by all its brokers and salespersons before making calls for solicitation. The broker of record wants to ensure compliance with the National DNCL Rules and to encourage effective use of the list. What should the broker of record include in their office policy to ensure compliance and effective use of the list by their brokers and salespersons? There are four options. There are multiple correct answers.

1

The administrative staff person who has been delegated the duty to update the DNCL onto the brokerage server must scrub the list annually.

2

Brokers and salespersons are required to refer to the National DNCL before making solicitation calls to prospective consumers.

3

Brokers and salespersons are required to fill out a request form for placing people on the internal DNCL of the brokerage.

4

Brokers and salespersons are required to refer to the National DNCL before making solicitation calls to past clients and consumers with whom they have not worked with beyond the excluded period of time.

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Lesson 4 | Page 12 of 23

Brokerages advertise properties they have sold to promote their services. They also use municipal signage to advertise properties listed for sale. As a broker of record, you will need to ensure all brokers and salespersons understand the requirements under PIPEDA for the collection, storage, and distribution of personal information when advertising a property or promoting a sale. You will also be required to ensure your brokerage complies with guidelines for the use of municipal signage.

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Lesson 4 | Page 13 of 23

Personal Information Protection and Electronic Documents Act (PIPEDA) Privacy legislation is focal to brokerage operations given that personal information is routinely collected during the listing and selling process. For advertising purposes, the broker of record must ensure that: • Appropriate consents are obtained for the collection, use, and disclosure of personal information. For example, seller and buyer representation agreements must contain appropriate wording for the distribution of such information when providing brokerage services. • Expired listing information is not used to market a brokerage’s services to a seller unless that seller has consented to such use. In most cases, the consent or non-consent is obtained in the seller representation agreement. The seller’s consent to be contacted for solicitation does not override their instructions not to be contacted for telemarketing pursuant to the National DNCL. However, a broker or salesperson can contact the seller via direct mail or in person.

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Lesson 4 | Page 14 of 23

Use of Photographs and Video Recordings Certain activities, like taking photographs of houses for use in marketing materials or recording potential buyers at an open house, could raise privacy concerns. Brokers of record should ensure their brokers and salespersons understand that photographs and video recordings of a house, including 360-degree floor plans, could reveal personal information about the residents; therefore, consent must be obtained before it is used. While taking a photograph or a video recording may not in itself appear to be a violation of PIPEDA, what is captured in the photograph or recording could raise concerns. At a minimum, if a broker or salesperson takes a photograph or video of a property, they should ensure the following: • The image is a “public access only” view, meaning that it is no different than what is visible to individuals driving or walking down the street. • It does not contain images of people. • It does not contain images of pets, address numbers, or unique elements that would permit, directly or indirectly, the identification of the owner.

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The broker of record should ensure that their brokers and salespersons understand that secretly recording potential buyers at an open house without their consent would constitute as an unauthorized collection of personal information, raising the risk of a privacy complaint. Furthermore, if the recording captures a private communication (for example, between a buyer and their salesperson), it could constitute a criminal offence under the Criminal Code (interception of communications). If a broker or salesperson wishes to make a recording (regardless of whether it is an audio or video recording), they must obtain the individual’s consent. The most effective way to do this is to get their consent in writing. An alternative, albeit riskier, option is to post a prominent notice on the property, warning potential buyers prior to their entry to the premises that they are being recorded. Buyers who choose to enter the property after reading the notice implicitly provide their consent to be recorded.

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Lesson 4 | Page 15 of 23

Brokerage Signage “For sale” and “sold” signs can help a brokerage gain visibility in the marketplace. In addition to REBBA requirements, a broker of record should develop policies and procedures to ensure compliance with local or municipal requirements governing signage usage. A broker of record must ensure that the brokerage, brokers, and salespersons comply with municipal requirements regarding real estate signage. The following four sections contain information on municipal bylaws and related regulations imposing restrictions on real estate signage.

Municipal bylaws Municipal sign bylaws typically control the number, size, and placement of real estate “for sale” signs. Real estate sign requirements, often classified as temporary signs for regulatory purposes, can include directional arrows, open house signs, and model home site signage. Temporary sign restrictions usually extend to placement prohibitions on medians and islands and in locations within a specified distance of the travelled road. A broker of record should contact the local municipality, as requirements vary throughout the province.

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Ministry of Transportation Brokerages erecting real estate “for sale” signs near provincial highways should contact the Ministry of Transportation. The ministry has authority over all signage within highway corridors, including temporary and portable signs. “For sale” signs that are smaller than 3.7 square metres do not require a permit and the associated fee. Any such signs are to be located within the property boundaries and not be placed on the highway right-of-way. It is the responsibility of the broker of record to check for the current requirements.

Land lease communities and mobile home parks Residential Tenancies Act (RTA) requirements impact brokerages placing signage in land lease communities and mobile home parks. A residential tenant selling a land lease home or mobile home may only place a “for sale” sign in the window of the home, unless prohibited by the landlord. The landlord can only enforce this prohibition if the restriction applies to all tenants and a bulletin board is available in a prominent place within the park for the free placement of “for sale” advertisements.

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Plans of subdivisions and condominiums Municipalities typically regulate new subdivision and condominium signage, including removal requirements, when a predetermined sale or occupancy level is achieved. A condominium declaration, bylaw, and/or rule may also restrict size and placement of real estate “for sale” signs in the case of resale properties.

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Lesson 4 | Page 16 of 23

ABC Real Estate Inc. has its main office in Anycity, Ontario and a branch office in SouthCity, Ontario. The broker of record is establishing a brokerage policy for the use of signs. They have contacted the local municipality in AnyCity and the Ontario Ministry of Transportation. They referred to the Residential Tenancies Act (RTA) for gathering information about signage regulatory requirements. Note: Brokers and salespersons are permitted to trade anywhere in Ontario. Based on the information gathered (see Reference), what should the broker of record include in their brokerage policy for the use of real estate signage? There are four options. There are multiple correct answers. Reference: Signage Requirements

1

“Open house” directional signs placed on the travelled roads, boulevards, medians, and islands must be removed by brokers and salespersons within a day of their scheduled open house.

2

Only one temporary on-premises sign, 3 feet by 2.5 feet in dimension, may be placed by brokers and salespersons on all properties for sale, lease, or rent.

3

All “for sale” signs on highways that are larger than 3.7 square metres require brokers and salespersons to obtain a permit from the Ontario Ministry of Transportation, before placing it.

4

Approval of the landlord must be obtained before putting up a “for sale” sign in the window of a land lease home or mobile home located in a land lease community or a mobile home park.

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Lesson 4 | Page 17 of 23

Brokerages today readily use digital technology to expand their consumer database. As a broker of record, you are responsible for ensuring compliance within the brokerage. You should develop an office policy to avoid misuse of digital technology and ensure compliance with legislation dealing with spam and other electronic threats, namely CASL.

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Lesson 4 | Page 18 of 23

Canada’s Anti-Spam Legislation (CASL) CASL promotes the efficiency and adaptability of the Canadian economy by regulating commercial conduct. CASL discourages the use of electronic means to carry out commercial activities when that conduct: • Impairs the availability, reliability, efficiency, and optimal use of electronic means to carry out commercial activities • Imposes additional costs on businesses and consumers

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• Compromises the privacy and the security of confidential information • Undermines the confidence of Canadians in the use of electronic means of communication to carry out their commercial activities in Canada and abroad This legislation affects other legislative requirements, such as PIPEDA, the Canadian Radio-television and Telecommunications Commission Act, the Competition Act, and the Telecommunications Act. It governs the use of email accounts, telephone accounts, instant message accounts, and any other similar electronic address forms. Messages sent to users on a social media platform, such as Facebook or LinkedIn, would also qualify as sending messages to electronic addresses and are thus regulated by CASL. CASL does not apply to: • • • • • •

Twitter posts Facebook wall posts Websites Blogs Two-way voice communication between individuals Faxes and voice recordings sent to a telephone account (However, brokers and salespersons should be mindful of the requirements of the National DNCL.)

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Lesson 4 | Page 19 of 23

Assessing Core Competencies and Competitive Advantages CASL prohibits the sending of commercial electronic messages (CEM) unless the person to whom the message is sent has consented (either express consent or implied consent) to receive it. Before sending a CEM to an electronic address, the sender must: • Obtain consent from the recipient • Identify themselves • Provide a means for the recipient to withdraw consent

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Lesson 4 | Page 20 of 23

Considerations for Obtaining Consent A brokerage, broker, or salesperson must obtain implied or written consent before sending a CEM. If challenged, the responsibility is on the sender (brokerage, broker, or salesperson) to prove they have obtained consent to send the message. A broker of record should create policies and procedures to retain all the written consent to comply with legislative requirements. The following information must be mentioned when requesting express consent: • The specific purpose (such as providing information on a listing, promoting the services of the brokerage, and so on) must be clearly identified. • The name of the person requesting consent must be mentioned. If a person is requesting consent on behalf of another person, both persons have to be identified. • The contact information of the person(s) requesting consent, including their physical address and either a telephone number, email address, or website, must be mentioned.

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In the case of a referral, consent from the recipient of the CEM is not required provided that: • The referral has been made by an individual who has an existing business relationship, an existing nonbusiness relationship, a family relationship, or a personal relationship with both the sender and the recipient. • The full name of the person making the referral and a statement that the CEM is being sent as a result of the referral is included in the CEM. • The CEM contains the sender’s identification information and an unsubscribe mechanism. Consent can be implied in situations where: • There has been an existing business or non-business relationship in the last two years. • The recipient of a CEM has conspicuously published their electronic address (for example, on a website) or has disclosed their electronic address (for example, through distribution of a business card). However, where the recipient of the CEM has conspicuously published or disclosed their electronic address, a CEM can only be sent if: • The contents of the message relate to the recipient’s role, functions, or duties in an official or business capacity. • The recipient, when providing a business card or publishing their electronic address on a website, did not state that they did not wish to receive CEMs at that address.

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Lesson 4 | Page 21 of 23

Considerations for Obtaining Consent in Existing Business and Non-Business Relationships CASL requires every existing business or non-business relationship that includes the sending of CEMs to have implied consent for a period of 36 months. An existing business relationship exists when two people have been doing business together within the past two years. For brokers and salespersons, this could include the purchase of a property, a listing agreement, or a buyer representation agreement. In the case of an inquiry about a broker’s or salesperson’s services, the time limit for sending a CEM without express consent is six months from the inquiry. Consent can be implied in non-business relationships (for example, fellow members of an association, club, or voluntary organization). In all cases, CEMs must contain an unsubscribe mechanism that is easy for the recipient to use. Furthermore, a recipient can terminate the consent if they indicate that they no longer wish to receive CEMs. The transitional period can be used to obtain express consent for the receipt of CEMs where consent is currently implied. Express consent does not expire until the recipient withdraws their consent.

© 2021 Real Estate Council of Ontario

Lesson 4 | Page 22 of 23

What if the following happened? A salesperson informs their broker of record about a potential buyer they met at an open house they conducted over the weekend. The potential buyer asked the salesperson to email them similar property options in the subdivision. They have also referred their brother, who is looking for properties in the same subdivision. The potential buyer provided their brother’s business card, containing his email address, and suggested that he might be interested in the property where the salesperson had conducted the open house. The salesperson wants the broker of record’s advice on how they should proceed. What should the broker of record advise the salesperson to do to ensure they comply with CASL? There are four options. There are multiple correct answers. 1

Instruct the salesperson to email similar property options to the potential buyer.

2

Instruct the salesperson to keep the email addresses of the potential buyer and their brother in their files so that the brokerage may contact them both in the future.

3

Instruct the salesperson that, should they send any emails, they must inform the recipient that they have the option to let the salesperson know if they no longer wish to be contacted.

4

Instruct the salesperson to proceed with sending property options to the brother and identify the person that provided his name in the email.

© 2021 Real Estate Council of Ontario

Lesson 4 | Page 23 of 23

Congratulations, you have completed the lesson! Completion of this lesson has enabled you to: • Identify provisions under the Competition Act related to false or misleading representations • Describe National DNCL policies and procedures • Identify the considerations for using telemarketing activities in a brokerage • Describe compliant telemarketing procedures in a brokerage • Identify leading practices related to advertising that ensures compliance with PIPEDA and local or municipal requirements • Describe brokerage procedures for compliance with CASL There are four sections on this page with a summary of the key topics that were discussed in this lesson.

The Competition Act

The Competition Act prohibits false or misleading representations in the promotion of a service, or the supply or use of a product. Both the general impression conveyed by a representation and its literal meaning are considered when assessing whether a representation is false or misleading in a material way. As a broker of record, you must ensure that the brokerage, brokers, and salespersons comply with the act.

National Do Not Call List (DNCL)

Brokerages can choose to use telemarketing and various electronic channels to connect with new prospects and existing clients. As a broker of record, you must ensure brokers and salespersons comply with the National DNCL Rules established under the Telecommunications Act. Real estate brokerages that use cold calling are required under federal law to subscribe to the DNCL and maintain an internal brokerage list (internal DNCL). As a broker of record, you should establish appropriate telemarketing-related responsibilities for brokers, salespersons, and administrative staff. The brokerage policy needs to ensure that all telemarketing calls be recorded and that the National DNCL and

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the internal DNCL are checked before any calls are made. The brokerage must register with the National DNCL Operator, subscribe to the National DNCL, and pay for subscription-related services before telemarketing calls can be made. You must ensure that both the National DNCL and the internal DNCL are continuously maintained and updated.

Personal Information Protection and Electronic Documents Act (PIPEDA)

Canada’s AntiSpam Legislation (CASL)

To ensure compliance with PIPEDA, as a broker of record, you must ensure the following: • Appropriate consents are obtained for the collection, use, and disclosure of personal information. • Expired listing information is not used to market services to a seller unless that seller has consented to such use. You must ensure brokers and salespersons understand that photographs and video recordings of a house could reveal personal information about the residents; therefore, consent must be obtained before its use. You must also refer to all municipal bylaws and related regulations before putting up any “for sale”, “sold”, or “open house” signage. CASL governs the use of email accounts, telephone accounts, instant message accounts, and any other similar electronic address forms. It requires every existing business or nonbusiness relationship that includes the sending of CEMs to have implied consent for a period of 36 months. A brokerage, broker, or salesperson must obtain implied or written consent before sending a CEM. If challenged, the responsibility is on the sender (brokerage, broker, or salesperson) to prove they have obtained consent to send the message.

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Lesson 5 | Page 1 of 8

Lesson 5: Training Administrative Staff on Advertising Compliance This lesson identifies the topics for training administrative staff on advertising compliance. It further describes the key considerations when delegating advertising-related tasks to the administrative staff.

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Lesson 5 | Page 2 of 8

In a previous course, you learned that effective delegation can help a brokerage enable a culture of accountability and result in the smooth transitioning of tasks. Well-trained administrative staff can assist a brokerage in ensuring compliance, as well as in attracting and retaining sales staff. One key factor that can attract brokers and salespersons to a brokerage is the quality and efficiency of the services delivered by the management and administrative staff. Ensuring that the administrative staff is informed about all applicable legislation will help you, as a broker of record, avoid risk and legal liability related to advertising and promotions. The best way to ensure your staff is competent is by training them on legislation and policies that they will be required to comply with when preparing and reviewing advertising material. As you learned earlier, a broker of record is responsible for training brokers and salespersons on trade-related activities and tasks. When defining the responsibilities of the staff within a brokerage, a broker of record may also decide to involve the administrative staff in assisting brokers and salespersons with creating and reviewing advertising materials.

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Upon completion of this lesson, you will be able to: • Identify the topics for training administrative staff on advertising compliance Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

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Lesson 5 | Page 3 of 8

As a broker of record, you should ensure that the administrative staff, whose job may include creating and reviewing advertisements, is trained on the brokerage’s policies regarding the use of advertisements during their orientation. Furthermore, organizing ongoing training for administrative staff can ensure that they are up to date with REBBA and other legislation that govern advertising and business promotion.

© 2021 Real Estate Council of Ontario

Lesson 5 | Page 4 of 8

Training on Applicable Legislations If it is a part of the administrative staff’s job description to create and/or review advertisement, they should be trained on the legislation outlining the requirements for advertising, as each legislation serves a certain purpose. The descriptions of the applicable legislation are as follows: • Real Estate and Business Brokers Act (REBBA): To ensure all advertising materials (either prepared by them or by the brokers and salespersons) do not include any false, misleading, or deceptive statements and meet the minimum identification requirements for the brokerage, brokers, and salespersons. If a promise or inducement is to be added to an advertisement, it should clearly detail the terms; if the advertisement is to contain the particulars about property, parties, and agreements, requisite consent must be obtained and retained by the brokerage. • Competition Act: To ensure they check advertisements (either prepared by them or by the brokers and salespersons) for vague and misleading information that might give an incorrect impression. • National Do Not Call List (DNCL): To ensure they maintain and regularly update the National DNCL and the internal brokerage DNCL if the brokerage is engaged in cold calls. • Personal Information Protection and Electronic Documents Act (PIPEDA): To verify that appropriate consent has been obtained and retained by the brokerage from sellers and/or buyers before including details about a property or a transaction in all advertising and promotional materials prepared by brokers and salespersons. • Canada’s Anti-Spam Legislation (CASL): To ensure brokers and salespersons have obtained and retained consent before sending electronic promotional messages from the brokerage’s social media and email accounts. RECO provides ample resources to guide brokerages regarding advertising. These resources include Advertising Guidelines, Registrar Bulletins, MyWeb resources, and timely articles from For the RECOrd. These resources are designed for learning purposes and can be used to build training sessions for administrative staff to ensure compliance.

© 2021 Real Estate Council of Ontario

Lesson 5 | Page 5 of 8

Training Administrative Staff on Advertising-Related Brokerage Policies and Procedures A broker of record should organize training sessions on brokerage advertising policies and procedures for the administrative staff. The brokerage policy may include the following guidelines: • If advertising materials or templates are created for the first time, they should be approved by the broker of record. • If the administrative staff member notices an issue when creating or reviewing an advertisement, they should discuss it with the broker or salesperson, or the broker of record, as required. • If anything goes beyond what the administrative staff has been trained on, it should be brought to the attention of the broker of record. However, if the broker of record has approved the templates and if the administrative staff member is appropriately trained, they can complete advertising activities without seeking additional approval. These activities may include posting advertisements, placing an order with the printer, and so on. © 2021 Real Estate Council of Ontario

The brokerage policy should define the established parameters or topics that the administrative staff can approve. This should be part of the training program as well. For example, classified or online advertisements and preapproved templates can be delegated to the administrative staff.

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Lesson 5 | Page 6 of 8

Real Estate Board or Association Policies Related to Advertising If, in a brokerage, the administrative staff assists brokers and salespersons with developing advertisements, posting listings, and updating listing statuses from “available” to “conditionally sold” to “sold”, it is critical that they understand the advertising compliance requirements. Many real estate boards or associations have courses and training programs available for administrative staff that inform them about rules and regulations applicable to board or association members. The broker of record should: • Review board or association rules from time to time • Include the board or association rules in the brokerage policies and procedures • Train brokers, salespersons, and administrative staff to ensure compliance with board or association rules

© 2021 Real Estate Council of Ontario

Lesson 5 | Page 7 of 8

A brokerage has decided to participate in telemarketing activities. The broker of record wants to train the administrative staff on advertising activities that they are permitted to perform. As a follow-up to the training, the broker of record creates a checklist. Which statements can be included in the checklist for administrative staff involved in advertising activities? There are four options. There are multiple correct answers. 1

Maintain and regularly update the National DNCL and the internal brokerage DNCL.

2

Look up business email addresses and send electronic promotional messages from the brokerage’s social media and email accounts.

3

Check advertisements for the minimum identification requirements.

4

Verify that appropriate consent has been obtained before including details about a property or a transaction in advertising and promotional materials.

© 2021 Real Estate Council of Ontario

Lesson 5 | Page 8 of 8

Congratulations, you have completed the lesson! Completion of this lesson has enabled you to: • Identify the topics for training administrative staff on advertising compliance Here is a summary of the key topics that were discussed in this lesson. As a broker of record, you are responsible for ensuring that the brokerage complies with various legislative requirements and real estate board or association policies related to advertising. You should ensure that the administrative staff is trained, if you choose to involve them in the advertising activities of your brokerage. Even though they cannot trade in real estate, the administrative staff can assist in creating and reviewing advertisements. Depending on their job description, they should be trained on various pieces of legislation applicable to real estate advertising, such as REBBA, the Competition Act, PIPEDA, CASL, and the DNCL. This will help ensure that all advertising materials do not include any false, misleading, or deceptive statements; that they meet the minimum identification requirements for the brokerage, brokers and salespersons; and that they confirm appropriate consent has been obtained from sellers and/or buyers for inclusion of identity of a party or property or terms of an agreement in advertising and promotional materials. The administrative staff should also be trained on how to maintain and regularly update the National DNCL and the internal brokerage DNCL.

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Lesson 6 | Page 1 of 7

Lesson 6: Summary Practice Activities

This lesson provides a series of activities that will test your knowledge on the entire module.

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Lesson 6 | Page 2 of 7

This lesson provides summary practice activities. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

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Lesson 6 | Page 3 of 7

What if the following happened? Jason Sewell, a salesperson registered with XYZ Realty Ltd. for the past four years, creates an advertisement that he plans to post on his business page on social media platforms next week. Jason has identified the properties he intends to include in the advertisement. He has signed seller representation agreements on behalf of the brokerage for all the properties; all were sold within one week of being listed. He sold two of the properties himself, and the remaining properties were sold by co-operating brokerages. All transactions are scheduled to close next month. Please click the thumbnail to access the social media advertisement created by Jason and select the given sections of the advertisement that meet legislative requirements? There are four options. There are multiple correct answers. Reference: Social_media _advertisement_(pdf) 1

“EXPERIENCE, KNOWLEDGE, AND RESULTS” and “If you want your property sold, list it with me”

2

“I listed and sold 6 properties last month, all within one week”

3

Inclusion of the address of the properties in the advertisement

4

Placement of “XYZ Realty Ltd.”

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Lesson 6 | Page 4 of 7

Scenario What if the following happened? Adam Carter is a salesperson with XYZ Realty Ltd. Adam is registered with his full name and heads a team of 10 other salespersons employed at the brokerage. The team has recently sold a property at AnyStreet, AnyCity for $997,500. The buyer was represented by ABC Real Estate Inc., and the transaction is scheduled to close the following month. The team wants to advertise this sale in the neighbourhood and has submitted an advertising postcard to the broker of record for approval.

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Lesson 6 | Page 5 of 7

Suppose the broker of record is reviewing the advertising letter with their salesperson, Adam, to confirm if the advertisement complies with REBBA requirements. A search on the real estate board or association system indicates that another property on AnyStreet was sold last year for $1,129,500. What are the errors in the proposed advertisement? There are four options. There are multiple correct answers. Reference: Scenario_Case_Study.pdf

1

The advertisement reads “THE CARTER TEAM.”

2

The advertisement does not include the names or category of registration of the members of the team.

3

The advertisement does not include the four key identification requirements appropriately.

4

The advertisement reads, “We have just SOLD your neighbour’s home at AnyStreet and set a recordbreaking sale price for the street.”

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Lesson 6 | Page 6 of 7

Suppose that while making revisions to the advertising postcard, Adam plans to add the sale price in the advertisement. He discusses the option with the broker of record. What will the broker of record recommend to Adam to ensure compliance with advertising guidelines? There are four options. There are multiple correct answers. Reference: Scenario_Case_Study.pdf

1

Proceed with the advertisement, as the seller’s consent has been obtained in the seller representation agreement.

2

Acquire written consent from the seller and the buyer to include the sale price.

3

Contact the buyer and obtain their consent before adding the sale price in the advertisement.

4

Contact ABC Real Estate Inc. to obtain the buyer’s consent.

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Lesson 6 | Page 7 of 7

Congratulations, you have completed the lesson!

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Module Summary | Page 1 of 3

Module Summary

This lesson contains a summary of the entire module.

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Module Summary | Page 2 of 3

Congratulations, you have completed this module! The next screen will present a summary of the lessons in this module.

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Module Summary | Page 3 of 3

There are five sections on this page with a summary of the key topics that were discussed in this module.

REBBA Requirements for Business Promotion

As a broker of record, you should understand the REBBA requirements for advertising and apply the information to brokerage policies and procedures. You must ensure compliance with REBBA requirements for advertising and promotion related to preventing false or misleading advertising; preventing falsifying information; including promises or inducements; including identification details about the brokers, salespersons, and the brokerage; obtaining consent to include particulars about property, parties, and agreements; and preventing inaccurate representations. An advertisement must not include any information that would identify specific real estate, a party to an agreement, or terms of an agreement, unless written consent is obtained from the required parties. Completion of this lesson has enabled you to: • Identify the primary regulatory obligations related to advertising and business promotion mentioned under REBBA • Identify REBBA requirements related to advertising a property as sold

Ensuring REBBACompliant Advertising by a Brokerage

As a broker of record, you should prepare advertising checklists to assist brokers and salespersons in meeting REBBA requirements when creating advertising and promotional materials. These checklists should guide brokers and salespersons in complying with identification requirements and including claims, promises, special offerings, disclaimers, and disclosures in advertisements. Completion of this lesson has enabled you to: • Identify REBBA-compliant advertising guidelines regarding registrant identification • Identify RECO guidelines related to claims, promises, or any other offerings in advertisements

© 2021 Real Estate Council of Ontario

Advertising on Social Media Platforms

Social media platforms have a growing impact on society in general, which makes them an effective tool for brokerage business promotion. Brokerages must ensure they meet the legislative requirements on all social media platforms. Brokerage policies and procedures should guide brokers and salespersons to maintain separation between personal social networking and business-related social media usage. As a broker of record, you should establish policies and procedures to avoid issues, such as copyright or other intellectual property infringement; defamation, harassment, or discrimination arising from comments; misrepresentation and tort liability; and privacy violations. The intranet and extranet network capabilities impact the use of social media in a brokerage. They enhance internal communication and efficiencies and may also improve a broker of record’s control over brokerage operations. Completion of this lesson has enabled you to: • Identify the realities and risks accompanying the use of social media for brokeragerelated activities • Identify regulatory guidelines when using social media platforms to ensure compliance with REBBA and other legislation • Identify the key considerations while integrating social media within the brokerage

Federal Statutes for Business Promotion

To gain a competitive advantage in the marketplace, brokerages today use different marketing methods, including both print and electronic media. As a broker of record, you must ensure compliance with different federal legislation, that is, the Competition Act, the DNCL, PIPEDA, and CASL. The Competition Act aims to promote fair competition and efficiency in the Canadian marketplace and protect consumers against anti-competitive activities. It prohibits false or misleading representations in the promotion of a service, or the supply or use of a product. Brokers and salespersons who engage in telemarketing or cold calling must do so in compliance with the National DNCL Rules established under the Telecommunications Act. Brokers and salespersons must understand the requirements under PIPEDA for the collection, storage, and distribution of personal information when advertising a property © 2021 Real Estate Council of Ontario

or promoting a sale. Appropriate consent must be obtained for the collection, use, and disclosure of personal information. Expired listing information must not be used to market a brokerage’s services to a seller unless that seller has consented to such use. Brokers and salespersons must comply with the municipal bylaws and related regulations imposing restrictions on real estate signage. Brokerages must avoid misuse of digital technology and ensure compliance with CASL dealing with spam and other electronic threats. CASL prohibits the sending of CEMs unless the person to whom the message is sent has consented to receiving it. Completion of this lesson has enabled you to: • Identify provisions under the Competition Act related to false or misleading representations • Describe National DNCL policies and procedures • Identify the considerations for using telemarketing activities in a brokerage • Describe compliant telemarketing procedures in a brokerage • Identify leading practices related to advertising that ensures compliance with PIPEDA and local or municipal requirements • Describe brokerage procedures for compliance with Canada’s Anti-Spam Legislation (CASL)

Training Administrative Staff on Advertising Compliance

Brokerages must train their administrative staff on legislation and policies related to advertising. Training administrative staff helps the brokerage manage the legal risks associated with advertising. Depending on the job description, administrative staff should be trained on various pieces of legislation applicable to real estate advertising, such as REBBA, the Competition Act, PIPEDA, CASL, and the DNCL. As a broker of record, you should ensure that the administrative staff is trained on brokerage policies and real estate board or association policies related to advertising. Completion of this lesson has enabled you to: • Identify the topics for training administrative staff on advertising compliance

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V6.1

Module 4: Ensuring Fair, Open, and Transparent Real Estate Transactions Disclaimer: This is a reference document which contains pages from the Accessible eLearning module. You should complete the eLearning module to proceed to the next step. Please note that the accessible module on the LMS only contains the interactive pages and you need to go through the content of this document thoroughly to attempt the interactive activities in the module. Please use Adobe Acrobat Reader (Recommended version 9 or above) to navigate through this PDF. Real Estate Broker Program © 2021 Real Estate Council of Ontario. All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or in any means – by electronic, mechanical, photocopying, recording or otherwise without prior written permission, except for the personal use of the Real Estate Broker Program learner.

© 2021 Real Estate Council of Ontario

Module 4: Ensuring Fair, Open, and Transparent Real Estate Transactions This module discusses the relationships between Real Estate and Business Brokers Act (REBBA) requirements related to providing client services, brokerage reputation, and business results. It identifies the common problems and a selection of high-risk activities, that if not executed correctly, could have a negative effect on a brokerage’s reputation, as well as common issues faced by brokers and salespersons related to misrepresentation, negligence, tort liability, and vicarious liability. This module also provides insights to help avoid these problems and potential issues. This module also discusses the Professional Liability Insurance Program administered by RECO, along with reporting requirements and how to avoid potential claims. Finally, the module explains how RECO’s progressive discipline process relates to standards enforcement and identifies the topics for training administrative staff to support brokerage compliance with REBBA. To check your understanding of this module, you must complete all the activities in the online module. While navigating through the online module, click the Legislation button to view laws and regulations related to this module. © 2021 Real Estate Council of Ontario

The contents of the thumbnails Accessible PDF.

and References from the module are added to support your learning throughout this

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Menu: Ensuring Fair, Open, and Transparent Real Estate Transactions Number of Lessons

Lesson Number

7 Lessons

Lesson Name

Lesson 1

Guidelines to Avoid Common Issues in Brokerage Operations

Lesson 2

Brokerage's Responsibilities Regarding Reporting Claims or Circumstances

Lesson 3

Brokerage's Obligations Regarding Inspections

Lesson 4

RECO's Complaints Process and Progressive Discipline Enforcement Approach

Lesson 5

Training Administrative Staff on REBBA Compliance

Lesson 6

Summary Practice Activities Module Summary

© 2021 Real Estate Council of Ontario

Lesson 1 | Page 1 of 12

Lesson 1: Guidelines to Avoid Common Issues in Brokerage Operations This lesson describes the relationships between REBBA requirements related to providing client services, brokerage reputation, and business results. This lesson also describes a selection of common problems and high-risk activities, that if not executed properly, could have a negative effect on a brokerage’s reputation. In addition, the lesson discusses common issues faced by brokers and salespersons related to misrepresentation, negligence, tort liability, and vicarious liability. This lesson also provides insights to help avoid these issues and potential problems.

© 2021 Real Estate Council of Ontario

Lesson 1 | Page 2 of 12

As a broker of record, it is important for you to have a thorough understanding of the relationships between REBBA requirements related to providing client services, brokerage reputation, and business results, as you will be in charge of setting, maintaining, and enforcing standards as well as upholding the Code of Ethics. This lesson identifies the common problems and high-risk activities, that if not executed properly, could have a negative effect on a brokerage’s reputation. This lesson also discusses several common issues faced by brokers and salespersons such as misrepresentation, negligence, tort liability, and vicarious liability. This lesson provides insights to help avoid these issues and potential problems. Upon completion of this lesson, you will be able to: © 2021 Real Estate Council of Ontario

• Describe the interrelationship between REBBA, providing client services, brokerage reputation, and business results • Identify the common problems and high-risk activities that could have a negative effect on a brokerage’s reputation • Identify activities that, if not done correctly, can lead to misrepresentation, negligence, tort liability, and vicarious liability Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

© 2021 Real Estate Council of Ontario

Lesson 1 | Page 3 of 12

REBBA sets out legislative requirements that registrants must comply with when trading in real estate. The Code of Ethics sets out the minimum requirements that registrants are expected to meet when providing services to sellers and buyers. As a broker of record, you will need to ensure that the brokers and salespersons at your brokerage follow the Code and adhere to compliance standards to ensure that communication with sellers and buyers is fair and transparent. This will help your brokerage establish and maintain a reputation as an ethical and respected business enterprise as well as enhance consumer protection.

© 2021 Real Estate Council of Ontario

Lesson 1 | Page 4 of 12

The Broker of Record’s Role To comply with REBBA requirements and to ensure fair and transparent transactions with consumers, a broker of record is required to actively participate in the management of the brokerage and provide an adequate level of supervision to all brokerage staff. As a broker of record, you must take reasonable steps to deal with any failure regarding compliance with REBBA. A broker of record sets the example for others. There can be no confusion in the brokerage as to what constitutes acceptable business practices and what does not. A broker of record should bring commitment, purpose, and high © 2021 Real Estate Council of Ontario

ideals to the ongoing management and oversight of brokerage operations. Those who choose this path and continuously pursue high standards attract like-minded individuals who join the brokerage. These like-minded individuals will consistently deliver credible messages in the marketplace. A brokerage can establish a sense of goodwill for itself in the community through its consistent service and transparent business practices, which result in a positive reputation. Adherence to high standards ensures enhanced consumer protection and that public impressions are positive. Positive experiences translate into consumer satisfaction, an increased positive reputation, and typically expanded brand loyalty. Equally important, satisfied sellers and buyers are more likely to refer others to the brokerage, which may result in increased business. As you learned in a previous course, when an individual joins a brokerage, the broker of record should ensure that there is an orientation program in place that reviews standards, policies, and procedures to be followed by each individual when working on behalf of the brokerage. The broker of record should also ensure that ongoing training programs are in place to continue to build brokers and salespersons’ skills and knowledge.

© 2021 Real Estate Council of Ontario

Lesson 1 | Page 5 of 12

Brokerage Standards and the Code of Ethics REBBA includes the Code of Ethics, which defines the minimum standards for broker and salesperson activities. The Code does not define all activities but is pivotal for a broker of record in creating internal standards and policies for the brokers and salespersons. When defining standards for the brokerage, it is important for a broker of record to ensure that: • Brokerage policies and procedures align with the Code requirements • Brokers and salespersons are fully aware that compliance is not negotiable © 2021 Real Estate Council of Ontario

• Appropriate training or other brokerage resources are developed and available • A personal strategy is created to ensure ongoing standards maintenance A brokerage and its brokers and salespersons cannot contract out of any obligations under the Code and will be held accountable should such obligations not be performed.

© 2021 Real Estate Council of Ontario

Lesson 1 | Page 6 of 12

Registrants may indulge in activities that, if not done correctly, may lead to errors and in turn result in litigation. As a broker of record, you should ensure that brokers and salespersons follow leading practices when conducting such activities in order to avoid errors. Most common errors relate to three broad types of activities: representing clients, communicating material facts, and documentation.

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Lesson 1 | Page 7 of 12

Leading Practices to Avoid Common Errors and High-Risk Activities The Code represents the minimum expectation for all registrant activities in real estate transactions. As a broker of record, you should help the brokers and salespersons employed by the brokerage understand how activities should be conducted in compliance with the Code. Activities, that if not done correctly can lead to errors. Most common errors relate to three broad types of activities: representing clients, communicating material facts, and documentation. The following three sections contain information about the activities and leading practices that can help mitigate the risk of errors.

Client representation Common problems associated with client representation include breach of duties and associated disclosures. When a broker or salesperson fails to provide the fiduciary duties and disclosures, there is a breach in the client relationship, which may result in litigation. For example, a broker or salesperson does not properly investigate a property’s value before listing it, and this results in the seller listing and selling the property below market value. A broker of record can mitigate these issues by ensuring their brokers and salespersons are properly trained to: © 2021 Real Estate Council of Ontario

• Advance a client’s interests during agreement negotiations and ensure the agreement of purchase and sale protects the client’s interests while being fair to all parties in the trade • Disclose conflicts of interest in writing at the earliest practicable opportunity, including referral of third-party services when related to brokers and/or salespersons and acquisition or disposition of property by brokers and/or salespersons • Exhibit due diligence in providing services to clients with verification of details using source documents • Provide written confirmations of promises made and disclosure of terms of representation, guarantees, reduction of fees, collateral agreements, and exclusions • Communicate steps taken on behalf of a client, such as reporting results of showings, marketing activities, and presenting offers and negotiations • Provide written disclosure of multiple representations at the earliest practicable opportunity and obtain acknowledgement • Demonstrate reasonable knowledge, skill, judgement, and competence in providing services

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Misrepresentation – communicating material facts When a broker or salesperson misrepresents a material fact to a seller or buyer and they proceed with the acquisition or disposition, it may result in the party making decisions to their detriment, which can have negative consequences and lead to litigation. Misrepresentation could also result from an oral misunderstanding if communication is vague or ambiguous. The seller or buyer may have a different interpretation of what was said. If a broker or salesperson fails to verify material facts or take reasonable steps to address facts, the seller or buyer may proceed with the transaction without correct knowledge. It is possible that the seller or buyer would not have opted to proceed with the transaction or would have done so on different terms had they known all the facts. A broker of record can mitigate these issues by ensuring their brokers and salespersons are properly trained to: • Verify information through source documentation, such as surveys, zoning bylaws, property tax bills, assessment notices, deeds, receipts of improvements, and existing mortgage details

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• Investigate, document, and disclose material facts that may influence a seller’s or buyer’s decision with the acquisition or disposition of a property • Provide written documentation for qualifying statements made to sellers and buyers to avoid ambiguities, generalities, and vagueness • Include appropriate conditions and/or clauses in agreements of purchase and sale • Refer to third-party professionals to assist with investigations of property details and property condition You will learn more about misrepresentation later in this lesson.

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Documentation When a broker or a salesperson prepares documents containing errors or fails to deliver documents on time to the seller or buyer, it may result in negative consequences for one or both parties to the transaction. Documents that contain errors, poorly drafted clauses, and extraneous information can create liability for a seller or buyer. A broker of record can mitigate these issues by ensuring their brokers and salespersons are properly trained to: • Use clauses approved by the brokerage and available in the inventory of clauses when creating a document • Eliminate clauses that create ambiguity when receiving documents from others and make necessary corrections, if required • Proofread documents prior to getting them signed • Include appropriate clauses to investigate specific matters for the seller and buyer (material facts) • Maintain use of appropriate documentation for written notification regarding terms of the agreement of purchase and sale

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• Explain contents of documents and their full meaning to the seller and buyer prior to getting them signed • Ensure prescribed time limits (irrevocability time, expiry of condition, and title search) are added and understood

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Lesson 1 | Page 8 of 12

A misrepresentation is a false statement of a material fact made by one party, which affects the other party's decision in agreeing to a contract. The Code requires that registrants must use their best efforts to prevent any error, misrepresentation, fraud, or any unethical practice relating to a trade in real estate. As a broker of record, you should ensure that your brokers and salespersons clearly understand their obligations, as non-compliance may lead to litigation (tort liability or vicarious liability). Brokers and salespersons, prior to making representations, must prudently investigate relevant facts and properly qualify any statements made. They are under increased scrutiny as to what is said, written, or otherwise represented © 2021 Real Estate Council of Ontario

during the listing and selling process. With the advent of smartphones, there has been an increase in the number of cases where sellers and buyers have secretly recorded a broker’s or salesperson’s remarks. It is important for you to remind your brokers and salespersons that anything they say or write to a seller or buyer may be recorded and retained by them. Emails and smartphone recordings of brokers and salespersons are surfacing more and more often in insurance claim proceedings.

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Lesson 1 | Page 9 of 12

Types of Misrepresentations There are three types of misrepresentations: fraudulent, negligent, and innocent. A broker of record should ensure that their brokers and salespersons understand these types of misrepresentations, as they may lead to litigation. A broker of record should set standards, ensure that their brokers and salespersons are properly trained, and provide an adequate level of supervision to mitigate the potential for misrepresentation when trading in real estate. You learned about the leading practices to avoid misrepresentation earlier in the lesson. The following three sections contain information about the different types of misrepresentations.

Fraudulent misrepresentation Fraudulent misrepresentation has three elements: • The misrepresentation must be made by a person with the knowledge of its falsity or with reckless disregard for the truth. • The party making the misrepresentation must be trying to induce the other party to enter a contract. • The misrepresentation must have been acted on by the other party to their detriment. Where such fraud exists, the party deceived may resist enforcement of the contract as well as take legal action to recover damages for deceit. © 2021 Real Estate Council of Ontario

It is important to note that fraudulent misrepresentation is not covered by the Professional Liability Insurance Program, as this is an exclusion in the policy.

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Negligent misrepresentation A negligent misrepresentation can arise when a representation is made in a careless or indifferent manner and a party relies upon the representation to their detriment. The individual who was misled and suffered a loss as a consequence of this negligence can pursue legal recourse (that is, monetary compensation). The purpose of the compensation (that is, for a loss sustained, also referred to as “damages” in the context of a claim) is to restore the injured party to the position they were in prior to the misrepresentation. For example, a buyer may have relied on inaccurate property details, which were subsequently found to be false to their detriment, and overpaid for the property. An action for damages could be taken against the brokerage, the broker or salesperson, and/or the seller, depending on the circumstances.

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Innocent misrepresentation Fraudulent or negligent misrepresentation should be clearly differentiated from an innocent representation. With the latter, a statement is made by one party of a material fact that is honestly believed to be true but discovered later to be false. As a general rule, the injured party cannot recover damages but can refuse to complete the contract, have it set aside, or attempt to recover anything paid or delivered in relation to it.

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Lesson 1 | Page 10 of 12

Tort Liability and Vicarious Liability A brokerage may face litigation arising from tort liability or vicarious liability. As a broker of record, you should ensure the brokers and salespersons at your brokerage understand the concepts of tort liability and vicarious liability, and how their actions may impact the brokerage. A tort is a civil, non-criminal wrongdoing that results in injury (personal, business, or other loss) in which the injured party can pursue legal action for damages. Essentially, tort law provides for compensation to the injured party, rather than punishing the wrongdoer. The legal principle underlying vicarious liability is that one party can be responsible for injury or damage caused by another, despite the fact that the party was not directly involved in the wrongdoing. The following two sections contain information on the tort liability and vicarious liability.

Tort liability A common tort may involve negligence, such as negligent misrepresentation, arising from a breach of duty of care. Duty of care is a legal obligation in which an individual must have due regard for the interest of others who may be affected by their actions or statements. Professional negligence commonly arises in duty of care situations where an individual offers professional services to another party but furnishes those services below the standards that the courts have set (known as the standard of care). An example of this can be seen in inaccurate statements made by a broker or salesperson © 2021 Real Estate Council of Ontario

when marketing a seller’s property or showing a house to a prospective buyer. This duty, when breached, can give rise to liability for professional negligence. Tort liability is not limited to negligent misrepresentations but can also involve various wrongdoings, including intentional personal harm (assault and battery), libel and slander, malicious prosecution, invasion of privacy, trespassing, and fraudulent misrepresentation. When representing parties in a real estate trade, brokers and salespersons should use the highest of standards and exercise great care from start to finish. Failure to research, verify facts, and communicate effectively could be fertile ground for a tort liability claim. The brokerage could also be vicariously liable for the actions of their brokers and salespersons.

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Vicarious liability A tort can also involve vicarious liability. This liability can arise from certain legal relationships due to imputed negligence. The term “imputed” refers to the attributing of legal responsibility to someone else. For real estate purposes, vicarious liability can involve the brokerage based on the acts of its brokers and salespersons. The actions of a broker or salesperson could create liability for the brokerage, even though the brokerage has no knowledge of the events or circumstances creating the liability. A brokerage can potentially defend itself by arguing that the broker or salesperson independently and recklessly conducted themselves in a manner not consistent with acceptable brokerage policies and that the individual violated specific terms and conditions of a signed employment or similar agreement. Also, the brokerage may successfully argue joint responsibility and share liability (including damages) with the broker or salesperson. The merits of either defence would depend on specific circumstances. Vicarious liability also applies to principal-agent relationships; for example, the seller can be liable for the torts of the brokerage and its brokers and salespersons.

© 2021 Real Estate Council of Ontario

Lesson 1 | Page 11 of 12

During a training session, a broker of record presents the following hypothetical situation to their brokers and salespersons to test their understanding of the different categories of misrepresentation: “A homeowner contracted for a new furnace and paid the bill. When they listed their home for sale two years later, the listing salesperson asked them if they had made any repairs or renovations to the house. The homeowner produced the invoice for the furnace from two years earlier. The salesperson retained a copy of the invoice and subsequently listed and sold the home. The following year, the furnace stopped working, and the buyer had to call in a contractor to fix it. The contractor informed the new homeowner that the furnace needed to be replaced and that it was much older than two years. The new homeowner felt misled and took legal action against the brokerage, the salesperson, and the seller. It turned out that the original contractor had taken advantage of the seller and had charged them for a new furnace after installing a refurbished one.” Which category of misrepresentation does the salesperson’s actions fall under as per the scenario? There are three options. There is only one correct answer.

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1

Fraudulent

2

Negligent

3

Innocent

© 2021 Real Estate Council of Ontario

Lesson 1 | Page 12 of 12

Congratulations, you have completed the lesson! Completion of this lesson has enabled you to: • Describe the interrelationship between REBBA, providing client services, brokerage reputation, and business results • Identify the common problems and high-risk activities that could have a negative effect on a brokerage’s reputation • Identify activities that, if not done correctly, can lead to misrepresentation, negligence, tort liability, and vicarious liability There are three sections on this page with a summary of the key topics that were discussed in this lesson.

Brokerage standards and Maintaining high standards at the brokerage is key to a solid proven reputation, and a broker of record will be instrumental in establishing and maintaining these the Code of Ethics standards.

The Code defines the minimum expectation for broker and salesperson activities. The Code is central for a broker of record in creating internal standards and policies for the brokers and salespersons. A brokerage and its brokers and salespersons cannot contract out of their obligations under the Code. The Code identifies certain obligations that only apply to individuals representing clients, most notably protecting and promoting the client’s interests. Disclosure requirements in the Code apply to brokers and salespersons when dealing with both sellers and buyers. © 2021 Real Estate Council of Ontario

Leading practices to avoid common errors and high-risk activities

A broker of record can more effectively minimize potential errors by concentrating on three broad types of activities, that if not executed properly can elevate risk: • Client representation: When a broker or a salesperson fails to provide the fiduciary duties and disclosures, there is a breach in the client relationship, which may result in litigation. A broker of record can mitigate these issues by ensuring their brokers and salespersons are properly trained to: o Advance a client’s interests during agreement negotiations and ensure the agreement of purchase and sale protects the client’s interests while being fair to all parties in the trade o Disclose conflicts of interest in writing at the earliest practicable opportunity, including referral of third-party services when related to brokers and/or salespersons and acquisition or disposition of property by brokers and/or salespersons • Misrepresentation – communicating material facts: When a broker or salesperson misrepresents a material fact to a seller or buyer and they proceed with the acquisition or disposition, it may result in the seller or buyer making decisions to their detriment, which may have negative consequences and lead to litigation. A broker of record can mitigate these issues by ensuring their brokers and salespersons are properly trained to: o Verify information through source documentation, such as surveys, zoning bylaws, property tax bills, assessment notices, deeds, receipts of improvements, and existing mortgage details © 2021 Real Estate Council of Ontario

o Investigate, document, and disclose material facts that may influence a seller’s or buyer’s decision with the acquisition or disposition of a property • Documentation: When a broker or a salesperson prepares documents containing errors or fails to deliver documents on time to the seller or buyer, it may result in negative consequences for one or both parties to the transaction and may lead to litigation. A broker of record can mitigate these issues by ensuring their brokers and salespersons are properly trained to: o Use clauses approved by the brokerage and available in the inventory of clauses when creating a document o Eliminate clauses that create ambiguity when receiving documents from others and make necessary corrections, if required

Misrepresentation, negligence, tort liability, and vicarious liability

Brokerages, as well as individual brokers and salespersons, can face litigation because of misrepresentation. Brokers and salespersons, prior to making representations, must prudently investigate relevant facts and properly qualify any statements made. They are under increased scrutiny as to what is said, written, or otherwise represented during the listing and selling process. Brokerages can face litigation arising from fraudulent, negligent, or innocent misrepresentations. A tort is a civil, non-criminal wrongdoing that results in injury, which can lead to legal action for damages by the injured party. Vicarious liability is an extension of tort liability. A brokerage can be held responsible for the intentional or unintentional wrongs committed by their brokers and salespersons in the normal course of business. © 2021 Real Estate Council of Ontario

Lesson 2 | Page 1 of 8

Lesson 2: Brokerage's Responsibilities Regarding Reporting Claims or Circumstances This lesson describes a brokerage's responsibilities regarding reporting claims or circumstances that have the potential to become a claim under the Professional Liability Insurance Program.

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Lesson 2 | Page 2 of 8

As a broker of record, you can help your brokerage avoid losses incurred while trading in real estate by analyzing the annual reports published by RECO. RECO’s annual report provides high-level statistics related to loss, and further details can be found at www.reco-claims.ca in the Documents tab. These details provide information that you may choose to incorporate when creating training on how to avoid costly mistakes sometimes made by brokers and salespersons. In addition, as a broker of record, you should take time to review the Professional Liability Insurance Program on an annual basis and ensure that your brokers and salespersons have a thorough understanding of the reporting requirements. The insurance provider requires that an insurance claim or a circumstance be reported in a timely manner. You should also consider including this topic when creating training. Upon completion of this lesson, you will be able to: • Identify responsibility regarding reporting claims or circumstances that have the potential to become a claim under the Professional Liability Insurance Program administered by RECO Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented. © 2021 Real Estate Council of Ontario

Lesson 2 | Page 3 of 8

Brokerages making an insurance claim under the Professional Liability Insurance Program are subject to reporting requirements under the insurance policy. As a broker of record, you will need to make sure your brokers and salespersons understand the reporting requirements for claims or for circumstances that have the potential to become a claim, as any delay in filing the claim can lead to a loss of coverage.

© 2021 Real Estate Council of Ontario

Lesson 2 | Page 4 of 8

Professional Liability Insurance Program — Overview of Reporting Requirements Timely and accurate reporting of claims and circumstances is critical. An example of a claim is a lawsuit. An example of a circumstance is an incident or situation that may result in a demand or claim for damages. Reporting a claim or a circumstance to the insurer will protect the registered individual if a situation escalates and a lawsuit is commenced against them. Brokers and salespersons must fully understand the reporting requirements to be able to report a claim or a circumstance in a timely manner, as it is one of the conditions of the insurance policy. Failure to do so may leave the broker or salesperson, and by extension the brokerage, without any insurance coverage.

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Brokers and salespersons should carefully review any complaint levied against them, either verbal or written, casual or formal. This will help them determine whether any allegation of negligence or damages is claimed to have been suffered by a consumer making the complaint and determine whether the matter should be reported to the insurer. However, if there is any doubt, then it is likely a circumstance and should be reported, as there is no downside to reporting. If a broker or salesperson has made a mistake and catches it along the way (even when the seller or buyer has not noticed), they should report it (even when there is only the slightest chance it could result in an issue). It is important for a broker of record to understand the reporting requirements to assist their brokers and salespersons. The policy states that a written notice to the insurer should be provided, as soon as practicable, of any claim made against the insured or any circumstance likely to give rise to a claim.

© 2021 Real Estate Council of Ontario

Lesson 2 | Page 5 of 8

Professional Liability Insurance Program — Reporting Requirements As soon as a claim or a circumstance is identified, the broker of record and the individual broker or salesperson should prepare for the following process. The following three sections contain information about the process involved in reporting and managing a claim or circumstance. © 2021 Real Estate Council of Ontario

Step 1: Reporting of the claim An individual can complete the “Notice of Claim ‐ Errors & Omissions” form to submit their report to the program adjuster. The claim reporting forms and other valuable information can be found on RECO’s website and on the Insurance Program website.

Step 2: Investigation of the report ClaimsPro, Canada’s largest claim management firm, will report the finding of the investigation into the claim to the insurer for a determination of the next steps in managing the claim. They will determine whether to take a “wait and see” approach, send the former client or customer a denial of liability letter, or appoint a program lawyer to defend the broker or salesperson.

Step 3: Co-operation An important condition of coverage under the policy is that the brokerage, broker of record, broker, or salesperson must co-operate with the insurer and its representatives in their investigation and defence of the brokerage's claim. The insurer has the right to appoint and instruct counsel and control the defence of a claim. The duty to co-operate is an ongoing duty, which exists throughout the lifespan of the claim. Co-operation includes the individual not admitting they did anything wrong when they are accused of an error or omission. This is called “admitting liability” and can prejudice the insurer’s ability to defend a claim. Admitting liability could result in the insurer denying coverage under the policy. Co-operation also includes meeting with defence counsel and attending examinations, mediations, and pre-trials as required.

© 2021 Real Estate Council of Ontario

Lesson 2 | Page 6 of 8

Top Five Causes of Loss — Urban, Rural, Residential, and Commercial RECO organizes an annual general meeting where it presents an annual report with the intention of updating the real estate industry in Ontario. RECO’s annual report includes key statistical highlights covering errors and omissions insurance. Further details can be found at www.reco-claims.ca under the Documents tab. As a broker of record, you can use the information to educate brokers and salespersons to be proactive and avoid common risks involved with trading in real estate. This could also potentially reduce the likelihood of having to file a claim or circumstance. The following four sections contain information about the top causes of loss.

Top five causes of loss ─ u rb an The top five causes of loss in urban areas are: 1. Incomplete sale: A transaction that does not close 2. Foundations: Problems discovered with property construction that are not identified in the agreement 3. Property description: Incomplete, missed, or wrong property description 4. Financial/Mortgage: Failure to include conditions or full details 5. Deposit: Insufficient funds or funds not delivered as per the agreement of purchase and sale © 2021 Real Estate Council of Ontario

The broker of record should assist the brokers and salespersons with any of their concerns about a transaction to ensure clients are satisfied with the sale. A buyer should be informed of all necessary details about the property before an agreement of purchase and sale is drawn up by a broker or salesperson.

Top five causes of loss ─ ru ral The top five causes of loss in rural areas are: 1. Well and water: Failure to disclose pertinent facts or failure to obtain acknowledgement of all pertinent facts about the well and water supply 2. Septic system and environmental issues: Failure to disclose pertinent facts or failure to obtain acknowledgement of all pertinent facts about the septic system and environmental issues 3. Property description: Incomplete, missed, or incorrect property description 4. Incomplete sale: A transaction that does not close 5. Foundations: Problems discovered with property construction that are not identified in the agreement

© 2021 Real Estate Council of Ontario

The broker of record can reduce the likelihood of these types of problems by bringing in contractors to speak on the issues, planning field trips with brokers and salespersons to inspect properties and identify common issues first-hand, and training the brokers and salespersons to write specific clauses addressing the situation.

© 2021 Real Estate Council of Ontario

Top five causes of loss ─ resid en tial The top five causes of loss in residential areas are: 1. Incomplete sales: A transaction that does not close 2. Foundations: Problems discovered with property construction that are not identified in the agreement 3. Property description: Incomplete, missed, or incorrect property description 4. Septic and environmental issues: Failure to disclose pertinent facts or failure to obtain acknowledgement of all pertinent facts about the septic system and environmental issues 5. Structural issues: Not disclosed or acknowledged in the agreement of purchase and sale The broker of record should ensure training is provided to brokers and salespersons on how to avoid these risks. The training should include: • Drafting of agreement of purchase and sale with conditions pertaining to obtaining a third-party professional’s advice on building foundations, septic and environmental issues, and structural issues

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• Disclosure of findings to the parties involved in the transaction

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Top five causes of loss ─ com m ercial The top five causes of loss in commercial areas are: 1. Incomplete sales: A transaction that does not close 2. Leasing and income: Lack of verification of leasing contracts and revenue 3. Tax (HST/GST): Incorrect or incomplete information pertaining to tax calculations on commercial acquisitions 4. Property description: Incomplete, missed, or incorrect property description 5. Deposit: Insufficient funds or funds not delivered as per the agreement of purchase and sale The broker of record can invite lawyers and accountants to speak on complex subjects (such as tax, leasing contracts, and revenue) to keep the staff well-informed about common issues. The broker of record can also bring in real source documents to create training activities for the brokers and salespersons to further strengthen the knowledge needed to correctly gather property description notes.

© 2021 Real Estate Council of Ontario

Lesson 2 | Page 7 of 8

Sales Staff Training As a broker of record, you can develop training to enhance understanding of insurance claims and circumstances in which insurance claims may be made for your sales staff. In the training, you should include information about the Professional Liability Insurance Program, high level information found in RECO’s annual report on insurance claims, and details about claims from www.reco-claims.ca. Using this information will help you build proactive training for your sales staff that highlights common issues that may occur and how they can be handled. Proactive training should: • Provide updated statistics about insurance claims – urban, rural, residential, and commercial © 2021 Real Estate Council of Ontario

• Provide direction on completing different types of agreements to prevent errors • Provide direction on timely reporting requirements and procedures • Provide insights on improving staff communication skills • Emphasize the importance of full disclosure and accurate statements while trading with sellers and buyers to prevent miscommunication This training will enable brokers and salespersons to employ risk management techniques before communicating with sellers and buyers.

© 2021 Real Estate Council of Ontario

Lesson 2 | Page 8 of 8

Congratulations, you have completed the lesson! Completion of this lesson has enabled you to: • Identify responsibility regarding reporting claims or circumstances that have the potential to become a claim under the Professional Liability Insurance Program administered by RECO There are three sections on this page with a summary of the key topics that were discussed in this lesson.

Professional Liability Insurance Program — reporting requirements

As soon as a claim or a circumstance is identified, the broker of record and the individual broker or salesperson should prepare for the following process: 1. An individual can complete the “Notice of Claim ‐ Errors & Omissions” form to submit their report to the program adjuster.

2. ClaimsPro will report the finding of the investigation of the claim to the insurer for a determination of the next steps in managing the claim. 3. The insurer has the right to appoint and instruct counsel and control the defence of a claim. The duty to co-operate is an ongoing duty, which exists throughout the lifespan of the claim.

Top five causes of loss

RECO’s annual report includes key statistical highlights covering errors and omissions insurance. Further details can be found at www.reco-claims.ca under the Documents tab.

© 2021 Real Estate Council of Ontario

A broker of record can use the information to educate brokers and salespersons to be proactive and avoid common risks involved with trading in real estate. This could also potentially reduce the likelihood of having to file a claim or circumstance. The top five causes of loss in urban areas are: 1. Incomplete sale 2. Foundations 3. Property description 4. Financial/mortgage 5. Deposit The top five causes of loss in rural areas are: 1. Well and water 2. Septic system and environmental issues 3. Property description 4. Incomplete sale 5. Foundations The top five causes of loss in residential areas are: 1. Incomplete sales 2. Foundations 3. Property description 4. Septic and environmental issues 5. Structural issues © 2021 Real Estate Council of Ontario

The top five causes of loss in commercial areas are: 1. Incomplete sales 2. Leasing and income 3. Tax (HST/GST) 4. Property description 5. Deposit

Sales staff training

Brokers of record can develop training to enhance brokers and salespersons’ understanding of insurance claims and circumstances in which insurance claims may be made. In the training, brokers of record should include information about the Professional Liability Insurance Program. Proactive training should: • Provide updated statistics about insurance claims – urban, rural, residential, and commercial • Provide direction on completing different types of agreements to prevent errors • Provide direction on timely reporting requirements and procedures • Provide insights on improving staff communication skills • Emphasize the importance of full disclosure and accurate statements while trading with sellers and buyers to prevent miscommunication

© 2021 Real Estate Council of Ontario

Lesson 3 | Page 1 of 17

Lesson 3: Brokerage's Obligations Regarding Inspections This lesson describes a brokerage’s obligations regarding inspections, investigations, and other standards enforcement procedures.

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Lesson 3 | Page 2 of 17

Inspections are conducted by persons designated by RECO under REBBA. This lesson describes the inspection process followed by RECO. As a broker of record, you will be responsible for ensuring your brokerage is ready for an inspection. Upon completion of this lesson, you will be able to: • Identify RECO’s inspections process • Describe RECO investigations and other enforcement procedures Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

© 2021 Real Estate Council of Ontario

Lesson 3 | Page 3 of 17

As a broker of record, understanding the on-site procedures and brokerage obligations that an inspection normally entails will enable you to proactively prepare for an inspection. On the day of the inspection, your preparation will allow you to assist the RECO inspector. RECO has the authority to inspect a brokerage’s business premises during reasonable hours. During the inspection, you will need to make all documents and records relevant to the inspection readily available to the inspector.

© 2021 Real Estate Council of Ontario

Lesson 3 | Page 4 of 17

Purpose of RECO’s Inspection Program The primary purpose of conducting an inspection is to ensure that a brokerage is operating in compliance with REBBA. The fact that real estate brokerages are subject to inspection and held accountable for how they conduct business helps RECO to fulfill its mission of delivering regulatory services that protect the public interest and enhance consumer confidence in the real estate profession. During an inspection, the inspector reviews several different business practices of a brokerage and predominantly focuses on the accounts and records that are required to be maintained under REBBA. The inspector reviews the © 2021 Real Estate Council of Ontario

statements of all accounts held by the brokerage and verifies the source of all monies being deposited to and disbursed from these accounts. In a real estate transaction, a brokerage often serves as the trustee of deposits made to secure the trade. For this reason, REBBA contains several requirements that specifically address the maintenance of these trust funds. The inspection process includes ensuring that trust deposits are maintained in accordance with REBBA. You have learned about the requirements to maintain trust deposits in an earlier module. In conjunction with the review of all the accounts of a brokerage, the inspector also reviews a number of real estate trade files, trade record sheets, the real estate trust ledger, and other accounting records maintained by the brokerage. In addition to reviewing financial documents, the inspector reviews broker, salesperson, and administrative staff rosters and various advertising materials generated by the brokerage. Once the inspection has been conducted, the inspector will provide a report to RECO. One of the core objectives of the inspection process is education, in that brokers and salespersons are made aware of the provisions of REBBA and RECO guidelines in order to help them be compliant. Inspections are conducted for three reasons: • To verify compliance with REBBA • To ensure registrants remain entitled to registration • To deal with a complaint

© 2021 Real Estate Council of Ontario

Lesson 3 | Page 5 of 17

Types of On-Site Inspections On-site inspections can be categorized as routine, complaint-initiated, or courtesy inspections. During an on-site inspection, the inspector typically focuses on real estate records, such as trade contracts and related documentation, trust accounts, and proper accounting procedures. The proper management of trust funds is particularly important to ensure that consumer funds are promptly deposited, correctly handled, and fully accounted for while in the brokerage’s possession. In addition to the on-site inspections, reconciliation inspections may also be requested for a brokerage. You will learn more about reconciliation inspections later in this lesson. The following three sections contain information about the types of on-site inspections.

© 2021 Real Estate Council of Ontario

Routine (general) inspection Routine inspections are conducted to ensure compliance with the Act and regulations. This type of inspection is conducted based on standard procedures, including the review of selected pending and closed trades. Typically, inspectors randomly select brokerages for inspections. The brokerage is contacted by telephone or email, and a date is mutually agreed upon, which is usually at least one week away. In some instances, an inspection without notice may be conducted when circumstances warrant such action. RECO may also conduct inspections on brokerages that are winding down their operations. At the conclusion of each inspection, the inspector likes to meet with the broker of record (and an administrative staff member if applicable) to review their findings.

© 2021 Real Estate Council of Ontario

Complaint-initiated inspection RECO handles inquiries, concerns, and complaints from the real estate industry and consumers. Complaintinitiated inspections are conducted pursuant to REBBA, and there are occasions when an unannounced and/or immediate inspection is initiated. For example, a complaint may surface that brings the brokerage’s financial stability into question. REBBA outlines the authority of RECO or a designate to “conduct an inspection at any reasonable time” with or without prior notice.

© 2021 Real Estate Council of Ontario

Courtesy inspection Inspectors will conduct courtesy inspections by request. For example, the broker of record may be concerned that internal operations are not fully aligned with regulatory requirements or may require assistance in implementing new procedures. This service is available to all brokerages. An inspector will coordinate a mutually agreeable time and conduct a full inspection of the brokerage as they would for a routine inspection. A courtesy inspection can be very effective for both the broker of record and management staff to correct problems and improve reporting systems. A broker of record can request a courtesy inspection when opening a new brokerage or when taking over an existing one. A courtesy inspection can be requested at any time but is mostly requested shortly after opening. This initial visit can help ensure that a new brokerage is aware of REBBA provisions.

© 2021 Real Estate Council of Ontario

Lesson 3 | Page 6 of 17

On-Site Inspection Activity Flow On-site inspections are conducted through RECO’s Department of Inspections and Investigations. Designated inspectors are given authority by RECO to conduct inspections. Inspectors and other RECO employees have a statutory obligation to preserve secrecy with respect to any information that is obtained while carrying out their duties in relation to an inspection. The following six sections contain information about the process involved in reporting and managing a claim or circumstance. © 2021 Real Estate Council of Ontario

Step 1: Initial Contact In a routine or complaint-initiated on-site inspection, an inspector will contact the brokerage and arrange for a date to conduct the inspection.

Step 2: Written Confirmation The inspector will provide correspondence to the brokerage to assist in preparation for their arrival.

Step 3: Inspection It is expected that the broker of record and administrative personnel will be available to assist with access to books and records during the inspection. During the inspection, the inspector can take time to educate the broker of record on any matters relevant to the inspection, to provide suggestions or information, and to answer any questions. The duration of an inspection is dependent on many variables, such as brokerage size, trading volume, and maintenance of books and records.

Step 4: Deficiencies At the end of the inspection, an inspection deficiency notice may be issued, upon which a follow-up inspection may be arranged and/or selected documents must be forwarded by the broker of record within a specified period of time.

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Step 5: File Review The completed inspection files are turned over to the manager of inspections and investigation at RECO for review and any further action, if required. If the files do not contain any errors or contain only minor errors, they may be closed.

Step 6: Further Action Further actions, if required, can be in the form of: • Reprimand • Imposition of voluntary terms and conditions • Scheduled re-inspection • Disciplinary meeting with RECO (this meeting may result in the Registrar issuing a proposal to suspend or revoke registration) Investigation (this may result in RECO issuing public advisory, freeze order, or Registrar’s proposal to suspend or revoke registration)

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Lesson 3 | Page 7 of 17

Responsibilities of the Broker of Record During an Inspection A broker of record is notified about routine or courtesy inspections in advance. However, for complaint-initiated inspections, there are occasions when an unannounced and/or immediate inspection could be initiated. Brokers of record are required to be present and have specific items ready for the inspector. The inspector’s initial contact with a broker of record is made by telephone or email, followed by a letter or email setting out items required for the inspection. The broker of record should carefully read the instructions and make certain that all items identified are available prior to the inspection date. The items specified in the letter may include: • Any and all bank accounts in the brokerage’s name, including real estate trust, commission trust, general, and property management bank accounts, and their accompanying deposit books, bank statements, cheque stubs, cancelled cheques, and reconciliations for the past two years • A detailed bank balance inquiry as of the inspection date for all bank accounts, including term deposits (An online inquiry to the bank will bring the transactions up to date from the last physical bank statement on file.) • Written confirmation from the bank indicating that the customer/client trust account is designated as a “real estate trust account”, which further outlines those with signing authority as well as any documented special procedures for the account (A copy of the documentation originally provided to RECO upon initial registration is acceptable as long as there have been no changes to the account since that time.) • Real estate trust ledger • Various advertising samples, such as newspaper ads, flyers, signs, business cards, and so on • Pending and closed transaction files © 2021 Real Estate Council of Ontario

• Cash receipt and disbursement journals and general ledger for the past two years • A complete list of branch offices and brokers and salespersons, which is dated and signed by the broker of record on brokerage letterhead, preferably outlined alphabetically in the following manner: 1. Officers, directors, and shareholders (with RECO registration numbers) 2. Branch office(s) (with RECO registration number) 3. Sales representative(s) (with RECO registration number) 4. Broker(s) (with RECO registration number) 5. Registered and unregistered assistants (with RECO registration numbers, where applicable), outlining their duties and who they assist The broker of record must be physically present during the inspection to answer any questions. The broker of record can also benefit from the discussion as the inspector reviews their findings.

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Lesson 3 | Page 8 of 17

Reconciliation Inspections In addition to on-site inspections, randomly selected brokerages are asked to submit trust account reconciliations for a given period so that RECO may review the reconciliations to ensure compliance with REBBA and its regulations. Along with the trust account reconciliation, brokerages must include a copy of the bank or financial institution statement for the real estate trust account, a list of the pending trades that make up the trust liability of the brokerage, and a letter indicating that the broker of record has reviewed the submission and can attest to its authenticity.

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Lesson 3 | Page 9 of 17

Common Mistakes In the event that there are any mistakes or deficiencies found during an inspection, the inspector will issue a Deficiency Notice Issued for Administrative Deficiencies. There will be a meeting with the inspector, broker of record, and appropriate administrative staff member (if applicable). They will go over the deficiencies, and based on the gravity of the issue, there may be different penalties and time limits imposed. The file will be reviewed by the manager of inspections and investigations, who may close the file. However, if it is found that deficiencies exist, this could lead

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to a reprimand, imposition of voluntary terms and conditions, scheduled re-inspection, a disciplinary meeting with RECO, and/or further investigation. The more common mistakes identified during inspections are as follows: • Accounts (such as general account, commission trust account, real estate trust account, and so on) are not properly named. • Trade files are not properly maintained (such as unseparated open and closed trades, missing documents, and so on). • Trade record sheets are not properly maintained with the minimum required information (such as the nature of the trade, the description of the property, and so on). • Minimum requirements for advertising (such as the name of the broker or salesperson as registered with RECO, category of registration, brokerage name, and so on) are not adhered to. • Business records (such as registration certificates required by REBBA) are not properly maintained. • The real estate trust ledger does not record all the required information (such as the amount of the deposit held by the brokerage, the name of the person from whom the money was received, and so on). • The minimum recommended books and records required to adequately control brokerage trust funds (or their electronic equivalent) are not properly maintained (such as missing monthly bank statements, monthly written reconciliation not signed and dated by the broker of record, and so on). You have learned about the actions to be taken to avoid these common mistakes in earlier modules.

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Lesson 3 | Page 10 of 17

A brokerage has been selected for a routine inspection. The inspector contacts the broker of record by phone to set up the appointment and then follows up with a letter confirming the appointment date and outlining all the documents that the inspector would like to review. Which items would the inspector typically review in their routine inspection? There are five options. There are multiple correct answers.

1

Real estate trust ledger

2

Pending and closed transaction files

3

A complete list of branch offices and registered individuals

4

A random selection of the brokerage ads and business cards

5

The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) policies and procedures manual

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Lesson 3 | Page 11 of 17

Inspections may lead to further investigations when RECO suspects any violations of REBBA. The violations may be serious enough to be prosecuted in Provincial Offences Court, and some situations may result in RECO under the authority of the Registrar issuing a proposal to revoke or suspend the registration of the brokerage, broker, or salesperson. Serious violations could also result in the Registrar issuing a proposal to refuse registration in case of a new application. As a broker of record, understanding the investigation procedures and the appeals process will help you to ensure overall compliance for the brokerage. It will also allow you to assist your brokers and salespersons in case they ever need to prepare a response to an enquiry as the result of an investigation.

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Lesson 3 | Page 12 of 17

RECO Investigations and Regulatory Enforcement Investigations can arise if RECO suspects any violations of REBBA. RECO may learn about the alleged violations through various sources such as an inspection, RECO’s registration department, or a complaint against a brokerage, broker, or salesperson. Investigators can access the premises and require persons to produce documents. Investigators can then remove those documents for copying. Investigations can involve search warrants, freeze orders, seizures, and applications to the court.

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Investigators appointed under REBBA may make an application to a justice of the peace for a search warrant. A justice of the peace may issue a search warrant if they are satisfied, based on information provided to them under oath, that there are reasonable grounds for believing that a person has contravened or is contravening REBBA, or that a person has committed an offence under the law of any jurisdiction that is relevant to the person’s fitness for registration under REBBA, and that information or evidence relating to the alleged offence can only be obtained by executing the warrant. A warrant, subject to conditions that the justice of the peace deems appropriate, grants various powers to an investigator, including entry, right to examine and seize anything described in the warrant, and right to use devices or systems on the premises to produce information or evidence described in the warrant. Investigations could also lead to a freeze order being issued. The director, appointed by RECO’s Board of Directors, may then issue such an order to hold funds or assets directed to any person who has money on deposit or controls any assets or trust funds of the brokerage or former brokerage. The director may make such an order if they believe that it is advisable for the protection of sellers and buyers of a registrant or former registrant and a search warrant has been issued under REBBA, or if criminal proceedings or proceedings in relation to REBBA or under any other Act are about to be or have been instituted against the registrant or former registrant.

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Lesson 3 | Page 13 of 17

Registrar’s Proposals A proposal is a critical component of RECO’s enforcement activities. It is the Registrar’s authority to revoke or suspend a registration, refuse an application for registration, or apply mandatory conditions to a registration. If, during an investigation, RECO determines that a registrant or an applicant has committed a serious violation of REBBA, the Registrar may issue a proposal. The Registrar has the authority to issue a proposal in situations where the registrant or applicant cannot reasonably be expected to conduct business in a financially responsible way or where past conduct gives reasonable grounds for the Registrar to believe that the registrant or applicant will not conduct business with integrity, honesty, and in accordance with the law. © 2021 Real Estate Council of Ontario

In such situations, the Registrar prepares a proposal and notifies the registrant or applicant of that proposal. The registrant or applicant has 15 days from notice of the proposal being served to file an appeal to the Licence Appeal Tribunal. If a hearing is requested, the Tribunal shall hold the hearing and may order the Registrar to carry out the Registrar’s proposal or an alternative outcome coming directly from the Tribunal. The Tribunal may attach conditions to its order or to a registration. Information about proposals that have been disposed of are included in the Complaints & Enforcements section of the RECO website. An appeal of a Tribunal decision can be made to the Divisional Court. Decisions of the Licence Appeal Tribunal are published on their website (www.lat.gov.on.ca).

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Lesson 3 | Page 14 of 17

Provincial Offences Act If, during an investigation, RECO determines that a registrant has committed a serious violation of REBBA, other than violations of the Code, the matter may go to a provincial offences court that operates under the Provincial Offences Act. The Provincial Offences Act is a procedural law for administering and prosecuting provincial offences, including violations of REBBA (other than Code of Ethics breaches, which fall to the Discipline Committee). The Act sets out

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procedures for legal prosecution in the Ontario Court of Justice system, including serving an offence notice to an accused person and conducting trials, sentencing, and appeals. Individuals convicted of offences are subject to fines of up to $50,000 and/or prison terms of up to two years less a day. Corporations are subject to fines of up to $250,000. Individuals found in contravention of REBBA may also be subject to a victim fine surcharge in addition to the specified fine, pursuant to the Provincial Offences Act. The surcharge is collected by the court and goes into the provincial victims’ justice fund account. Courts may order convicted persons to pay compensation and make restitution. RECO is required to provide information about charges laid and convictions. All relevant details are included in the Complaints and Enforcement section of the RECO website.

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Lesson 3 | Page 15 of 17

Discipline Committee If a registrant fails to comply with the Code, they may be subject to a discipline hearing. When RECO refers a matter to the Discipline Committee, the chair generally assigns a panel consisting of three members of the committee to hold a hearing. If the panel is composed of three or more members of the Discipline Committee, at least two members of the panel must be brokers and/or salespersons, and one member must have never been a broker or salesperson, or a shareholder, officer, director, or employee of an individual who is registered with RECO or was previously registered © 2021 Real Estate Council of Ontario

with RECO. At least one of the panel members must hold the same registration status as the individual who is the subject of the proceedings (that is, broker of record, broker, or salesperson). If the Discipline Committee determines an individual has failed to comply with the Code, it may order any of the following: • Require the broker of record, broker, or salesperson to take further educational courses • Require the brokerage to fund educational courses for the brokers or salespersons employed by the brokerage • Levy a fine to a maximum of $50,000 for a broker or salesperson and $100,000 for a brokerage • Fix and impose costs Discipline Committee decisions, including reasons, are published on the RECO website and are available to the public for at least 60 months.

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Lesson 3 | Page 16 of 17

A brokerage is looking to hire a new broker of record. The owners wish to test the candidate’s knowledge regarding RECO investigations and come up with the following scenario: “A brokerage has been part of an inspection. The brokerage was found to have serious non-compliance issues with REBBA and is now subject to a full investigation.” The owners then ask the broker of record to tell them what could happen to the brokerage in this hypothetical scenario. Which likely consequences should the broker of record candidate identify based on this hypothetical scenario? There are four options. There are multiple correct answers.

1

A search warrant could be issued against the brokerage.

2

A fine of up to $300,000 may be imposed on the brokerage.

3

A freeze order may be passed against the brokerage.

4

A Registrar’s proposal may be issued to the brokerage.

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Lesson 3 | Page 17 of 17

Congratulations, you have completed the lesson! The completion of this lesson has enabled you to: • Identify RECO’s inspections process • Describe RECO investigations and other enforcement procedures There are two sections on this page with a summary of the key topics that were discussed in this lesson.

RECO’s inspection program

Inspections are conducted for three reasons: • To verify compliance with REBBA • To ensure registrants remain entitled to registration • To deal with a complaint RECO is involved with routine, complaint-initiated, and courtesy on-site inspections. In addition to an on-site inspection, a reconciliation inspection may also be requested for a brokerage. Completed inspection files are turned over to the manager of inspections and investigation for review and any further action, as required.

Regulatory enforcement and RECO investigation procedures

Inspections may lead to further investigations when RECO suspects any violations of REBBA. The violations, other than violations of the Code, may be prosecuted in Provincial Offences Court, and some matters may result in the Registrar issuing a proposal to revoke or suspend the registration. Serious violations could also result

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in the Registrar issuing a proposal to refuse registration in a case of a new application. Investigations can involve search warrants, freeze orders, seizures, and applications to the court. The Registrar has the authority to issue a proposal to refuse, revoke, suspend, refuse to renew, or apply mandatory conditions to a registration. A Registrar’s proposal can be appealed to the Licence Appeal Tribunal. Violations of REBBA (other than Code of Ethics infractions) can be prosecuted in the Provincial Offences Court. Matters involving alleged breaches of the Code may be referred to the Discipline Committee.

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Lesson 4 | Page 1 of 9

Lesson 4: RECO’s Complaints Process and Progressive Discipline Enforcement Approach This lesson describes RECO’s complaints process and their progressive discipline enforcement approach.

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Lesson 4 | Page 2 of 9

RECO addresses inquiries, concerns, and complaints about the conduct of brokers and salespersons and takes a progressive discipline approach to protect the public. RECO evaluates each complaint individually and determines a course of action based on the specific circumstances. As a broker of record, it is important for you to be well-versed with the complaint process regarding an alleged misconduct so that you can help prepare your brokers and salespersons in case they need to respond to a complaint. Upon completion of this lesson, you will be able to: • Describe RECO’s progressive discipline process related to enforcement of requirements Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

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Lesson 4 | Page 3 of 9

RECO established the complaints process to ensure fair and flexible handling of complaints regarding the conduct of real estate brokerages, brokers, and salespersons. As a broker of record, it is important for you to be well-informed about the complaint process regarding an alleged misconduct and the discipline paths and outcomes available to RECO. If RECO decides to take action against your brokerage, or against a broker or salesperson who works for your brokerage, you will need to ensure your brokerage carries out its obligations in a timely manner.

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Lesson 4 | Page 4 of 9

Overview of RECO’s Progressive Discipline Process RECO evaluates each complaint individually and, based on the specific circumstances, determines a course of action. When processing a complaint, RECO considers the seriousness of the violation and whether the registrant involved has a history of misconduct, which may escalate the chosen course of action and potential outcome. RECO takes a progressive approach when dealing with complaints: • RECO will take no action if the complaint is not supported by evidence or falls outside of RECO’s authority. • In certain circumstances, RECO may attempt to resolve the matter, impose a warning, order to take a course, or impose a requirement to make a correction or some other action. • RECO may escalate matters to pursue a discipline hearing or provincial court prosecution. (You have learned about these actions in the previous lesson.)

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• In situations where RECO believes the registrant is no longer entitled to registration, RECO can seek suspension or revocation by way of a Registrar’s proposal. You will learn about RECO’s discipline paths and possible outcomes in this lesson.

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Lesson 4 | Page 5 of 9

RECO’s Discipline Paths and Outcomes © 2021 Real Estate Council of Ontario

RECO receives complaints from consumers, brokers, and salespersons. Of all the complaints that RECO receives, many result in no action, some result in administrative action, and fewer result in disciplinary action or prosecution. Outcomes are progressively more stringent based on the severity or frequency of the issue. If the same infraction (such as breaking an advertising rule) is made repeatedly, then this is an indication that something more serious is happening. Where appropriate, RECO takes a progressive discipline approach for each infraction. For example: • First offence: Warning ─ M u st correct th e p rob lem • Second offence: Warning + Course ─ M u st correct th e p rob lem an d take th e RECO Ad vertisin g W orksh op cou rse • Third offence: Discipline hearing ─ A p oten tial fin e of u p to $100,000 fo r th e b rokerage an d /or u p to $50,000 for a broker or salesperson Following is the information about RECO’s discipline paths and possible outcomes: • No action will be taken if the allegations contained in the complaint are not supported by the evidence and information obtained by RECO. This can also happen if the complaint falls outside of RECO’s legal jurisdiction; that is, RECO does not have the authority to deal with it. • The following administrative actions may be taken without a formal hearing: o Resolution: Where appropriate, RECO may attempt to resolve a complaint by facilitating dialogue between the complainant and the registrant to address issues that may have come from miscommunication or misunderstanding. Through the RECO dispute resolution process, the complainant and registrant may agree on an appropriate solution. o Courses: Where the evidence suggests gaps in the knowledge of the broker of record, broker, or salesperson, they may be required to take educational courses at their own expense. o Warning: The registrant may be issued a written warning that will permanently remain on their record and will be taken into consideration if future complaints are received.

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o Requirement: The registrant may be required to take corrective action (for example, to correct an advertisement that did not comply with the rules). • For cases requiring more than administrative action, the following may be considered: o Discipline Hearing: The complaint may be referred to the Discipline Committee for a hearing. If it is determined that a registrant failed to comply with the Code, they may be ordered to take educational courses, pay a fine of up to $50,000 for individuals and $100,000 for brokerages, and/or pay costs. You can review discipline hearing decisions located on the RECO website. These summaries are excellent resources for broker and salesperson training and for office discussions. o Provincial Court Prosecution: Registrants who breach sections of REBBA (other than the Code) may be prosecuted in the Ontario Court of Justice system. Individuals convicted in Court of offences are subject to fines of up to $50,000 and/or prison terms of up to two years less a day. Corporations are subject to fines of up to $250,000. • In situations where RECO believes a registrant is no longer entitled to registration, the following actions may be taken: o Proposal: RECO can issue a proposal to suspend, revoke, refuse to renew, or apply mandatory conditions to the registrant’s registration. This is the most severe action RECO takes and is reserved for the most serious circumstances. Registrants who receive a notice of proposal have 15 days from the date the proposal is served to file a notice of appeal with the Licence Appeal Tribunal for a hearing. If no appeal is received, the proposal will be carried out. o Suspension: If a proposal to revoke has been issued, RECO may also immediately suspend a registration if it is believed to be in the public interest. Suspended registrants must immediately stop trading in real estate and return their registration certificate to RECO. Suspensions are also ordered for non-payment of an insurance premium.

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Lesson 4 | Page 6 of 9

Brokerage’s Obligation to Ensure Compliance A broker of record must ensure that every broker and salesperson that the brokerage employs is carrying out their duties in compliance with REBBA and the Code of Ethics. As you have learned earlier, brokers and salespersons are employed for purposes of REBBA and are an extension of the brokerage. If the broker of record is required to respond to RECO regarding a complaint, they must fulfill the request within the stipulated time period. When the broker of record is notified by RECO of a complaint that has been received regarding a broker or salesperson employed by the brokerage, the broker of record must follow up with the individual broker or © 2021 Real Estate Council of Ontario

salesperson in preparing the response to RECO. The broker of record should ensure that the broker or salesperson fully understands what should be included in the response to the complaint. A broker of record has the following obligations to ensure compliance with RECO’s complaints and discipline process: • If the brokerage has been ordered to pay fines as a result of penalties by the Discipline Committee, then the brokerage must make payment within the mentioned time period. • If the broker of record or brokerage is found in contravention to REBBA (other than the Code) by a justice of the peace or judge and is ordered to pay penalties, then payment must be made within the required time period. • If a broker or salesperson is ordered to take educational courses, the broker of record must follow up with the individual and oversee that they have registered and completed the course within the prescribed time period and reported back to RECO. • If the Registrar has issued a warning, the broker of record must review this matter with the broker or salesperson to ensure that they fully understand the appropriate measures in such situations. • If the Registrar has ordered the brokerage to make a correction (such as to fix an advertisement), the broker of record must ensure that sufficient measures have been taken to correct the advertisement. • If the Registrar's proposal is carried out or the Licence Appeal Tribunal’s decision is to suspend, revoke, or attach conditions to a registration: o The broker of record must ensure that no trading activities take place in cases of suspension or revoking of registration. o In cases of any conditions imposed on registration, the broker of record must ensure that these conditions are fulfilled.

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Lesson 4 | Page 7 of 9

What are the possible actions that the Discipline Committee may take against a salesperson found to be in violation of the Code of Ethics? There are four options. There are multiple correct answers.

1

Prosecute the matter in the Provincial Offences Court

2

Order the salesperson to pay a fine of up to $50,000

3

Suspend the salesperson’s registration

4

Order the salesperson to take further educational courses

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Lesson 4 | Page 8 of 9

An owner of a brokerage is conducting an interview with a possible broker of record candidate. The owner presents the following situation: “A brokerage has been fined due to a salesperson’s non-disclosure when purchasing a property for themselves. The salesperson was also fined and ordered to complete an educational course.” The owner then asks the candidate what actions the broker of record should take in such a situation. What actions should the candidate consider as part of their response? There are four options. There are multiple correct answers.

1

Ensure the salesperson prepares an appropriate response to RECO by including all necessary details

2

Ensure the brokerage pays the fine within the mentioned time period

3

Ensure the salesperson registers and completes the educational course within the required time period

4

Ensure the salesperson does not participate in any trading activities until they pay the fine

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Lesson 4 | Page 9 of 9

Congratulations, you have completed the lesson! The completion of this lesson has enabled you to: • Describe RECO’s progressive discipline process related to enforcement of requirements Here is a summary of the key topics that were discussed in this lesson.

© 2021 Real Estate Council of Ontario

A broker of record must ensure that every broker and salesperson that their brokerage employs is carrying out their duties in compliance with REBBA and the Code. RECO takes a progressive approach to discipline that considers the nature of the complaint. Outcomes range from taking no action (if a complaint is not supported by evidence or falls outside of its legislated mandate) to issuing a warning; ordering a broker of record, broker, or salesperson to take an educational course; or prosecuting a registrant for more serious breaches of REBBA or the Code. When notified by RECO of a complaint regarding a broker or salesperson employed by the brokerage, the broker of record will need to discuss the alleged violation with the individual broker or salesperson and determine the best way forward. If the Registrar makes a proposal to revoke the brokerage’s, broker’s, or salesperson’s registration, they can appeal this proposal to the Licence Appeal Tribunal. The broker of record must ensure that the brokerage’s obligations to respond to any RECO disciplinary actions are carried out within the prescribed time.

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Lesson 5 | Page 1 of 6

Lesson 5: Training Administrative Staff on REBBA Compliance This lesson discusses the topics for training administrative staff to support brokerage compliance with REBBA.

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Lesson 5 | Page 2 of 6

For a brokerage to function effectively, it is important for you, as a broker of record, to ensure that proper training is provided to the administrative staff. A strong understanding of the applicable REBBA sections will allow the administrative staff to correctly carry out duties as per REBBA requirements on behalf of the brokerage. This lesson is a recap to the importance of training administrative staff on various topics. Upon completion of this lesson, you will be able to: • Identify the topics for training administrative staff to support brokerage compliance with REBBA Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

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Lesson 5 | Page 3 of 6

Ultimate responsibility for work done in the brokerage lies with the broker of record. As you learned in an earlier module, the broker of record delegates specific duties to the administrative staff. Therefore, as a broker of record, you will need to ensure that your administrative staff are trained to assist your brokerage in day-to-day activities, as they will play a key role in the success of your brokerage.

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Lesson 5 | Page 4 of 6

Importance of Training Administrative Staff As you have learned in various modules throughout the program, administrative staff play a major role in helping a broker of record in day-to-day tasks. As key individuals, they will need training in order to help the brokerage with various tasks, such as preparing trade record sheets and monthly reconciliations of bank accounts and maintaining the real estate trust ledger. While the broker of record is ultimately responsible for ensuring their brokerage complies with REBBA, administrative staff need to understand these requirements as well. Administrative staff are an extension of the brokerage, and the broker of record will often need to delegate work to them. Proper training will help © 2021 Real Estate Council of Ontario

administrative staff understand what is expected of them and will help them perform according to what is detailed in their job description. The broker of record can take advantage of several resources from RECO when training administrative staff, such as Mandatory Continuing Education (MCE) courses for non-registered brokerage employees, compliance videos, Registrar’s Bulletins, and other publications. Learners can visit the following links for more information: • MCE Non-Registrant Courses (https://www.reco.on.ca/educationblog/mce-non-registrant-courses/) • Compliance videos (https://www.reco.on.ca/workingelectronically/Part1/presentation_html5.html, https://www.reco.on.ca/workingelectronically/Part2/presentation_html5.html) • Registrar’s Bulletin (https://www.reco.on.ca/real-estate-professionals/registrars-bulletins/) • Other publications (https://www.reco.on.ca/real-estate-professionals/resources/guides/) The broker of record should ensure that their brokerage holds ongoing training to update the administrative staff with industry changes and new developments.

© 2021 Real Estate Council of Ontario

Lesson 5 | Page 5 of 6

Important Training Topics It is important for the administrative staff to have a thorough knowledge of REBBA as it applies to their job. Brokers of record should provide their administrative staff with appropriate training. Some important topics that the administrative staff should be trained in include: • Various sections of REBBA to understand aspects such as advertising requirements, file maintenance, trade processing, and management of the various bank accounts, including the real estate trust account • RECO inspections (content of what is inspected) to ensure that records are being properly maintained and are readily available during inspections © 2021 Real Estate Council of Ontario

• Investigations (and their serious nature) to better understand the authority of RECO during investigations and to ensure that all brokerage files are being properly maintained and are readily available to investigators • Code of Ethics complaints to ensure that all documentation and trade files are properly maintained and are accessible by interested parties so that appropriate responses can be prepared and, in some cases, so documents can be used as evidence in a response to a complaint and/or reporting of an insurance claim • RECO’s progressive discipline process to ensure that the staff understands various processes and responsibilities of all brokerage employees when dealing with disciplinary matters • RECO’s Professional Liability Insurance Program’s errors and omissions reporting requirements to ensure that trade record files and other documents are being properly maintained and are accessible so that complete and meaningful reports can be completed and submitted to the insurer

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Lesson 5 | Page 6 of 6

Congratulations, you have completed the lesson! The completion of this lesson has enabled you to: • Identify the topics for training administrative staff to support brokerage compliance with REBBA Here is a summary of the key topics that were discussed in this lesson. A broker of record should ensure that the administrative staff are well trained in all duties mentioned in their job description. RECO offers courses for non-registrants that will help administrative staff better understand REBBA requirements. The key training topics for training administrative staff may include various sections of REBBA, RECO inspections and investigations, Code of Ethics complaints, RECO’s progressive discipline process, and RECO’s Professional Liability Insurance Program’s errors and omissions reporting requirements. A broker of record should hold ongoing training through their brokerage to update the administrative staff about industry changes and new developments.

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Lesson 6 | Page 1 of 7

Lesson 6: Summary Practice Activities

This lesson provides a series of activities to test your knowledge of the entire module.

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Lesson 6 | Page 2 of 7

This lesson provides summary practice activities. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

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Lesson 6 | Page 3 of 7

A broker of record presents the following hypothetical scenario to their brokers and salespersons during a training session: “A property without a side drive is listed by a brokerage, but its listing states that frontyard parking space is available. A salesperson with the brokerage shows a buyer client the property and informs them of this fact. The salesperson notes that the property in question would require a curb cut to install a proper driveway. At the point of drafting the offer, the salesperson asks a fellow broker about the situation, as he owns a property nearby. The broker is not completely certain but tells the salesperson that front-yard parking is common in the area. The buyer’s offer is ultimately accepted, and the transaction closes. The buyer then parks their car on the spot, only to be ticketed that same evening. The city subsequently confirms that permits are no longer being issued for front-lawn parking in the neighbourhood.” The broker of record asks the brokers and salespersons how they can prevent such an incident from happening at their brokerage. Which options should the brokers and salespersons consider in their response? There are four options. There are multiple correct answers.

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1

Do not make any statements in a listing without verifying the facts

2

Consult with brokers and salespersons who live in the same area about neighbourhood concerns

3

Include clauses, approved by their brokerage, in agreements

4

Verify material facts prior to creating and submitting the buyer’s offer

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Lesson 6 | Page 4 of 7

A broker of record presents the following hypothetical scenario to their brokers and salespersons during a training session: “A brokerage is sued based on vicarious liability due to a salesperson’s negligent misrepresentation. The salesperson had failed to verify the lot dimensions but indicated that the lot was two acres in the listing posted on the real estate board. A buyer purchased the property with the intention to sever it into two lots. The agreement of purchase and sale did not include a condition on obtaining the severance. When the buyer closed the transaction and applied for a severance, they learned from the municipality that the lot was less than two acres and did not meet the minimum lot dimension criteria for severance in that area.” The broker of record asks the brokers and salespersons how they can prevent such instances in the future. Which options should the brokers and salespersons consider in their response? There are four options. There are multiple correct answers.

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1

Verify material facts through source documentation

2

Include appropriate conditions and clauses in agreements of purchase and sale

3

Follow the reporting requirements of the Professional Liability Insurance Program administered by RECO

4

Obtain approval from the broker of record before listings and agreements are signed

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Lesson 6 | Page 5 of 7

A broker of record presents the following hypothetical scenario to their brokers and salespersons during a training session: “A new salesperson with ABC Real Estate Inc. is called by one of the executors of an estate to sell vacant land owned by a deceased family member, which consists of 98 acres, more or less. None of the executors are very familiar with the property. The land, originally one-half of a concession lot (100 acres), had been reduced in size some years ago by two one-acre parcels severed for family members. The executors based their size estimate on 15-year-old documents in the deceased’s files, including a property assessment notice. One of the executors goes with the salesperson to point out the property lines based on fence locations and his recollection from having been there as a teenager. The acreage is low lying with a stream running through the middle of the property. Approximately 30 per cent of the land towards the rear of the property is on a higher elevation with a small, wooded lot. The salesperson has the executor sign a representation agreement and places signs on the property the same day. After the executor leaves, a prospective buyer stops by when he sees the salesperson putting up for sale signs. They walk the property together, and the buyer wants to make an offer as a buyer client. He claims to know the property well and that he doesn’t need to investigate it further. In fact, he ultimately instructs his © 2021 Real Estate Council of Ontario

solicitor to proceed as quickly as possible to close the sale, not to worry about a survey, and to get things wrapped up promptly, as he wants to build a new home before the winter. A stream-side location has already been picked out. An offer is drafted late that afternoon and accepted by the executors on the following day, with a closing date 30 days later. After the closing, when undertaking a survey in preparation for drainage tiling, it is discovered that the property consists of 83.72 acres. Furthermore, building permit problems arise, given floodplain issues. The home can thus not be located where initially planned. The buyer takes legal action against the executors, regarding the property size issue, and the brokerage for failing to protect his interests.” Identify the type of misrepresentation in the given scenario and describe the problems that ultimately led to litigation as per the above scenario. WHILE NAVIGATING THROUGH THE ONLINE MODULE, CLICK THE EXPERT RESPONSE BUTTON TO VIEW THEIR ANSWER.

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Lesson 6 | Page 6 of 7

A broker of record conducts a training session for their brokers and salespersons on the importance of reporting issues to the insurer in a timely manner. What information should the broker of record include in the training session? There are four options. There are multiple correct answers.

1

Statistics about insurance claims in urban, rural, residential, and commercial real estate transactions

2

Reporting the claim and accepting liability to the insurer

3

Use of the “Notice of Claim ‐ Errors & Omissions” form to submit their report to the program adjuster

4

Instructions to notify the insurer only when a lawsuit is commenced against the brokerage

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Lesson 6 | Page 7 of 7

Congratulations, you have completed the lesson!

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Module Summary | Page 1 of 3

Module Summary This lesson contains a summary of the entire module.

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Module Summary | Page 2 of 3

Congratulations, you have completed this module! This lesson will present a summary of the lessons in this module.

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Module Summary | Page 3 of 3

There are five sections on this page with a summary of the key topics that were discussed in this module.

Guidelines to Avoid Common Issues in Brokerage Operations

Brokers of record are responsible for maintaining standards and following the Code of Ethics at their brokerage, as any violations can lead to severe repercussions. A broker of record can more effectively minimize potential errors by concentrating on three broad types of activities, that if not executed properly can elevate risk: • Client representation: When a broker or salesperson fails to provide the fiduciary duties and disclosures, there is a breach in the client relationship, which may result in litigation. A broker of record can mitigate these issues by ensuring their brokers and salespersons are properly trained to: o Advance a client’s interests during agreement negotiations and ensure the agreement of purchase and sale protects the client’s interests while being fair to all parties in the trade o Disclose conflicts of interest in writing at the earliest practicable opportunity, including referral of third-party services when related to brokers and/or salespersons and acquisition or disposition of property by brokers and/or salespersons • Misrepresentation – communicating material facts: When a broker or salesperson misrepresents a material fact to a seller or buyer and they proceed with the acquisition or disposition, it may result in the seller or buyer making decisions to their detriment, which may have negative consequences and lead to litigation. © 2021 Real Estate Council of Ontario

A broker of record can mitigate these issues by ensuring their brokers and salespersons are properly trained to: o Verify information through source documentation, such as surveys, zoning bylaws, property tax bills, assessment notices, deeds, receipts of improvements, and existing mortgage details o Investigate, document, and disclose material facts that may influence a seller’s or buyer’s decision with the acquisition or disposition of a property • Documentation: When a broker or a salesperson prepares documents containing errors or fails to deliver documents on time to the seller or buyer, it may result in negative consequences for one or both parties to the transaction and may lead to litigation. A broker of record can mitigate these issues by ensuring their brokers and salespersons are properly trained to: o Use clauses approved by the brokerage and available in the inventory of clauses when creating a document o Eliminate clauses that create ambiguity when receiving documents from others and make necessary corrections, if required There are three types of misrepresentation: fraudulent, innocent, and negligent. Brokers of record should also be well aware of risks that may lead to tort liability. A tort is a civil, non-criminal wrongdoing that results in injury (for example, personal, business, or other loss), in which the injured party can pursue legal action for damages. An extension of this is vicarious liability, in which the actions of a broker or salesperson could create liability for the brokerage, even though the brokerage has no knowledge of the events or circumstances creating the liability. © 2021 Real Estate Council of Ontario

Completion of this lesson has enabled you to: • Describe the interrelationship between REBBA, providing client services, brokerage reputation, and business results • Identify the common problems and high-risk activities that could have a negative effect on a brokerage’s reputation • Identify activities that, if not done correctly, can lead to misrepresentation, negligence, tort liability, and vicarious liability

Brokerage's Responsibilities Regarding Reporting Claims or Circumstances

Timely and accurate reporting of claims and circumstances is critical. Reporting a claim or a circumstance to the insurer will protect the broker or salesperson if a situation escalates and a lawsuit is commenced against them. Brokers and salespersons should carefully review any complaint levied against them (either verbal or written, casual or formal) to determine whether any allegation of negligence or damages is claimed to have been suffered by a complainant and to determine whether the matter should be reported to the insurer. However, if there is any doubt, then it is likely a circumstance and should be reported, as there is no downside to reporting. If they have made a mistake and catch it along the way (even when the seller or buyer has not noticed), they should report it (even when there is only the slightest chance it could result in an issue). As soon as a claim or a circumstance is identified, the broker of record and the individual broker or salesperson should prepare for the following process: 1. Reporting of the claim: An individual can complete the “Notice of Claim ‐ Errors & Omissions” form to submit their report to the program adjuster.

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2. Investigation of the report: ClaimsPro, Canada’s largest claim management firm, will report the finding of the investigation of the claim to the insurer for a determination of the next steps in managing the claim. 3. Co-operation: An important condition of coverage under the policy is that the brokerage, broker of record, broker, or salesperson must co-operate with the insurer and its representatives in its investigation and defence of the brokerage's claim. RECO organizes an annual general meeting where it presents an annual report with the intention of updating the real estate industry in Ontario. It is important to note that RECO’s annual report only includes high-level statistics, and further details can be found on www.reco-claims.ca (under the Documents tab). Brokers of record can develop training to enhance brokers and salespersons’ understanding of insurance claims and circumstances in which insurance claims may be made. In the training, brokers of record should include information about the Professional Liability Insurance Program. This is a proactive approach to prevent similar issues from occurring at their brokerage as well as to ensure the brokers and salespersons stay up to date and well informed. Completion of this lesson has enabled you to: • Identify responsibility regarding reporting claims or circumstances that have the potential to become a claim under the Professional Liability Insurance Program administered by RECO

Brokerage's Obligations The primary purpose of conducting an inspection is to ensure that a brokerage is Regarding Inspections operating in compliance with REBBA. The fact that real estate brokerages are subject to inspection and held accountable for how they conduct business helps RECO to © 2021 Real Estate Council of Ontario

fulfill its mission of delivering regulatory services that protect the public interest and enhance consumer confidence in the real estate profession. Inspections are conducted to verify compliance with REBBA, to ensure registrants remain entitled to registration, and to deal with a complaint. There are three types of on-site inspections: 1. Routine 2. Complaint-initiated 3. Courtesy In addition to the on-site inspection, a reconciliation inspection may also be requested for a brokerage. A broker of record has a key role to play during the inspections. They must provide the inspector with all the documents they require to conduct the inspection and be available to discuss any matter with the inspector. The broker of record is responsible and accountable for all registered and non-registered staff that work in their brokerage and is also liable for their actions. Inspections may lead to further investigations when RECO suspects any violations of REBBA. Investigations can involve search warrants, freeze orders, seizures, and applications to the court. If, during an investigation, RECO determines that a registrant has committed a serious violation of REBBA, the Registrar may issue a proposal. The Registrar’s authority to revoke or suspend a registration, refuse an application for registration, or apply mandatory conditions to a registration is a critical component of RECO’s enforcement activities. © 2021 Real Estate Council of Ontario

If RECO determines that a registrant has committed a serious violation of REBBA (other than the Code), the matter may go to a provincial offences court. Individuals convicted of offences are subject to fines of up to $50,000 and/or prison terms of up to two years less a day. Corporations are subject to fines of up to $250,000. If a registrant fails to comply with the Code, they may be subject to a discipline hearing. If the Discipline Committee determines an individual has failed to comply with the Code, it may: • Order the broker of record, broker, or salesperson to take further educational courses • Require the brokerage to arrange and fund the educational courses • Levy a fine to a maximum of $50,000 for a broker or salesperson and $100,000 for a brokerage • Fix and impose costs Completion of this lesson has enabled you to: • Identify RECO’s inspections process • Describe RECO investigations and other enforcement procedures

RECO's Complaints Process and Progressive Discipline Enforcement Approach

RECO takes a progressive approach to discipline, which considers the nature of the complaint. RECO evaluates each complaint individually and, based on the specific circumstances, determines a course of action. These actions include the following: • RECO will take no action if the complaint is not supported by evidence or falls outside of RECO’s authority. • In certain circumstances, RECO may attempt to resolve the matter, impose a warning, order to take a course, or impose a requirement to make a correction. © 2021 Real Estate Council of Ontario

• RECO may escalate matters to pursue a discipline hearing or provincial court prosecution. • In situations where RECO believes the registrant is no longer entitled to registration, RECO can seek suspension or revocation. A broker of record will need to discuss the complaint with their brokers and salespersons involved in the complaint and determine the next course of action. A broker of record must ensure compliance with RECO’s directives. Completion of this lesson has enabled you to: • Describe RECO’s progressive discipline process related to enforcement of requirements

Training Administrative Administrative staff can be considered an extension of the brokerage, as many dayto-day operational tasks are often delegated to them. Therefore, they should be Staff on REBBA trained regarding the compliance requirements of REBBA. Compliance

A broker of record plays a crucial part in making sure administrative staff get the requisite training. RECO offers programs for non-registered employees. The courses cover key topics that enhance the awareness of administrative staff in regard to compliance issues. Completion of this lesson has enabled you to: • Identify the topics for training administrative staff to support brokerage compliance with REBBA

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Module 5: Monitoring the Business Environment of a Brokerage Disclaimer: This is a reference document which contains pages from the Accessible eLearning module. You should complete the eLearning module to proceed to the next step. Please note that the accessible module on the LMS only contains the interactive pages and you need to go through the content of this document thoroughly to attempt the interactive activities in the module. Please use Adobe Acrobat Reader (Recommended version 9 or above) to navigate through this PDF. Real Estate Broker Program © 2021 Real Estate Council of Ontario. All Rights Reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or in any means – by electronic, mechanical, photocopying, recording or otherwise without prior written permission, except for the personal use of the Real Estate Broker Program learner.

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Module 5: Monitoring the Business Environment of a Brokerage Some individuals who obtain their broker registration do so with the intent of opening their own brokerage, where they will also be the broker of record. Some individuals may accept a position as a manager or broker of record from the owner of an existing brokerage. If you are both the owner and the broker of record, it will be your responsibility to ensure compliance, viability, and growth for your brokerage. If an owner employs you as a manager or broker of record, in addition to ensuring the brokerage complies with all regulatory requirements, you may also be required to contribute to the growth and success of the brokerage. Therefore, it is important for you to be aware of the key factors that can contribute to a brokerage’s success. Success can mean different things to different people, and the parameters for success can change from time to time for the owner and/or broker of record, depending upon different influences, such as market conditions and the local business environment. After considering the market conditions and the local business environment, as the owner and/or broker of record, you should be able to set goals to help define your brokerage’s growth strategy. This module focuses on techniques to assess the business environment of a brokerage, aspects to consider during strategic planning for a brokerage, and the elements to include in a business plan. To check your understanding of this module, you must complete all the activities in the online module. While navigating through the online module, click the Legislation button to view laws and regulations related to this module. The contents of the thumbnails Accessible PDF.

and References from the module are added to support your learning throughout this

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Module 5: Monitoring the Business Environment of a Brokerage

Number of Lessons

Lesson Number

5 Lessons

Lesson Name

Lesson 1

Understanding the Business Environment

Lesson 2

Defining Strategic Directions for a Brokerage

Lesson 3

Creating a Business Plan for a Brokerage

Lesson 4

Summary Practice Activities Module Summary

© 2021 Real Estate Council of Ontario

Lesson 1 | Page 1 of 14

Lesson 1: Understanding the Business Environment

This lesson describes various ways to examine the business environment that a brokerage operates within, including competitor analysis and self-assessment of core competencies and competitive advantages. This lesson also describes how an environmental scan and a strengths, weaknesses, opportunities, and threats (SWOT) analysis can be used to assess the business environment that a brokerage operates within.

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Lesson 1 | Page 2 of 14

A sound business analysis helps focus on, articulate, and document what a business does today and what it is expected to do in the future. It also enables the identification of the business’s core competencies and competitive advantages in the marketplace. As the owner and/or broker of record, it will be important for you to analyze your business on an ongoing basis to understand the existing state of your brokerage with respect to the environment in which it operates and adapt your goals to drive business growth and success. Upon completion of this lesson, you will be able to: • Identify ways to assess the business environment to evaluate performance of the brokerage Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

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Lesson 1 | Page 3 of 14

You learned in an earlier course that real estate brokerages face both significant opportunities and challenges. You also learned that a full analysis of market conditions at the outset will assist in making key decisions related to setting up a new brokerage. This market research is not a one-time activity. After you set up a brokerage, you will need to continually do research to identify potential growth opportunities, competitive advantages in the marketplace, and new trends in brokerage operations that you can capitalize on. You will also need to identify potential threats and weaknesses and assess if there are any changes required in your brokerage to ensure continuous viability and sustainability. This research provides the backdrop for strategic planning and sound business decision-making.

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Lesson 1 | Page 4 of 14

Macro and Micro Forces in the Marketplace Market conditions change due to macro and micro forces. Once a brokerage is operational, the owner and/or broker of record should continue to be attentive to the macro and micro forces in the marketplace and identify market niches that are undiscovered or underdeveloped. As an owner and/or broker of record, this will allow you to better define future activities for the brokerage. Macro forces influence the general business environment and consumer sentiments at any point in time and could be political, economic, legal, and/or social. For example, an increase or decrease in mortgage rates could influence the consumer sentiment to buy or sell. Micro forces relate to the state of the local market segment where the brokerage does business. For example, there could be a sudden surge in population as a result of a new employer in the region, thereby increasing demand for housing. On the other hand, if a large employer closes their operation, it could result in an increase in unemployment that may have a corresponding negative impact on home ownership.

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The owner and/or broker of record should continuously adapt to the macro and micro forces influencing their marketplace to ensure sustainability or to leverage growth opportunities. The environmental scan and the SWOT analysis are two techniques that can be used to evaluate the business environment before creating appropriate action plans. You will learn about the environmental scan and the SWOT analysis later in the module.

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Lesson 1 | Page 5 of 14

Market Analysis Recall in an earlier course, you learned about analyzing market conditions for potential growth and niche opportunities before setting up a new brokerage. An owner and/or broker of record needs to continue doing this analysis with a focus on reviewing macro and micro forces to obtain an accurate and up-to-date perspective of the marketplace. This may include reviewing significant national, regional, and local real estate market trends and then tracing real estate growth and trends in the marketplace. The owner and/or broker of record should also look at any significant political, economic, legal, and social factors that can impact real estate (for example, new legislation, consumer demand shifts, economic conditions, and new technologies). As you learned in an earlier course, some sources of information that can be used to develop an understanding of the current local real estate landscape include Statistics Canada, the Canada Mortgage and Housing Corporation, the Federal Economic Development Agency, the local real estate board or association (if the brokerage is a member), economic development offices, the municipal office, and local chambers of commerce. Using the information provided by these sources assists in developing an understanding of the current state of real estate, particularly in the brokerage’s target market trading area. It also helps the owner and/or broker of record define a clear strategic direction for the brokerage and develop a targeted business plan that aligns with their growth objectives.

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Lesson 1 | Page 6 of 14

Competitor Analysis Apart from conducting a market analysis to identify if a market niche is undiscovered or underdeveloped, the owner and/or broker of record should also determine if there is growth potential for their brokerage. They can establish this by considering if there are competitors currently operating in the marketplace that have ignored potential opportunities and if any new competitors are currently entering or anticipated to enter the marketplace within the foreseeable future. Existence of competitors might negatively affect the brokerage business plan for growth. A competitor analysis is an assessment of brokerage competitors within a defined geographic or market trading area. The primary purpose of conducting a competitor analysis is to gain a reasonable understanding of competitors’ capabilities by analyzing their strengths and weaknesses. It is important to identify who the competitors are and their capabilities in order to understand how they may impact the existing market share of the brokerage or the brokerage’s potential for growth. The owner and/or broker of record should complete a competitor analysis that includes the following: • Areas of specialization • Number of brokers and salespersons

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• Market position • Strategic alliances • Target markets • Brand loyalty • Office amenities • Commission split The main sources of this information are the real estate board or association and competitors’ websites. As you will learn later in the module, a competitor analysis is also a part of the business plan. Successful owners and/or brokers of record regularly monitor their local marketplace to identify areas of potential growth or possible vulnerabilities in their brokerage.

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Lesson 1 | Page 7 of 14

Core Competencies and Competitive Advantages While it is essential to understand the current real estate landscape for the brokerage, it is equally critical to look at the strengths of the brokerage and identify and/or revalidate the competitive advantages that the brokerage has over others operating in the same marketplace. It is also important to look at the weaknesses of the brokerage so that the owner and/or broker of record can identify ways to improve, so these weaknesses do not turn into a competitive advantage for the competition. Core competencies can be described as skills, knowledge, and abilities as well as resources that form a brokerage’s strengths and set the brokerage apart from competitors. These may include:

• • • • •

Special skills, technical knowledge, and abilities of brokers, salespersons, and administrative staff Unique services or programs offered to consumers, such as a home warranty plan Unique services offered to brokers and salespersons, such as a customized training program Innovative marketing strategies, such as designing buyer profiles Strategic alliances, such as with a franchise or relocation company © 2021 Real Estate Council of Ontario

Core competencies form the basis of a brokerage’s competitive advantages and their sustainable position in the marketplace. As you learned in an earlier course, a brokerage can use one or more of the following strategies to create a competitive advantage:

• • • • •

Establish a market position Investigate alliances and/or affiliations Seek market niches Scrutinize brand loyalty options Generate synergism

Additional competitive advantages can also flow from core competencies and other attributes that favour the brokerage’s success in the marketplace. These generally involve sustainable attributes that have value, such as a skillset that may be difficult for a competitor to duplicate (for example, an industrial sales division where the salespersons have engineering or finance backgrounds). The owner and/or broker of record can implement steps to improve the core competencies that they are strong in, and those that they are lacking with the aim to turn them into competitive advantages. Competitive advantages may be short-lived as competitors will often attempt to duplicate the advantage. Therefore, the owner and/or broker of record should be continually identifying opportunities that will create competitive advantages for the brokerage.

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Lesson 1 | Page 8 of 14

Assessing Core Competencies and Competitive Advantages An owner and/or broker of record should continually assess their core competencies and the competitive advantages of their brokerage. This assessment is an important consideration for the strategic planning process, which is covered in detail in a later lesson. The following two sections contain information on some sample questions that an owner and/or broker of record can ask themselves to identify their core competencies and competitive advantages.

Core competencies When identifying core competencies, the owner and/or broker of record should ask themselves the following questions: • Which of the brokerage’s strengths are aligned with the established strategic directions? • What weaknesses could seriously impact their ability to achieve their goals? • How can brokers, salespersons, and administrative staff adapt to a changing marketplace? • How can the brokerage find the right individuals to fulfill critical positions within an acceptable time frame? • What brokerage facilities, equipment, and information management systems are sufficient and appropriate for business growth?

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Competitive advantages When identifying competitive advantages, the owner and/or broker of record should ask themselves the following questions: • What unique services could the brokerage promote to maximize its capabilities? • What resources and skills need to be developed or acquired to maintain market position? • What significant plans should be in place to develop internal resources and skills for brokerage growth? • What latest technology can the brokerage use to engage with clients? • What market position is realistic considering the strengths and weaknesses identified?

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Lesson 1 | Page 9 of 14

Environmental Scan Ongoing monitoring is an essential activity for owners and/or brokers of record. Two time-tested techniques that can be used in the monitoring process are the environmental scan and the SWOT analysis. An environmental scan is a structured method used to evaluate and assess the current business environment while considering different dimensions or perspectives, both internal and external to the brokerage. The environmental scan for a brokerage typically consists of the following dimensions:

•

•

Resources and skills (internal): This dimension is used to conduct an internal assessment of strengths and weaknesses of the brokerage. This includes an assessment of brokers, salespersons, administrative staff, as well as the broker of record and other management staff. In addition, this may involve an assessment of technology and financial resources (for example, working capital to support required production levels). Industry-specific issues and trends (external): This dimension requires that the owner and/or broker of record become a market researcher; seek sales force opinions; take advantage of market-related magazine © 2021 Real Estate Council of Ontario

•

•

•

articles, reports, and studies that provide market insight; and seek advice from experts. This research should be specific to the local marketplace. Consumer needs and wants (external): This dimension requires that the owner and/or broker of record review consumer opinions, confidence, and preferences for services offered by a brokerage, specifically at a local level. One size does not fit all. The brokerage has to be aware of the needs and wants of their consumers. The consumer for a brokerage not only includes sellers and buyers but also brokers and salespersons. Overall business environment (external): This dimension requires that the owner and/or broker of record consider the overall business environment for real estate to identify opportunities for growth as well as threats to growth. Performing a competitor analysis helps assess the business environment for the brokerage and is a good starting point. However, it is important to not lose sight of the broader picture. Real estate, while local in nature, is impacted by macro forces. For example, states of emergencies like 9/11, SARS, the economic crisis of 2008, and more recently COVID-19 have impacted the real estate marketplace. Government policies may have a positive or negative impact on the real estate marketplace. Brokerages need to be aware of the impact of a government policy and adapt their busines model accordingly. Latest market developments (external): This dimension requires that the owner and/or broker of record monitor the latest trends in the real estate marketplace in order to assess whether or not to take advantage of these trends or to avoid the negative consequences of a trend. For example, a brokerage can provide a custom application that consumers can use to obtain timely market information on their smart phones. Brokerages can also use in-house technology to assist with the preparation of virtual marketing tools and brokerage promotional videos, which can provide consumers with up-to-date marketing and can also assist in retention and recruiting of brokers and salespersons.

The owner and/or broker of record can choose to include additional categories in the environmental scan that would be unique to their business circumstances and that they want to assess (for example, preparation of a 90day cash flow projection to assist with ongoing breakeven analysis). You learned about breakeven analysis in a previous course. The dimensions and information gathered from the environmental scan should provide the basis for continuous feedback, evaluation, review, and ultimately revisions, as necessary, and help establish or modify future growth strategies.

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Lesson 1 | Page 10 of 14

SWOT Analysis SWOT analysis is another technique that the owner and/or broker of record can use to analyze the business environment for their brokerage. Using this technique, brokerages can analyze their strengths, weaknesses, opportunities, and threats. This approach is very popular due to its simplicity. Strengths and weaknesses are focused on the internal brokerage organization, while opportunities and threats are external to the brokerage. As with the environmental scan, results of the SWOT analysis are then used to establish or modify future growth strategies. The SWOT analysis is very useful in identifying where the brokerage is today and where it could be in the future. A SWOT analysis can be used for many purposes beyond overall brokerage strategic analysis. It can be effective when analyzing services provided, establishing marketing plans, assessing clients and competitors, and even evaluating personal decisions. The SWOT analysis, as with the environmental scan, is subjective in nature. They are useful techniques but not the sole determinant when creating or revising growth strategies for a brokerage.

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Lesson 1 | Page 11 of 14

Performing a SWOT Analysis When conducting a SWOT, the analysis should be simple yet specific. The following four sections contain information on some considerations when conducting a SWOT analysis.

Strengths Strengths are internal to the brokerage and should focus on the brokerage’s core competencies and competitive advantages. Some questions that can be asked to evaluate strengths are: • What specific strengths does the brokerage have? • What does the brokerage do better than other brokerages? • What special skills and strengths do staff have? • What unique resources does the brokerage have? • What activities have produced excellent results?

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Weaknesses Weaknesses are internal to the brokerage and should include a candid view of problems and should be acknowledged in a transparent and candid manner by the owner and/or broker of record. Some questions that can be asked to evaluate weaknesses are: • What specific weaknesses does the brokerage have? • What do competing brokerages do better than this brokerage? • What special skills and strengths are lacking, and which are needed? • What activities consistently result in poor performance?

Opportunities Opportunities are external to the brokerage and should briefly state which options exist for the brokerage to improve business and the competitive advantages the brokerage can leverage. Some questions that can be asked to evaluate opportunities are: • What market opportunities have the potential to improve brokerage performance? • What improvements in technologies can the brokerage adopt? • What can be done to minimize or neutralize advances by competing brokerages?

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• What new markets are available that have not been tapped?

Threats Threats are external to the brokerage and should be realistically identified. Threats could be related to current economic or market conditions and factors, and any other significant issues that can negatively impact the brokerage. Some questions that can be asked to evaluate threats are: • What threats are visible for the brokerage in the immediate future? • Which competitors are viewed as the most significant threats? • Which competitors are consistently first to the marketplace with innovations and why?

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Lesson 1 | Page 12 of 14

Involvement of Professionals As you learned earlier, the purpose of the environmental scan and the SWOT analysis is to review and evaluate the business from different perspectives. The results of the environmental scan and SWOT analysis can help in identifying opportunities and areas of improvement. This information can help an owner and/or broker or record establish or modify the direction of a brokerage’s growth strategies. Apart from using techniques like an environmental scan or a SWOT analysis, brokerages can choose to seek help from various professionals to assess the business environment of the brokerage and to determine appropriate strategies. These professionals can include accountants, lawyers, or financial advisors. They may also include business consultants, business valuators, or business coaches. Franchise developers may be able to assist franchisees in identifying opportunities and creating strategic and business plans. These professionals bring experience and business expertise to the analysis that will elevate the quality and applicability of any business or strategic plans that may evolve.

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Lesson 1 | Page 13 of 14

A brokerage is currently generating substantial revenue from the residential sales completed by their brokers and salespersons. The owner decides to complete an environmental scan in consultation with the broker of record to assess the brokerage’s performance. What are some questions that the owner and broker of record should consider as they start with the environmental scan? There are six options. There are multiple correct answers.

1

Do the brokers and salespersons at their brokerage have the skills required to trade in residential properties?

2

What are the challenges that brokerages trading in residential properties generally face?

3

What are the growth projections for residential properties in the near future?

4

Who is the client base for residential properties, and what are their opinions and buying habits for services?

5

What are the latest trends in the commercial real estate marketplace?

6

How much revenue are they likely to generate in the next five years?

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Lesson 1 | Page 14 of 14

Congratulations, you have completed the lesson! Completion of this lesson has enabled you to: • Identify ways to assess the business environment to evaluate performance of the brokerage There are five sections on this page with a summary of the key topics that were discussed in this lesson.

Macro and micro forces in the marketplace

Once a brokerage is operational, the owner and/or broker of record should continue to be attentive to the macro and micro forces in the marketplace so they can define future activities for the brokerage.

Market analysis

An owner and/or broker of record should analyze market conditions for potential growth and niche opportunities before setting up a new brokerage. They need to continue doing this analysis with a focus on reviewing macro and micro forces to obtain a wider or narrower perspective of the marketplace.

Macro forces influence the general business environment and consumer sentiments at any point in time and could be political, economic, legal, and/or social. Micro forces relate to the state of the local market segment where the brokerage does business.

Some sources that can be used to develop an understanding of the current local real estate landscape include Statistics Canada, the Canada Mortgage and Housing Corporation, the Federal Economic Development Agency, the local real estate board or association (if the brokerage is a member), economic development offices, the municipal office, and chambers of commerce. Understanding the current state of the real estate market and the target market for the brokerage helps the owner and/or broker of record define a clear strategic direction for the brokerage and develop a targeted business plan that aligns with their growth objectives.

Competitor analysis

A competitor analysis is an assessment of brokerage competitors within a defined geographic or market trading area. The primary purpose of conducting a competitor

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analysis is to gain a reasonable understanding of competitors’ capabilities by analyzing their strengths and weaknesses. It is important to identify who the competitors are and their capabilities in order to understand how they may impact the existing market share of the brokerage or the brokerage’s potential for growth.

Core competencies and competitive advantages

Core competencies can be described as skills, knowledge, and abilities as well as resources that form a brokerage’s strengths and set the brokerage apart from competitors. Core competencies form the basis of a brokerage’s competitive capacity and their sustainable position in the marketplace. A brokerage can use some of the following strategies to create a competitive advantage: • • • • •

Establish a market position Investigate alliances/affiliations Seek market niches Scrutinize brand loyalty options Generate synergism

Additional competitive advantages can flow from core competencies and other attributes that favour the brokerage’s success in the marketplace. These generally involve sustainable attributes that have value, such as a skillset that may be difficult for a competitor to duplicate.

Environmental scan and SWOT analysis

Ongoing monitoring is an essential activity for an owner and/or broker of record. Two time-tested techniques that owners and/or brokers of record can use in the monitoring process are the environmental scan and the SWOT analysis. An environmental scan is a structured method used to evaluate the current business environment from different perspectives, both internal and external to the brokerage. The environmental scan for a brokerage typically consists of the following dimensions: • • • • •

Resources and skills Industry-specific issues and trends Consumer needs and wants Overall business environment Latest market developments

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SWOT analysis is another technique that the owner and/or broker of record can use to analyze the business environment for their brokerage. Using this technique, brokerages can analyze their strengths, weaknesses, opportunities, and threats.

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Lesson 2 | Page 1 of 12

Lesson 2: Defining Strategic Directions for a Brokerage

This lesson describes the strategic planning process. In addition, it describes growth options that are available in situations where the owner and/or broker of record want to increase their revenue or market share.

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Lesson 2 | Page 2 of 12

A strategic plan is a roadmap used to establish where a business is going over the next few years and how it will get there. It is an organized approach to develop a course of action and direction for a business with a focus on optimizing its potential. As an owner and/or broker of record, you will be responsible for the day-to-day application and implementation of the strategic plan in order to achieve the goals of your brokerage. Upon completion of this lesson, you will be able to: • Identify strategic directions open to a brokerage based on research Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

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Lesson 2 | Page 3 of 12

Strategic planning is essential for ensuring the viability and success of a brokerage. It is useful for obtaining clarity, direction, and focus when starting a brokerage. Strategic planning is also useful when performing ongoing analysis, tracking business operations, and identifying necessary steps when altering the direction of a brokerage’s growth. Strategic planning should be an ongoing activity that helps you as an owner and/or broker of record to focus on the goals and direction of the brokerage.

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Lesson 2 | Page 4 of 12

Strategic Planning Process In order to achieve the goals and strategic directions of a brokerage, the owner and/or broker of record should work through a strategic planning process. A systematic strategic planning process can involve the following steps: 1. Getting ready for strategic planning 2. Performing the environmental scan 3. Performing the SWOT analysis 4. Identifying the vision, mission, and brokerage goals 5. Creating strategic directions and action plans 6. Implementing the strategic plan A strategic plan is an outcome of the strategic planning process and aims to address three basic questions:

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• • •

What knowledge, skills, and abilities (core competencies) does the brokerage possess? What needs to be done (to leverage core competencies and competitive advantage or close existing gaps)? How should these overall goals be accomplished (through strategic directions and action plans)?

The strategic plan sets out a course of action based on the assessment of the brokerage’s strengths and weaknesses, external factors that impact the brokerage, and internal resources to address such factors.

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Lesson 2 | Page 5 of 12

Getting Ready for Strategic Planning Developing and writing a strategic plan for a brokerage is often easier than implementing it. The first step in the strategic planning process is to pause and take a moment to consider all the elements that are necessary for the success of the strategic plan. The following six sections contain information on a selection of aspects to consider when initiating the strategic planning process.

Establish the purpose It is essential for stakeholders involved in the strategic planning to show a clear awareness of the purpose of the brokerage’s strategic plan. There are many reasons to create strategic plans, such as to support changes to a brokerage’s structure, to purchase a building for the brokerage premises, to gather funds for expansion, to open a branch office, or to perform ongoing analysis and tracking of business performance and operations. Strategic planning is useful for all brokerages, irrespective of their size, ownership structure, or business model.

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Initial considerations When initiating the strategic planning process, the owner and/or broker of record should ask themselves the following questions: • Who will participate in strategic planning? • What does the brokerage want to accomplish in the medium to long term? • When is the right time to carry out the strategic planning? • How long should each stage or cycle last? • Where is the brokerage now? Where is the brokerage going? • Where should strategic planning lead the brokerage? • Why is the brokerage carrying out strategic planning right now?

Identify regulatory compliance requirements The real estate industry is a highly regulated industry, and brokerages must ensure that their strategic plans reflect awareness of regulatory frameworks and constraints for their industry. Brokerages need to acknowledge, address, and integrate compliance issues and consider restrictions imposed by regulatory requirements throughout the strategic planning process.

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Identify core competencies You learned about core competencies earlier in this module. As part of the strategic planning process, brokerages should include an assessment of their core competencies (skills, knowledge, and abilities) to better understand the resources they have or will need to achieve the goals of the plan. Sufficient resources should be available, including human and financial resources, as well as time to carry out planning and implementation activities. The brokerage should have current and future capacity to undertake tasks associated with all stages of the strategic planning process.

Assemble the team and gain commitment The planning process should include the owner(s), broker of record, and key staff to ensure everyone involved is aware of where the brokerage is heading. As the plan itself is designed to focus on the future of the brokerage, the process requires long-term commitment of all parties. The owner and/or broker of record may also choose to involve third-party professionals in the strategic planning process.

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Plan for ongoing follow-up Even after a strategic plan is documented, the owner and/or broker of record will still have work to do, as ensuring strategic planning success entails constant monitoring of activities and progress being made. They should plan now for adequate time for review and monitoring. Any adjustments based on experiences and outcomes achieved are key to ensuring the plan remains relevant. Quarterly, semi-annual, or annual reviews help to transform the strategic plan into a vital, living document that guides the brokerage in the desired direction.

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Lesson 2 | Page 6 of 12

Performing the Environmental Scan and SWOT Analysis As part of the strategic planning process, it is important to understand the current state of the brokerage in the marketplace and identify opportunities for growth and areas for continuous refinement. The next two steps in the strategic planning process are to perform an environmental scan and SWOT analysis to evaluate the business environment that the brokerage operates in. As you learned earlier in the module, these techniques effectively encapsulate the findings from market research and competitor analysis. They also layer in the core competencies and competitive advantages of the brokerage.

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Lesson 2 | Page 7 of 12

Identifying the Vision, Mission, and Brokerage Goals The strategic plan for a brokerage should be built on a clear vision of where the brokerage is headed. The next step in the strategic planning process is to identify the vision, mission, and brokerage goals, which are ultimately expressed in well-defined statements or descriptions. The following three sections contain information on vision statements, mission statements, and brokerage goals.

Vision statement A vision statement describes what or where the brokerage wants to be, as well as the anticipated results. It is short and powerful with a focus on the future, thus motivating stakeholders, such as the owner, shareholders, broker of record, and brokerage staff. The owner and/or broker of record can create an effective vision statement for their brokerage once they have established a clear idea of the values they consider important for their brokerage. The vision statement reflects both personal and professional values of all brokerage management.

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Mission statement The vision statement inspires the mission statement. Mission statements explain the core purpose of the brokerage, outlining why it exists, what the brokerage is, the services it provides to consumers, and its goals. It may be more focused on the brokerage’s present than the vision statement and is often lengthier. Mission statements focus on three aspects: key market, contribution to consumers, and unique attributes of the brokerage or professionals working in the brokerage. In other words, it defines why consumers choose this brokerage over another.

Brokerage goals Brokerage goals are a high-level description of what needs to be done to meet the vision and mission of the brokerage. They could be described as long-term and short-term goals and need to be set out in line with core competencies and competitive advantages of the brokerage. Brokerage goals are the starting point for creating strategic directions and action plans.

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Lesson 2 | Page 8 of 12

Creating Strategic Directions and Action Plans After the vision statement, mission statement, and brokerage goals are defined, the next step is to create the strategic directions for the brokerage and define action plans. Strategic directions are overall objectives that flow from core competencies and competitive advantages. Strategic directions or objectives help establish detailed priorities and main thrusts planned by the brokerage. Identifying the strategic directions or objectives early on can help set the brokerage on the right path to success. Action plans are defined, measurable activities that are based on and advance the strategic directions or objectives. Action plans should also address challenges and risks associated with strategic directions or objectives and should specify if an alternate plan is required. You learned about identifying risks in an earlier course. More than one action plan is typically detailed for each strategic direction or objective. An action plan describes specific activities to be undertaken, when, and by whom. Depending on the strategic direction or objective, an action plan may be a marketing plan related to creating an ad campaign for marketing or a financial plan for determining costs associated with an expansion.

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There are different strategies and approaches to use when setting strategic directions or objectives for action plans. The SMART approach is one such approach, where each letter of the word stands for a particular aspect of writing and setting objectives or action plans. The SMART approach establishes that objectives should be:

• • • • •

Specific: They should express the exact intended outcome, why it is important, who is involved, where it will take place, and important attributes for achieving the objectives. Measurable: They should have a tangible and measurable outcome that can help determine success or failure. Attainable: They should be realistic and should be within reach. Relevant: They should be relevant and meaningful for the brokerage, owner, and broker of record. Timely: They should have a timeframe for completion to help focus and prioritize actions.

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Lesson 2 | Page 9 of 12

Implementing the Strategic Plan After the strategic directions and action plans are created, the next step is to implement the strategic plan. Implementation involves the following activities:

•

Document the strategic plan by listing the vision statement, mission statement, brokerage goals, objectives, and action plans to be used as a benchmark, and to monitor the plan’s progress on an ongoing basis.

•

Develop a realistic timeline for implementing the action plans and have oversight to ensure that the action plans are followed according to the schedule.

•

Ensure that there is funding to support the plan because there is a cost associated with implementing a strategic plan.

•

Establish roles and responsibilities of individuals involved in the strategic plan, and clearly define decisionmaking channels.

•

Create a communication system, such as a blog or message board, that allows issues to be posted and addressed in a forum setting. Ensure every individual involved in the strategic plan can voice their concerns.

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The difficulty in maintaining a strategic plan often occurs due to factors beyond the plan itself. The owner and/or broker of record, as with most business entrepreneurs, can face many common pitfalls, such as a lack of commitment from the stakeholders or a lack of focus and direction. Periodic reviews and updates would ensure that the plan remains viable and that brokerage staff are aware of the planned achievements.

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Lesson 2 | Page 10 of 12

Brokerage Growth Options You learned in an earlier course that growth is an important strategic consideration when establishing a brokerage as well as sustaining momentum. Growth does not simply refer to increased brokerage size (although this is a common route). It can include various alternatives including market development, service enhancements, and diversification. Owners and brokers of record should review both internal and external risks for all growth options. The central issue is not only the uncertainty, exposure, or vulnerability that arises from risks associated with change, but rather how individuals and enterprises plan for and react to these risks. The following three sections contain information on the different types of growth options available for a brokerage.

Market development Market development can involve expanding the brokerage’s presence within the community by opening branch offices and/or recruiting more brokers and salespersons. It may also involve the introduction of new technologies that improve the efficiency of brokers and salespersons, thereby increasing sales performance and overall market share. In the past, brokerages may have concentrated on horizontal expansion (that is, branch development) when contemplating greater market presence. More locations, unless well thought out, may be neither the best nor the most logical choice. Creating full-fledged branch operations is not the only option for brokerage expansion. Brokerages have been creative in establishing mall kiosks, field offices for area representatives, and mobile offices. The trend toward a main brokerage and several small satellites is

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gaining popularity. Some real estate brokerages have experimented with limited satellite offices in grocery stores or other retail settings. These locations can provide significant foot traffic at an attractive price. The owner and/or broker of record must keep in mind that any location open to the public and having brokerage staff, or which has any electronic communication devices, is considered to be a branch and must be registered as such under the Real Estate and Business Brokers Act (REBBA). Similarly, if a kiosk or mobile office contains equipment generally associated with an office, it too must be registered. It is important to note that branch development can be fraught with strategic risks, as well as financial challenges. Strategic risks are risks that affect, or are created by, a business strategy. For example, a brokerage’s goal is to achieve 50 per cent of their residential sales from new construction, and they are providing services to several builders in the builders’ sales offices. Two years into their strategic plan, regional municipalities place a moratorium on rezoning applications, thereby effectively halting new housing developments. The plan is now on hold until the government policy changes. The brokerage would be required to change its strategic plan and allocate resources in other areas of the marketplace to remain profitable. As they think about market development, the owner and/or broker of record should be mindful of changing consumer habits and be able to respond in a meaningful and time-sensitive manner. For example,

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the COVID-19 crisis has forced many businesses, including real estate brokerages, to adopt new strategies where face-to-face contact may be limited or non-existent.

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Service enhancements Service enhancements often involve improved facilities and seller or buyer service delivery methods that lead to increased consumer satisfaction, which may result in increased profitability. For example, developing a training for brokers and salespersons on using social media for advertising could eventually increase lead generation. In our technologically advanced marketplace, service enhancements often focus on service delivery methods that are consistent with tech-savvy, consumer demands, such as social media advertising, the use of electronic documents and signatures, and so on. Service enhancements, however, are not always “tech-based”. For example, a brokerage may develop enhanced security measures for brokers, salespersons, sellers, and buyers that can reduce risks posed during open houses and other types of property viewings. Service enhancements are mostly implemented to achieve a greater level of consumer satisfaction. However, while considering service enhancement options, the owner and/or broker of record should be aware of the risks and challenges associated with the implementation of service enhancement initiatives. For example, if the enhancement requires significant capital cost for equipment purchases, the marginal increase in revenue or profitability may not substantiate the capital cost. There may be costs associated with the deployment of improved computer

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systems or office communication technology, as well as with training brokerage staff on using it efficiently. The owner and/or broker of record should consider all service enhancement options that they can offer to consumers after weighing the risks and challenges associated with them. In reality, not all enhancements are affordable or return the desired result in a costeffective manner.

Diversification Diversification is a form of service enhancement through which brokerages expand their operations to include additional services. For example, a residential brokerage may expand their operations to include new home sales, property management, appraisal, and mortgage services. Diversification can help a brokerage reduce risks associated with market volatility and result in improved business stability. Expansion through diversification can promote a full-service image to the public, consolidate market position, enhance brokerage capabilities, and generate additional income streams. However, as with all growth, the road to diversification can be challenging. A challenge when diversifying could be ensuring the new services being provided meet the expectations and needs of sellers and buyers, and that any increase in profitability justifies the expansion costs.

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Lesson 2 | Page 11 of 12

A broker of record has developed a strategic plan to expand their brokerage’s operations. The brokerage currently focuses on residential resale properties. The broker of record is preparing for a meeting with the owner and has listed the growth options. Which of the following growth options are categorized as service enhancements? There are four options. There are multiple correct answers. 1

Set up a web portal for clients to obtain property information.

2

Open a kiosk in a downtown mall specializing in condominium sales.

3

Create a property management department to provide services to investor clients.

4

Connect existing communication tools to affiliated social media with a chat function.

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Lesson 2 | Page 12 of 12

Congratulations, you have completed the lesson! Completion of this lesson has enabled you to: • Identify strategic directions open to a brokerage based on research There are three sections on this page with a summary of the key topics that were discussed in this lesson. Strategic planning is essential for ensuring viability and success of a brokerage. It is useful Purpose of strategic planning for obtaining clarity, direction, and focus when starting a brokerage, as well as for performing ongoing analysis, tracking business operations, and identifying necessary steps for growth on an ongoing basis.

Strategic planning is an ongoing activity that helps the owner and/or broker of record to focus on the goals and direction of their brokerage.

Strategic planning In order to meet the goals and strategic directions of a brokerage, the owner and/or broker of record needs to work through a strategic planning process. The process involves process the following steps:

1. Getting ready for strategic planning 2. Performing the environmental scan 3. Performing the SWOT analysis 4. Identifying the vision, mission, and brokerage goals 5. Creating strategic directions and action plans 6. Implementing the strategic plan

Brokerage growth Growth is an important strategic consideration when establishing a brokerage as well as sustaining momentum. Growth does not simply refer to increased brokerage size but options

rather to various alternatives including market development, service enhancements, and diversification.

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All growth options are fraught with strategic risks, as well as financial challenges. Owners and brokers of record should review both internal and external risks for any growth option that they choose to pursue.

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Lesson 3 | Page 1 of 12

Lesson 3: Creating a Business Plan for a Brokerage

This lesson describes the key components to include in a business plan when creating a proposal to get funding or to determine an action plan for growth. The lesson also includes considerations for presenting a business plan.

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Lesson 3 | Page 2 of 12

As you learned earlier, the strategic planning process is used to establish a course of action to achieve the brokerage’s overall goals and objectives. A business plan is a formal written document that includes pertinent research and information gathered in the strategic plan for a specific purpose. In its entirety, a business plan provides a road map for expansion and growth and is often critical to obtain financing. Upon completion of this lesson, you will be able to: • Identify key components of a brokerage’s business plan Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

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Lesson 3 | Page 3 of 12

A business plan is a formal written document that articulates what the brokerage wants to do and how it will do it. A well-designed business plan can be used for getting funding applications approved by lenders and financial institutions. It is also an effective tool for identifying essential activities, such as recruiting requirements and equipment acquisitions. There is no standard template for business plans, and they can differ considerably in the scope and structure of topics. A business plan changes as the strategic plan changes. An owner and/or broker of record requiring a detailed and complex business plan should seek third-party expert advice.

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Lesson 3 | Page 4 of 12

Business Plan Business plans are often a requirement for financing and expansion. Beyond meeting a lender’s requirement, owners and/or brokers of record often write business plans for internal use. A sound business plan can help a brokerage focus on, articulate, and document the past, present, and future conditions of the brokerage. Business plans can differ considerably in the scope and structure of topics covered. Emphasis and placement of topics may vary slightly, depending on many factors such as the intended audience, the nature of the business, and/or the purpose of the plan. When designed for a presentation to a lender to obtain financing or funding, the plan is normally focused on one or more of the following key objectives: © 2021 Real Estate Council of Ontario

• Obtaining financing for initial start-up • Establishing an operating line of credit to meet cash shortfalls due to market fluctuations • Detailing costs associated with a new strategy for an existing brokerage

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Lesson 3 | Page 5 of 12

Benefits of a Business Plan Business plans do not need to be complex, and if used for financing, most lenders will provide guidelines to assist in their development. A well-designed business plan has several benefits beyond lender needs, including: • It demonstrates owner and/or broker of record commitment to a structured plan. • It forces the owner and/or broker of record to realistically analyze business opportunities. • It provides an ongoing reference document for management guidance. • It produces a positive impression for those seeking information regarding the brokerage. • It clearly outlines business intentions through a documented blueprint.

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Lesson 3 | Page 6 of 12

Leading Practices When Creating a Business Plan The owner and/or broker of record should consider the following leading practices when creating a business plan:

• • • • • •

Write a detailed and concise plan: One good way to stay on track is to aim to answer basic key questions, such as who, where, when, how, what, why, and how much. Do your research: Take the time to do your research in creating the strategic plan before writing the business plan. Review and adjust: Periodically review and adjust all aspects of the plan in accordance with the evolution of the strategic plan and the brokerage. Keep the audience in mind: Keep the reader or audience in mind, as well as the reason why someone is reading your plan. Tailor your business plan when the purpose and audience change. Support your statements: Support all statements you make; do not make assertions based on speculation or supposition but rather on well-documented data. Use the third person: Write the business plan in the third person in the brokerage’s name. For example, “XYZ Realty Ltd. will reach out to consumers in new markets…” instead of “I will reach out to consumers in new markets…”

Following these leading practices will help you as an owner and/or broker of record develop a business plan that is comprehensive.

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Lesson 3 | Page 7 of 12

Mistakes to Avoid When Creating a Business Plan The owner and/or broker of record should avoid the following mistakes when creating a business plan: • Being overly ambitious: Do not be exceedingly ambitious or overzealous when describing the brokerage and its prospects. The plan should promote the brokerage but should also justify realistic brokerage goals and projections. • Hiding or disguising reality: Do not try to hide or disguise the reality of your brokerage or industry. No business or industry is perfect; the key is to demonstrate how the brokerage is ready to deal with shortcomings and challenges, both internal and external.

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• Writing without a clear focus or in a rush: Do not write the plan without a clear focus or when you are feeling time-pressured; the end product will lack order and detail. • Using industry jargon: Do not use industry jargon, which may be confusing to readers unfamiliar with the industry; define any industry acronyms or concepts when first introduced. By avoiding these mistakes, the owner and/or broker of record will be able to write a business plan that is well thought out and will be clearer to those who are not experts in real estate.

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Lesson 3 | Page 8 of 12

Business Plan Sample Template I A business plan should cover key aspects of the brokerage operation. As mentioned earlier, lenders can often provide guidance on a business plan template or identify topics that they want addressed in the business plan. An owner and/or broker of record requiring detailed and complex proposals for venture capitalists and equity participation should seek expert advice. An eight-part template (customized for brokerage purposes) is provided here for guidance and can be used either for a new or an existing brokerage. You learned about many of the topics that are presented in this business plan template in earlier courses. The following four sections contain information on guidelines to follow when including information in the business plan template.

Executive summary An executive summary attracts the reader’s attention by providing brokerage fundamentals, owner contact details, brokerage strengths and specialties, and trading area specifics. When writing the executive summary, the overall theme should address what the brokerage wants to achieve and why. The executive summary should appear first in a formal business plan but is logically written last, as it is intended to include highlights of other sections of the plan and capture the reader's interest.

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Vision and mission statement As you learned earlier, the vision and mission statements from the strategic planning process are summaries of the owner’s and/or broker of record’s philosophy and ultimate plan for the brokerage. They should not be complex or needlessly wordy. The owner and/or broker of record should always highlight unique skills and specialty knowledge of the brokerage through the vision and mission statement.

Business opportunity The business opportunity section is used to articulate the business opportunity that the owner and/or broker of record have identified based on their market research. In this section, they should also explain how the brokerage will capitalize on the business opportunity. The business opportunity section establishes the context for the market analysis and the financing proposal sections of the template. The owner and/or broker of record are expected to think strategically and be factual and succinct in their articulation of the business opportunity. In this section, the owner and/or broker of record should also acknowledge the challenges and risks, and emphasize ways and means to minimize their impact. They should include alternate plans that address the risks.

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Brokerage structure You already learned about brokerage structures, including forms of ownership and necessary steps to create them, in an earlier course. The brokerage structure should include an organizational chart, a brief background of all key staff, duties and responsibilities, and the form of ownership (sole proprietorship, partnership, or corporation), including relevant details such as share distribution and/or a list of principal shareholders, as well as directors and officers, if applicable. The brokerage structure should also include a listing of any contracts, rights, franchise agreements, management agreements, or similar documentation. The owner and/or broker of record should highlight expertise, key people, systems, and any other relevant information that describes the brokerage structure. They should state the facts and not provide misleading information.

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Lesson 3 | Page 9 of 12

Business Plan Sample Template II A business plan should cover key aspects of the brokerage operation. As mentioned earlier, lenders can often provide guidance on a business plan template or identify topics that they want addressed in the business plan. An owner and/or broker of record requiring detailed and complex proposals for venture capitalists and equity participation should seek expert advice. An eight-part template (customized for brokerage purposes) is provided here for guidance and can be used either for a new or an existing brokerage. You learned about many of the topics that are presented in this business plan template in earlier courses. The following four sections contain information on additional guidelines to follow when including information in the business plan template.

Market analysis In the market analysis section, the owner and/or broker of record should include results of the market analysis that they performed as part of the strategic planning process. The focus of this section should be on real estate trends, external factors influencing the real estate business, and the brokerage’s competition. In this section, they should also include the results of the competitor analysis that they completed during the strategic planning process. They should highlight the advantages they have over competitors to capitalize on the market opportunity. Some examples of what can be included in this section include: Real estate industry

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• • • •

Focus on real estate trends and provide key facts that tie to marketing and financial strategies for the brokerage. Summarize current outlook and growth potential. Discuss local market size including sales activities, gross volumes, and other key market indicators. Highlight relevant consumer wants and needs.

External

• •

Briefly highlight any significant political, economic, legal, and social factors impacting the plan. Be factual and outline key external factors (for example, new legislation, consumer demand shifts, economic conditions, and new technologies that should be seriously contemplated).

Competition

• • • • •

Identify target markets and support with applicable statistics and research. Include a summary competitor analysis, which includes location, market share, and strengths. Emphasize how the brokerage will capitalize on its particular niche. Outline any brand loyalty research that supports the plan. Outline any competitive advantages the brokerage may have.

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The owner and/or broker of record should be proactive when completing this section by asking themselves why this venture is a good idea and what advantages and disadvantages exist for the business. What are the risks to the business, and how can these be minimized?

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Brokerage strategy In the brokerage strategy section, the owner and/or broker of record should specify the strategic directions or objectives that they identified during the strategic planning process. Typically, the brokerage strategy includes the marketing plan, financial plan, and any other action plans required to achieve the strategy. The plans should be credible, factual, and realistic. Specifically, the marketing plan and financial plan should do the following: Marketing plan:

• • •

Explain what services are promoted, image conveyed, target audiences identified, and print/online distribution media selected. Provide promotional artwork examples, if available. Include costs, which link to the financial plan and budget estimates.

Financial plan:

• • •

Provide financial statements and tax returns for the past five years (if applicable). Develop pro forma forecasts including the proposed financing package being requested. Identify any undervalued assets on the balance sheet or contracts and/or rights that have economic value beyond stated book values.

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• •

Highlight any preferential contracts having significant value that are not referred to in the financial statements. Identify any legal, accounting, or taxation disputes that are currently underway or have been recently resolved.

These plans define the steps and time period for completion of activities, preferably in chart form.

Proposal As mentioned earlier, business plans can be used for a variety of purposes, such as making an external presentation for the acquisition of a franchise, developing a strategic alliance, obtaining financing, or internally, making a presentation to shareholders for a proposed growth opportunity. The proposal section should clearly state the intention of the brokerage, specific requirements, and any terms and conditions thought to be appropriate. If the proposal is to obtain long-term financing, the following should be included:

• • • •

Amount of loan, terms of the loan, and when the funds are required Security offered in support of financing Details of any existing financing that will continue or be retired coincident with plan approval Personal financial commitment from the broker of record (and other shareholder equity) if applicable

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•

•

Breakdown of use of funds (for example, division of funds between leasehold improvements, office equipment, acquisition of franchise rights, and funding of negative cash positions for initial months) Repayment terms and forecasted date for debt retirement

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Appendix Documents in the appendix section will vary, based on the proposal and purpose of the business plan. Items might include any or all of the following:

•

• • • • •

A schedule that includes a list of representation and customer service agreements and all forms of agreements, such as commission agreements and referral agreements, that will influence a financial plan A description of any existing insurance coverage Proof of property ownership or copy of the lease for the premises A list of leasehold improvements, including any equipment leases (if applicable) Copies of any relevant financial statements, contracts, or other documents referred to, but not previously included, in the business plan Identification and contact information for the brokerage’s solicitor and accountant

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Lesson 3 | Page 10 of 12

Considerations for Presenting a Business Plan The presentation of a business plan is as critical as its development. Every plan is different and every presentation unique. The following seven sections contain information on some useful tips that can be considered while presenting a business plan.

Know the audience and their requirements Even the best business plan can go wrong if presented to the wrong audience or if it does not address all their requirements. The owner and/or broker of record should carefully draft the plan so that it applies to the intended audience. For example, if the brokerage requires financing, they should research the lending policies of various lenders, identify which lender would be most appropriate for assessing the viability of the brokerage’s business plan, and then be prepared to amend the plan as required. The owner and/or broker of record should also research the intended audience and highlight the aspects that would be important to them in the presentation.

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Set the stage for the presentation The owner and/or broker of record should resist the urge to immediately reveal the business plan. They should instead do the following:

•

• •

Take the time to explain carefully why they chose the specific audience (for example, reputation, specialized services, prior history, and recommendation). Refrain from presenting the business plan until they gain an individual’s interest and business respect. Make it a closing tool; do not use it as a tool to initiate the conversation.

Be prepared for questions The owner and/or broker of record should be prepared to answer questions and to ask some of their own. Some of the questions that the lender may ask could be:

• • •

Are you interested in alternate ways of funding the proposal? Are your goals realistic? Why should we consider you?

Some questions that the owner and/or broker of record may ask could be:

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• • •

What background knowledge do you have regarding real estate transactions and the operation of real estate brokerages? What electronic facilities do you have to make day-to-day banking easier? What expertise do you provide to new enterprises?

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Emphasize past history of success Individuals like successful people. If an entrepreneur has been successful before, the odds are they will be again. If past history warrants, and if the story is applicable, the owner and/or broker of record should share their success stories.

Stick to the facts The owner and/or broker of record should not hide facts or provide misleading information; they should provide all required details about their brokerage and facts from their research. They should endeavour to carefully paint an appealing picture of the future and make it self-evident why this is a great venture that should be considered.

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Emphasize the buy-in The owner and/or broker of record should promote the need for the individual’s expertise and strive to get a buy-in to a business enterprise. Remember, if this is a presentation to a lender, the primary goal is for the brokerage and the lender to make money together.

Provide a balanced picture The owner and/or broker of record should not ignore the negatives but rather address such issues head on. They should acknowledge the challenges and risks and emphasize ways and means to minimize their impact. They should not forget to include alternate plans – a sound part of any business plan.

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Lesson 3 | Page 11 of 12

An owner and broker of record needs to arrange financing for their existing brokerage in order to create a branch office up north in a recreational area. They are going to meet with a lender and need to prepare a business plan. What information should the owner and broker of record include in the business plan? There are five options. There are multiple correct answers. 1

Intention of the brokerage

2

Details about the number of administrative staff

3

The brokerage’s vision

4

Results of market research

5

Remuneration of staff members

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Lesson 3 | Page 12 of 12

Congratulations, you have completed the lesson! Completion of this lesson has enabled you to: • Identify key components of a brokerage’s business plan There are three sections on this page with a summary of the key topics that were discussed in this lesson.

Purpose of a business plan

The strategic planning process is used to establish a course of action to achieve the brokerage’s overall goals and objectives. A business plan is a formal written document that includes pertinent research and information gathered during the strategic planning process. In its entirety, a business plan provides a road map for expansion and growth and is often critical to obtain financing. When designed for a presentation to a lender to obtain financing or funding, the plan is normally focused on one or more of the following key objectives: • Obtaining financing for initial start-up • Establishing an operating line of credit to meet cash shortfalls due to market fluctuations • Detailing costs associated with a new strategy for an existing brokerage

Information to include in a business plan

Business plans can differ considerably in the scope and structure of topics covered. Emphasis and placement of topics may vary slightly, depending on many factors such as the intended audience, the nature of the business, and/or the purpose of the plan. A business plan typically includes the following sections: • Executive summary • Vision and mission statement • Business opportunity • Brokerage structure • Market analysis

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• Brokerage strategy • Proposal

Tips for presenting a business plan

The presentation of a business plan is as critical as its development. Every plan is different and every presentation unique. Some of the tips that are useful in presenting a business plan are as follows: • Know the audience and their requirements • Set the stage for the presentation • Be prepared for questions • Emphasize past history of success • Stick to the facts • Emphasize the buy-in • Provide a balanced picture

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Lesson 4 | Page 1 of 7

Lesson 4: Summary Practice Activities

This lesson provides a series of activities that will test your knowledge on the entire module.

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Lesson 4 | Page 2 of 7

This lesson provides summary decision points that will test your understanding of key considerations when creating strategic plans and business plans for a brokerage. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

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Lesson 4 | Page 3 of 7

Scenario A broker of record for a brokerage that has been successfully operating for 25 years in compliance with REBBA now wants to apply a SWOT analysis to their brokerage operation after they witnessed a five per cent decline in their market share for the first time in a decade. The brokerage currently employs 40 brokers and salespersons. A majority of the sales staff have been working with the brokerage since its inception because the broker of record has a good reputation in the neighbourhood and also has employee-friendly policies. Though the sales staff are not technically advanced and do not have a social media presence, the administrative staff are tech-savvy and contribute well to the brokerage’s overall performance. A large multinational pharmaceutical company announced relocation to the area last year. Since the announcement, there has been heightened residential activity in the neighbourhood and an increase in population.

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Residential mortgage rates have increased and still there has been a huge demand for new and resale homes. Three new competitors have also opened recently in the neighbourhood. The broker of record recently interviewed five salespersons but all of them chose to join one of the new competing brokerages. On further investigation, it was discovered that the broker of record missed the opportunity to match the needs of the potential recruits to what the brokerage has to offer. You can use this full scenario when answering the decision points in the next three screens

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Lesson 4 | Page 4 of 7

Scenario: Question 1 of 3 Identify which of the following findings are strengths found in the SWOT analysis of the brokerage. There are four options. There are multiple correct answers. 1

Brokers and salespersons have technological limitations.

2

Administrative staff are tech savvy.

3

Brokers and salespersons have been with the brokerage for a long period of time.

4

New talents are choosing to join the brokerage’s competitor.

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Lesson 4 | Page 5 of 7

Scenario: Question 2 of 3 Identify which of the following findings are opportunities found in the SWOT analysis of the brokerage. There are four options. There are multiple correct answers. 1

There is a five per cent decline in the brokerage’s market share.

2

A multinational pharmaceutical company is relocating to the area.

3

There is an increase in population in the neighbourhood.

4

There are three new competitors in the area.

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Lesson 4 | Page 6 of 7

Scenario: Question 3 of 3 How can the broker of record address the weaknesses identified in the SWOT analysis? There are five options. There are multiple correct answers. 1

Establish a new strategic plan to train the existing sales staff on new technology.

2

Modify the mission statement to address the brokerage’s activities.

3

Spend effort on learning about the needs of the potential recruits.

4

Obtain a new loan from a financial institution.

5

Create a new strategic plan about contacting the new pharmaceutical company.

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Lesson 4 | Page 7 of 7

Congratulations, you have completed the lesson!

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Module Summary | Page 1 of 6

Module Summary

This lesson contains a summary of the entire module.

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Module Summary | Page 2 of 6

Congratulations, you have completed this module! This lesson will present a summary of the lessons in this module.

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Module Summary | Page 3 of 6

There are three sections on this page with a summary of the key topics that were discussed in this module.

Understanding the Business Environment

Once a brokerage is operational, the owner and/or broker of record should continue to be attentive to the macro and micro forces in the marketplace so they can define future activities for the brokerage. A competitor analysis is an assessment of brokerage competitors within a defined geographic or market trading area. The primary purpose of conducting a competitor analysis is to gain a reasonable understanding of competitors’ capabilities by analyzing their strengths and weaknesses. It is important to identify who the competitors are and their capabilities in order to understand how they may impact the existing market share of the brokerage or the brokerage’s potential for growth. Core competencies can be described as skills, knowledge, and abilities as well as resources that form a brokerage’s strengths and set the brokerage apart from competitors. Core competencies form the basis of a brokerage’s competitive capacity and their sustainable position in the marketplace. A brokerage can use some of the following strategies to create a competitive advantage: • • • • •

Establish a market position. Investigate alliances/affiliations. Seek market niches. Scrutinize brand loyalty options. Generate synergism.

Additional competitive advantages can flow from core competencies and other attributes that favour the brokerage’s success in the marketplace. Ongoing monitoring is an essential activity for a broker of record. Two time-tested techniques that owners and/or brokers of record can use in the monitoring process are the environmental scan and the SWOT analysis. An environmental scan is a structured method used to evaluate the current business environment from different perspectives, both internal and external to the brokerage.

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A SWOT analysis is done to analyze strengths, weaknesses, opportunities, and threats for the brokerage. Completion of this lesson has enabled you to: • Identify ways to assess the business environment to evaluate performance of the brokerage

Defining Strategic Directions for a Brokerage

Strategic planning is essential for ensuring viability and success of a brokerage. It is useful for obtaining clarity, direction, and focus when starting a brokerage, as well as for performing ongoing analysis, tracking business operations, and identifying necessary steps for growth on an ongoing basis. Strategic planning is an ongoing activity that helps the owner and/or broker of record to focus on the goals and direction of their brokerage. In order to meet the goals and strategic directions of a brokerage, the owner and/or broker of record needs to work through a strategic planning process. The process involves the following steps: 1. Getting ready for strategic planning 2. Performing the environmental scan 3. Performing the SWOT analysis 4. Identifying the vision, mission, and brokerage goals 5. Creating strategic directions and action plans 6. Implementing the strategic plan Growth is an important strategic consideration when establishing a brokerage as well as sustaining momentum. Growth does not simply refer to increased brokerage size but rather to various alternatives including market development, service enhancements, and diversification. Completion of this lesson has enabled you to: • Identify strategic directions open to a brokerage based on research

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Creating a Business Plan for a Brokerage

A business plan is a formal written document that includes pertinent research and information gathered in the strategic plan for a specific purpose. It provides a road map for expansion and growth and is often critical to obtain financing. A business plan is a formal written document that articulates what the brokerage wants to do and how it will do it. Business plans can differ considerably in the scope and structure of topics covered, depending on many factors, such as the intended audience or the nature of the business. An owner and/or broker of record requiring a detailed and complex business plan should seek third-party expert advice. The presentation of a business plan is as critical as its development. Every plan is different and every presentation unique. Some of the tips that are useful in presenting a business plan are as follows: • Know the audience and their requirements • Set the stage for the presentation • Be prepared for questions • Emphasize past history of success • Stick to the facts • Emphasize the buy-in • Provide a balanced picture Completion of this lesson has enabled you to: • Identify key components of a brokerage’s business plan

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Module Summary | Page 4 of 6

Course Closure You have now completed the last course in the Real Estate Broker Program: Ongoing Oversight. While planning and setting up a brokerage that aligns to your vision and goals is an important first milestone for you as an owner and/or broker of record, it is equally important to ensure real estate transactions align to various regulatory requirements. To achieve this objective, it is critical that you continuously monitor your brokerage activities and have the required processes to proactively prevent any issues that can have an impact on the brokerage’s image or growth. This course describes key aspects within the scope of ongoing oversight for a broker of record. It explains elements to consider when monitoring trade processing, trade record sheets, and trust accounts. It explains the regulatory requirements related to paying remuneration to brokers and salespersons, and advertising for a brokerage. This course also discusses guidelines that a broker of record can use while setting up processes and policies for their brokerage. Ongoing monitoring is an essential activity for a broker of record to sustain momentum, look for areas of improvement, and identify growth opportunities. This course discusses the importance of reviewing the internal and external factors that can influence the success of a brokerage and taking necessary steps to align the brokerage with the changing business environment. Next, you will learn about some of the important next steps to becoming a successful broker.

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Module Summary | Page 5 of 6

Next Steps Congratulations, you have completed all four eLearning courses in the Real Estate Broker Program. This is a huge milestone and one important step towards becoming a real estate broker. Your learning journey does not stop here! Next, you need to complete the Broker Wrap-Up session and then take the Broker Final Exam. After you successfully complete the Real Estate Broker Program, you can apply for Broker registration with RECO. You already know that success in real estate is not immediate or guaranteed. In addition to having sufficient financial resources to open and/or run an existing brokerage, a broker of record should be dedicated, hard working, willing to invest long hours, and they should have a positive attitude. These same attributes helped you become a successful real estate salesperson and will help you become a successful real estate broker. You will need to continue to carry these attributes forward into your journey, whether you opt for a career as a broker of record, a manager in a brokerage, or as someone waiting to open your own brokerage. Irrespective of your career choice, you should continue to invest in yourself, expanding your knowledge and building on specific skills to demonstrate your competence in the industry. The following three sections contain information on steps that you can take in your journey as a broker.

Assess Entering into a career as a broker of record can be exciting and challenging. Understanding that you may not possess all the necessary skills that you need as a broker of record is important. Skills can be developed, and even the most experienced broker continually strives for improvement. Never stop learning or expanding your skills while focussing your efforts on personal growth. You can use the SWOT analysis technique to identify your

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strengths, weaknesses, opportunities, and threats. This will help you identify and prioritize your strengths and areas for improvement.

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Create the plan You may want to continue your career in sales, or you may want to become a broker of record, a manager, or start your own brokerage. Depending on the career choice you make, you should establish short-term and long-term goals to be successful. Irrespective of your career choice, continuous selfassessment and learning is important and should be part of your goals and action plan moving forward. Action plans should be created with a focus on continuous improvement and should include shortterm goals and long-term goals. You should consider the most appropriate action to take for each goal.

Take action It is important that you put your plan into action and do the things that you said you would do. You should get them done in the time you said it would take. This may require you to get out of your comfort zone. Once you have achieved your plan, keep going and repeat the process.

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Module Summary | Page 6 of 6

Advancing Skills There is no single way of advancing your skills as a broker. Some general ideas to help include: • Increase your exposure to the new skill: Volunteer in your community, or go out to events sponsored by financial institutions, real estate boards, and other professional organizations related to the profession. • Research: Use reputable resources to conduct research to improve skills. • Get others involved: Speak to people you admire about how they became successful and gained their skills. Ask your family and friends to give you regular feedback to help keep you on track. • Seek additional educational experiences: Take an online course. Research what is available in your community or at the local community college. The following three sections contain information on how you can further develop some of the skills that are useful to become a successful broker of record. These are provided as examples only. Prioritizing the skills that you want to develop and how you accomplish advancement will be personal to you.

Entrepreneurial skills

The ability to create a business plan for a new business venture and ensure all required resources are available. Possible activities: 1. 2. 3. 4. 5.

Financial management

Speak to other entrepreneurs and learn from their experience. Engage third-party professionals. Watch reputable online videos. Read books and articles. Take courses.

The ability to develop a strong financial acumen and analyze financial reports and make informed decisions. Possible activities to improve financial management skills: 1. Speak to lenders and investors.

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2. Engage with financial experts. 3. Read about success stories and failures of business ventures. 4. Take courses on financial management.

Leadership

The ability to demonstrate leadership in personal ideas, judgements, capabilities, and actions. Possible activities to improve management and leadership skills: 1. 2. 3. 4. 5.

Watch reputable online videos. Read books and articles. Take courses. Speak to other brokers of record to understand the approach that they use. Read a book about emotional intelligence. This will help you identify how emotions can impact a person’s reaction and help you to act professionally when stressful situations arise.

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