Broker Qualifying Exam - Humber College

Table of contents :
SG1_Introducing the Real Estate and Business Brokers Act
The Importance of Understanding REBBA
Question #40: Which
SG2 Part1_Introducing the Key Legislation and Regulations
Example:
Example:
Example:
Example: Criminal activity
Example: Price fixing
Example: Evasion of taxes
Example: Void
Example: Voidable
Example: Illegal
Example:
Example 1:
Example 2:
Example:
Example:
1. Single-tier municipality
2. Upper-tier (in the two-tier municipality)
3. Lower-tier (in the two-tier municipality)
Example: Minor Variance
Example: Committee of Adjustment
Example: Rezoning
SG2_Introducing the Key Legislation and Regulations Part2 TEST.pdf
Example: Legal non-conforming use
Example: Legal non-conforming structure
SG2 Part2_Introducing the Key Legislation and Regulations
Example:
Example:
SG3_Introducing Other Relevant Legislation and Regulations
SG4_Explaining Services Available to a Seller or a Buyer
SG5_Factors Impacting Residential Real Estate Negotiations
SG6_Preparing to Market a Residential Real Property
SG7_How Property Conditions Impact Disclosure Requirements
SG8 Part 1_Showing Residential Properties and Advising on Properties of Interest
When potential buyers sign in at an open house, have them confirm if they are already working with a salesperson. This is a good time to capture their information. This will give you the opportunity to answer their questions appropriately and allow yo...
Advertising and networking are critical, especially when you are new and want people to know you are there. There are a variety of activities you can do to get your marketing in motion. The benefits of these activities are that they can elevate your b...
A buyer’s package is a valuable tool to give buyers in order to build a professional image that positions you as an expert. Have a friendly headshot, ensure your contact information is clearly visible, and ask qualifying questions to help you tailor i...
Anticipating buyer needs and being proactive will help you cement your expertise with buyers and increase your opportunities for referrals. The documents you could provide for an effective buyer’s package are:
Show your professionalism and care by asking qualifying questions to identify different buyer needs. Qualifying questions will help you show the best property matches to the buyer. When a salesperson asks questions it creates an opportunity to provide...
There is a difference between wants and needs. It is best to understand them both as you look for properties. Including a list directly in the buyer’s package will help everyone be on the same page. A small list of priorities you could include would be:
Client
Customer
Best Interests
Properties That Meet Buyer’s Criteria
SG8 Part 2_Showing Residential Properties and Advising on Properties of Interest
Being Prepared
Lawyer
Lender or Mortgage Broker
Insurance Professionals
Home Inspector
Lawyer
Mortgage Broker
Insurance
Inspector
SG9_The Offer Process and Regulatory Obligations
1. Initiate the offer
Step 1 : Disclosure before agreement
Step 2: Disclosure before offer
SG10_Completing a Residential Agreement of Purchase and Sale, Countering an Offer, and Working with Competing Offers
 Required Dates (Step 2 of the offer plan)
 Required Clauses (Step 3 of the offer plan)
Example
Offer Details
Counter Offer
1.pdf
Example – One Brokerage:
SG11_Additional Sale-Related Documents and Other Legal Obligations
Sale-Related Documents and Legislative Requirements
Example: Financing Condition – Fulfilled
Example: Financing Condition – Waived
When a condition is fulfilled exactly as in the agreement, the other party is notified using a notice of fulfillment. If there are multiple conditions associated with the accepted offer, a separate notice may be required for each condition unless the ...
This Offer is conditional upon the inspection of the subject property by a home inspector at the Buyer’s own expense, and the obtaining of a report satisfactory to the Buyer in the Buyer’s sole and absolute discretion. Unless the Buyer gives notice in...
Example: Property Inspection
Example: Obtaining Insurance
Example: Buyer Termination – Condition Subsequent
Example: Facts Affecting the Value
Example: Notice of Negotiation for the Subsequent Sale
Corporation
Entity
SG12_Introducing Residential Condominiums
Introduction to Condominiums
Scenario
SG13_Transactions Involving Residential Multi-Unit Dwellings
An Introduction to Multi-Unit Dwellings
Special Considerations for a Property Containing a Multi-Unit Dwelling
Requirements for Due Diligence and Disclosure
Key Factors to Consider When Estimating the Value of a Multi-Unit Residential Property
Example:
Example:
Considerations When Showing a Tenanted Multi-Unit Property and Providing Advice on Properties of Interest
Agreement of Purchase and Sale Form and Clauses
Scenario
List of Possible Conditions or Terms
SG14 Part 1_Preparing to Lease Residential Real Properties
SG14 Part 2_Preparing to Lease Residential Real Properties
SG15_Introducing Commercial Real Estate
Introducing Commercial Real Estate
Employee versus Independent Contractor Status
Additional Complexities
Levels of Authority
Impact of Long-Range Planning
Office Building Classification
Retail Classification
Supply and demand
Brownfield and Greenfield Land
Live-Work Properties
Complexities of Commercial Mortgages
Mortgage Documentation Package
Mortgage brokers
Appraisers
Mortgage discharge
Penalties of late payments
Tax Complexities: HST
Non-Resident Sellers
Mixed-Use Buildings
17.pdf
The Listing Agreement – Commercial: Authority to Offer for Sale (OREA Form 520)
21.pdf
The Buyer Representation Agreement – Commercial: Mandate for Purchase (OREA Form 540)
27.pdf
Use of Third-Party Professionals
SG16_Preparing to Sell Commercial Condominiums
SG17_Showing Office, Retail, or Industrial Properties and Advising on Properties of Interest
Example:
Example:
Example:
Example:
SG18_Preparing to Lease Office, Retail and Industrial Properties
Shared Facilities
Potential Restrictions to Leases Due to an Anchor Tenant
Blend and Extend
Use of a Surveyor or Drawings to Confirm Unit or Building Size
SG19_Transactions Involving Brokering the Sale of a Business

Citation preview

Broker Qualifying Exam Study Guide - 2023

Exam Study Guide

Module: Introducing the Real Estate and Business Brokers Act (REBBA) This is a study guide to help you prepare for the qualifying exam. There are multiple study guides that are provided for preparation. Each study guide contains several decision points to test your knowledge. The answer key to these decision points is present in the “Appendix” section at the end of the guide. Please use Adobe Acrobat Reader (Recommended version 9 or above) to navigate through this PDF. Real Estate Pre-Registration 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 Pre-Registration Program learner.

Exam Study Guide

Module: Introducing the Real Estate and Business Brokers Act (REBBA)

The Importance of Understanding REBBA All brokerages, brokers, and salespersons must be registered under REBBA in order to trade in real estate and must comply with the legislation that defines the duties and obligations of the profession. REBBA requires the broker of record to ensure the brokerage and all employees comply with REBBA, and a salesperson is obligated to ensure their activities do not cause their brokerage to be in contravention of any obligation. As a brokerage is legally responsible for the actions of all its brokers and salespersons, assistance needed while carrying out any trading activities should be obtained from the brokerage’s broker of record or manager. This module gives focus to understanding: • Disclosure requirements to become registered as a salesperson • Requirements under REBBA related to ensuring appropriate conduct of a salesperson and brokerage • How the Code of Ethics is the underlying principle for all trading activities The module also provides opportunities to apply key sections of REBBA to real-world scenarios. But first, this lesson provides a brief background about the history of REBBA.

Exam Study Guide

Menu: Introducing the Real Estate and Business Brokers Act (REBBA) Number of Lessons Lesson Number

9 Lessons Lesson Name

Lesson 1

Regulatory Governance for the Profession

Lesson 2

Prohibitions Re: Practice

Lesson 3

Registration

Lesson 4

Complaints, Inspections, and Discipline

Lesson 5

Conduct and Offences

Lesson 6

The Code of Ethics – Providing Services

Lesson 7

The Code of Ethics: Upholding Compliance and Professionalism

Lesson 8

Summary Practice Activities Module Summary Appendix

Exam Study Guide

Lesson 1 | Page 1 of 8

Lesson 1: Regulatory Governance for the Profession

This lesson introduces the legislation that regulates the real estate profession, the Real Estate and Business Brokers Act and associated Regulations (collectively known as REBBA). REBBA consists of the legislation (“the Act”) and five associated Regulations, three of which impact a salesperson. The Regulation containing the Code of Ethics is highlighted.

Exam Study Guide

Lesson 1 | Page 2 of 8

This lesson introduces the Real Estate and Business Brokers Act (REBBA), which includes the legislation (“the Act”) and associated Regulations. The Act details the legislative requirements for a brokerage, broker of record, broker, and salesperson when trading in real estate. This module also focuses on one of the associated Regulations, the Code of Ethics (“the Code”). The Code establishes the minimum standards of conduct for all registrants. Compliance with the Act and associated Regulations is part of a registrant’s day-to-day activities. The lesson also demonstrates the importance of understanding these requirements and ensuring trading activities comply with REBBA. Upon completion of this lesson, you will be able to: • Describe the significance of the Act and the impact it has on salespersons • Describe the significance of the Code of Ethics and the impact it has on salespersons

Exam Study Guide

Lesson 1 | Page 3 of 8

History of REBBA

Regulation of the real estate profession dates to 1930 when the Government of Ontario introduced the first Real Estate Brokers Act. As real estate ownership expanded, the opportunities for real estate brokerages also increased. As the profession grew, the Act underwent several changes, most notably the provisions for mandatory education in 1967 and additional education requirements after registration, in 1988. In the earlier versions of the Real Estate Act, there was no Code of Ethics which meant only members of the Canadian Real Estate Association (CREA) were governed by the CREA Code of Ethics. In 1997, RECO introduced its own Code of Ethics that applied to all registrants, not just those who belonged to organized real estate. The legislation currently in effect, Real Estate Business Brokers Act and associated Regulations collectively referred to as “REBBA”, was introduced in 2002 and enacted on March 31, 2006. REBBA consists of the statute (“the Act”) and five Regulations, three of which have a direct impact on registrants. The Real Estate Council of Ontario (RECO) administers the Act on behalf of the Ontario government.

Exam Study Guide

Lesson 1 | Page 4 of 8

Familiarity with the Act and Associated Regulations

REBBA consists of the Act (the legislation) and five associated regulations, three of which, also known as primary regulations, will have a direct impact on the activities of a brokerage, broker, and salesperson: • Ontario Regulation (O. Reg.) 567/05: General (includes regulations on registration, trust money, brokerage structure, and management) • Ontario Regulation 579/05: Other (includes regulations on educational requirements, insurance, records, and other matters) • Ontario Regulation 580/05: Code of Ethics Exam Study Guide

The associated Regulations include aspects of the procedures and programs resulting from RECO’s bylaws, established in 1997 to enhance consumer protection. The inclusion of these additional regulations allows for stronger enforcement on items such as registration and education requirements, insurance, handling of trust money, management of a brokerage, and record-keeping. The two additional regulations are: • O. Reg. 568/05: Delegation of Regulation-Making Authority to the Minister • O. Reg. 581/05: Delegation of Regulation-Making Authority to the Board of the Administrative Authority Familiarity with REBBA helps a salesperson to fully understand their obligations as topics can span both the Act and one or more regulations. For example, there are three different areas of REBBA that affect remuneration: • Section 36 of the Act identifies allowable ways to charge remuneration • Section 23 of O. Reg. 567/05 identifies the circumstances under which a brokerage is entitled to charge or collect remuneration • Section 9 of the Code states that remuneration cannot be indicated as fixed or approved

Exam Study Guide

Lesson 1 | Page 5 of 8

Impact of REBBA on a Salesperson The Act sets out the regulatory requirements for trading in real estate and the various obligations of a brokerage and salesperson. The Act is divided into eight parts, four of which will be covered in this module. The remaining obligations are not applicable to a salesperson and have been excluded. The following four sections contain information on the topics addressed in each of these parts.

Part III: Prohibitions This part of the Act addresses the restrictions affecting a brokerage and salesperson related to trading in real estate and the exemptions to registration. Lesson 2 provides Re: Practice further details regarding registration.

Part IV: Registration

This part of the Act outlines the regulations regarding registration of a brokerage and salesperson. Lesson 3 provides further details regarding registration requirements.

Part V: Complaints, This part of the Act regulates the procedures related to complaints, brokerage inspections, and discipline proceedings. Lesson 4 provides further details regarding disciplinary Inspection, and procedures. Discipline Part VI: Conduct and Offences

This part of the Act regulates the conduct of a brokerage and salesperson with some sections focused on the interactions held with a seller or buyer. Lesson 5 provides further details regarding conduct and offences.

Exam Study Guide

Lesson 1 | Page 6 of 8

The Code of Ethics

One of the associated Regulations found in REBBA is the Code of Ethics. The Code identifies the minimum standards a registrant must follow when trading in real estate. Specifically, the Code sets requirements for acceptable conduct to protect the public interest and to help ensure public confidence in the professionalism of all registrants. Complying with the Code speaks to the individual’s reputation and character and, ultimately, is what contributes to a long and rewarding career. The Code’s regulatory provisions provide clear requirements for appropriate and professional conduct.

Exam Study Guide

Lesson 1 | Page 7 of 8

Consequences of Non-compliance with the Code of Ethics

Registrants who fail to comply with any Code section can face strict penalties imposed by the Discipline Committee. When a matter is referred to the Discipline Committee, a panel will hold a hearing and prepare a final decision, including reasons for that decision. These penalties can range in severity depending on the nature of the violation. The Discipline Committee may order the salesperson to do any of the following: • Complete relevant educational courses • Pay a fine • Pay a fixed/imposed cost Additionally, the Discipline Committee will publish a copy of its decision, including the reasons for that decision, on RECO’s website for a minimum period of 60 months. RECO’s website is accessible by the public. Most registrants conduct themselves professionally and uphold the Code. However, a salesperson may violate the Code unintentionally by simply not fully understanding their obligations. The obligations under the Code should be the foundation of a salesperson’s daily activities.

Exam Study Guide

Lesson 1 | Page 8 of 8

Congratulations, you have completed the lesson! There are two sections on this page with a summary of the key topics that were covered in this lesson.

The Real Estate and Business Brokers Act (REBBA)

REBBA is the legislative framework that regulates the real estate profession to enhance consumer protection. REBBA includes regulations and obligations related to restrictions to trading, registration requirement, complaints, conduct, and offences.

The Code of Ethics

The Code of Ethics is one of the associated Regulations and identifies the minimum standards of a registrant when conducting business. Registrants who fail to adhere to the Code can face strict penalties imposed by the Discipline Committee including the requirement to take additional educational courses, payment of a fine, and payment of fixed/imposed costs.

REBBA consists of the Act (the legislation) and five associated Regulations.

Exam Study Guide

Lesson 2 | Page 1 of 14

Lesson 2: Prohibitions Re: Practice

This lesson explains which activities are deemed to be trading in real estate and identifies the requirements under REBBA for registration when performing any of these activities. Specific exemptions to registration are also detailed, along with the activities an unregistered person employed by a brokerage can and cannot perform.

Exam Study Guide

Lesson 2 | Page 2 of 14

The previous lesson introduced the structure of REBBA and underscored the importance of having a good working knowledge of the obligations the legislation imposes. This lesson explains the restrictions affecting a brokerage and a salesperson related to their registration and identifies those who are exempt from registration under REBBA. Understanding the restrictions associated with registration is essential as trading in real estate without being registered or exempt from registration is a violation of REBBA. Upon completion of this lesson, the learner will be able to: • Identify the requirements set out in REBBA to be registered to trade in real estate • List the exemptions to registration as set out in REBBA • Identify the requirement that a registrant be notified in writing regarding registration to be eligible to trade in real estate • Identify the requirement that an individual be registered with RECO at the time of providing real estate services to clients or customers to make a claim for remuneration Exam Study Guide

Lesson 2 | Page 3 of 14

A brokerage is permitted to trade in real estate when registered under REBBA. All brokers and salespersons are employed by the brokerage which allows them to perform the activities deemed to be trading in real estate. You will learn about the specifics of trading in real estate throughout the lesson.

Exam Study Guide

Lesson 2 | Page 4 of 14

Trading in Real Estate

The Act sets out specific information about trading in real estate, including the definition of the term trade. Understanding this definition is integral to ensure compliance with REBBA when conducting activities considered trading. The Act also details requirements for registration in order to trade, and what is prohibited by a person who is not registered. The following three sections contain information on Trading in Real Estate.

Definition of a trade (Section 1(1) of the Act)

The Act defines a trade as: “a disposition or acquisition of or transaction in real estate by sale, purchase, agreement for purchase and sale, exchange, option, lease, rental or otherwise and any offer or attempt to list real estate for the purpose of such a disposition, acquisition or transaction, and any act, advertisement, conduct or negotiation, Exam Study Guide

directly or indirectly, in furtherance of any disposition, acquisition, transaction, offer or attempt, and the verb “trade” has a corresponding meaning.” In other words, any activity that furthers a real estate transaction is considered trading in real estate. For example: • Listing a property for sale • Showing a property to a buyer • Marketing a property such as hosting an open house • Arranging a commercial lease • Acknowledging a notice related to an offer on behalf of a seller or buyer • Explaining information about a property to a potential buyer A brokerage, broker, and salesperson must be registered under the Act to perform any Registration requirement to trade activities deemed to be a trade in real estate. The Act states that: (Section 4(1) of the Act) “No person shall, a) trade in real estate as a brokerage unless the person is registered as a brokerage; b) trade in real estate as a broker unless he or she is registered as a broker of a brokerage; c) trade in real estate as a salesperson unless he or she is registered as a salesperson of a brokerage; or d) trade in real estate unless registered under this Act” A broker or salesperson must be employed by a brokerage to be registered under the Act.

Exam Study Guide

Unregistered persons The Act also addresses activities of an unregistered person: (Section 4(2) of the “A person who is not registered as a brokerage, broker or salesperson shall not, Act) a) directly or indirectly hold himself, herself or itself out as being a brokerage, broker or salesperson, respectively; or b) perform any of the functions of a brokerage, broker or salesperson as provided in this Act.” An unregistered person can fill an important role at a brokerage in various ways. A registrant can employ a person who is not registered to perform specific duties to assist them when trading in real estate. The following screens illustrate some of the activities an unregistered person can and cannot perform.

Exam Study Guide

Lesson 2 | Page 5 of 14

Unregistered Persons An unregistered person will be limited in the activities they can perform relating to assisting a salesperson when employed at a brokerage. Examples of permitted activities (under the guidance of a broker or salesperson): 1. Attend a listing or offer presentation in a support role with a salesperson such as taking photographs or assisting in measuring rooms. 2. Set up listing files, complete marketing sheets based on the listing or data form obtained by the salesperson, and submit listings and changes to the local listing service. 3. Witness a seller or buyer signature. 4. Schedule appointments for a broker/salesperson to show listed properties. 5. Draft an offer based on the directions of a broker/salesperson. 6. Provide listing information to consumers, such as a flyer. 7. Prepare or produce promotional material or place a “For Sale” or “Sold” sign on a property. 8. Install lockboxes with the seller’s permission to have access to the property. 9. Attend an open house for the public with a broker/salesperson; for example, to help safeguard the property or for personal security reasons. Examples of activities not permitted: 1. Be an active participant in a listing or offer presentation, such as providing advice on an appropriate listing price or terms of an offer. 2. Explain or advise the seller on any changes to the listing agreement. 3. Receive or acknowledge a notice on behalf of a seller or buyer. 4. Show a property to a buyer. 5. Explain or negotiate an offer with a seller or buyer. 6. Answer questions regarding the listing information on a property. 7. Perform any type of prospecting, such as phone solicitation or door knocking. 8. Access a property to assist a buyer or third-party professional during an inspection. 9. Host an open house for other salespersons or the public to view the property.

Exam Study Guide

Lesson 2 | Page 6 of 14

Question #1: Which of the following activities require registration as a salesperson under the Act? There are four options. There are multiple correct answers.

1

Advising a seller on an appropriate listing price for their property.

2

Showing a buyer through a property that is listed for sale.

3

Creating a flyer to provide to buyers during an open house.

4

Booking an appointment for a property to be shown to a buyer.

Exam Study Guide

Lesson 2 | Page 7 of 14

Question #2: Which of the following activities require registration as a salesperson under the Act? There are four options. There are multiple correct answers.

1

Installing a lock box on a property listed for sale by the brokerage.

2

Explaining the terms of an agreement of purchase and sale.

3

Conducting the open house as part of the marketing plan.

4

Placing a For Sale sign on a property listed for sale by the brokerage.

Exam Study Guide

Lesson 2 | Page 8 of 14

A salesperson has employed an unregistered person to assist them in their business. Question #3: Which of the following activities can an unregistered person perform? There are eight options. There are multiple correct answers.

1

Prepare documents on behalf of the salesperson.

2

Design a newspaper advertisement on behalf of the salesperson.

3

Post information on social media platforms on behalf of the salesperson.

4

Attend an open house to greet guests and hand out property information.

5

Witness the seller’s signature on the agreement of purchase and sale.

6

Answer a buyer’s questions about a listing on behalf of the salesperson.

7

Accompany a home inspector on behalf of the salesperson during a property inspection.

8

Approach potential sellers on behalf of the salesperson to obtain a listing.

Exam Study Guide

Lesson 2 | Page 9 of 14

Exemptions to Registration

The Act requires a brokerage, broker, or salesperson to be registered when performing any activity deemed to be trading in real estate. The Act also identifies certain exemptions to this requirement. Registration is not required in respect of any trade in real estate by specific individuals under specific situations or criteria. Common examples of individuals who are not required to be registered include the following: • An auctioneer auctioning the property, equipment, livestock, etc., of a retired farmer • A full-time salaried employee working at a new home builder’s site and representing the builder in negotiations • A lawyer settling an estate and selling a parcel of land on behalf of the estate • A financial institution disposing of a property under a mortgage default • A property owner selling their home privately • A property manager leasing an apartment on behalf of a landlord Exam Study Guide

Note that trading in seasonal/vacation rentals and commercial leases requires registration as the exemption applies to a person who trades solely for the purpose of arranging leases under the Residential Tenancies Act.

Exam Study Guide

Lesson 2 | Page 10 of 14

Notification of Registration Required

The Act requires a salesperson to be notified in writing that they are registered with RECO before trading in real estate. “(6) Subject to subsection 14(8), no brokerage, broker or salesperson shall trade in real estate until notified in writing by the registrar that the brokerage, broker or salesperson, as the case may be, is registered.” –Act, Section 6 Once a salesperson’s application has been approved and the registration takes effect, an electronic copy of their registration certificate is available via the MyRECO Certificate mobile app. The Act also requires a brokerage and a salesperson to be registered at the time of providing services relating to a trade to make a claim for remuneration. “(9) No action shall be brought for commission or other remuneration for services in connection with a trade in real estate unless at the time of rendering the services the person bringing the action was registered or exempt from registration under this Act and the court may stay any such action upon motion.” –Act, Section 9

Exam Study Guide

Non-compliance with this section of the Act might occur accidentally. For example, a salesperson who is unaware their registration has expired has continued to trade in real estate. The salesperson would not be eligible to make a claim for compensation for any trading activities performed during that time.

Exam Study Guide

Lesson 2 | Page 11 of 14

A person has recently completed the Pre-Registration phase of the Real Estate Salesperson Program. The person has sent their application to RECO. The applicant approaches their broker of record because they have friends who are anxious for them to be registered and the applicant is excited to begin helping them. The applicant asks their broker of record what they can do starting immediately. Question #4: What can the applicant do immediately? There are six options. There are multiple correct answers.

1

Order business cards and signs.

2

Create a database of potential buyers and sellers.

3

Show properties or conduct an open house.

4

Advise a seller on the value of their property.

5

Let others know they are registered when handing out business cards while prospecting.

6

Create a website to promote themselves as a salesperson.

Exam Study Guide

Lesson 2 | Page 12 of 14

A salesperson is hosting an open house with the help of their unregistered assistant. The assistant greets a couple as they arrive at the open house and asks them to sign the guest registry. She explains that the registry is a method for verifying who has viewed the property. The couple obliges and, while waiting for the salesperson to show them through the property, asks the assistant the listing price of the house. While handing the couple a feature sheet, she replies that the house is listed at $400,000 and adds that the price is reasonable considering most homes in the area are selling above $500,000. The couple then states that the taxes seem rather high compared to other properties they have viewed in the area. The assistant responds that the taxes are in line with the other two listings the brokerage has in the neighbourhood. The assistant tells the couple the salesperson is now available to show them through the home and answer any questions. Question #5: For each action the unregistered assistant performed, which of the following are permitted under the Act? There are four options. There are multiple correct answers.

1

Greet visitors and ask them to sign the guest registry

2

Provide an opinion about the property taxes

3

Provide information about listing price and comparable sales in the area

4

Hand out promotional material

Exam Study Guide

Lesson 2 | Page 13 of 14

The Act identifies certain exemptions from registration. Individuals can perform specific activities in respect of a trade in real estate without registration. However, there are also activities they could perform that would require registration. Question #6: Which of the following statements illustrate activities where an individual is exempted from registration? There are four options. There are multiple correct answers.

1

A property manager arranging a lease under the Residential Tenancies Act.

2

A lawyer drafting an agreement of purchase and sale on behalf of their client.

3

A full-time salaried employee of a new home builder marketing a buyer’s current home for sale.

4

An advertisement by an auctioneer offering a property for sale.

Exam Study Guide

Lesson 2 | Page 14 of 14

Congratulations, you have completed the lesson! There are four sections on this page with a summary of the key topics that were covered in this lesson.

Prohibition against A brokerage, broker, and salesperson must be registered under REBBA to trade in real trading in real estate estate. An individual is deemed to be trading in real estate when participating in any activity which would advance a real estate transaction. unless registered

Unregistered persons can be employed by a brokerage or salesperson, but are limited in their scope of permitted activities. A person who is not registered must not perform any task that generally falls under the definition of a trade.

Registration exemptions

Certain individuals are exempt from registration when performing specific activities under specific circumstances. Some exemptions to registration include: • An auctioneer when auctioning property • A full-time salaried employee of a builder • A real estate lawyer disposing of a property to settle an estate • A financial institution disposing of a property under a mortgage default • A person selling their own home • A person who arranges leases under the Residential Tenancies Act, 2006

A salesperson must be notified in writing that they are registered with RECO before Notification of registration required trading in real estate. A salesperson can obtain an electronic version of their registration certificate.

Registration requirement to be compensated for services provided

A salesperson must be registered or exempt from registration at the time of providing services to be eligible to make a claim for remuneration.

Exam Study Guide

Lesson 3 | Page 1 of 11

Lesson 3: Registration

This lesson describes the registration requirements under REBBA for a brokerage to designate a broker of record. Factors that impact the approval of an application for registration, including the impact of making false statements and past conduct, are also detailed.

Exam Study Guide

Lesson 3 | Page 2 of 11

This lesson describes requirements under the Act for a brokerage to designate a broker of record. This individual can be any broker employed by the brokerage and may or may not be the owner of the brokerage. The lesson also details factors that could impact an application for registration, and the provisions under the Act for an applicant to be refused registration. An individual’s past conduct and behaviour is part of the initial application, as well as throughout their registration, as the Act includes provisions to refuse, suspend, and revoke a registration. Upon completion of this lesson, the learner will be able to: • Identify the requirement for a brokerage to designate a broker of record • State how the financial position of an applicant can affect registration • Identify the impact of false statements, past conduct, and activities that contravene REBBA on a registrant's initial or renewal application

Exam Study Guide

Lesson 3 | Page 3 of 11

Broker of Record Requirements, I

All brokerages must have a designated broker of record who is responsible for compliance with REBBA by everyone the brokerage employs, including unregistered assistants working with salespersons and brokers within the brokerage. They must actively participate in the day-to-day management of the brokerage, ensure adequate levels of supervision for brokers and salespersons, and take reasonable steps to correct non-compliant behaviour. The broker of record can be any individual registered as a broker who is employed by the brokerage. In a sole proprietorship, the sole proprietor must be the broker of record. The brokerage must provide the Registrar with the name of the broker of record in writing. If the broker of record changes, the brokerage must notify the Registrar within five days of the change. Sole Proprietorship

Exam Study Guide

A sole proprietorship is one of several entities that may be permitted to act as a real estate brokerage and trade in real estate. This type of ownership is subjected to registration restrictions and other notable restrictions under the Act. A brokerage carrying on business as a sole proprietor must do so using the name of the broker. As noted above, the sole proprietor must be the broker of record. See the full legislation below. “12(1) Every brokerage shall, (a) designate a broker who is employed by the brokerage as the broker of record and notify the registrar of his or her identity; and (b) notify the registrar if the broker of record changes, within five days of the change.” –Act, Subsec. 12(1) “12(2) The broker of record shall ensure that the brokerage complies with this Act and the regulations.” –Act, Subsec. 12(2) “12(3) If a brokerage is a sole proprietorship, it shall designate the sole proprietor as the broker of record even though other brokers may be employed by the brokerage.” –Act, Subsec. 12(3)

Exam Study Guide

Lesson 3 | Page 4 of 11

Broker of Record Requirements, II

The broker of record ensures the brokerage complies with all requirements under REBBA. This role requires knowledge of the legislation and experience in the practical application of these requirements. This individual may also be the owner of the brokerage, but this is not a requirement under REBBA unless the brokerage is a sole proprietorship. The broker of record must also actively participate in brokerage management and ensure there is supervision for all employees, including brokers, salespersons, and other staff. A broker of record is ultimately responsible for compliance; however, many brokerages may also have managers who are responsible for some of the day-to-day operations. As a salesperson, there will be guidance and assistance provided by the brokerage for any aspect of a transaction. Pursuing activities beyond the level of any knowledge or experience without this guidance can expose a salesperson and brokerage to risk.

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Lesson 3 | Page 5 of 11

Registration Considerations – Financial Position

When there is an application for registration or renewal of a registration, the Registrar takes several things into consideration. One of the key considerations during the application process is an applicant’s financial position. A salesperson’s application can be refused if they have substantial unpaid debts and have not shown financial responsibility in resolving the matter. “10(1) An applicant that meets the prescribed requirements is entitled to registration or renewal of registration by the registrar unless, (a) the applicant is not a corporation and, (i) having regard to the applicant’s financial position or the financial position of an interested person in respect of the applicant, the applicant cannot reasonably be expected to be financially responsible in the conduct of business,” – Act, Subsec. 10(1)(a)(i) Exam Study Guide

The application for registration requires disclosure of certain circumstances, including unpaid judgements or debts outstanding, bankruptcy or a consumer proposal (discharged or otherwise), personal insolvency, or as a party to a bankruptcy or insolvency proceedings. An applicant must submit full details of the circumstances and specific documentation with their application to RECO for the Registrar’s review. These disclosures do not necessarily result in denial of registration, but a decision is not possible without full disclosure and the Registrar’s review of the documentation provided by the applicant. Note: An interested person includes any person who has a financial interest in the other person’s business, exercises (or may exercise) direct or indirect control over that individual, or who directly or indirectly provides financing. The interested person does not need to have any formal ownership position. Further, a person who is associated with another person is deemed to be an interested party.

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Lesson 3 | Page 6 of 11

Registration Considerations – Past Conduct

In addition to the financial position of the applicant, the Registrar will consider their past conduct. This includes any past conduct that gives reasonable grounds to believe that the applicant will not conduct business with integrity, honesty, and in accordance with the law. Registration could also be affected by convictions or pending criminal charges against an applicant, as well as whether a license or registration of any kind has been refused, suspended, or revoked. “(10)(1)(a) An applicant that meets the prescribed requirements is entitled to registration or renewal of registration by the registrar unless, (ii) the past conduct of the applicant or of an interested person in respect of the applicant affords reasonable grounds for belief that the applicant will not carry on business in accordance with law and with integrity and honesty” –Act, Subsec. 10(1)(a)(ii)

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Lesson 3 | Page 7 of 11

Registration Considerations – False Statements

An applicant must provide full and complete information on their application. The Registrar may consider nondisclosure of required information or false statements made in the application as grounds for refusal to register. “(10)(1)(a) An applicant that meets the prescribed requirements is entitled to registration or renewal of registration by the registrar unless, (iii) the applicant or an employee or agent of the applicant makes a false statement or provides a false statement in an application for registration or for renewal of registration;” –Act, Subsec. 10(1)(a)(iii)

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Lesson 3 | Page 8 of 11

Registration Considerations – Refusal to Register

At any time, if the Registrar believes the applicant does not meet the requirements regarding financial responsibility, past conduct, and false statements, the Registrar may: • Refuse to register an applicant • Suspend or revoke a registration • Refuse to renew a registration “13(1) Subject to section 14, the registrar may refuse to register an applicant or may suspend or revoke a registration or refuse to renew a registration if, in his or her opinion, the applicant or registrant is not entitled to registration under section 10. 2004, c.19, s.18(10). (2) Subject to section 14, the registrar may, (a) approve the registration or renewal of a registration on such conditions as he or she considers appropriate; and (b) at any time apply to a registration such conditions as he or she considers appropriate.” –Act, Section 13

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The Act also allows for the Registrar to approve a registration with conditions. Conditions place restrictions or additional requirements on the applicant or registrant and if these are agreed to, the registration may be approved. Examples of conditions include: • An individual with financial issues may be asked to enter into Conditions whereby they agree to provide quarterly reports to the Registrar with proof of payments made to reduce debts, requirements to pay, or a garnishment, etc. • An individual with a discharged bankruptcy may be asked to enter into Conditions whereby they agree not to apply to be an officer, director, partner, shareholder, sole proprietor real estate brokerage, or broker of record for a specified time period • An individual facing criminal charges may be asked to enter into Conditions whereby they keep the Registrar’s office updated on court dates, disposition of charges, and court documents such as a judge’s reasons for sentencing Section 14 of the Act identifies the requirements to provide a notice to the applicant or registrant if there is a proposal to refuse to grant or renew a registration, suspend or revoke a registration, or apply conditions to a registration which the applicant or registrant has not consented to.

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Lesson 3 | Page 9 of 11

RECO has the right to refuse registration to an applicant. Question #7: Identify the situations where RECO can exercise the right to refuse to grant registration. There are four options. There are multiple correct answers.

1

The applicant does disclose an assault conviction.

2

The applicant does not disclose they have substantial outstanding debt and are considering declaring bankruptcy.

3

The applicant has unpaid judgements.

4

The applicant does not disclose that they served an 18-month jail term twenty years ago.

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Lesson 3 | Page 10 of 11

RECO receives and reviews an application for registration. The applicant indicated that they filed for personal bankruptcy several years ago. However, the applicant failed to submit the required discharge papers, or any other details or documentation, as required on the application. Question #8: Based on the information provided, which of the following are potential outcomes? There are four options. There are multiple correct answers.

1

The application is rejected based on the applicant’s initial failure to supply the appropriate documentation with the application and the applicant is notified in writing of the refusal.

2

Depending on the circumstances of the bankruptcy, the application may be approved, provided the applicant meets all other requirements, including submitting the required documents.

3

Depending on the circumstances of the bankruptcy, the application may be approved subject to terms and conditions, provided the applicant fulfills all other requirements, including submitting the required documents.

4

Depending on the circumstances of the bankruptcy, registration may be denied, based on a review of the required documents once received.

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Lesson 3 | Page 11 of 11

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were covered in this lesson.

Broker of record

A broker of record ensures that the brokerage and all employees comply with REBBA. The broker of record does so by taking an active role in the management of the brokerage, ensuring there are adequate levels of supervision, and taking steps to address noncompliance issues. The brokerage must provide the Registrar with the name of the broker of record in writing. If the broker of record changes, the brokerage must notify the Registrar within five days of the change.

Registration considerations

The Registrar will take into consideration certain factors that could impact an application for registration. The applicant’s financial position, past conduct, and the impact of making false statements on an application, are all reviewed. An applicant must submit full details of the circumstances and specific documentation with their application to RECO. These disclosures do not necessarily result in denial of registration, but a decision is not possible without full disclosure and the Registrar’s review of the documentation provided by the applicant.

Registration refusal

The Registrar can refuse to approve an application for registration or renewal, or suspend or revoke a registration, under certain circumstances. An application will require specific information and disclosures to be made. An applicant who has past unprofessional conduct or criminal charges, or who incorrectly or incompletely answers any questions, could have an application for registration refused. In some instances, the Registrar may approve the registration or renewal of a registration by attaching conditions to which the applicant or registrant voluntarily agrees.

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Lesson 4 | Page 1 of 16

Lesson 4: Complaints, Inspection, and Discipline

This lesson outlines the procedures under REBBA for handling a complaint against a registrant, including the role of the Discipline Committee and Appeals Committee for Code of Ethics infractions. Details regarding inspections of the business premises of a registrant, the authority of an inspector, and the obligations of a registrant during an inspection are also identified.

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Lesson 4 | Page 2 of 16

While most registrants conduct themselves with professionalism, inquiries, concerns, and complaints about the conduct of a registrant can be filed with RECO. These may or may not have merit, but RECO has an obligation to investigate and determine the relevance of each complaint received. Therefore, it is important to understand how RECO handles complaints and what to expect if one has been filed against a salesperson or their brokerage. This lesson outlines these procedures and the actions the Registrar can take. The lesson also describes the obligations of a brokerage (and by extension, a salesperson) during an inspection of the brokerage to obtain information regarding a complaint. If the complaint is based on a registrant’s non-compliance with the Code of Ethics, the matter is referred to the Discipline Committee. Details about these proceedings is also within the lesson. At the end of this lesson, the learner will be able to: • Describe RECO’s disciplinary process when addressing complaints, including the actions the Registrar can take • List brokerage obligations during an inspection • Identify the potential consequences of a registrant not complying with the Code of Ethics 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 16

RECO often receives inquiries from consumers and registrants that are related to compliance. RECO’s complaints process is in place to ensure fair and flexible handling of complaints about the conduct of a registrant. An initial screening process determines if a complaint is frivolous, outside RECO’s jurisdiction, or could be resolved informally. Depending on the nature of the complaint, the process could include RECO facilitating a dialogue between parties to a complaint, where possible, and encouraging them to resolve issues together. Should this facilitated approach fail or when complaints of a more serious nature arise, additional administrative actions are initiated.

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Lesson 4 | Page 4 of 16

Complaints – Request for Information

A complaint can be sent to RECO from the public, another registrant, or any other party impacted by the actions of a registrant. To assess the relevance of any inquiry, concern, or complaint received, RECO will notify the registrant of the nature of the complaint with enough details necessary for the registrant to be able to respond fully to the allegations. RECO may also request additional information regarding the complaint, and the salesperson is obligated to provide the information within a specific time period after receiving a written request. The broker of record will be provided a copy of any complaint against an employee, any necessary communication regarding the matter, and the final outcome. “19(1) If the registrar receives a complaint about a registrant, the registrar may request information in relation to the complaint from any registrant. Exam Study Guide

(2) A request for information under subsection (1) shall indicate the nature of the complaint. (3) A registrant who receives a written request for information shall provide the information as soon as practicable.” –Act, Section 19 Note that while RECO can enforce a range of disciplinary options, RECO cannot award compensation or damages to complainants, or cancel a contract between a seller or buyer and a brokerage. Every decision by RECO is made on a case-by-case basis. The following three sections contain information on discipline paths and potential outcomes of a complaint.

Discipline paths and outcomes Not all inquiries or complaints result in action taken against a registrant. If the complaint is outside of RECO’s jurisdiction, or there is no evidence to support the complaint, no action is taken. If the complaint is supported by evidence, depending on the severity of the offence, there are various discipline paths and outcomes that could result.

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Types of infractions and potential outcomes Every complaint received by RECO is unique and there are many potential outcomes. In the following list of infractions and their potential outcomes, the severity of offence increases as we move down the list: 1. A registrant makes an error that costs money to fix (for example, a registrant loses a key) // RECO Dispute Resolution - The parties agree to settle their dispute when registrant agrees to cover costs of changing the locks 2. A registrant breaks an advertising rule (for example, the advertisement doesn’t clearly state the name of the brokerage) // issued a warning 3. A registrant repeatedly breaks an advertising rule // issued a warning, required to take educational course and corrective action, such as establishing and following a policy 4. A registrant gives a client access to a home that is for sale, but doesn’t accompany the client // breach of Code of Ethics, $6,000 fine 5. A registrant makes a promise to give a client a rebate and does not keep the promise // breach of Code of Ethics, $6,000 fine 6. A registrant fails to disclose pertinent information to all buyers, giving unfair advantage to one buyer (for example, not disclosing that one of the buyer’s representative is waiving commission) // breach of Code of Ethics, $10,000 fine 7. A registrant signs a document as a witness when in fact they were not a witness // breach of Code of Ethics, $12,000 - $15,000 fine Exam Study Guide

8. A registrant causes financial harm to a client by signing or doing something on behalf of the client (for example, a registrant representing both a seller and a buyer fails to tell their seller client about a second, higher offer from another buyer) // breach of Code of Ethics, fine of up to $50,000 9. A registrant makes an improper declaration on a registration renewal application (for example, the registrant fails to disclose criminal history) // guilty under REBBA 2002, fine on an individual of up to $50,000 and/or prison term of up to 2 years less a day and/or proposal to revoke registration 10. A registrant fails to put a client’s deposit into a trust account // guilty under REBBA 2002, fine on an individual of up to $50,000 and/or prison term of up to 2 years less a day or fine on a corporation of up to $250,000 11. A registrant takes money from a trust account without authorization // issued a proposal to suspend or revoke registration with or without an immediate suspension; must replace funds, faces criminal charges 12. A registrant commits mortgage fraud // issued a proposal to suspend or revoke registration with or without an immediate suspension; faces criminal charges

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Progressive discipline Some infractions are honest mistakes. However, if the same infraction — such as not complying with REBBA’s advertising regulations — is made repeatedly, something more serious is happening. Hence, RECO often takes a progressive discipline approach as follows: • For the first offence, the discipline approach is Warning, i.e., Must correct the problem. • For the second offence, the discipline approach is Warning + Course, i.e., Must correct the problem. Must take the RECO Advertising Workshop Course ($225 + HST). • For the third offence, the discipline approach is Discipline Hearing, i.e., a potential fine of up to $25,000 for the broker of record and/or up to $25,000 for a sales representative.

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Lesson 4 | Page 5 of 16

RECO Discipline Paths and Outcomes When RECO receives any complaint or when a misconduct is alleged, RECO’s jurisdiction defines the next course of action. Not all inquiries or complaints result in action taken against a registrant. If the complaint is outside of RECO’s jurisdiction, or there is no evidence to support the complaint, no action is taken. If RECO has authority, it reviews and gathers evidence. In case the complaint is not supported by evidence, it is closed and no action is taken. In case the complaint is supported by evidence, depending on the severity of the offence, there are various discipline paths and outcomes that could result. The four categories of offence are misunderstanding between the parties, minor offences, more serious offences, or most serious offences. When there is a misunderstanding between the parties, the matter goes to RECO Dispute Resolution (RDR). RECO helps the parties discuss the complaint and possible solutions. When there are minor offences, RECO Registrar makes the decision. Examples of potential penalties are as follows: • Given a warning • Ordered to take an educational course • Required to make a correction, such as fix an advertisement More serious offences could either be breaches of Code of Ethics or breaches of REBBA 2002 other than Code of Ethics. When there are breaches of Code of Ethics: • The matter goes to Discipline Hearing • RECO prosecutes and the Discipline Committee makes decision • Examples of potential penalties are as follows: o Ordered to take educational courses o Salespeople and brokers are ordered to pay a fine of up to $50,000; brokerages are ordered to pay a fine of up to $100,000 When there are breaches of REBBA 2002 other than Code of Ethics: • The matter goes to Provincial Offences Court • RECO prosecutes and Justice of the Peace or judge makes decision • Examples of potential penalties are as follows: Exam Study Guide

o Individuals: fines of up to $50,000 and/or prison terms of up to 2 years less a day o Corporations: fines of up to $250,000 Most serious offences are breaches of REBBA 2002 or very serious registrant misconduct. RECO's most serious remedy is the one wherein the Registrar proposes to revoke, refuses to renew, suspend, or attach conditions to registration of registrant. If registrant doesn't appeal, Registrar carries out the proposal. In case the registrant appeals, License Appeal Tribunal makes decision. If the Registrar proposes to suspend or revoke a registration, the Registrar may also issue an immediate suspension order if the Registrar considers it in the public interest to do so. 58% of the complaints fall into the two categories wherein no action is taken and the complaints are closed. 33% of the complaints fall into misunderstanding between the parties and minor offences. 9% of the complaints fall into more serious offences and most serious offences.

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Lesson 4 | Page 6 of 16

Addressing Complaints

The Act identifies procedures the Registrar can take when handling a complaint. The following six sections contain information on the different ways a complaint can be addressed.

Acknowledgement If appropriate, RECO may accept an acknowledgement from a registrant of their noncompliant behaviour and an undertaking that it will not be repeated. and undertaking For example, as an undertaking, the registrant promises to follow all advertising guidelines.

Apply voluntary conditions

RECO, with the registrant’s consent, may apply voluntary conditions to a registration. Conditions are considered on a case-by-case basis and vary depending on the nature of the complaint. For example, as a condition, the registrant will agree to submit all advertising to RECO for review for three months.

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Request a meeting

RECO may request a meeting with the registrant to discuss the complaint. At the meeting, the registrant may receive an informal educational reminder, advice, or caution. For example, a meeting with the salesperson includes a review of the requirements for disclosure to all buyers when there are multiple offers received by the listing brokerage for the seller’s consideration.

Mediate or resolve the complaint

RECO may attempt to mediate or resolve the complaint. For example, the buyer’s representative missed a showing appointment without notifying the listing brokerage. The parties agree that the buyer’s representative will apologize to the sellers, via the sellers' representative. For example, the buyer complained that the property tax information on the listing was inaccurate, which ended up costing the buyer much more than they anticipated. The buyer demanded that the seller’s representative pay for the difference in the property taxes for several years. The parties agree that the seller’s representative and their brokerage will pay the difference in property taxes for five years in advance. “19(4) In handling complaints, the registrar may do any of the following, as appropriate: 1. Attempt to mediate or resolve the complaint.” –Act, Subsec, 19(4)

Issue a written warning

RECO may issue a written warning indicating that if the conduct that led to the complaint continues, further action may be taken. For example, a registrant was warned and required to correct an advertising infraction where the brokerage’s name was not prominent. The behaviour continued, so RECO issued a second warning and required the registrant to take an advertising course to review the requirements for compliant advertising. “19(4)2. Give the registrant a written warning that if the registrant continues with the activity that led to the complaint, action may be taken against the registrant.” –Act, Subsec, 19(4) Exam Study Guide

Require educational courses

RECO may require a registrant to take further educational courses. For example, RECO may require a registrant to take a course on ethical business practices as a result of breaching the Code. “19(4)3. Require the broker or salesperson to take further educational courses.” –Act, Subsec, 19(4)

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Lesson 4 | Page 7 of 16

Addressing Serious Complaints

Sometimes RECO imposes more serious consequences based on the severity of the complaint and history of the registrant. For example, when a salesperson’s behaviour results in financial harm to a seller or buyer. The following five sections contain information on additional ways RECO can address a serious complaint that warrants further action.

Immediate suspension

RECO has the power to order an immediate temporary suspension of a registration where they believe it is in the public interest. The intent of a temporary suspension is to ensure consumer protection while the registrant’s fitness for registration is being considered. Registrants who are subject to such an order must immediately cease all activities related to trading and return their certificate of registration to the Office of the Registrar. “19(4)5. Take an action under section 13, subject to section 14.” –Act, Subsec, 19(4)

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A registrant subject to such an order is also subject to a Registrar’s proposal which is detailed in the next topic.

Registrar proposal

When a registrant is in contravention of the Act or any of the associated Regulations (other than the Code of Ethics) RECO can issue a notice of proposal. The proposal would identify the action to be taken, such as revoking, suspending or refusing to register, along with the reasons for the action. The registrant can appeal the proposal to the License Appeal Tribunal within 15 days after service of the notice. If no request for an appeal is received by the License Appeal Tribunal, RECO carries out the proposal. “19(4)6. Take further action as is appropriate in accordance with this Act.” –Act, Subsec, 19(4)

Director’s action

The Director, under REBBA, may appoint investigators to conduct investigations under the Act. Depending on the severity of the alleged contravention of the Act, a search warrant could be issued as well as a freeze order. These actions would allow further investigations to take place while also safeguarding any assets or funds held by the brokerage. The Director can take similar action against non-registrants who are believed to be trading while unregistered. “22(1) The director may appoint persons to be investigators for the purposes of conducting investigations.” –Act, Subsec, 22(1)

Provincial offences prosecution

Offences relating to the Act or any of the associated Regulations (other than the Code of Ethics) may be processed in accordance with the Provincial Offences Act. The Act outlines procedures for legal prosecution in the Ontario Court of Justice system including serving an offence notice to an accused person, conducting trials, sentencing, and appeals. Individuals convicted of an offence 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. Courts may also order convicted persons to pay compensation and make restitution. “40(3) An individual who is convicted of an offence under this Act is liable to a fine of not more than $50,000 or to imprisonment for a term of not more than two years Exam Study Guide

less a day, or both, and a corporation that is convicted of an offence under this Act is liable to a fine of not more than $250,000.” –Act, Subsec, 40(3)

Refer to a law enforcement agency

In serious cases, where the Registrar is concerned a registrant’s actions may constitute criminal activity, the matter is referred to the appropriate municipal, provincial or federal law enforcement agency. Fraud is one example of a serious offense that can ultimately lead to criminal prosecution.

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Lesson 4 | Page 8 of 16

Brokerage Inspection

One way that RECO regulates the activity of trading in real estate is by conducting inspections for the purpose of ensuring compliance with REBBA. The inspection program is vital to the regulation of the profession, protection of the public interest, and fostering consumer confidence. The Act details the authority of the Registrar or a designate to conduct inspections for the purposes of: 1. Ensuring compliance with REBBA 2. Dealing with a complaint 3. Ensuring a registrant remains entitled to registration RECO has the authority to inspect a brokerage during reasonable hours. Inspectors must be provided access to all documents, records, money, and other valuables relevant to the inspection. No person may obstruct an inspector in carrying out their duties. Exam Study Guide

“20(1) The registrar or a person designated in writing by the registrar may conduct an inspection and may, as part of that inspection, enter and inspect at any reasonable time the business premises of a registrant, other than any part of the premises used as a dwelling, for the purpose of, a) ensuring compliance with this Act and the regulations; b) dealing with a complaint under section 19; or c) ensuring the registrant remains entitled to registration.” –Act, Subsec. 20(1) “20(2) While carrying out an inspection, an inspector, a) is entitled to free access to all money, valuables, documents and records of the person being inspected that are relevant to the inspection; b) may use any data storage, processing or retrieval device or system used in carrying on business in order to produce information that is relevant to the inspection and that is in any form; and c) may, upon giving a receipt for them, remove for examination and may copy anything relevant to the inspection including any data storage disk or other retrieval device in order to produce information, but shall promptly return the thing to the person being inspected. “ –Act, Subsec. 20(2) “20(5) No person shall obstruct an inspector conducting an inspection or withhold from him or her or conceal, alter or destroy any money, valuables, documents or records that are relevant to the inspection.” –Act, Subsec. 20(5) The Act provides for brokerage inspections and all employees of the brokerage are required to co-operate. A salesperson’s actions can result in their brokerage being inspected, and any documents retained by the salesperson relating to the complaint or inspection must be provided.

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Lesson 4 | Page 9 of 16

Consequences of Violating the Code of Ethics

Matters involving alleged breaches of the Code may be referred to the Discipline Committee for further investigation. The Discipline Committee would hear and determine if the registrant has failed to comply with the Code. For example, if a registrant has a complaint filed against them alleging misrepresentation of facts regarding a property. “19(4)4. Refer the matter, in whole or in part, to the Discipline Committee.” –Act, Subsec, 19(4) When the Registrar refers a matter relating to an alleged Code of Ethics violation, a panel is composed of three or more members of the Discipline Committee. The panel will hear the matter and decide if there has been an infraction. If the Discipline Committee decides that a registrant has failed to comply with the Code, penalties may include an order for the individual to take educational courses, pay a fine up to $50,000, and fix/impose costs. If the registrant is a brokerage, the fine can be up to $100,000. Exam Study Guide

“21(4) If the Discipline Committee makes a determination under subsection (1) that a registrant has failed to comply with the code of ethics, it may order any of the following as appropriate: 1. Require the broker or salesperson to take further educational courses. 2. In accordance with the terms that may be specified by the committee, require the brokerage to fund educational courses for brokers and salespersons employed by the brokerage or to arrange and fund such educational courses. 3. Despite subsection 12(1) of the Safety and Consumer Statutes Administration Act, 1996, impose such fine as the committee considers appropriate, subject to subsection (4.1), to be paid by the registrant to the administrative authority or to the Minister of Finance if there is no designated administrative authority. 4. Suspend or postpone the taking of further educational courses, the funding or the funding and arranging of educational courses or the imposition of the fine for such period and upon such terms as the committee designates. 5. Fix and impose costs to be paid by the registrant to the administrative authority or to the Minister of Finance if there is no designated administrative authority. (4.1) The maximum amount of the fine mentioned in paragraph 3 of subsection 21(4) is, (a) $50,000, or the lesser amount that is prescribed, if the registrant is a broker or a salesperson; or (b) $100,000, or the lesser amount that is prescribed, if the registrant is a brokerage.” –Act, Subsec. 21(4)

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Lesson 4 | Page 10 of 16

Appeals Committee

Registrants may appeal a Discipline Committee decision. An Appeals Committee exists, separate from the Discipline Committee, to consider such appeals. The Appeals Committee can overturn, affirm, or modify the order of the Discipline Committee. For example, a salesperson fails to verify material facts about a property that has an impact on a buyer’s decision to buy or a seller’s decision to sell. This violates Section 21 of the Code, so RECO refers the matter to the Discipline Committee. The Discipline Committee imposes a fine on the salesperson. The salesperson is considering whether to appeal the decision to the Appeals Committee. Keep in mind that specific sections of the Code of Ethics are discussed later in this module in Lesson 6 and Lesson 7. “21(2) An Appeals Committee shall be established to consider, in accordance with the prescribed procedures, appeals from the Discipline Committee.” –Act, Subsec. 21(2)

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“21(5) A party to the discipline proceeding may appeal the final order of the Discipline Committee to the Appeals Committee.” – Act, Subsec. 21(5) “21(6) The Appeals Committee may by order overturn, affirm or modify the order of the Discipline Committee and may make an order under subsection (4).” –Act, Subsec. 21(6) The Act requires RECO to make certain information available to the public regarding decisions of the Discipline Committee and the Appeals Committee. This information can be regarding registrants, former registrants, officers and directors of brokerages, or any person in the profession. For example, RECO discovers discrepancies with a brokerage’s real estate trust account. The Discipline Committee imposes a fine on the brokerage and RECO makes this information available to the public. RECO provides a search feature on its website where consumers can obtain information about a registrant. Whenever RECO feels it is in the public interest to do so, they may make certain information available through public mediums – such as media advisories, alerts, or statements – in instances where providing such information could assist in protecting consumers. “21(11) Decisions of the Discipline Committee and the Appeals Committee shall be made available to the public in such manner as may be prescribed.” –Act, Subsec. 21(11)

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Lesson 4 | Page 11 of 16

Question #9: Which of the following statements are true? There are four options. There are multiple correct answers.

1

A breach of any section of the Act and the Code of Ethics will be referred to the Discipline Committee.

2

All contraventions of the Code of Ethics are subject to a fine.

3

The Appeals Committee can overturn an order of the Discipline Committee.

4

Certain information about Discipline Committee decisions is made available to the public.

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Lesson 4 | Page 12 of 16

RECO is required to fully investigate all complaints received. Question #10: Which of the following statements are true? There are two options. There is only one correct answer.

1

True

2

False

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Lesson 4 | Page 13 of 16

A registrant is required to fully respond to any allegation. Question #11: Determine whether the statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 4 | Page 14 of 16

There is a range of discipline options and each complaint is dealt with individually. Question #12: Determine whether the statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 4 | Page 15 of 16

RECO will financially compensate a seller or buyer as a result of a complaint. Question #13: Determine whether the statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 4 | Page 16 of 16

Congratulations, you have completed the lesson! There are five sections on this page with a summary of the key topics that were covered in this lesson.

Complaints

Not all inquiries or complaints result in action taken against a registrant. If the complaint is outside of RECO’s jurisdiction, or there is no evidence to support the complaint, no action is taken. If the complaint is supported by evidence, depending on the severity of the offence, there are various discipline paths and outcomes. Every complaint received by RECO is unique and there are many potential outcomes including dispute resolutions, written warnings, fines, and/or prison terms for a conviction under the Act. Some infractions are honest mistakes. However, if the same infraction is made repeatedly, something more serious is happening. Hence, RECO can take a progressive discipline approach.

Registrar’s options to address a complaint

RECO has a flexible and impartial process to deal with consumer complaints against registrants. Since complaints range in severity, RECO handles them on a case-by-case basis. RECO considers the unique circumstances and decides on a fitting consequence. Options include: • Require an acknowledgement and undertaking • Apply voluntary conditions • Request a meeting • Mediate or resolve the complaint • Issue a written warning • Require educational courses Salespersons should familiarize themselves with RECO’s range of disciplinary actions so that they realize what consequences may result if they intentionally or unintentionally violate REBBA. Exam Study Guide

Consequences of a more severe complaint

Depending on the severity of the complaint and the history of the registrant, RECO can impose more serious consequences. These consequences can include: • Immediate suspension of a registration • Registrar’s proposal to revoke, suspend or refuse to renew or approve a registration • Director’s action to conduct an investigation • Prosecution under the Provincial Offences Act

Inspections

RECO has the right to inspect brokerages as part of its mandate. These can be done to ensure compliance with the Act, confirm a registrant remains entitled to registration, or as a factfinding exercise when investigating a complaint involving a registrant. It is important for a salesperson to be aware of what these inspections entail so that they are equipped to deal with them, should they need to.

Code of Ethics violations

If RECO determines there could have been a breach of the Code, the matter may be referred to the Discipline Committee. If found guilty, the committee can require the registrant to: • Take educational courses • Pay a fine • Impose additional fixed costs The maximum fine for an individual is $50,000 and for a brokerage, $100,000. A registrant can appeal a Discipline Committee decision. The Appeals Committee can overturn, affirm, or modify the order of the Discipline Committee. Understanding the severity and consequences of a breach can encourage a salesperson to always be conscious of upholding the Code in their day-to-day activities on the job.

Exam Study Guide

Lesson 5 | Page 1 of 26

Lesson 5: Conduct and Offences

This lesson explains a brokerage’s requirements for maintaining a trust account and paying remuneration to a salesperson. The lesson also details topics impacting a salesperson including the allowable methods of calculating remuneration, disclosure requirements when a registrant has an interest in buying and selling property, falsifying information, and the potential penalties for contraventions of the Act.

Exam Study Guide

Lesson 5 | Page 2 of 26

RECO promotes consumer protection through administering the Act and associated Regulations. In this lesson, requirements under the Act related to a brokerage’s and salesperson’s interactions with a seller or buyer are addressed. REBBA has specific requirements for a brokerage’s trust account which is used to deposit all money held in trust for other persons in connection with a transaction. The lesson also details requirements for calculating remuneration, disclosures when a registrant is either directly or indirectly selling or buying real estate, potential ramifications for false advertising, and the prohibitions against falsifying information, furnishing false information or inducing others to do so. These requirements are important to understand as these directly impact a seller or buyer and violating the Act can lead to serious consequences. The content in this lesson will help you understand these requirements in context and avoid potential Act violations. At the end of this lesson, the learner will be able to: • Describe the statutory requirement for a brokerage to maintain a trust account • Identify the requirement regarding employment with a brokerage and the payment of remuneration Exam Study Guide

• Identify the allowable methods of calculating remuneration under REBBA • List the required disclosures when a registrant directly or indirectly sells/buys an interest in real estate • Identify the requirements of a registrant to not falsify information or furnish false information, or induce or counsel others to do so • Identify the Registrar’s options for recourse when a registrant makes false, misleading, or deceptive statements in advertising • List the potential penalties when a registrant is convicted of offence(s) under the Act Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

Exam Study Guide

Lesson 5 | Page 3 of 26

Brokerage Trust Account

All brokerages must establish and maintain a real estate trust account which is used to deposit all money received by the brokerage in trust for other persons in connection with the brokerage’s trades. At all times, these deposits are to be kept separate and apart from money belonging to the brokerage. All transactions must be authorized by the broker of record and all trust cheques must be signed by the broker of record. The broker of record is primarily responsible for all deposits and must complete monthly bank reconciliations to ensure there is no shortfall in funds. “Every brokerage shall, a) maintain in Ontario an account designated as a trust account, in, I. II. III.

a bank, or an authorized foreign bank, within the meaning of section 2 of the Bank Act (Canada), a corporation registered under the Loan and Trust Corporations Act, or a credit union within the meaning of the Credit Unions and Caisses Populaires Act, 1994; Exam Study Guide

b) deposit into the account all money that comes into the brokerage’s hands in trust for other persons in connection with the brokerage’s business; c) at all times keep the money separate and apart from money belonging to the brokerage; and d) disburse the money only in accordance with the terms of the trust.” –Act, Subsec. 27(1) REBBA requires specific information to be detailed regarding the receipt and disbursement of any trust money collected or paid out. A salesperson can assure a buyer that their deposit being held in the brokerage’s trust account is safeguarded and insured via the RECO Insurance Program. You can refer to Introduction to the Real Estate Profession: Year One in the Life of a Salesperson for details on the RECO Insurance Program.

Exam Study Guide

Lesson 5 | Page 4 of 26

Trust Account Deposits and Disbursements

REBBA has several regulations regarding the brokerage’s trust account that a salesperson should be aware of as these can directly impact their activities with a buyer. The following four sections contain information on each requirement of a trust account. Under REBBA, a brokerage must deposit funds into the real estate trust account within five Deposit within five business days business days of receipt. Business days exclude Saturdays, Sundays, and statutory holidays. For many transactions the deposit is held by the listing brokerage. Receipt by the brokerage includes any employee receiving the deposit, such as the salesperson representing the seller or an employee in the brokerage office. Time is of the essence when handling deposits. The five-day provision is a minimum standard; funds should be deposited as soon as is practically possible. Exam Study Guide

Disbursements

A brokerage is required to disburse funds from the trust account as soon as possible, subject to the terms of the trust. A brokerage must be advised by the seller’s lawyer that the transaction has closed, and the funds can then be disbursed to pay towards the remuneration owed. If a transaction does not close, funds may only be disbursed by: • The seller and buyer signing a mutual release or direction agreeing to the disbursement • A court order authorizing the disbursement if the seller and buyer did not agree

Interest earned on trust funds

REBBA requires detailed disclosure regarding interest earned on trust funds. For example, if a brokerage is holding the buyer’s deposit in an interest-bearing trust account, the brokerage is obligated to disclose the interest rate the brokerage receives on the funds. The determination of interest payment should be clearly outlined in the agreement of purchase and sale including the interest terms and who is paid the earned interest “27(2) Brokerages shall fully and clearly disclose in writing to a person depositing trust money the terms on which the brokerage deposits the money, including whether the money is deposited in an interest-bearing account and the interest rate that the brokerage receives on the money.” –Act, Subsec. 27(2) “27(3) Unless otherwise provided by contract, all interest on the trust money referred to in subsection (1) shall be paid to the beneficial owner of the trust money.” –Act, Subsec. 27(3)

Receiving a buyer’s deposit

A salesperson should understand the responsibilities regarding handling a deposit from a buyer. Important points to remember about the deposit: • Deposits should be made by cheque, money order, or bank draft and amounts must be exactly as agreed to in the agreement of purchase and sale • There could be instances where a certified cheque is required to ensure the funds are available, otherwise cheques must be currently dated and capable of being accepted for payment Exam Study Guide

• Where a co-operating brokerage receives a deposit that is directed to another party (for example, the listing brokerage), a receipt from that brokerage should be obtained • A buyer’s salesperson should ensure the buyer understands their obligations regarding a deposit and provide the deposit to the deposit holder without delay

Exam Study Guide

Lesson 5 | Page 5 of 26

A buyer’s offer indicates a deposit needs to be paid following acceptance of the offer. The buyer is now required to provide the deposit, but has a few questions to ask of their salesperson beforehand: Who should I make the cheque out to? Can you hold on to my deposit for a few days? How soon will the cheque be cashed? Does it have to be a certified cheque? Should I worry about my deposit being safe until closing? Question #14: Which of the following responses are correct? There are five options. There are multiple correct answers.

1

“You should make the cheque out to me (the salesperson).”

2

“No, I can’t hold on to your deposit for a few days.”

3

“The cheque could be cashed immediately.”

4

“Yes, all deposits must be paid by certified cheque.”

5

“Don’t worry, your deposit will be placed in the listing brokerage's trust account. It will be safe until closing.”

Exam Study Guide

Lesson 5 | Page 6 of 26

Employment with a Brokerage

The Act includes restrictions for brokerages, brokers, and salespersons regarding their employment. It was previously noted that a salesperson must be employed by a brokerage to be registered under REBBA, however, a salesperson may only be employed by one brokerage at a time. For example, a salesperson who spends the summer in the cottage area of Ontario cannot be employed with a brokerage trading in that area while at the same time being employed by a brokerage in the city where trading is done the remaining months of the year. In addition, a brokerage may not employ an unregistered person to perform an activity deemed trading in real estate, nor could a brokerage pay any remuneration to an unregistered person. For example, the neighbour of a seller approaches a registrant saying they have a friend who is interested in the property but is not willing to pay full listing price. The neighbour indicates he would be happy to help negotiate an agreement with his friend at a lower price, if the registrant agrees to pay him a portion of the remuneration. Sec30 of the Act states, “No brokerage shall, Exam Study Guide

(a) employ another brokerage’s broker or salesperson to trade in real estate or permit such broker or salesperson to act on the brokerage’s behalf; (b) employ an unregistered person to perform a function for which registration is required; or (c) pay any commission or other remuneration to a person referred to in clause (a) or (b).” Restrictions impacting a salesperson generally align with the above requirements. A salesperson may only trade in real estate on behalf of the brokerage they are employed by, and may only accept remuneration, such as a referral fee, from the brokerage which employs them. Sec31(1) of the Act sates, “No broker or salesperson shall trade in real estate on behalf of any brokerage other than the brokerage which employs the broker or salesperson. Sec 31(2) of the Act sates, “No broker or salesperson is entitled to or shall accept any commission or other remuneration for trading in real estate from any person except the brokerage which employs the broker or salesperson.” The legislation has been amended to permit a brokerage to pay remuneration owed to a salesperson or broker for trading in real estate to a corporation that meets a specific criteria. The corporation is referred to as a personal real estate corporation (PREC). A PREC is a corporation that a salesperson or broker may establish that is permitted to directly receive from a brokerage remuneration that is earned by the salesperson or broker. The use of a PREC may have financial advantages for the salesperson or broker. Salespersons and brokers are encouraged to consult financial and other experts on whether a PREC is the right approach for them.

Exam Study Guide

Lesson 5 | Page 7 of 26

Remuneration Restrictions

The Act regulates how remuneration or other remuneration payable to a brokerage can be calculated. The allowable methods are set out in Section 36 of the Act. Additional regulations regarding remuneration are set out in the Code of Ethics, which details the activities of a salesperson when remuneration is part of any negotiation or discussion with consumers. The following three sections contain information on this regulation.

Calculating remuneration (Section 36(1) of the Act)

Remuneration or other remuneration can be an agreed amount, a percentage of the sale price/rental price, or a combination of both. “36(1) All commission or other remuneration payable to a brokerage in respect of a trade in real estate shall be an agreed amount or percentage of the sale price or rental price, as the case may be, or a combination of both.”

Remuneration percentage

If a percentage is used, the remuneration may include several percentages that decrease as the sale price or rental price increases. For example, a listing identifies remuneration as 5% Exam Study Guide

(Section 36(2) of the Act)

for the first $300,000 in selling price and then decreases to 4% for the balance of the selling price. If a property is sold for $650,000, the remuneration would be calculated as follows: • $300,000 at 5% = $15,000 • $350,000 at 4% = $14,000 for a total remuneration of $29,000. “36(2) If the commission payable in respect of a trade in real estate is expressed as a percentage of the sale price or rental price, the percentage does not have to be fixed but may be expressed as a series of percentages that decrease at specified amounts as the sale price or rental price increases.”

Prohibition (Section 36(3) of the Act)

A remuneration based on the difference between the listing price and the selling price is not allowed. For example, it is prohibited to enter into an agreement where the property is listed for sale at $250,000 and the remuneration is any amount over $250,000 that the property sells for. “36(3) No registrant shall request or enter into an arrangement for the payment of a commission or any other remuneration based on the difference between the price at which real estate is listed for sale or rental and the actual sale price or rental price, as the case may be, of the real estate, nor is a registrant entitled to retain any commission or other remuneration computed upon any such basis.”

Exam Study Guide

Lesson 5 | Page 8 of 26

An unregistered person can receive remuneration from a brokerage. Question #15: Determine whether the statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 5 | Page 9 of 26

A salesperson can receive remuneration from a brokerage other than their own brokerage. Question #16: Determine whether the statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 5 | Page 10 of 26

Remuneration can be calculated as a combination of a percentage of sale price plus an agreed upon amount. Question #17: Determine whether the statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 5 | Page 11 of 26

Remuneration can be expressed as a series of percentages that increase at specified amounts as the sale price increases. Question #18: Determine whether the statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 5 | Page 12 of 26

A salesperson can be employed by two brokerages at the same time. Question #19: Determine whether the statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 5 | Page 13 of 26

A salesperson cannot charge remuneration based on the difference between the prices listed for sale and what the property sells for. Question #20: Determine whether the statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 5 | Page 14 of 26

Purchase or Sale by a Registrant

REBBA provides specific disclosure requirements if a registrant either directly or indirectly acquires or divests of an interest in real estate. A direct interest would mean the salesperson is the individual who is buying or selling. An indirect interest could include representing a family member in a trade or if the salesperson is a partner or shareholder of a corporation that is buying or selling. These obligations require a salesperson to provide a notice to all other parties and receive signed acknowledgements from those parties prior to making an offer. This notice must include: • A statement that the individual is a salesperson, broker, or brokerage • Full disclosure of all known facts that may affect the value of the property • Details of any third-party negotiations for the subsequent sale of the property The salesperson must retain a copy of the other party’s written acknowledgement of the disclosure prior to presenting an offer. This means that the disclosure must be a separate document and cannot be included as a statement in an Exam Study Guide

agreement of purchase and sale. The disclosure obligations exist whether the property involved in the transaction is listed with a real estate brokerage or is a private sale. “32(1) Unless the registrant first delivers to all other parties to the agreement the notice described in subsection (2) and the other parties have acknowledged in writing receipt of the notice, no registrant shall, directly or indirectly, (a) purchase, lease, exchange or otherwise acquire for himself, herself, or itself, any interest in real estate, or make an offer to do so; or (b) divest himself, herself, or itself of any interest in real estate, or make an offer to do so.” –Act, Subsec. 32(1) “32(2) The notice referred to in subsection (1) shall be in writing and shall include, (a) a statement that the registrant is a brokerage, broker or salesperson, as the case may be; (b) full disclosure of all facts within the registrant’s knowledge that affect or will affect the value of the real estate; and (c) in the case of a transaction described in clause (1)(a), the particulars of any negotiation, offer or agreement by or on behalf of the registrant for the subsequent sale, lease, exchange or other disposition of an interest in the real estate to any other person.” –Act, Subsec. 32(2)

Exam Study Guide

Lesson 5 | Page 15 of 26

Providing Disclosures for Buying or Selling an Interest in Real Estate

In order to ensure all personal interests in real estate are disclosed by a salesperson, the following information will provide details on what a direct and indirect interest is. The following three sections contain information on disclosures when a registrant directly or indirectly buys or sells an interest in real estate.

Direct and indirect An interest in real estate is any benefit that a registrant may gain, now or in the future, from a transaction, beyond the remuneration they may or may not stand to earn on the interest transaction.

The interest could be direct or indirect, and all instances, must include the required disclosures. A direct interest is when a registrant is the seller or buyer. For example, a salesperson either buys or sells a property owned in their personal name. Exam Study Guide

An indirect interest is not always evident. A few examples of an indirect interest in real estate include: • When a relative, such as a parent or child of the salesperson, is the seller or buyer • When a salesperson or their relative is a shareholder of a corporation, or a partner in a partnership, that is selling or buying • When a salesperson or their relative has another role in the transaction that is not evident, such as being the lender/mortgagee

Disclosure

When a registrant is involved in a transaction where they have a personal interest in the outcome, be it direct or indirect, a written disclosure must be made. The disclosure must happen before any offer is made and include the following information: • Notice that they are a registered brokerage, broker, or salesperson • All facts within their knowledge that may affect the value of the real estate involved • Notice of any negotiation, offer, or agreement that they have conducted or that has been conducted on their behalf, for the subsequent sale, lease, exchange, or other disposition of an interest in the real estate to any other person • Details of any payment that will be received from anyone as part of the transaction, other than what is listed in a representation or customer service agreement must also be disclosed as required under Section 18 of the Code

Written acknowledgment

The salesperson must obtain written acknowledgment from the other parties that they have received the required disclosure before the offer can proceed. These obligations apply regardless if the property involved is listed for sale with a brokerage or is a private transaction. A private sale would include instances where a salesperson approaches a seller who does not have their property listed for sale with a brokerage, or the salesperson is selling their own property privately and the buyer is not being represented by a brokerage. In both instances, written acknowledgment must be received prior to an offer. If a salesperson is unsure if they have a personal interest in a transaction, RECO recommends they exercise caution and provide disclosure. Exam Study Guide

Lesson 5 | Page 16 of 26

A salesperson has listed her mother’s home for sale on the local listing service. The steps involved in disclosing the relationship are: 1) Identify that there is an indirect interest. 2) Obtain written acknowledgement of disclosure from the other parties prior to offer. 3) Provide written disclosure of the indirect interest. Question #21: What is the correct sequence of steps in which the salesperson should disclose this relationship? There are three options. There is only one correct answer.

1

3, 2, 1

2

1, 3, 2

3

2, 1, 3

Exam Study Guide

Lesson 5 | Page 17 of 26

Falsifying Information and Furnishing False Information, I

Under the Act, it is an offence when a registrant falsifies, or counsels others to falsify, any information or document related to a trade in real estate. It is also an offence for a registrant to furnish, or counsel another to furnish, false or deceptive information regarding a trade. “No registrant shall falsify, assist in falsifying or induce or counsel another person to falsify or assist in falsifying any information or document relating to a trade in real estate.” – Act, Section 34 “No registrant shall furnish, assist in furnishing or induce or counsel another person to furnish or assist in furnishing any false or deceptive information or documents relating to a trade in real estate.” – Act, Section 35 Examples of the conduct which would be considered a breach, and the potential consequences of being found guilty under the Act are on the following screen. Exam Study Guide

Lesson 5 | Page 18 of 26

Falsifying Information and Furnishing False Information, II

The Act prohibits a salesperson from providing false information or counselling another person to provide false information. Falsifying or providing false information relates to a salesperson’s interactions and communications with buyers and sellers as well as with providing documents to others who are affected by the transaction. Examples of a salesperson falsifying information, providing false information, or counselling another person to do the same include: • Including false information in a mortgage application, such as a different selling or purchase price • Advising a buyer to provide false information on their mortgage application, such as their income • Advising a seller to provide incorrect information about their property, such as the square footage of the home • Advising a buyer to indicate to a lender that the property will be their primary residence when it will be an investment property as this would impact the mortgage approval • Omitting facts on documents required by a lender when purchasing a property, such as failing to disclose a second mortgage Exam Study Guide

Registrants who contravene this section of the Act may have their registration suspended or revoked, or may face charges under the Provincial Offences Act or other statutes. These measures reflect the fact that falsifying information related to real estate transactions is a serious issue. Any registrant, for example, who counseled an individual to lie with respect to a mortgage application, could be found guilty of an offence under these clauses. Registrants also have an obligation not to provide any false information about a property during a transaction or to counsel a seller to falsify any information about a property. These measures also strengthen the ability of enforcement officials to deal with real estate scams. Most, if not all, instances of real estate fraud involve the falsification of information related to a real estate transaction at some point in the process. In some of these cases individuals have sold properties without the true owner’s consent.

Exam Study Guide

Lesson 5 | Page 19 of 26

A salesperson is helping a buyer purchase her first home. The buyer has decided on a home and wants to submit an offer conditional on arranging a new first mortgage. The buyer tells the salesperson that she was just laid off from her job a couple of days earlier. However, she explains to the salesperson that she still has a letter of employment from her previous employer stating her income. The buyer is confident she will get approved for financing using that document and wants to proceed. She asks the salesperson if this would be ok. Question #22: How should the salesperson respond to the buyer and why? There are four options. There is only one correct answer.

1

Let the buyer know that she can do this. There is nothing wrong with letting a client make an inaccurate statement, if the salesperson is not the one making it.

2

Let the buyer know that she can do this. Since she still has a legitimate document proving the income from her previous job, the salesperson can send this to the lender.

3

Let the buyer know that she should not do this. Allowing the buyer to make a false statement to a lender is illegal.

4

Let the buyer know that she can do this. Using this letter of employment then results in the buyer’s loan application being approved.

Exam Study Guide

Lesson 5 | Page 20 of 26

False Statements in Advertising

Whenever a salesperson is advertising, they are doing so on behalf of their brokerage. Advertising is regulated by other statutes in addition to REBBA, including the Competition Act, the Personal Information Protection and Electronic Documents Act (PIPEDA), trademark and copyright statutes, provincial laws relating to consumer protection, and municipal by-laws resiregarding things such as signage. Advertising is a notice or announcement in a public medium that promotes a registrant’s business, services, or real estate trades. This includes broadcast, print, electronic media, or publication on the internet including websites and social media sites. The Act prohibits false, misleading, or deceptive statements in advertising by registrants. “37 No registrant shall make false, misleading or deceptive statements in any advertisement, circular, pamphlet or material published by any means relating to trading in real estate.” –Act, Section 37

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Lesson 5 | Page 21 of 26

Advertising Practices that Violate REBBA

A salesperson should ensure their advertisement can be interpreted as truthful to foster public confidence and uphold the integrity of a real estate transaction. Registrants should assume that all statements in an advertisement will be taken at face value and interpreted based on their plain meaning. If the intent is to imply something different from what is being said in the advertisement, or if a statement can be misinterpreted or misunderstood by a consumer, a salesperson should use plain language or provide a disclaimer to clarify any statement that may cause misunderstanding. Failure to do so could result in a misleading, deceptive, or inaccurate statement being included in an advertisement, which is a violation of the Act. The following four sections contain information on advertising practices which can lead to a violation of REBBA. Exam Study Guide

Misleading statement

A misleading statement in advertising is one that causes a reader to have a wrong idea or impression. It does not require that all readers of the statement be misled for the statement or claim to be considered misleading. For example, an advertisement identifying the home has “new roof shingles” could be misleading without more information. A prospective buyer may believe the shingles are new today when they could have been replaced one year earlier.

False statement

A false statement in advertising is one that can be shown to be factually incorrect. Generally, there is little room for interpretation in these situations. For example, a listing salesperson does not verify information given to them by the seller. The salesperson advertises the property generates a rental income of $5,400 per month instead of the actual rental income of $4,700 per month.

Deceptive statement

A deceptive statement in advertising is one that causes something to be easily mistaken for something else or causes the reader to believe something that is not true. It is a statement that is purposefully misleading. For example, a property is advertised as a “spacious lot” with a photograph showing the home with a large vacant property area to the rear. In reality, if the seller does not own all of the vacant property to the rear, as the property belongs to the municipality, then the advertising statement would be deceptive.

Inaccurate representation

Making a statement that is true, but is vague or incomplete, could be considered an inaccurate representation in advertising. It may or may not be misleading and/or deceptive. For example, an advertisement states “great views and only steps from the water”. The property, however, does not have water frontage, has no direct access to the water from the property, and the view is mostly blocked by a large hi-rise building.

Exam Study Guide

Lesson 5 | Page 22 of 26

Violations for False Advertising

A brokerage may require that all advertising be approved by the broker of record or a manager to comply with the many advertising requirements. A salesperson should implement leading practices to avoid making false or misleading statements in advertising, including having any advertisement reviewed before being published. While honest mistakes happen, accurately advertising on behalf of the brokerage is important. The Act allows the Registrar to take specific steps if it is believed on reasonable grounds that a registrant is making a false, misleading, or deceptive statement in an advertisement. The Registrar has the following options if an advertisement does not comply with the requirements under REBBA: • Order the false advertising to immediately stop • Order the registrant to retract the statement or publish a correction of equal prominence to the original advertising • Order the registrant to do both above Exam Study Guide

In addition, the Registrar may also require pre-approval of a registrant’s advertising for up to one year. “38(1) If the registrar believes on reasonable grounds that a registrant is making a false, misleading or deceptive statement in any advertisement, circular, pamphlet or material published by any means, the registrar may, (a) order the cessation of the use of such material; (b) order the registrant to retract the statement or publish a correction of equal prominence to the original publication; or (c) order both a cessation described in clause (a) and a retraction or correction described in clause (b).” –Act, Subsec. 38(1) “38(4) If the registrant does not appeal an order under this section or if the order or a variation of it is upheld by the Tribunal, the registrant shall, upon the request of the registrar, submit all statements in any advertisement, circular, pamphlet or material to be published by any means to the registrar for approval before publication for such period as the registrar specifies.” –Act, Subsec. 38(4)

Exam Study Guide

Lesson 5 | Page 23 of 26

Potential Penalties

Falsifying information, providing false information, or counselling others to do so is a serious offence. In addition to having a registration suspended or revoked, a registrant can be charged under the Act. If convicted of an offence, individuals may be fined up to $50,000 and are subject to prison terms of up to two years. Corporations are subject to fines of up to $250,000. In addition, a court may order a convicted person to pay compensation or restitution to the affected parties. “40(1) A person is guilty of an offence who, (a) furnishes false information in any application under the Act or in any statement or return required under the Act; (b) fails to comply with any order, other than an order made under section 21, direction or other requirement under this Act; or Exam Study Guide

(c) contravenes or fails to comply with any section of this Act or the regulations made under the Act, other than a code of ethics established by the Minister under section 50.” – Act, Subsec. 40(1) “40(3) An individual who is convicted of an offence under this Act is liable to a fine of not more than $50,000 or to imprisonment for a term of not more than two years less a day, or both, and a corporation that is convicted of an offence under this Act is liable to a fine of not more than $250,000.” – Act, Subsec. 40(3) “41(1) If a person is convicted of an offence under this Act, the court making the conviction may, in addition to any other penalty, order the person convicted to pay compensation or make restitution.” – Act, Subsec. 41(1)

Exam Study Guide

Lesson 5 | Page 24 of 26

A salesperson has over 10 years’ experience in the downtown core selling mostly residential condominiums. Many of his clients are starting to buy recreational properties in cottage country and the salesperson wants to tap into this potential market. The salesperson prepares a flyer to be distributed. An excerpt from the flyer reads: “I can help you buy your dream cottage! Over 10 years in business Get started today Free service” Question #23: Which of the following statements are misleading in the salesperson’s flyer? There are four options. There are multiple correct answers.

1

I can help you buy your dream cottage!

2

Over 10 years in business

3

Get started today

4

Free service

Exam Study Guide

Lesson 5 | Page 25 of 26

A salesperson has a new listing priced at $489,900. The seller had the roof re-shingled and windows replaced last year. The salesperson has prepared a social media ad for the property. An excerpt from the ad reads: “Green Lane bungalow Priced to sell quickly in the low $400,000’s Seller has made many improvements including a new roof and new windows Act fast! Call me today!” Question #24: Which of the following statements are misleading in the advertisement? There are four options. There are multiple correct answers.

1

Green Lane bungalow

2

Priced to sell quickly in the low $400,000’s

3

Seller has made many improvements including a new roof and new windows

4

Act fast! Call me today!

Exam Study Guide

Lesson 5 | Page 26 of 26

Congratulations, you have completed the lesson! There are eight sections on this page with a summary of the key topics that were covered in this lesson.

Trust accounts

REBBA requires all brokerages to maintain a trust account which is to be used only for money received in trust for other persons in connection with a trade, such as buyer deposits. There are specific requirements under REBBA regarding the statutory trust account, including obligations for depositing and disbursing funds. A salesperson must be diligent when obtaining a buyer’s deposit to ensure the deposit holder can comply with the requirement to place the money in the trust account within five business days of receipt.

Employment with The Act includes restrictions for brokerages, brokers, and salespersons regarding their employment. A brokerage cannot employ an unregistered person to trade, nor can a a brokerage brokerage pay any remuneration to an unregistered person.

A salesperson may only trade in real estate on behalf of the brokerage they are employed by, and may only accept remuneration, such as a referral fee, from the brokerage which employs them. The legislation has been amended to permit a brokerage to pay remuneration owed to a salesperson or broker for trading in real estate to a personal real estate corporation (PREC) that meets specific criteria.

Salesperson remuneration

REBBA identifies how commission or other remuneration can be charged by a brokerage. Allowable methods include an agreed amount, a percentage of the sale price/rental price, or a combination of both. Additional restrictions regarding commission include: • If expressed as a percentage of the sale price, the rate can be a series of percentages where the rate decreases as the sale price increases • Remuneration cannot be charged on the difference between the listing price and the selling price Exam Study Guide

Disclosures of a registrant’s interest in real estate

There are explicit requirements under REBBA whenever a registrant buys or sells a property. Disclosures must be in writing and acknowledged by all parties before an offer is made. Disclosures include the registrant’s registration status, any facts that a registrant is aware of that affect, or may affect, the value of the property involved, and any negotiations, offers, or agreements that have been conducted about the subsequent sale, lease, or other transaction related to the property. A registrant’s interest could be direct or indirect. Whether the registrant or certain others are buying or selling, the disclosure requirements must be adhered to. This is regardless of whether the sale or purchase is handled privately or through a brokerage.

Falsifying information, providing false information, or counselling others to do so

It is an offence to falsify information, assist another person in falsifying information, or provide false information related to a real estate transaction. Falsifying information or documents can pose a risk to a salesperson and brokerage that could result in a conviction under the Act.

False advertising

A registrant’s advertising can come under scrutiny by various municipal, provincial, and federal authorities. REBBA focuses on: • A misleading statement, which is one that causes someone to have a wrong idea or impression. It does not require that all readers of the statement be misled. • A false statement, which is one that can be shown to be factually incorrect and there is little room for interpretation in these situations • A deceptive statement, which is one that causes something to be easily mistaken for something else or causes the reader to believe something that is not true. They are purposefully misleading • An inaccurate representation, which is one that is imprecise. It may or may not be misleading and/or deceptive

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Advertising— Registrar options for recourse

If a registrant is found to be in violation of any advertising requirements, the Act allows the Registrar several options for recourse: • Order the false advertising to immediately stop • Order the registrant to retract statements or publish corrections • Order the registrant to do both of the above • Require pre-approval of a registrant’s advertising for a period of up to one year

Penalties for a conviction under the Act

An individual can be fined up to $50,000 and/or up to two years in prison, less a day. A corporation could be fined up to $250,000. In addition, a registration could be suspended or revoked. A convicted registrant may also be ordered to pay compensation or restitution to the affected parties.

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Lesson 6 | Page 1 of 19

Lesson 6: The Code of Ethics: Providing Services

This lesson explains the sections of the Code that address registrant requirements when providing services to a seller or buyer. The lesson will focus on fairness and honesty, providing conscientious and competent service, working in a client’s best interests, the duty to disclose material facts, requirements when providing opinions of value, and when to recommend services from others.

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Lesson 6 | Page 2 of 19

While the earlier lessons of this module focused on registrant requirements under the Act, this lesson and the subsequent lesson focus on the Code of Ethics. The Code helps to protect consumers by identifying the minimum standards for registrant conduct, and it underscores the principles upon which professional conduct is based. A salesperson is encouraged to go above and beyond these standards. By doing so, they will not only grow their business, but also comply with the Code. As previously detailed in Lesson 4, registrants who do not comply with the Code are subject to disciplinary action. By completing this lesson, you will understand how these Code provisions apply in context, allowing you to foresee and avoid possible non-compliance. At the end of this lesson, you will be able to: • Identify how the Code is the minimum standard a registrant must follow • Identify a registrant’s obligation to treat every person fairly, honestly, and with integrity • Identify how a registrant’s obligation to protect the best interests of a seller or buyer applies only in a client relationship Exam Study Guide

• Identify a registrant’s obligation to provide conscientious and competent service to both clients and customers • Distinguish between the salesperson’s obligations regarding material facts when representing a client or providing services to a customer • List the obligations of a registrant when providing opinions or advice • Identify when a registrant should advise a client or customer to obtain services from another person • Demonstrate how to comply with these sections of the Code as part of everyday practice 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 19

The Code of Ethics as a Registrant's Minimum Standards

The Code of Ethics is found in the associated Regulations of REBBA. These are minimum standards that all registrants must follow when conducting business. These standards are in place to protect the public interest and promote professionalism amongst registrants. Understanding the various obligations under the Code is important as these standards impact every interaction a salesperson has with a consumer, other professionals, and other registrants. At times, the obligations under the Code will vary, depending on the relationship a salesperson and their brokerage have with a seller or buyer. The key difference is whether the seller or buyer is a client of the registrant, or if they are a customer. While often these terms are interchangeable, under REBBA they are distinctly different. A client is someone who is represented by a brokerage. The brokerage and all salespersons employed by the brokerage owe that client their utmost loyalty and must do everything to promote and protect their best interests. A customer is someone who is not being represented by a brokerage, rather the brokerage and all salespersons are providing limited services only. Understanding the key differences in a relationship can be complex.

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Lesson 6 | Page 4 of 19

Fairness, Honesty, and Integrity

A salesperson shall conduct business in a professional and ethical manner. This Code requires that a salesperson treat everyone they encounter throughout the course of a trade with fairness, honesty, and integrity. Complying with this requirement is the foundation of a salesperson’s interactions with any consumer or third-party professional such as a home inspector, appraiser, or contractor and other salespersons. For example, a salesperson is showing his client’s home to a buyer during an open house. The buyer, who is not represented by a brokerage, asks for advice about the home’s structural condition. The salesperson advises the buyer that he is representing his seller client, but in honesty informs the buyer that many buyers seek the assistance of a property inspector to evaluate structural and related matters. The salesperson has complied with the duty to address all visitors’ questions with honesty. Exam Study Guide

“(3) A registrant shall treat every person the registrant deals with in the course of a trade in real estate fairly, honestly and with integrity.” –CODE, Sec. 3 This Code applies equally to a client or a customer.

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Lesson 6 | Page 5 of 19

Best Interests

A salesperson must always work in the best interests of their client and actively promote and protect those interests. The client places their trust and confidence in the brokerage and their salesperson. The salesperson’s personal interests must never take precedence over the client’s interests. While the duties under this section of Code only apply to clients, salespersons must still treat customers, and all other persons they deal with in the course of a trade, fairly, honestly, and with integrity. For example, a salesperson is speaking with their seller client about two competing offers: one obtained by the salesperson and the other by a co-operating brokerage. The seller needs advice as to which is the best offer. While the offered prices are similar, other terms in the co-operating brokerage’s offer have distinct advantages for the seller. The salesperson fully details these advantages without regard for personal interests, such as a lesser remuneration if the other brokerage’s offer is accepted. “(4) A registrant shall promote and protect the best interests of the registrant’s clients.” –CODE, Sec. 4

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Lesson 6 | Page 6 of 19

A salesperson is working with a buyer client who is interested in buying a condominium. The buyer is just about to sign an offer when a new listing appears on the market that seems to meet the buyer’s criteria. Even though this condominium is priced slightly higher, the unit is available in the buyer’s preferred building and has more of the amenities they are looking for. The buyer is anxious to place an offer on a property and only has a week to finalize the details. Question #25: What should the salesperson do to ensure they are complying with the Code regarding best interests for their client? There are four options. There are multiple correct answers.

1

The salesperson should let the buyer know about the new listing and recommend that they view it before submitting any offer.

2

The salesperson should advise the buyer on the risks of delaying an offer, which could result in losing the opportunity to purchase the current condominium.

3

The salesperson should let the buyer know about the new listing only if their current offer is not accepted, because the price of the new listing is higher.

4

The salesperson should not mention the new listing, because the buyer is only in town for a week and looking at another listing would delay their home buying process.

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Lesson 6 | Page 7 of 19

Conscientious and Competent Service

A salesperson is required to provide conscientious and competent service and focus on the Duty of Care owed to both clients and customers. This duty involves reasonable knowledge and skill in providing accurate information and performing functions to which the salesperson has agreed. In other words, it describes how an informed salesperson would conduct themselves in a similar situation. A salesperson is showing a rural property to a client. The client enquires about the condition of the well and septic systems. The salesperson explains that he is not an expert in such areas, and that he is only able to generally describe how water potability/volume testing is conducted and discuss the basic issues relating to septic systems. The salesperson then advises the client to place an appropriate condition in any offer being presented to allow adequate time to further investigate the systems. “(5) A registrant shall provide conscientious service to the registrant’s clients and customers and shall demonstrate reasonable knowledge, skill, judgement and competence in providing those services.” –CODE, Sec. 5 Exam Study Guide

Lesson 6 | Page 8 of 19

Providing Conscientious and Competent Service

Ensuring conscientious and competent service is being provided to all clients and customers can be achieved by following a few leading practices to minimize the risk of breaching the Code. The following six sections contain information on how to provide conscientious service to clients and customers.

Stop and think

Take a moment to step back and reassess your rationale for whatever it is you are doing on behalf of your client or customer. Do you have a solid basis for the action you are taking and/or the decisions you have made? Is it consistent with what you have learned through your education and training courses?

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Ask your broker of record or manager

If you have any concerns about the services you are providing, discuss them with your broker of record or manager. Find out if they have faced similar circumstances in the past, what action they took, and what the outcome was. Brokerages could have office policies to assist in providing clarification and guidance.

Understand your advice will be relied upon

All advice and guidance provided by a registrant must abide by the requirements of REBBA. This is true even if you are not being paid for your services. Any guidance you provide, even in an informal setting or relationship, must meet the same level of diligence that you would provide to a customer or client. Your obligations as a professional never stop.

Always do things the right way

Professional judgement is about doing things the right way, even when that means doing them the hard way. The right way exists for a reason – typically to reduce risk. While the perceived risk of a shortcut may appear small, a salesperson cannot control everything, and even a small lapse in judgement can create major problems. Doing things right may take longer and require more effort, but by exercising good judgement conscientious and competent service will naturally follow.

Continue to learn and be aware of changes affecting the profession

Providing conscientious and competent service can best be achieved by a salesperson who continues to learn and ensures they are up to date on changes affecting the profession. Legislative changes can impact the province and local factors can impact your specific trading area. Learning should never end for a salesperson.

Search past discipline decisions on the RECO website

The search feature on RECO’s website allows you to search for decisions by topic. It’s a great resource for learning about the Code and how it is applied.

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Lesson 6 | Page 9 of 19

Disclosing Material Facts

Material facts are subjective. What is considered a material fact to one seller or buyer may not factor into another person’s decisions regarding a real estate transaction for many different reasons, including the intended use of the property. For the purposes of the Code, the term material fact is defined. “1(1) In this Regulation, “material fact” means, with respect to the acquisition or disposition of an interest in real estate, a fact that would affect a reasonable person’s decision to acquire or dispose of the interest;” –CODE, Subsec 1(1) Disclosing material facts is an integral part of providing conscientious and competent service. The Code requires the disclosure of material facts to both clients and customers, however, the level of obligation owed by the salesperson will differ. In both instances, a salesperson must discuss with the seller or buyer what they consider to be a material fact. Once those have been identified, the salesperson’s obligations change. For clients, the obligation is greater and involves taking reasonable steps to determine and then disclose such facts based on the property being sold or purchased. For customers, the obligation is limited to disclosing only those material facts that are known, or ought to be known, by the salesperson. Customers are required to make their own inquiries to determine if any material fact affects a property. Exam Study Guide

“21(1) A broker or salesperson who has a client in respect of the acquisition or disposition of a particular interest in real estate shall take reasonable steps to determine the material facts relating to the acquisition or disposition and, at the earliest practicable opportunity, shall disclose the material facts to the client. “ –CODE, Subsec. 21(1) “21(2) A broker or salesperson who has a customer in respect of the acquisition or disposition of a particular interest in real estate shall, at the earliest practicable opportunity, disclose to the customer the material facts relating to the acquisition or disposition that are known by or ought to be known by the broker or salesperson.” –CODE, Subsec. 21(2)

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Lesson 6 | Page 10 of 19

Examples of Material Facts

A salesperson who is representing a buyer must take reasonable steps to determine and then disclose to a buyer/ client any material facts relating to the property. A salesperson representing a seller should ensure that the seller understands the obligations and potential impact of failing to disclose any known material facts. Any known materials facts should be disclosed to a buyer or buyer's salesperson in accordance with a salesperson's obligations to comply with the Code of Ethics. Examples of material facts of importance for a buyer may include: • Condition of the structure such as a roof leak, mechanical or electrical deficiencies, or basement water seepage • Environmental hazards such as asbestos, lead, mould, or a previous use as a grow-op • Building measurements or lot size • Property taxes Exam Study Guide

• Zoning • Previous, present, and potential use of the property or surrounding properties • Easements or restrictions registered on title • Renovations completed without permits or inspections • Events that have occurred on the property such as a death, suicide, or break-in Examples of material facts of importance for a seller may include: • Determining the highest and best use of the property as this impacts the value • Costs for an early discharge of the mortgage registered on the property • Costs associated with paying out a rental or rent to own contract, such as a furnace

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Lesson 6 | Page 11 of 19

Providing Opinions

Buyers and sellers look to a salesperson for advice and guidance on many aspects of a real estate transaction. A salesperson’s opinion can impact their decisions, so ensuring the opinion is qualified is important. The Code requires that all salespersons show reasonable knowledge, skill, judgement, and competence when answering questions, providing information, or providing advice to a seller or buyer. The Code specifically identifies the obligations when the opinion or advice is about the value of a property. A brokerage, broker, and salesperson are required to have the education or experience related to the specific type of real estate being valued. “6(1) A registrant shall demonstrate reasonable knowledge, skill, judgement and competence in providing opinions, advice or information to any person in respect of a trade in real estate.” –CODE, Subsec. 6(1) “6(2) Without limiting the generality of subsection (1) or section 5, (a)

a brokerage shall not provide an opinion or advice about the value of real estate to any Exam Study Guide

(b)

person unless the opinion or advice is provided on behalf of the brokerage by a broker or salesperson who has education or experience related to the valuation of real estate; and a broker or salesperson shall not provide an opinion or advice about the value of real estate to any person unless the broker or salesperson has education or experience related to the valuation of real estate.”

–CODE, Subsec. 6(2) A salesperson gains the education and experience through participating in brokerage training programs, additional educational courses on specific topics related to their area of trading, mentoring under a more experienced salesperson, and office discussions regarding new listings and trends in the market value of properties. The obligations under this section apply to both clients and customers.

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Lesson 6 | Page 12 of 19

A family enters a home during an open house. As they are walking through the door, the listing salesperson overhears them expressing interest in the house because their children would be bussed to the new school that is currently being built. The salesperson knows that the school boundaries have not yet been established. Question #26: How should the salesperson handle this situation? There are three options. There is only one correct answer.

1

The salesperson is required to advise the family that the boundaries for the school have not yet been established only if the buyers are a client of the brokerage.

2

The salesperson is required to respond to direct questions, but nothing that is overheard.

3

The salesperson is required to advise the family that the boundaries for the school have not yet been established.

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Lesson 6 | Page 13 of 19

A salesperson is showing a buyer a residential duplex. The buyer asks what the salesperson thinks of the listing price and how difficult it would be to have one of the tenants vacate a unit, so they could move into it. The salesperson has several years of experience selling these types of properties. Question #27: Which of the following actions would comply with the salesperson’s obligations regarding providing opinions and obtaining services from others? There are four options. There are multiple correct answer.

1

Provide an opinion on the listing price based on their experience.

2

Decline to provide an opinion on the listing price, as only professional appraisers are qualified to do this.

3

Provide information on the implications of an inappropriate termination under the Residential Tenancies Act.

4

Decline to provide legal advice on the termination of a tenancy and recommend they seek independent advice.

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Lesson 6 | Page 14 of 19

Obtaining Services from Others

The role of a salesperson requires a wide breadth of knowledge ranging from understanding the legal requirements associated with a transaction, identifying the factors that impact the value and use of a property such as zoning, and residential construction to be alert to potential issues. A salesperson will not be the expert on all matters but should be knowledgeable enough to know when to advise a seller or buyer to consult a third-party professional. This Code applies equally whether the seller or buyer is a client or a customer. The Code has two aspects for a salesperson to consider. First, a salesperson should advise a client or customer to obtain the services from others who are qualified when they are not capable of providing the service. Second, a salesperson should not discourage a client or customer from seeking such services. “8(1) A registrant shall advise a client or customer to obtain services from another person if the registrant is not able to provide the services with reasonable knowledge, skill, judgement and competence or is not authorized by law to provide the services.” Exam Study Guide

–CODE, Subsec. 8(1) “8(2) A registrant shall not discourage a client or customer from seeking a particular kind of service if the registrant is not able to provide the service with reasonable knowledge, skill, judgement and competence or is not authorized by law to provide the service.” –CODE, Subsec. 8(2) Examples of some third-party professionals who could offer specialized services to a seller or buyer include: • • • • • • •

Lawyers Property inspectors Appraisers Surveyors Accountants Engineers Contractors

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Lesson 6 | Page 15 of 19

A buyer has looked at several properties and now has narrowed her focus to an older, rural property with a home needing some repairs. The buyer wants to make an offer on the property, but she tells the salesperson she is concerned about the condition of the well and septic system located on the property. The buyer asks the salesperson whether this is reason for concern. The salesperson has never sold a rural property before, but they did grow up in a rural home that had a well and septic system. Question #28: How should the salesperson respond? There are four options. There are multiple correct answers.

1

“I’ll have a look at it, I grew up on a property that had a well and septic system.”

2

“My friend Brian lives nearby, and he’s never had a problem with his well and septic system.”

3

“I don’t have enough experience with wells and septic systems to answer that question.”

4

“If you want to place an offer on the property, we can include a condition allowing us to bring in a professional to inspect the well and septic system.”

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Lesson 6 | Page 16 of 19

A buyer is curious about how the vacant land behind a property they are interested in will be developed. The salesperson has no information regarding the zoning or the potential use of the vacant land. Question #29: Is the salesperson required to take steps to obtain this information for the buyers? And if so, under what circumstances? There are four options. There is only one correct answer.

1

Yes, but only if the buyer is a client.

2

Yes, but only if the buyer is a customer.

3

Yes, regardless of whether buyer is client or customer.

4

No, all buyers are required to make their own inquiries.

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Lesson 6 | Page 17 of 19

A seller client is selling a property on which a number of endangered species of birds are nesting in the trees. The seller discloses this fact to the salesperson at the time of listing the property. While marketing the property the salesperson discloses the endangered species situation to a prospective buyer’s salesperson and lets them know that it may affect any future building on the property within a certain distance of the nests. The buyer still wishes to purchase the property, and their salesperson documents the disclosure in the buyer’s offer. Question #30: Which of the following is the relevant action for the “Material facts” regulation under the Code? There are four options. There is only one correct answer.

1

Buyer wants to make an offer on the property. The salesperson is concerned if he shares the information as he was told by the listing salesperson, the buyer may not want to proceed with an offer.

2

The buyer notices several bird nests in the trees and asks the salesperson if this is something to be concerned about. Salesperson tells the buyer he is not aware of anything.

3

The salesperson is aware of the endangered species situation and determines there is a standard duty of care to be taken.

4

Buyer asks the salesperson what he should do to ensure the endangered species would be protected.

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Lesson 6 | Page 18 of 19

A salesperson, whose business is primarily residential properties, is showing houses to a buyer who owns and will be selling a commercial building as part of the transaction. The buyer asks the salesperson to provide an opinion on the value of their building and if the salesperson thought the windows should be replaced before listing the building for sale. The salesperson asks a variety of questions, one of which was if the property contained asbestos insulation. Question #31: Based on the scenario above, which of the salesperson’s actions would be in compliance with the Code? There are four options. There are multiple correct answers.

1

The salesperson informs the sellers that if the property has asbestos, they must make the disclosure to the buyer.

2

The salesperson encourages the sellers to seek additional services from qualified professional sources.

3

The salesperson reviews other listings and provides her opinion on the value of the property.

4

The salesperson researches neighbouring buildings and finds they do not contain asbestos insulation and quickly concludes the buyers building would also be asbestos free.

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Lesson 6 | Page 19 of 19

Congratulations, you have completed the lesson! There are seven sections on this page with a summary of the key topics that were covered in this lesson.

Code of Ethics obligations

The Code sets the minimum standards for registrants when conducting business. These standards are in place to protect the public interest and promote professionalism amongst registrants. These obligations impact every interaction a salesperson has with a consumer, other professionals, and other registrants. At times, the obligations will vary depending on the client or customer relationship established with a seller or buyer.

Fairness, honesty, Registrants are to treat every person they deal with during a trade fairly, honestly, and with integrity. This would include buyers, sellers, other professionals associated with the and integrity transaction, and other registrants. (Section 3 of the Code) Best interests (Section 4 of the Code)

A registrant must always work in the best interests of the registrant’s client and actively promote and protect that interest. Personal interests must never take precedence over the client’s interests. This requirement does not apply to a registrant’s customer.

Conscientious and Registrants owe a duty of care to both clients and customers. This duty always requires that competent service conscientious and competent service be provided including ensuring that facts gathered are accurate and complete. (Section 5 of the Code) Material facts (Section 21 of the Code)

A material fact is any fact that would affect a reasonable person’s decision to buy or sell a property and the price paid based on that knowledge. Disclosure of material facts both to clients and customers is required. For clients, the obligation is to take reasonable steps to determine and disclose such facts. With customers, Exam Study Guide

the obligation is more limited to disclosing only those material facts that are known, or ought to be known, by the registrant.

Providing opinions (Section 6 of the Code)

Registrants are required to demonstrate reasonable knowledge, skill, judgement, and competence when answering questions, providing information, or providing advice.

Services from others (Section 8 of the Code)

When a registrant is not capable of providing services with reasonable knowledge, skill, judgement, and competence, a registrant must advise a client or customer to obtain services from others. Also, under no circumstances should sellers or buyers be dissuaded from seeking such services.

In particular, when providing an opinion on the value of real estate, brokerages, brokers, and salespersons must ensure they have the education or experience related to the specific type of real estate in order to provide the valuation.

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Lesson 7 | Page 1 of 16

Lesson 7: The Code of Ethics: Upholding Compliance and Professionalism

This lesson describes the sections of the Code that address registrant requirements to uphold compliance and professionalism. The lesson will focus on advertising requirements, making an inaccurate representation, and the obligation to prevent error, misrepresentation, or fraud. The lesson also explains a registrant’s obligations for maintaining professional conduct and to avoid any abuse or harassment while trading.

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Lesson 7 | Page 2 of 16

This lesson continues detailing sections of the Code and will focus on those that address compliance and professionalism, including advertising requirements. As detailed in previous lessons, registrants must know the conduct expected of them and understand the principles upon which professional conduct is based. Adhering to the Code enhances consumer protection. At the end of this lesson, the learner will be able to: • List the requirements of a brokerage or salesperson when advertising • List registrant obligations when making representations • List registrant obligations to prevent error, misrepresentation, fraud, and any unethical behaviour • State registrant obligations for professional conduct • State registrant obligations to ensure no person is abused or harassed during a trade • Demonstrate how to comply with these sections of the Code as part of everyday practice 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 16

Advertising Methods

While the Act does not define the term “advertising,” the Registrar has adopted the following definition for the purposes of developing advertising guidelines: “Advertising” means any notice, announcement, or representation directed at the public that is authorized, made by or on behalf of a registrant and that is intended to promote a registrant or the business, services, or real estate trades of a registrant in any medium including, but not limited to, print, radio, television, electronic media, or publication on the internet (including websites and social media sites). Business cards, letterhead, or fax cover sheets that contain promotional statements may be considered as “advertising.” Exam Study Guide

There are numerous social media platforms, each with its own unique features and challenges. No matter what platform is used, this form of advertising falls under the same requirements for compliance with REBBA and the Code of Ethics. Advertising is a key regulatory consideration, as it impacts many listing and selling activities. Through the advertising guidelines developed by RECO, registrants can obtain assistance in understanding their obligations when advertising.

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Lesson 7 | Page 4 of 16

Advertising Requirements

The Code and other sections of REBBA contain specific prohibitions related to advertising. Since all advertising by a salesperson is done on behalf of the brokerage, the brokerage could also have specific policies in place for advertising compliance. Every advertisement has four key requirements that must be met at all times, no matter what method of advertising is used. Print methods, such as a business card or a “For Sale” sign, can have established standards with a brokerage to ensure compliance. Other methods, such as social media, may require a salesperson to be more diligent. The Code sets out the minimum requirements that must appear in all advertising. The following five sections contain information about these minimum requirements.

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All advertising by a registrant, including a brokerage, broker or salesperson must clearly and Identification of registrant (Section prominently include the name of the registrant that is placing the advertisement. The name 36(1) of the Code) used in the advertisement must be the name (legal name or trade name) in which the registrant is registered with RECO. A trade name is an alias.

“36(1) A registrant shall clearly and prominently disclose the name in which the registrant is registered in all the registrant’s advertisements.” There are no formal criteria for what constitutes “clearly and prominently.” Registrant identification information must be sufficiently sized and placed within the advertisement so that it can reasonably be noticed and understood by the intended audience. To determine if an advertisement appears to be in violation of the Code, the Registrar will consider, among other things, the following characteristics of the advertisement: 1) For visually based advertising, the size and legibility of the printed name, and the location of the name relative to the other elements of the advertisement 2) For aurally based advertising (for example, radio), the frequency with which the name is used, the point in the advertisement when the name is used, and the speed with which the name is mentioned

Identification of individuals (Section 36(2) of the Code)

If an individual broker or salesperson is identified by name, the name used must be the name in which the broker or salesperson is registered with RECO. “36(2) A brokerage that identifies a broker or salesperson by name in an advertisement shall use the name in which the broker or salesperson is registered.” Registrants with a common last name and designation may be identified jointly. For example, “Tom & Rita McIntyre, Sales Representatives.”

Identification of brokerage (Section 36(3) of the Code)

Every advertisement by a broker or a salesperson must clearly and prominently identify the brokerage that employs the broker or salesperson. The brokerage name used in the advertisement must be the name in which the brokerage is registered with RECO. “36(3) A broker or salesperson shall not advertise in any manner unless the

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advertisement clearly and prominently identifies the brokerage that employs the broker or salesperson, using the name in which the brokerage is registered.” As noted earlier, “clearly and prominently” will be assessed by the Registrar based on various characteristics of the advertisement. A sole proprietorship brokerage must take special care to ensure that the individual is both a registered brokerage and the broker of record. Where an advertisement identifies a registrant, the correct, specific description of the Description of registrant (Section registration status must be noted. The Code identifies the allowable descriptions for each. 36(4) of the Code) “36(4) A registrant who advertises shall, a) use the term “brokerage”, “real estate brokerage”, “maison de courtage” or “maison de courtage immobilier” to describe any brokerage that is referred to in the advertisement; b) use the term “broker of record”, “real estate broker of record”, “courtier responsable” or “courtier immobilier responsable” to describe any broker of record who is referred to in the advertisement; c) use the term “broker”, “real estate broker”, “courtier” or “courtier immobilier” to describe any broker who is referred to in the advertisement; and d) use the term “salesperson”, “real estate salesperson”, “sales representative”, “real estate sales representative”, “agent immobilier”, “représentant commercial” or “représentant immobilier” to describe any salesperson who is referred to in the advertisement.” Brokers, other than the Broker of Record, are permitted to use the following additional descriptors: • Real estate agent • Broker real estate agent • REALTOR® (limited to CREA members in good standing) • REALTOR® broker (limited to CREA members in good standing) Salespersons are permitted to use the following additional descriptors: Exam Study Guide

• Real estate agent • REALTOR® (limited to CREA members in good standing) REALTOR® salesperson (limited to CREA members in good standing)

Confusing terms (Section 36(6) of the Code)

Registrants must not use any terms to describe a registrant in an advertisement if the term could reasonably be confused with the registration status required by this section of the Code. For example, terms such as “sales agent,” “sales associate,” or “sales consultant” are not permitted. Subject to other advertising guidelines and requirements, registrants are permitted to use terms denoting an affiliation with a group or association, but such terms must not appear as a substitute for the description of the registrant. “36(6) A registrant who advertises shall not use a term to describe any registrant that is referred to in the advertisement if the term could reasonably be confused with a term that is required or authorized by subsection (4) or (5).”

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Lesson 7 | Page 5 of 16

Following is an example of an online advertisement relating to a residential property. The ad has been posted by a salesperson registered under the name of Vernon Zabel. Vernon is employed with ABC Real Estate Inc. Some elements of the advertisement are not compliant with the requirements under the Code of Ethics for advertising. Question #32: Which part of the ad does not comply with the requirements under the Code? There are three options. There is only one correct answer.

1

“Real Estate Sales Representative”

2

“Call Vernon”

3

“ABC Real Estate Inc., Brokerage”

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Lesson 7 | Page 6 of 16

Inaccurate Representations

Section 37 of the Code prohibits a salesperson from knowingly making incorrect statements regarding either a trade in real estate or in respect of the services provided by the registrant. This Code expands on the requirements under Section 37 of the Act, which addresses false advertising. Under this code, a registrant is prohibited from knowingly making an inaccurate representation in respect of the services provided by the registrant and in respect of a trade in real estate. This would include inaccurate representations made in an advertisement. “37(1) A registrant shall not knowingly make an inaccurate representation in respect of a trade in real estate.” –CODE Subsec. 37(1) “37(2) A registrant shall not knowingly make an inaccurate representation about services provided by the registrant.” –CODE Subsec. 37(2)

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In all advertising, members of the public should be able to take the information at face value and be comfortable in interpreting promotional statements based on their plain meaning – in other words, what would a reasonable bystander think. Examples of a salesperson making an incorrect statement about a trade are: • A salesperson advises a buyer client that what appears to be a minor crack in the foundation is “nothing to worry about”. However, after the transaction closes the buyer discovers more severe issues with the foundation • A salesperson states a home is solid brick when it is a framed structure with a brick veneer exterior The issues related to the services provided by a registrant generally relate to claims, promises, and statements made in advertising. Statements cannot be vague or misleading. Examples of potential problem areas related to services provided by a registrant are: • Comparative rankings (e.g., “#1 brokerage in town”) • Claims about business volume or trading activity (e.g., “Over 100 transactions last year”) • Promises of savings or rebates (e.g., “$1,000 cash back”) • Honours or awards received by the registrant (e.g., “President’s Award”)

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Lesson 7 | Page 7 of 16

Advertising Leading Practices

By way of guidance there are several leading practices that should minimize the risk that a salesperson’s advertising will face scrutiny under Section 37 of the Code. The following four sections contain information on advertising requirements.

Comparative claims

Leading practice: Ensure any advertisement that expressly, or by implication, makes a comparative claim regarding a registrant’s business performance, discloses the basis of that comparison or claim including disclosure of the details of the information used to make the claim and the source of the information. Acceptable: “No other sales representative in Grovetown sells as many homes and as close to the asking price as I do. According to 2018 MLS® statistics for Grovetown Real Estate Board, Exam Study Guide

no other salesperson is the representative for as many sold homes as I am. In 2018, I was the salesperson for 85 properties whereas the next closest salesperson was 78*. Further, my list to sales price ratio is 89% whereas the average for other salespeople in Grovetown Real Estate Board is 80% or less.” Potentially Misleading: “I sell more homes for more money than anyone else! I sell more homes than any other salesperson so when you list your home with me, my selling system will get you more money than another salesperson. In today’s market, selling a home fast is crucial. Otherwise, it will quickly become lost in the growing inventory of homes for sale. Getting your house sold while it’s fresh and at the peak of interest, will benefit you and your wallet.”

Statements regarding business volume/trading activity

Leading practice: Ensure any advertisement that includes statements or claims that state, imply, allude, or refer to a volume of business or trading activity are accompanied by disclosure of how that claim has been determined, including the relevant time period. Claims that refer to volume of business or trading activity should disclose the identity of the salesperson, salespersons, or brokerage about whom that reference is made. When a “team” claim is used, the size of the team should be noted or the identities of the members of the team should be provided. Acceptable: “#1 team for units sold* in Grovetown” *based on Grovetown local listing service statistics for 2018 for the ABC Brokerage team consisting of four salespersons Potentially Misleading: “ #1 in Grovetown“

Promises or statements regarding remuneration or savings

Leading practice: Ensure any advertising claims that refer to remuneration include disclosure of any conditions or circumstances where remuneration would or would not be charged. This applies even when qualifying language, such as “as low as” or similar language is used. All claims of savings or comparisons regarding remuneration should include enough information to allow consumers to make an informed comparison. Comparative claims between an advertised and hypothetical remuneration should include information that clearly indicates the hypothetical rate and states that it is not a fixed rate Exam Study Guide

that all brokerages charge. Section 9 of the Code also states that advertisements must not indicate or suggest, directly or indirectly, that remuneration or other fees are fixed or approved by RECO or any other government authority, real estate board or real estate association. Acceptable: “List on the local listing service for $599 (does not include remuneration for buyer/co-operating brokerage or any services except for posting on the local listing service)” Potentially Misleading: “Remuneration as low as 1%”

Statements or indications of honours and awards

Leading practice: Ensure any advertisement that refers to an award or honour includes the source and date of that award or honour. Registrant advertising should not refer to an award or honour that was shared among other registrants without clearly indicating that fact. Registrant advertising should not, directly or by inference, refer to anything as an award or honour if purchased or paid for by, or on behalf of, the registrant. For example, “Chairman's Club winner” could be potentially misleading as an award, whereas “Chairman's Club 2018” is acceptable.

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Lesson 7 | Page 8 of 16

RECO receives complaints related to registrant advertising. The following errors are some of the most common noncompliant advertising infractions: 1. Claims: An advertisement that states, implies, alludes, or refers to a volume of business or trading activity cannot be ambiguous, inaccurate, or incomplete. Comparative business claims must explicitly identify the details of the information used to make the claim and the source of the information, including the relevant time period. 2. Salesperson name incorrect and not prominently displayed: All advertisements are required to clearly and prominently identify the name of the salesperson as registered with RECO. A salesperson can use a recognized short form or an anglicized version of their legal given name as approved by RECO. 3. Brokerage name is missing, incomplete, or not prominently displayed: All advertisements are required to clearly and prominently identify the registered name of the brokerage. The brokerage name must be the name in which the brokerage is registered with RECO.

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4. Registrant designation is missing : All advertising that identifies a registrant must include the specific description of the registrant. A brokerage is required to include the term brokerage or real estate brokerage with their identification. A salesperson is required to include salesperson, real estate salesperson, sales representative, or real estate sales representative. 5. Combining registrants’ names and designations: Registrants with a common last name may jointly be identified when their designation is also the same (for example, “Keiko and Jordan Smith, Brokers”). Registrants with different designations (for example, salesperson and broker) may not combine their names.

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Lesson 7 | Page 9 of 16

A salesperson posts the online advertisement for a house located in an up-and-coming neighbourhood. The house underwent renovations last month. The sellers tell the salesperson that the house is about 2,800 square feet. Advertisement: 3,000 square feet of luxury living. Located on the best street in the neighbourhood! Beautiful corner property situated on a premium lot. Recently renovated. Lovingly maintained with a large wrap around deck leading to welcoming back yard. Public transit, shopping, restaurants, and major highways all located within the neighbourhood. Possibility of adding a circular drive. Call Vernon Zabel (Real Estate Sales representative). Cell: 555-1212 / Office: 555-1111. ABC Real Estate Inc., Brokerage. Question #33: Identify the section of the advertisement that is not in violation of the Code, Subsec. 37. There are three options. There is only one correct answer.

1

“3,000 square feet of luxury living”

2

“Located on the best street in the neighbourhood”

3

“Recently renovated”

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Lesson 7 | Page 10 of 16

Error, Misrepresentation, and Fraud

REBBA includes a specific provision in the Code relating to error, misrepresentation, and fraud. Section 38 of the Code not only requires a registrant to avoid misrepresentation, but the registrant must also take steps to prevent error, misrepresentation, fraud, or any unethical practice by anyone involved in all aspects of their work. “38 A registrant shall use the registrant’s best efforts to prevent error, misrepresentation, fraud or any unethical practice in respect of a trade in real estate.” –CODE, Subsec. 38 In the following three examples, the salesperson has taken reasonable steps to avoid error and misrepresentation: • An advertising flyer is being prepared for an open house and the salesperson ensures the information contained in the flyer is accurate • A buyer wants assurance that the property can be used for a residential duplex. The salesperson directs the buyer to confirm zoning with the local municipal zoning department to avoid any possible error or misrepresentation. Exam Study Guide

• A salesperson receives property information from the seller (“the roof shingles are three years old") and the salesperson verifies this information by asking the seller for a copy of the receipt Examples of possible misrepresentation and how it could be avoided: • A seller states their lot size is two acres. To avoid misrepresentation, a new survey is obtained to confirm the lot size prior to listing the property • A seller indicates the dining room light fixture is to be excluded from the sale and replaced with a new fixture. To avoid misrepresentation, the salesperson recommends replacing the fixture prior to listing the property • A seller tells the salesperson they have a new furnace. To avoid misrepresentation, the salesperson asks for a copy of the receipt that confirms when it was installed Examples of preventing fraud: • A tenant poses as the owner of a property in an attempt to have the property listed for sale. The salesperson researches ownership, obtains identification from the tenant, and declines listing the property realizing they weren’t the true owner • A salesperson lists a rental property and says it is fully rented but, in fact, one tenant is the seller’s relative who pays no rent. The salesperson adjusts the potential income of the property to reflect the actual income being received

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Lesson 7 | Page 11 of 16

A salesperson is listing a 3-acre rural property that includes a principal residence, a barn, and a few other structures. The seller informs him that she has made many improvements to the 1,800 sq. ft. home including some new windows and a new kitchen in the home. She also had a furnace installed to heat the barn, with plans to construct a small apartment to rent out. Question #34: How should the salesperson market the property while complying with the requirements to prevent error, misrepresentation, and fraud? There are four options. There are multiple correct answers.

1

Obtain the most recent survey of the property from the seller.

2

Record the house size on the listing data sheet at 1,800 sq. ft. as stated by the seller.

3

Ask the seller to specify what windows were replaced, and when the kitchen was renovated.

4

Advertise that the property has income potential from renting out the barn apartment.

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Lesson 7 | Page 12 of 16

Unprofessional Conduct, Abuse, and Harassment

The Code emphasizes professional conduct in all matters involving listing and selling activities. Building positive relationships, remaining professional at all times, and treating others with care and respect contributes to your success and longevity as a salesperson. The following two sections contain information on what constitutes unprofessional conduct, abuse, and harassment.

Unprofessional conduct (Section 39 of the Code)

This section contains provisions that apply to the conduct of all registrants while trading. Professional and honourable interactions with others is the underlying principle for compliance with this Code. “39 A registrant shall not, in the course of trading in real estate, engage in any act or omission that, having regard to all of the circumstances, would reasonably Exam Study Guide

be regarded as disgraceful, dishonourable, unprofessional or unbecoming a registrant.” For example, a buyer asks a salesperson if they can immediately view a vacant property for the second time. The salesperson has the code to the lockbox from an earlier viewing but postpones the showing until they confirm an appointment with the listing brokerage.

Abuse and harassment (Section 40 of the Code)

This section indicates that a registrant should not abuse or harass any person in the course of trading in real estate. This includes everyone a registrant would encounter (for example, members of the public, fellow registrants etc.) during their day-to-day activities. “40 A registrant shall not abuse or harass any person in the course of trading in real estate.” For example, a salesperson has an appointment to show a property and the tenant refuses access to the home. The salesperson, rather than enforcing their right to show the unit under the Residential Tenancies Act, contacts the landlord to make alternate arrangements with the tenant.

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Lesson 7 | Page 13 of 16

After three months on the market, the listing of a homeowner's property has expired. The salesperson spent considerable time and money to market the property and the property never sold. A day before the expiry date of the listing, the salesperson met with the sellers to extend the terms of the listing agreement, only to be told that they would be listing with another brokerage. The salesperson is extremely disappointed. Question #35: How should the salesperson react in this situation? What is the appropriate action for the salesperson to take to be compliant with the Code? There are three options. There is only one correct answer.

1

Unexpectedly show up at the seller’s home to demand compensation for all the time, money, and effort spent on marketing the property.

2

Use her intimate knowledge of the property to promote it to any new buyer clients.

3

Warn the new salesperson not to work with this seller.

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Lesson 7 | Page 14 of 16

Question #36: Which of the following statements are in violation of the Code when advertising as a salesperson/broker? There are four options. There are multiple correct answers.

1

Samuel Smith, ABC Realty

2

Paul Peterson, Condo Specialist

3

John & Jane Jacobs, Brokers

4

The Johnson Brothers, Sales Representatives

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Lesson 7 | Page 15 of 16

A salesperson is showing a cottage property in winter. A buyer client is interested in the property but expresses their concern about a crack in an exterior wall. The buyer is considering consulting an expert. The salesperson advises the buyer that the crack is only minor and no need for concern, even though in actuality, the salesperson knows this has been a common issue in the area. Anxious to make a sale, the salesperson pressures the buyer to put in an offer without conditions. Following closing on the property, the buyer discovers that the crack had widened and has it inspected by an appropriate expert. They discover that there is an issue with the footings, requiring $12,500 worth of repairs. Question #37: Considering the scenario above, identify the instances in which the salesperson was in violation of the Code, and why.

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Lesson 7 | Page 16 of 16

Congratulations, you have completed the lesson! There are five sections on this page with a summary of the key topics that were covered in this lesson.

Minimum advertising Any advertisement must comply with the four minimum standards under Section 36 of the Code: requirements • Identification of registrant – this requires the name of the registrant who is placing the advertisement to be prominently displayed using the name in which they are registered • Identification of individual – if a brokerage identifies a broker or salesperson in the advertisement, the name of the broker or salesperson must be the name in which they are registered • Identification of brokerage – all advertising must clearly and prominently identify the brokerage that employs the broker or salesperson, using the name in which the brokerage is registered • Description of registrant – this requires an advertisement that identifies a registrant to include the correct, specific description of the registration status Allowable descriptions include: Salesperson • “Salesperson” • “Real estate salesperson” • “Sales representative” • “Real estate sales representative” • “Real estate agent” • “REALTOR®” (limited to CREA members in good standing) Exam Study Guide

• “REALTOR® salesperson” (limited to CREA members in good standing) Broker • “Broker” • “Real estate broker” • “Real estate agent” • “Broker real estate agent” • “REALTOR®” (limited to CREA members in good standing) •

“REALTOR®

broker” (limited to CREA members in good standing)

Broker of record • “Broker of record” • “Real estate broker of record” Brokerage • “Brokerage” •

Advertising prohibitions

“Real estate brokerage”

Registrants must not use any terms to describe a registrant in an advertisement if the term could reasonably be confused with registration status terms. Terms such as “sales agent,” “sales associate,” or “sales consultant” are not permitted. Subject to other advertising guidelines and requirements, registrants are permitted to use terms denoting an affiliation with a real estate group or association, but such terms must not appear as a substitute for the description of registrant.

Inaccurate representations

A registrant is prohibited from knowingly making an incorrect statement in respect of a trade in real estate or the services provided by the registrant. An incorrect statement related to a trade could include inaccurate opinions regarding the condition of a property.

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Incorrect statements about the services provided are often made in an advertisement and generally fall under these four categories: • Comparative rankings (e.g., “#1 brokerage in town”) • Claims about business volume or trading activity (e.g., “Over 100 transactions last year”) • Promises of savings or rebates (e.g., “$1,000 cash back”) • Honours or awards received by the registrant (e.g., “President’s Award”)

Error, misrepresentation, fraud, etc.

A registrant is not only required to avoid error, misrepresentation, fraud, or any unethical practice, but also take steps to prevent this by anyone involved in all aspects of their work. Confirming information about a property, relying on third-party professionals, and completing due diligence throughout any transaction are leading practices to comply with this Code.

Unprofessional conduct, abuse, and harassment

These two sections of the Code promote professional conduct in all matters involving listing and selling activities. A registrant cannot engage in any act or omission that would reasonably be regarded as disgraceful, dishonourable, unprofessional, or unbecoming. A registrant must not abuse or harass any person in the course of trading in real estate.

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Lesson 8 | Page 1 of 8

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 8

This lesson reviews the content from the module, providing opportunities to apply the Code to a variety of scenarios a salesperson may encounter on the job related to advertising, representation, and conduct. You will answer a series of questions designed to check your knowledge of the concepts covered throughout this module.

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Lesson 8 | Page 3 of 8

When listing a property, the seller advises the salesperson that all areas under the carpeting are hardwood. The salesperson shows the property to an interested buyer client who does not like carpet and asks if there is hardwood underneath. Question #38: How should the salesperson respond to comply with the Code of Ethics? There are three options. There is only one correct answer.

1

“I’ll have to investigate further to verify if there is indeed hardwood floor under the carpet.”

2

“There is indeed hardwood floor under the carpet.”

3

“According to the seller, there is hardwood floor under the carpet, but I recommend you investigate yourself.”

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Lesson 8 | Page 4 of 8

Question #39: Which of these business card sections would be appropriate for a business card to follow the correct advertising standards? There are six options. There are multiple correct answers.

1 2

MdS Realty Inc. Brokerage Maureen and Dean de Sousa, Brokers The de Sousa Team - The #1 Condominium Team at MdS Realty Brokerage* Maureen de Sousa, Broker, Cell: (789) 123-4568

3

Dean de Sousa, Broker, Cell: (789) 123-4569 [email protected] *Based on number of residential condominium sales at brokerage for 2017

4 5

MdS Realty Realtor Maureen de Sousa and Dean de Sousa, Sales Reps The de Sousa Team - The #1 Condominium Team We guarantee a Faster Sale and for More Money* Office: (789) 123-4567

6

Maureen Cell: (789) 123-4568 Dean Cell: (789) 123-4569 [email protected] *Call for details Exam Study Guide

Lesson 8 | Page 5 of 8

A salesperson receives an offer on a seller’s property and is discussing the details of the offer with the seller. The offer contains a clause obligating the seller to a specific action which could create risk for the seller. The seller is anxious to accept the buyer's offer as submitted, however, the salesperson, not familiar with one of the clauses, expresses his concern and provides an option to the seller that this clause can be removed. Question #40: Which of the following course of actions could the salesperson take to comply with the Code? There are four options. There are multiple correct answers.

1

Talk to the buyer's salesperson to understand the intent of the clause.

2

Recommend a lawyer review the offer prior to acceptance.

3

Explain the potential risks of accepting the offer as written to the seller and recommend that clarification be sought.

4

Recommend removing the clause, and countering the offer back to the buyer.

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Lesson 8 | Page 6 of 8

A salesperson receives an offer on a seller client’s property and is discussing the details of the offer with the seller. The offer contains a clause obliging the seller to a specific action which could create risk for the seller. The salesperson is not familiar with this clause and has some hesitation about it. However, the seller is anxious to accept the buyer’s offer as submitted because the price met what the salesperson said the seller would get. Based on the previous scenario, a salesperson could: • • • •

Talk to their broker of record to obtain advice Recommend a lawyer review the offer prior to acceptance Explain the potential risks of accepting the offer as is to the seller Explain the potential risks of changing the offer to the seller

Question #41: Identify how each of these courses of action complies with the Code.

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Lesson 8 | Page 7 of 8

Question #42: Which of the following remuneration arrangements are allowable under the Act? There are four options. There are multiple correct answers.

Up to $350,000—3% 1

$350,000 to $500,000—3.5% Over $500,000—4%

2

4.5% of the sale price + $2,000 Listing price: $500,000

3

Selling price: $505,000 Remuneration: $25,000

4

Up to $150,000—5% Over $150,000—3.5%

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Lesson 8 | 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 Learning Objectives.

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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 covered in this module.

Regulatory Governance for the Profession

The Real Estate and Business Brokers Act includes the legislation (“the Act”) and associated Regulations. The Act details the legislative requirements for a brokerage, broker of record, broker, and salesperson when trading in real estate. One of the associated Regulations, the Code of Ethics (“the Code”), establishes the minimum standards of behaviour for all registrants. Compliance with the Act and associated Regulations is part of a registrant’s day-to-day activities. It is important that registrants understand these requirements and ensure trading activities comply with REBBA. Completion of this lesson has enabled you to: • Describe the significance of the Act and the impact it has on salespersons • Describe the significance of the Code of Ethics and the impact it has on a salesperson

Prohibitions Re: Practice

Apart from a handful of exceptions, a registrant must be registered to trade and collect or claim remuneration. Trading while unregistered is a serious violation and could result in incarceration and/or significant monetary penalties. Trading while registration is expired and/or between renewals is also in contravention of the Act. All registrants must be registered or exempt from registration at the time of a trade to bring any legal action for the collecting of a remuneration or to make a claim for remuneration. One important thing to remember is that a registrant cannot begin trading in real estate until they have officially received their online certification from RECO. Completion of this lesson has enabled you to: • Identify the requirements set out in REBBA to be registered to trade in real estate • List the exemptions to registration as set out in REBBA • Identify the requirement that a registrant be notified in writing regarding registration to be eligible to trade in real estate

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• Identify the requirement that an individual be registered with RECO at the time of providing real estate services to clients or customers to make a claim for remuneration

Registration

When applying for registration with RECO, an individual should be aware of the things that the Registrar may take into consideration so that they know what to expect from the process. The Registrar can reject an application for registration at their discretion for several reasons, including financial standing, previous legal issues, or nondisclosure of information. The Registrar considers a potential registrant’s financial standing when reviewing their application because a salesperson’s role involves trustworthiness and the ability to make financially sound decisions. However, it should be noted that it is not uncommon for an applicant to have debt (for example, credit card debt), and this is not normally considered grounds for a rejection of an application. On the other hand, more serious financial issues, such as having previously declared bankruptcy, may have a negative effect on an application. The Registrar also takes an applicant’s legal history into consideration. Again, the Registrar is looking for things that could potentially affect the actions of a salesperson, such as dishonest character or deceptive behavior. Therefore, things like a history of traffic violations may not matter for an applicant, whereas a past conviction of fraud would matter. Regardless of the applicant’s past, they should be as honest as possible during the application process, because failing to disclose these details could also be grounds for rejection. The main thing to keep in mind is that the Registrar makes their decisions on a case-by-case basis, so there is very little that would be automatic grounds for an applicant’s rejection. Completion of this lesson has enabled you to: • Identify the requirement for a brokerage to designate a broker of record • State how the financial position of an applicant can affect registration • Identify the impact of false statements, past conduct, and activities that contravene REBBA on a registrant's initial or renewal application

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Complaints, Inspection, and Discipline

The complaint process provides an impartial and flexible assessment of concerns as they relate to REBBA. The Registrar has several options for recourse, depending on the specific situation. Complaints may arise for several reasons, ranging in severity. However, it should be noted that given the large number of registrants, the number of complaints in a given year is relatively low. Even so, it is important for a salesperson to be aware of their obligations under the Act so that they can avoid being the target of a complaint, and the potential consequences of that. If a consumer does file a complaint with RECO about a salesperson, the salesperson is entitled to be notified of the complaint, seek legal advice, and be represented (if so desired). They are also provided written notification of what action is being taken by the Registrar, along with an explanation or reasons for the action. If the Registrar determines there could have been a breach of the Code, the matter may be referred – in whole or in part – to a Discipline Committee. Completion of this lesson has enabled you to: • Describe RECO’s disciplinary process when addressing complaints, including the actions the Registrar can take • List brokerage obligations during an inspection • Identify the potential consequences of a registrant not complying with the Code of Ethics

Conduct and Offences

Trust accounts: Brokerages are required to maintain a designated trust account where all monies coming into the possession of the brokerage for other persons must be deposited. Trust funds must always be kept separate from other monies. It is important for a salesperson to know how trust funds operate so that they can explain this to consumers. Consumers will feel at ease knowing that their deposits are secure with their brokerage. Interests in real estate: Interest in real estate can be any benefit, direct or indirect, that a registrant may gain – now or in the future – from a transaction, beyond the fees or remuneration they may or may not Exam Study Guide

stand to earn on the transaction. Disclosures include sharing any facts that the registrant is aware of that affect, or could affect, the value of the property involved. Additionally, registrants are obligated to disclose any negotiations, offers, or agreements that have been conducted about the future sale, lease, or other transaction related to the property. Information falsification: It is an explicit offence to falsify information, assist another person in falsifying information, or provide false information related to real estate transactions. Information falsification that a salesperson should avoid includes encouraging a consumer to lie on a mortgage application or making a false claim in an advertisement about their services. Even if a salesperson doesn’t mean to misinform anyone, it is still their obligation to be conscious that everything they say and do is true, to the best of their knowledge. A salesperson should understand what constitutes falsifying information so that they can avoid doing it. Completion of this lesson has enabled you to: • Describe the statutory requirement for a brokerage to maintain a trust account • Identify the requirement regarding employment with a brokerage and the payment of remuneration • Identify the allowable methods of calculating remuneration under REBBA • List the required disclosures when a registrant directly or indirectly sells/buys an interest in real estate • Identify the requirements of a registrant to not falsify information or furnish false information, or induce or counsel others to do so • Identify the Registrar’s options for recourse when a registrant makes false, misleading, or deceptive statements in advertising • List the potential penalties when a registrant is convicted of offence(s) under the Act

Exam Study Guide

The Code of Ethics: Providing Services

The Code of Ethics outlines specific duties that a salesperson should uphold when providing services to consumers. One of the main things that the Code promotes is treating every person they deal with in the course of a trade fairly, honestly, and with integrity. All registrants are required to demonstrate reasonable knowledge, skill, judgement, and competence when responding to questions. In particular, brokerages, brokers, and salespersons must ensure that if they are providing opinions or advice on value, they have education or experience (and hopefully both) related to real estate valuation. If a registrant isn’t capable of providing a service, they should advise their buyers and sellers to obtain services from others who are better qualified. Under no circumstances should clients or customers be dissuaded from seeking such services. It is important that a salesperson understands how to apply these duties and obligations to their everyday tasks. Doing so demonstrates that a salesperson is conscientious and competent when dealing with buyers and sellers. Also, upholding the Code is required of all registrants, and failing to do so can lead to legal recourse. Completion of this lesson has enabled you to: • Identify how the Code is the minimum standard a registrant must follow • Identify a registrant’s obligation to treat every person fairly, honestly, and with Integrity • Identify how a registrant’s obligation to protect the best interests of a seller or buyer applies only in a client relationship • Identify a registrant’s obligation to provide conscientious and competent service to both clients and customers • Distinguish between the salesperson’s obligations regarding material facts when representing a client or providing services to a customer • List the obligations of a registrant when providing opinions or advice • Identify when a registrant should advise a client or customer to obtain services from another person • Demonstrate how to comply with these sections of the Code as part of everyday practice

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The Code of Ethics: Upholding Compliance and Professionalism

The Code of Ethics outlines how a salesperson should act when providing services to consumers. Registrants must know the conduct expected of them and understand the principles upon which professional conduct is based. Adhering to the Code enhances consumer protection. These standards apply to advertising especially. Every advertisement has four key requirements that must always be met, no matter what method of advertising is used. • Identification of registrant • Identification of individuals • Identification of brokerage • Description of registrant It is also important that a salesperson does not knowingly make an inaccurate representation in respect of the services provided by the registrant and in respect of a trade in real estate. This would include inaccurate representations made in an advertisement. The Code not only requires a registrant to avoid misrepresentation, but the registrant must also take steps to prevent error, misrepresentation, fraud, or any unethical practice by anyone involved in all aspects of their work. Building positive relationships, always remaining professional, and treating others with care and respect contributes to a salesperson’s success and longevity. Completion of this lesson has enabled you to: • List the requirements of a brokerage or salesperson when advertising • List registrant obligations when making representations • List registrant obligations to prevent error, misrepresentation, fraud, and any unethical behaviour • State registrant obligations for professional conduct • State registrant obligations to ensure no person is abused or harassed during a trade • Demonstrate how to comply with these sections of the Code as part of everyday practice Exam Study Guide

Appendix | Page 1 of 3

Appendix Answer Key Question #1: 1, 2 Question #2: 2, 3 Question #3: 1, 2, 3, 4, 5 Question #4: 1, 2, 6 Question #5: 1, 4 Question #6: 1, 2, 4 Question #7: 1, 3, 4 Question #8: 2, 3, 4 Question #9: 3, 4 Question #10: 2 Question #11: 1 Question #12: 1 Question #13: 2 Question #14: 2, 3, 5 Question #15: 2 Question #16: 2 Question #17: 1 Question #18: 2 Question #19: 2 Question #20: 1 Question #21: 2 Question #22: 3 Question #23: 2, 4

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Appendix | Page 2 of 3 Question #24: 2, 3 Question #25: 1, 2 Question #26: 3 Question #27: 1, 3, 4 Question #28: 3, 4 Question #29: 1 Question #30: 1 Question #31: 1, 2 Question #32: 2 Question #33: 3 Question #34: 1, 3 Question #35: 2 Question #36: 1, 2, 4 Question #37: There are many concerns regarding the salesperson’s conduct. Your response may include the following: The salesperson was not in compliance with REBBA Code of Ethics: Code 3 (Fairness and honesty - they did not tell the buyer about common issues in the area), Code 4 (Best interest – they pressured the buyer to submit an offer without any conditions), Code 5 (Conscientious and competent service - lack of demonstration using reasonable skill and knowledge on buyer’s concerns of the crack in the foundation), Code 6 (Providing opinions - salesperson who is not an expert on foundation cracks provided an opinion that it was only minor and there is no need of concern), and Code 8 (Service from others - salesperson did not advise the buyer to obtain services from a professional and discouraged them from obtaining a professional opinion). Question #38: 1 Question #39: 1, 2, 3 Question #40: 2, 3

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Appendix | Page 3 of 3 Question #41: Talking to their broker of record to obtain advice was necessary because the salesperson didn’t have the experience or expertise, they took these steps to ensure that they had a thorough understanding of the clause so they could explain it correctly to the seller client. The salesperson demonstrated Code compliance by: •

Providing conscientious and competent service

•

Acting in the seller’s best interests

•

Demonstrating reasonable knowledge and competence in providing advice

•

Treating every person with fairness, honesty, and integrity

Recommending a lawyer review the offer prior to acceptance is necessary when a salesperson is not able to provide the service with reasonable knowledge. The salesperson demonstrated Code compliance by: •

Providing conscientious and competent service

•

Acting in the seller’s best interests

•

Obtaining services from others who are more qualified in this area

•

Treating every person with fairness, honesty, and integrity

Explaining the potential risks of accepting the offer as is to the seller is necessary. It is important to ensure that they understand what their obligations are under the contract, and how they will be impacted by accepting the offer. The salesperson demonstrated Code compliance by: •

Promoting and protecting the best interests of the seller

•

Providing conscientious and competent service

•

Providing competent advice

•

Treating every person with fairness, honesty, and integrity

Explaining the potential risks of changing the offer is necessary to ensure that the sellers understand the possible consequences of the changes, including the buyer walking away from negotiations. The salesperson demonstrated Code compliance by: • • •

Promoting and protecting the best interests of the seller Providing conscientious and competent service Providing competent advice

Question #42: 2, 3, 4

Exam Study Guide

Module: Introducing the Key Legislation and Regulations This is a study guide to help you prepare for the qualifying exam. There are multiple study guides that are provided for preparation. Each study guide contains several decision points to test your knowledge. The answer key to these decision points is present in the “Appendix” section at the end of the guide. Please use Adobe Acrobat Reader (Recommended version 9 or above) to navigate through this PDF. Real Estate Pre-Registration 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 PreRegistration Program learner.

Exam Study Guide

Module: Introducing the Key Legislation and Regulations

There are many legislative acts and regulations, in addition to the Real Estate and Business Brokers Act (REBBA), that impact the activities of a salesperson, including the Statute of Frauds, the Planning Act, the Electronic Commerce Act, the Family Law Act, and the Municipal Act. In this module, you will get an overview of the legislation as well as the ways in which they impact a salesperson’s activities.

Exam Study Guide

Menu: Introducing the Key Legislation and Regulations Number of Lessons

15 Lessons

Lesson Number

Lesson Name

Lesson 1

Fundamentals of Real Estate Contracts

Lesson 2

Requirements to Create a Binding Contract

Lesson 3

Contract Breach and Termination

Lesson 4

Electronic Commerce Act

Lesson 5

Complying with Privacy Legislation

Lesson 6

Family Law Act

Lesson 7

Impact of the Planning Act and Official Plan on Land Development

Lesson 8

Key Considerations Related to Zoning

Lesson 9

Land Severances and Plans of Subdivision

Lesson 10

Authority of a Municipality

Lesson 11

Compliance with FINTRAC

Lesson 12

Key Legislative Requirements Impacting Condominiums

Lesson 13

Differentiating Between Residential and Commercial Tenancies

Lesson 14

Summary Practice Activities

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Module Summary Appendix

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Lesson 1 | Page 1 of 9

Lesson 1: Fundamentals of Real Estate Contracts

This lesson defines a contract, assesses the impact of legislation like the Statute of Frauds, and identifies types of contracts regularly used in real estate transactions.

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Lesson 1 | Page 2 of 9

Every real estate transaction between sellers and buyers, or landlords and tenants is an agreement governed by contract law. You as a salesperson, will need to know and understand the fundamentals of contracts. A salesperson needs to be capable of ensuring the document has been accurately prepared and negotiated to create a binding contract. A prudent salesperson may advise the seller or buyer to have their real estate lawyer review it prior to signing a final agreement. Upon completion of this lesson, you will be able to: • Define a contract • Identify the impact of the Statute of Frauds, the Vendors and Purchasers Act, and REBBA on contracts • Identify the types of contracts used in real estate transactions 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 9

Definition of a Contract

A contract is broadly defined as a legally binding agreement between two or more persons, competent at law to enter into such an agreement, for consideration or value, to do or refrain from doing something unlawful. A contract is an agreement that confers a legal obligation on the relevant parties to do or not to do something. • A contract is a promise made by one person to another that the law will enforce. • In theory, to be enforceable, a contract requires: an understanding between the parties to the contract to create a legal obligation or duty, on one party to fulfill the promise and conferring a legal right on the other to demand its fulfillment. • The underlying intention of any contract is that it is binding on the parties. Contracts may exist in many forms, including oral contracts (word of mouth), letters, or legal documents. While it is a leading practice that all contracts be in writing to ensure clarity of understanding and enforceability, any contract for the acquisition or disposition of an interest in land must be in writing.

Example: Joe runs a snow clearing company and Harry is interested in his services. • Joe gives a verbal assurance that he will remove Harry’s snow for $100 each month November through April. • Joe gives a written assurance that he will remove Harry’s snow for $100 each month November through April. A contract exists in both of these situations. Joe has an obligation to fulfill the promise he made verbally or in writing, and Harry can rightfully demand fulfillment of the promise.

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Lesson 1 | Page 4 of 9

Legislation Impacting Contracts

Legislation impacts the preparation of agreements for the sale or lease of real estate. The Statute of Frauds requires that all contracts involving the transfer of ownership of real estate must be in writing. The Vendors and Purchasers Act deems certain information to be included in every agreement of purchase and sale. The Real Estate and Business Brokers Act (REBBA) identifies certain requirements for the content and delivery of real estate agreements. The provisions contained within these statutes influence how real estate contracts are written. When a real estate contract is drafted, the contract may be considered invalid if these provisions are overlooked.

Exam Study Guide

The following three sections contain more information about the legislation that influences real estate contracts.

Requirements per the The Statute of Frauds requires that certain contracts, including real estate contracts, must be in writing to be enforceable by law. In other words, verbal agreements between parties Statute of Frauds regarding real estate are not considered legally binding. Although written evidence of a real estate contract is required, the Statute of Frauds does not require that any particular form be used for the written contract. The Statute of Frauds states that no action shall be taken in the case of a sale of land or leases unless it is agreed upon in writing and signed by the parties. An exception to the Statute of Frauds is when a contract is verbal but parties begin to complete the contract; then, it could be enforceable. Example: A seller and a buyer make a handshake agreement that the buyer will purchase the seller’s property for $200,000 with a $5,000 deposit. The buyer gives the seller a cheque for $5,000, which the seller cashes. The buyer could later be successful in enforcing this contract even without it being in writing.

Requirements per the An agreement must be complete and accurately describe the subject of the agreement and the parties’ intentions to be considered enforceable. However, given that no standard Vendors and form of agreement exists for the sale of land, certain required provisions are stated in the Purchasers Act Vendors and Purchasers Act. This Act specifies several rights and obligations that are incorporated into every agreement of purchase and sale. Every contract is deemed to include the following, unless otherwise stipulated: • The seller is not bound to produce any abstract of title, deed, copy of a deed, or other evidence of title except as are in the seller’s possession or control. • The buyer shall search the title at the buyer’s own expense and shall make any objections in writing within 30 days from the making of the contract. • The seller has 30 days in which to remove any objection made to the title. If the seller is unable or unwilling to remove any objection that the buyer is not willing to

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waive, the seller may cancel the contract and return any deposit made, but is not otherwise liable to the buyer. • Taxes, local improvements, insurance premiums, rent, and interest shall be adjusted as at the date of closing. • The conveyance (legal process of transferring of ownership from one party to another) shall be prepared by the seller and the mortgage, if any, by the buyer; the buyer shall bear the expense of registration of the transfer/deed and the seller shall bear the expense of the discharge of the mortgage, if any. • The buyer is entitled to possession or the receipt of rent and profits upon the date of closing of the transaction.

Requirements per the REBBA includes various requirements for agreements used to trade real estate (seller and buyer representation agreements). Real Estate and The Code of Ethics requires that all agreements are reduced to writing at the earliest Business Brokers Act opportunity, signed by the brokerage, and submitted to the seller or buyer for signature. The Code also requires that specific content be set out in written agreements for the purpose of trading in real estate and that copies of representation agreements be immediately given to the seller or buyer. In terms of agreements for conveyancing real estate, the Code requires that registrants use their best efforts to ensure that such agreements are in writing and legible. Registrants must also use their best efforts to ensure that all parties to an agreement receive a copy as soon as possible and ensure that deposits and other documents relating to the agreement (e.g., notice removing conditions) be delivered in accordance with the agreement of purchase and sale.

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Lesson 1 | Page 5 of 9

Types of Agreements

In a real estate transaction, the various types of documents used include the following: • Agreements signed between the brokerage and the seller or buyer, such as a representation agreement • Agreements signed between the brokerage and the seller or the buyer such as a seller or buyer customer service agreement • Agreements signed between the seller and buyer such as an agreement of purchase and sale • Agreements signed between a landlord and a tenant such as an agreement to lease

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Lesson 1 | Page 6 of 9

Evidence of a Contract

A contract is the legal relationship created between the parties. A contract document is the written record and therefore a reflection of the mutual commitment agreed to by the contracting parties. A document, such as an agreement of purchase and sale is evidence of a contract.

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Lesson 1 | Page 7 of 9

Parol Evidence Rule

In the determination of contractual disputes, the courts have developed various legal principles and rules. The parol evidence rule provides that oral evidence is inadmissible in court to vary or contradict the terms of a written contract, except in a case of fraud or mistake. There are exceptions, but a general rule when drafting contract documents (agreements) is that every term, warranty, condition, or representation on which one or the other of the parties intends to rely should be incorporated into the written document. In real estate, every party to the contract must agree in writing to any terms or additions to an agreement. Any changes to the original document need to be agreed to by the parties and in writing in order to be enforceable. Exam Study Guide

Example: The seller and buyer have signed an agreement of purchase and sale that is due to close on October 29. The seller has found a property he would like to buy and wishes to change the completion date in his agreement to November 29. A document with the proposed change is signed by the seller and presented to the buyer. The buyer does not agree to the changes made to the agreement by the seller. The completion date would remain as October 29. The seller and buyer would have to agree in writing to the changes made by the seller in order for the agreement to be enforceable. In this case, the seller’s salesperson would prepare a document amending the closing date from October 29 to November 29, and present it to the buyer’s salesperson for signing.

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Lesson 1 | Page 8 of 9

Privity of Contract

The general rule is that only parties to a contract can enforce it or be bound by it. For instance, a brokerage (or its representative) is only a witness to the signing of a contract for a property sale. Being a witness to the contract does not make the brokerage a party to the contract. Only the seller and the buyer, who are parties to the contract can be considered as privy to the contract. Therefore, if a breach of contract occurs, any lawsuit will likely be between the seller and the buyer. However, depending on the conduct alleged by the plaintiff, brokerages and real estate salespersons may be added as parties to any litigation. Similarly, while the brokerage can sue the seller for a real estate remuneration, the salesperson would need the consent of the brokerage to sue individually, as the salesperson is not a party to the contract – they are only representing the brokerage. Example: Kara hires Bob, a contractor, to replace the wiring in her home. Bob hires Eric, an electrician, as a sub-contractor to do the work. Kara is unhappy with the progress and quality of the work being done by Eric. She fires Bob and refuses to pay him. Eric approaches Kara and demands payment for the work he has completed. Since Kara did not directly contract Eric, she is not responsible to pay him for his services.

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Lesson 1 | Page 9 of 9

Congratulations, you have completed the lesson! Real estate transactions require the preparation of a contract for the seller and the buyer. As a salesperson, you will be involved in the preparation of contracts. It is important to understand what elements constitute a valid contract and how it is impacted by legislation. There are five sections on this page with a summary of the key topics that were covered in this lesson.

Definition of a contract

A contract is broadly defined as a legally binding agreement between two or more persons competent at law to enter into such an agreement, for consideration or value, to do or refrain from doing something lawful. Contracts may exist in many forms, including oral contracts (word of mouth), letters, or legal documents. The underlying intention of any contract is that it shall be binding on the parties.

Legislation impacting contracts

Legislation impacts the preparation of agreements for the sale or lease of real estate. • Statute of Frauds requires that all contracts involving the transfer of ownership of real estate must be in writing. • Vendors and Purchasers Act deems certain information to be included in every agreement of purchase and sale. • REBBA identifies certain requirements for the content and delivery of real estate agreements.

Types of agreements

The various types of agreements used in real estate transactions include the following: • Agreements signed between the brokerage and the seller or the buyer, such as a representation agreement • Agreements signed between the brokerage and the seller or buyer, such as a seller or buyer customer service agreement Exam Study Guide

• Agreements signed between the seller and buyer such as an agreement of purchase and sale • Agreement signed between a landlord and a tenant such as an agreement to lease

Parol evidence rule

The parol evidence rule provides that oral evidence is inadmissible in court to vary or contradict the terms of a written contract, except in a case of fraud or mistake.

Privity of contract

The general rule is that only parties to a contract can enforce it or be bound by it.

In real estate, every party to the contract must agree in writing to any terms or additions to an agreement. To be enforceable, any changes to the original document need to be agreed to by the parties and in writing.

Only the seller and the buyer, who are parties to the contract, can be considered as privy to the contract. As such, if a breach of contract occurs, any lawsuit would likely be between the seller and the buyer. However, depending on the conduct alleged by the plaintiff, brokerages and real estate salespersons may be added as parties to any litigation.

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Lesson 2 | Page 1 of 21

Lesson 2: Requirements to Create a Binding

This lesson identifies the essential elements of a contract and what happens when essential elements are absent.

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Lesson 2 | Page 2 of 21

Now that you have some understanding of the legislation that impacts a real estate contract, let’s examine how a contract needs to be prepared. A contract may not be considered lawfully binding if not prepared properly. As a salesperson, you need to ensure that there is a binding contract that is enforceable by both the seller and the buyer. In order to do this, you will need to understand what is necessary to prepare and complete agreements in a real estate transaction. Upon completion of this lesson, you will be able to: • Detail how the essential elements of a contract apply to a real estate transaction • Explain factors that can contribute to a contract lacking genuine intention • Describe the possible outcome of a contract that does not include all essential elements 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 21

As a salesperson, you need to ensure that the contracts between a seller and a buyer are legally enforceable. There are six essential elements for a contract to be enforceable: • Offer and acceptance: There must be mutual agreement between the parties • Capacity of the parties: The parties entering into a contract must be legally competent (of sound mind and of legal age of majority) to make the contract • Consideration: Each party must receive something of value • Definite and clear: The subject and terms of the agreement must be stated clearly • Lawful object: The contractual arrangement must be lawful • Genuine intention: Both parties must consent to the terms of the contract The following screens will explore each of these essential elements in more detail. Exam Study Guide

Lesson 2 | Page 4 of 21

Offer and Acceptance

Without mutual agreement there is no contract. A contract is formed when the offer made by one party (the offeror) is accepted by the other party (the offeree). There are general rules concerning basic requirements for offer and acceptance. An offer: • Must be complete and definite in its terms • Must remain open for acceptance for a reasonable period of time • Must be communicated to the offeree • Must be made to one or more persons or corporations, or to the public in general • May be revoked or withdrawn prior to acceptance, subject to certain limitations Exam Study Guide

The offeree is free to reject or accept the offer. When the offeree decides to accept, they must keep in mind: • • • •

The acceptance must be unconditional. Any change to the offer would be considered a counter offer. Acceptance of the offer by the offeree must be communicated to the party making the offer (offeror). Acceptance may be in the same manner used by the offeror (e.g., mail, email, fax). Acceptance must occur before a specified time limit if there is a time limitation placed by the offering party(s).

The communication of acceptance must be done in accordance with the terms of the agreement, which typically provide for notice to be given by personal delivery, fax, or email. Where electronic communication is permitted, the communication is deemed to be received when transmitted electronically to the email address and/or fax numbers provided. Follow-up is a leading practice to confirm receipt of the document.

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Lesson 2 | Page 5 of 21

Capacity of the Parties

The offeror and the offeree, as the parties to a contract, must have the legal capacity to enter into the contract at the time when the contract is made. In the absence of legal capacity, there cannot be a contract. The offeror and offeree can be a legal entity, such as a corporation or partnership, or an individual person, as long as they have the legal capacity to enter into a contract. While contracts are enforceable against anyone having legal capacity, some persons are deemed by law as either incapable of contracting or having only limited capacity to contract. In cases involving limited capacity, the contract may be considered voidable, until the individual goes to court to void it. As a salesperson, you should be able to determine whether the offeror and offeree have the legal capacity to form a contract.

Exam Study Guide

The following five sections contain information about each kind of contracting party and the related concerns regarding capacity.

Persons deemed incapable of contracting

Examples of persons deemed by law with limited capacity to enter a contract include: • Mentally incompetent: Any person declared to be mentally incompetent having diminished mental capacity is incapable of contracting. This could include someone with a medical condition which would cause them to not understand the terms of the contract that they have agreed to. • Intoxicated: If an individual is so inebriated due to influence of alcohol or drugs when the contract was signed that they did not understand what was taking place and the condition of that party is known to the other party to the contract, then the offended party may choose whether they want to void the contract and treat it as being at an end or treat it as existing and enforce it against the offending party. The intoxicated person can void a contract, even if the other party was not aware they were intoxicated when it was signed, as long as the intoxicated person can prove this later when they try to void the contract. • Non est factum: Whether the contract is binding rests on whether the person knew what was being signed, which may not happen if the person is illiterate, meaning unable to read or write in the language of the contract, or signs in a hurried manner without careful review. • Minor: All contracts with those under the age of majority in Ontario (18) for the sale or purchase of land are not usually considered valid and binding on the minor. Such contracts involving minors are generally considered to not be enforceable, or may give the choice to the minor whether they want to void the contract and treat it as being at an end or enforce it. The minor could go forward with the contract or choose to end it. The minor can only enforce a contract once they reach the age of majority or if the contract is either of benefit to the minor or is considered to be a necessity of life.

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Corporations

A corporation usually has the rights, powers, and privileges to enter into contracts, unless its articles of incorporation or corporate bylaws do not contain empowering provisions. A corporation is a business entity created by statute law and established by articles of incorporation. Two important considerations concerning corporations are: does the corporation exist, and if so, does it have the right to enter into such a contract? There should be proof that the person signing for the corporation has the authority to do so.

Partnership

A partnership exists when two or more individuals or entities pool their personal and financial resources to carry on a business with the view to profit. In a partnership, any partner may bind the other partners in a transaction during the ordinary course of business.

Condominium / Co-operative

Condominium corporations and co-operatives are permitted to enter into contracts for the purchase and sale of real estate in line with incorporation documents or statutory regulations limiting the scope of such organizations.

Non-profit organizations

Non-profit organizations may have the rights, powers, and privileges to enter into contracts for the purchase and sale of real estate.

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Lesson 2 | Page 6 of 21

Consideration

A binding contract requires an exchange of something between the parties. The exchange is called consideration and consists of each party doing something for the other. In real estate transactions, consideration usually takes the form of the transfer of legal title in return for the payment of a sum of money. The buyer promises to give the seller the agreed sum of money on the completion date set out in the agreement and the seller, in return, promises to transfer the legal title to the property to the buyer on that date.

Exam Study Guide

The following three sections contain the three topics under which consideration is viewed.

Value

Value is what either party receives of some worth. Interestingly, the court does not assess the adequacy or amount of this value, but only its existence. However, if the consideration was so minimal as to make the contract extremely one sided to one of the parties, the courts might act based on the unfairness or unjustness of the amount of the agreement. In order for any contract to be valid, it must have what's called 'consideration' which is an exchange of value between the parties. A contract may have no exchange of value and still be considered enforceable if it is signed 'under seal.' Under the law, the seal itself is consideration. For example, the buyer makes his offer open for acceptance until 11:59 p.m. If the offer is not signed under seal, the buyer can revoke their offer before it is considered and accepted. If however, the offer is signed under seal, the buyer cannot change his mind before 11:59 p.m., even though the buyer received no value for leaving his offer open for that period of time.

Lawful

The consideration under the contract must be lawful. This means that a contract must have a lawful object or purpose. For example, if the seller and the buyer knowingly agree to transact business based on stolen money or goods, the contract does not have a lawful purpose and is considered an illegal contract.

Past consideration

The consideration has to be a part of the current contract and any past promise not included in the current contract is not enforceable or binding. The consideration must be in the present or future, but not in the past. The date set for the completion is in the future when the seller will give the buyer the property in return for the money the buyer will pay. In real estate, the promise must be in writing and form part of the contract. Example: A buyer purchases a cottage for $285,000. After the agreement is signed, the seller verbally promises to include his boat as a part of the cottage purchase. No documentation is signed and no consideration is given to the seller for his promise. At closing, the seller removes the boat. Since consideration does not exist and the past consideration of $285,000 did not include the boat, the buyer does not have an enforceable contract for the boat. Exam Study Guide

Lesson 2 | Page 7 of 21

Definite and Clear

The terms of an agreement must be definite and clear. If the essential terms have not been agreed upon, a binding contract does not exist. If a vital and material condition of the contract is undetermined, no contract exists, but merely an undertaking to seek a contract at a future time. Details of the agreement must be defined specifically and agreed to by all parties to the agreement. For instance, a sale at a price to be fixed by subsequent negotiations between a seller and a buyer is not a concluded contract until these negotiations have resulted in an agreed price. Example: • An agreement in which no closing date or more than one option as a date was specified might be held to be invalid for lack of certainty. A contract that did not have a specific date stated for completion of the transaction could be deemed invalid because it is not clear. The contract must be clear in all the details agreed to by the parties. Exam Study Guide

Lesson 2 | Page 8 of 21

Lawful Object

Lawful object is broadly defined as within the bounds of the law. If the object of the contract is illegal, for whatever reason, the contract is unenforceable. Examples of illegality or no lawful object would include contracts: • Involving criminal activity, a direct violation of competition policy (Competition Act), or a deliberate evasion of taxes (Income Tax Act), etc. • Contrary to public policy or good morals; • Injurious or prejudicial to the safety of the state or to the public service; • Tending to pervert justice or abuse the legal process; • In restraint of trade such as price fixing; • In restraint of personal liberty or marriage; and • For the commission of a criminal offence or civil wrong, or relating to gambling or wagering (unless authorized by means of provincial statutes). Exam Study Guide

Example: Criminal activity A salesperson is showing a property to a buyer client. When they enter the basement, the buyer client sees that a large cannabis grow operation is being undertaken with approximately 200 plants. Given the quantity of plants, the owner is in clear violation of the Cannabis Control Act. The salesperson explains the risks associated with buying a property that has been used for this purpose. Any offer that the buyer would be willing to make that would include the assumption of the illegal grow-op would be considered null and void, as the contract would not contain lawful object. Example: Price fixing A salesperson is showing a residential triplex to a potential buyer. The owner of the property is present during the showing. The owner discloses that he and two other landlords in the neighbourhood have agreed that they will not charge rent below an agreed upon amount. Should the buyer purchase the building, he would be expected to abide by the terms of this agreement with the other landlords. After the showing, the salesperson advises the buyer that the agreement with the other landlords would be considered price fixing and would likely be a contravention of the Competition Act. The buyer is cautioned that any such agreement would be illegal, and if contained in the agreement of purchase and sale, would nullify the contract. Example: Evasion of taxes The buyer submits an offer to purchase on a property that the seller accepts. After acceptance, the buyer submits an amendment reducing the price by $50,000 stating that by reducing the price the buyer would have to pay less land transfer tax, but the buyer agrees to pay the $50,000 in cash after the closing. The contract would be rendered null and void as the intent of reducing the purchase price was to lessen the amount of land transfer tax payable. This is a fraudulent act by both the buyer and the seller.

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Lesson 2 | Page 9 of 21

Genuine Intention

The agreement must have genuine intention. An agreement would be without genuine intention if one of the parties is induced to enter into the agreement by improper means and the document does not express what was intended. Inducements by improper means may be caused by different circumstances such as mistakes, misrepresentations, duress, or undue influence. A salesperson should be aware of these factors that create a lack of genuine intention. You will learn more about this later in this lesson. Exam Study Guide

Lesson 2 | Page 10 of 21

A salesperson has an obligation to ensure that contracts between a seller and buyer are legally enforceable. There are six essential elements that must be present for a contract to be enforceable. Question #1: Which statement describes the ‘Capacity of the parties’ element? There are two options. There is only one correct answer.

1

The parties to a contract must be legally competent

2

The contractual arrangement must not be prohibited by law

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Lesson 2 | Page 11 of 21

A salesperson has an obligation to ensure that contracts between a seller and buyer are legally enforceable. There are six essential elements that must be present for a contract to be enforceable. Question #2: Which statement describes the ‘Offer and acceptance’ element? There are two options. There is only one correct answer. 1

Each party must receive something of value

2

Mutual agreement between the parties

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Lesson 2 | Page 12 of 21

A salesperson has an obligation to ensure that contracts between a seller and buyer are legally enforceable. There are six essential elements that must be present for a contract to be enforceable. Question #3: Which statement describes the ‘Genuine intention’ element? There are two options. There is only one correct answer. 1

Party to the agreement was improperly induced to proceed with the contract

2

The agreement must not be vague

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Lesson 2 | Page 13 of 21

Lack of Genuine Intention: Mistakes In law, the concept of mistake, has a specific meaning. Not every error is considered a mistake. Only certain types of mistakes give rise to a legal remedy. As a salesperson you should be aware of what would constitute a mistake. As a guideline, mistakes can be grouped into three categories. Determining the type of mistake is critical to understanding its impact on the transaction. Keep in mind that when mistakes occur in a real estate transaction, legal advice should be urgently obtained. The following three sections contain information about the different types of mistakes.

Common mistake A common mistake occurs when both parties to the contract know the intention of the other, accept it, but are mistaken about an underlying fact. Example: Both the seller and the buyer believe that a property includes a right-of-way to a nearby body of water. The seller and the buyer enter into an agreement that, among other terms, describes a specific right-of-way along with appropriate measurements. The error does not in fact create an easement or any beneficial interest, and is viewed only as a common mistake between the parties. Example: A buyer visits a seller’s cottage in August. After the seller closes the cottage for the season, the buyer signs Exam Study Guide

an agreement in December to buy the cottage. The cottage is located in a remote area. Unknown to both the seller and the buyer, the cottage burned down in October, before the contract was signed. The contract is void because both the seller and the buyer were mistaken that they were selling and buying a cottage, when the cottage did not exist.

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Mutual mistake A mutual mistake arises when the parties misunderstand each other and are at cross-purposes, or have a contrary understanding.

Unilateral mistake A unilateral mistake occurs when one party is mistaken about a fundamental aspect of a contract. Example: The buyer believes that the lot is approximately one acre in size; the seller is aware of this mistaken belief but remains silent. The buyer proceeds with the purchase based on the mistaken fact.

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Lesson 2 | Page 14 of 21

In addition to a mistake, misrepresentation is another way in which the genuine intention of a contract may be compromised. A misrepresentation is a false statement of fact or assertion made by one party to the other, before or at the time of contracting, regarding some existing fact, matter or circumstance affecting the contract or its object. Misrepresentation is a complicated area of law and sometimes it is difficult to distinguish between a representation or a mere exaggeration.

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Lesson 2 | Page 15 of 21

Lack of Genuine Intention: Misrepresentations Misrepresentations made by either party are not always deliberate, nor do they always carry the same severity of consequences. The following three sections contain information about the three types of misrepresentation that can contribute to a contract lacking genuine intention.

Innocent misrepresentation An innocent misrepresentation is a statement by one party of a fact that is wrong, but is honestly believed to be true. If the victim of the misrepresentation is induced into a contract based on such a statement, they may refuse to complete the contract, attempt to have it set aside, and attempt to recover anything paid or delivered under it. They may also defend any action brought against them under the contract, but as a general rule cannot recover damages if the misrepresentation was innocent. Example: The buyer asked the seller if the nearby school offers Kindergarten to Grade 8. The seller, unable to reach the school, called a neighbour to ask. The buyer relies upon this statement and agrees to purchase the Exam Study Guide

property only to discover that the school only accommodates Kindergarten to Grade 4. His children would not be able to attend this school after all, and would have to travel five miles by bus to get to their appropriate school. He refuses to close the transaction, stating that the misrepresentation, even though innocent, would affect their use and enjoyment of the property. Legal advice should be obtained in all cases where a buyer or seller is considering termination of an agreement.

Fraudulent misrepresentation A fraudulent misrepresentation has three elements: • The misrepresentation is made with the knowledge of its falsity or with reckless disregard for its truth. • The purpose must have been to induce the other party to enter a contract. • The misrepresentation must have been relied on to the other party’s prejudice. Where such fraud exists, the deceived party may resist enforcement of the contract and seek damages for the conduct. Example: A buyer indicates to the listing salesperson that they love the house and only have one question before they put in an offer: “Does the basement ever leak?” The salesperson verifies with the listing salesperson who, after speaking to the seller, answers no. The seller is aware of the fact that it does leak during heavy Exam Study Guide

rainstorms. The buyers purchase the house without an inspection based on the seller’s response. The seller has made a fraudulent misrepresentation in this case and may be subject to a lawsuit. Example: The seller knows that the school only goes up to Grade 4, but lies to the buyer that it goes to Grade 8 to induce the buyer to enter into the contract.

Negligent misrepresentation If there is a contractual relationship between the parties and a misrepresentation is made without reasonable verification of its accuracy, then the person who is misled may bring a lawsuit for damages. When it is clear that the statement was made with the intention that it be relied on and that the person did rely on it, then a claim for damages may arise. This could occur in situations where the buyer has relied on a real estate salesperson, who represents the seller. Example: The buyer is interested in changing the use of a property he would like to buy. Knowing the buyer is relying on the salesperson's advice and expertise, the salesperson makes inquiries and confirms the zoning bylaws of the municipality will allow the change. The salesperson would not be held liable for negligent misrepresentation. Failing to disclose and verifying the property’s specific use if, in fact, that use may be illegal under the zoning bylaws of the municipality, could be considered negligent misrepresentation. Example: Exam Study Guide

The buyer asks their salesperson to do the research for them on the school. The buyer’s salesperson goes to the school and makes an error by asking for information from the wrong person in the school. The buyer could sue their salesperson for being negligent about their due diligence, as the buyer was depending on the results.

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Lesson 2 | Page 16 of 21

Lack of Genuine Intention: Duress or Undue Influence and Failure to Disclose The following two sections contain information about the factors that can contribute to a contract lacking genuine intention.

Duress or undue influence Undue influence is the improper use of one person’s power over another to induce that person into a contract. The person claiming undue influence must establish that the transaction was executed under duress. The opposing party must establish that the bargain was reasonable and fair and that no advantage was gained due to his or her position. For example, one party is knowledgeable and experienced while the other party is ill-informed and inexperienced, or a family member exerts pressure on another family member to accept an offer which is detrimental or not in their best interest.

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Failure to disclose The non-disclosure of material latent defects might invalidate a contract. A latent defect is generally described as a defect that is not easily observable. The most serious of latent defects, often referred to as material latent defects, are physical defects of the property that render it dangerous or unfit for habitation. For example, if a seller is aware of a mould infestation in the attic and the basement, that defect would need to be disclosed to a buyer.

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Lesson 2 | Page 17 of 21

A potential buyer asks a seller if the basement has encountered any water leakage issues. As the previous owner of the property never mentioned any issues related to water leakage in the basement and the sellers themselves never encountered the problem, they inform the buyer that they would not need to worry. However, after purchase, the buyer notices water in the basement after a heavy rainstorm. A contractor engaged by the buyer informs that there was a crack in the basement previously repaired. The buyer is upset and threatens to sue the seller for misrepresentation. Question #4: What type of misrepresentation occurred in this situation? There are four options. There is only one correct answer. 1

Innocent misrepresentation

2

Fraudulent misrepresentation

3

Mutual mistake

4

Negligent misrepresentation

Exam Study Guide

Lesson 2 | Page 18 of 21

There are six elements that must be present for a contract to be legally enforceable. The elements include offer and acceptance, capacity of the parties, consideration, definite and clear, lawful object, and genuine intention. A contract not fulfilling all requirements, may be one of the following: • Void: The contract never came into existence • Voidable: The contract was originally valid but capable of being rejected by the offended parties at a later time • Illegal: The contract is not enforceable by the courts A void contract has no force or effect. A contract that is void is said to be nullity at law. As far as the law is concerned, the agreement does not exist. Neither party can enforce it and neither party has any obligations under it. Conversely, a voidable contract is enforceable, valid and binding until rendered void. A contract that is voidable is one where the offended party may choose to avoid the contract and treat it as being at an end, or treat it as existing and enforce it against the offending party.

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As a salesperson, you should be able to recognize deficiencies in the document that may render it void or voidable. You must not do anything that may negatively impact the integrity of the contract or compromise the client’s legal position. A leading practice is for a salesperson to recommend to the seller or buyer to seek legal advice before signing any purchase documents. Example: Void You enter into a contract with someone who does not have the mental capability to understand what they have signed. The contract is therefore void. Example: Voidable A contract is signed by someone who is intoxicated. The intoxicated person is able to accept the contract as valid, or declare it void if they can prove they were so intoxicated that they did not know what they were signing. Example: Illegal A contract to create an illegal grow operation in an industrial unit.

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Lesson 2 | Page 19 of 21

Void and Voidable Contracts

Illegal contracts are rare. As a salesperson, you may encounter void and voidable contracts. It is important for you to be able to distinguish between void and voidable contracts. A void contract does not legally exist (null at law, so it never came into existence), has no force or effect, not enforceable by either party, and does not contain any obligations for either party. A voidable contract is enforceable, valid, and binding until rendered void. The offended party elects to either fulfill or to void the contract. Example: A seller and a buyer have entered into an agreement of purchase and sale. The seller represented in the agreement that the property is a legal triplex. However, upon further investigation by the buyer’s lawyer, it is determined that the building is a legal duplex with an illegal basement apartment. The contract may be voidable at the option of the offended party, the buyer. The buyer may choose to declare the offer null and void because of the misrepresentation or can choose to complete the transaction, despite the problem. However, before any irreversible steps are taken the buyer should seek legal advice. Exam Study Guide

Lesson 2 | Page 20 of 21

While illegal contracts are rare, a salesperson may encounter void and voidable contracts which are different in their enforceability. Question #5: Which of the following contracts are voidable? There are three options. There are multiple correct answers.

1

A contract involving a minor who will turn 18 prior to the closing date

2

A contract that involves a criminal offence such as gambling

3

A contract signed when one of the persons was under the influence of recreational drugs

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Lesson 2 | Page 21 of 21

Congratulations, you have completed the lesson! There are four sections on this page with a summary of the key topics that were covered in this lesson.

Essential elements of a contract

A salesperson needs to be able to recognize what makes a contract valid. For a contract to be enforceable, the following elements are essential: • Offer and acceptance: There must be mutual agreement between the parties • Capacity of the parties: The parties entering into a contract must be legally competent (of sound mind and of legal age of majority) to make the contract • Consideration: Each party must receive something of value • Definite and clear: The subject and terms of the agreement must not be vague but stated clearly • Lawful object: The contractual arrangement must be lawful • Genuine intention: Both parties must consent to the terms of the contract

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Mistakes

A salesperson should be aware of the kinds of mistakes to prevent their occurrence or recognize when they occur. The mistakes that can contribute to a contract lacking genuine intention are broadly grouped into three categories: • Common mistake: Occurs when both parties to the contract know the intention of the other, accept it, but are mistaken about an underlying fact. • Mutual mistake: Occurs when the parties misunderstand each other and are at cross purposes or have a contrary understanding. • Unilateral mistake: Occurs when one party is mistaken about a fundamental aspect of a contract.

Misrepresentations

A salesperson should know how to avert any misrepresentations and also be able to identify the consequences of different kinds of misrepresentation. The three misrepresentations are: • Innocent misrepresentation: A statement by one party of a fact that is wrong, but is honestly believed to be true. • Fraudulent misrepresentation: A false statement made, knowing it is false, with the intent to induce the other party to enter a contract. • Negligent misrepresentation: A false or misleading statement made without reasonable verification of its accuracy.

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Void or voidable contracts

A salesperson must be able to recognize deficiencies in a trade document that may render it void or voidable. A salesperson must not do anything that may negatively impact the integrity of the contract or compromise the client’s legal position. A leading practice is for a salesperson to recommend to the seller or buyer to seek legal advice before signing any purchase documents. A contract not fulfilling all requirements may be one of the following: • Void: Neither party can enforce it and neither party has any obligations under it • Voidable: The party may choose to avoid the contract and treat it as being at an end, or to treat it as existing and enforce it against the offending party • Illegal: The contract is not enforceable by the courts

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Lesson 3 | Page 1 of 13

Lesson 3: Contract Breach and Termination

This lesson identifies what constitutes a breach of contract, remedies available to address the breach, and methods to terminate a contract.

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Lesson 3 | Page 2 of 13

Although a contract is, usually, a binding and enforceable agreement, there may be circumstances where either party may not want to complete the arrangement. As a salesperson, you may come across a situation, for example, when the buyer no longer wants to buy, even though the seller has communicated acceptance of the offer and there is a binding contract. There may also be a situation where the seller no longer wishes to complete the transaction. Unless both parties agree to terminate the contract, you have a problem. Upon completion of this lesson, you will be able to: • Identify what constitutes a breach of contract in a real estate transaction • Explain the remedies available to address a breach of contract • Explain the methods used to terminate a contract Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented. Exam Study Guide

Lesson 3 | Page 3 of 13

As a salesperson, you always hope that your real estate transactions are successful and free of complications. However, you may face situations where a contract is breached. When you find yourself working with the breaching party or the affected party your first step should be to speak to your broker of record and to encourage your client or customer to seek legal advice. Additionally, you need to understand and be able to discuss possible outcomes.

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Lesson 3 | Page 4 of 13

Breach of a Contract

A breach is a failure to fulfill or perform an obligation under a contract by one of the contracting parties. The breach of a contract may result in: • Conferring a right of legal action on the party impacted by the breach • Releasing the impacted party from further obligations to perform their side of the bargain A breach may be considered to go to the root of the contract, this is called fundamental breach. In the instance of a fundamental breach, the impacted party may: • • • •

Accept the breach and treat themselves as released from further performance Accept the breach and start an action for damages against the party who has breached Treat the contract as still in effect, and waive the breach, or Seek other remedies, if available Exam Study Guide

If the breach does not go to the root of the contract, it may give rise to a right of the impacted party to sue for damages without an option to discharge the contract; this is sometimes referred to as a minor or compensable breach. Example 1: Despite warnings from his real estate brokerage and lawyer, a buyer insisted that the salesperson present an unconditional offer to purchase a property. The buyer was confident that his present home would sell before the scheduled closing of his new residence. Unfortunately, he was unable to sell his home, was declined interim financing by the lender and unable to complete the purchase. Since the offer was unconditional, the seller kept the deposit money and then sued the buyer for breach of contract for the failure to close. The seller was awarded damages in the form of monetary compensation for the losses incurred in having to place the property back on the market to secure another buyer. Example 2: An agreement of purchase and sale itemized various chattels to be included in the purchase price, one of which is an expensive pool table in the recreation room. Upon closing, the buyer discovers that the seller had removed the pool table. The seller was in breach of contract, but the breach did not go to the root of the contract, so neither party was relieved of their other obligations to fulfill the contract. However, the buyer may sue the seller for damages as compensation for the missing pool table.

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Lesson 3 | Page 5 of 13

A seller agrees to sell his house for $365,000 with a three-month closing. The average sale price in the neighbourhood increases significantly prior to the closing date. The seller decides he wants to hold on to the property so he can benefit from the higher values and refuses to close the sale. The buyer, believing this is a breach of the fundamental purpose of the contract, decides to sue the seller for breach of contract. Question #6: What are the buyer’s options? There are four options. There are multiple correct answers.

1

The buyer can treat himself as relieved or discharged from performance of the contract.

2

The buyer can treat the contract as subsisting and demand the fulfillment of the contract.

3

The buyer can sue for damages but he doesn’t have the option to demand fulfillment of the contract.

4

The buyer can seek other remedies, if available.

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Lesson 3 | Page 6 of 13

In any alleged breach of a contract the impacted party feels wronged and looks to their salesperson and lawyers to advise on next steps. To minimize the consequences of a breach and to deter the offending party from future breaches, the law has created remedies. As a salesperson, you should refer the seller or the buyer to their lawyer, however, you need to have an understanding of potential remedies.

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Lesson 3 | Page 7 of 13

Remedies for a Breach of Contract

When a breach of contract involves real property, five kinds of remedies are available from the courts. The following five sections contain information about all of these remedies in detail.

Rescission

Rescission involves the revocation or cancellation of a contract, the contract is set aside by the court. Example: The buyer sues to set aside a contract because the builder has encountered financial difficulties, has begun renovation work, but is unable to finish the job.

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Damages

Damages involve compensation for losses incurred. The most common remedy is a monetary award to compensate an injured party for a loss suffered by reason of a breach. Every breach may give rise to this remedy, the amount of damages recoverable is the value that may fairly and reasonably be considered either: • Arising naturally, (e.g., according to the usual course of events occurring from such breach of contract itself); or •

As may be reasonably expected to have been in the contemplation of the parties at the time the contract was made.

Damages are financial compensation arising as a result of the breach. Therefore the injured party in a damage action must prove the actual amount of their loss. They also have a general duty to make reasonable efforts to mitigate that harm by taking steps, following the breach, in order to reduce the extent of the loss. Example: The buyer does not complete the transaction on the closing date due to insufficient funds. The seller places the property back on the market as soon as possible to find a new buyer. The seller could seek damages, which could include the cost of re-marketing and selling the property, and other costs such as the cost of borrowing funds if their purchase of another property was affected. The seller could also seek damages including legal costs for any loss incurred if the property sold at a lesser price than the agreement with the original buyer.

Quantum meruit

Quantum meruit, a reasonable sum for services rendered, is a determination by the courts that directs payment to the claiming party. Example: A brokerage enters into an exclusive, two-year contract to manage a building. The landlord is to pay the brokerage semi-annually for units rented during the preceding six-month period. Eight months into the contract the owner breaches the contract and refuses to pay the brokerage for 10 units rented during the first six-month period. The brokerage may bring a lawsuit and claim compensation for the work performed.

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Specific performance

Specific performance is an exceptional remedy. It is an order of the court directing the party in breach to carry-out a specific obligation. This is a discretionary remedy and not an absolute right. It may be awarded only where damages are not an adequate remedy, the contract is fair and just, and the injured party acts promptly and fairly in making their claim. Example: A seller owns a unique historical home. The seller signs an agreement to sell to a buyer but later refuses to close the sale because the property has gone up significantly in value. The buyer is not able to find a similar property to purchase as none are available. The buyer intends to sue the seller for specific performance, to force the seller to sell the home to the buyer at the original contracted price.

Injunction

Where the broken promise was to refrain from doing something, the court may award an injunction to restrain the offending party from doing that act. More simply put, an injunction is a court order stopping a party from doing something wrongful. The court will not compel the performance of a contract for personal service or employment, but may award an injunction to prevent the offending party from serving or performing elsewhere. Injunctive relief, is also a discretionary remedy, subject to the same conditions as specific performance. Example: A seller sells his hair salon to buyer with a clause in the agreement that states he will not open another competing hair salon within ten kilometres for the following five years. Three years after the transaction has closed, the previous owner breaches the contract by opening a competing salon three kilometres away. On application to the courts, the buyer may seek an injunction to prevent the previous owner from continuing their business.

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Lesson 3 | Page 8 of 13

When a breach of contract involves real property, there are five kinds of remedies available. Question #7: Which situation describes the ‘Damages’ remedy? There are three options. There is only one correct answer. 1

Seller sold his property unconditionally but the buyer refused to close due to insufficient funds. Seller now wants to place the property back on the market to find a new buyer and wants funds for remarketing the property.

2

The brokerage entered into an exclusive contract to manage a building with the owner. Owner of the building breaches the contract eight months into the contract period and refuses to pay for ten units rented during the first six-month period. Brokerage wants compensation for the work performed.

3

Buyer had a binding contract to purchase adjacent lands to his property for the purpose of expanding his business enterprise. Prior to closing, buyer had already started expansion/renovation work in anticipation of the closing. The owner of the land refused to close and lacked any substantive reason for doing so. The buyer wants to get the adjacent land.

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Lesson 3 | Page 9 of 13

When a breach of contract involves real property, there are five kinds of remedies available. Question #8: Which situation describes the ‘Injunction’ remedy? There are two options. There is only one correct answer. 1

A tenant in a large industrial building, who has specifically agreed not to store, process or otherwise handle certain hazardous waste products on the premises, breaches that agreement following occupancy. The building owner wants to stop the tenant from continuing to use and store any hazardous waste products on the property.

2

Buyer requested the court to set aside a contract because the builder has encountered financial difficulties, has not yet begun renovation work and is apparently unable to complete the job.

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Lesson 3 | Page 10 of 13

A breach of contract is not the only way for a contract to be terminated. As a salesperson, it is important for you to understand the various methods of terminating a contract, because you could be involved in the process.

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Lesson 3 | Page 11 of 13

Termination of a Contract

There are five common methods to terminate a contract involving real property. The following five sections contain information about the different kinds of options to terminate a contract.

Performance

A contract may be discharged by performance of the contract, in which case the obligations of the performing party are fulfilled and the rights of the other party are satisfied. Example: An agreement of purchase and sale closes as scheduled. The parties are both satisfied with the outcome, the contract is now at an end.

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Mutual agreement

A contract may be discharged or voided by mutual agreement of the parties. In effect, the parties agree that their contract no longer binds them. Example: Both the sellers and the buyers agree that they no longer wish to buy/sell the property and mutually agree to the termination of the agreement of purchase and sale.

Impossibility of Performance

A contract may be discharged because of the impossibility of performance or frustration, whereby unanticipated circumstances arising after the making of the contract are held to release the parties from their obligations. Example: Parties have entered into an agreement of purchase and sale regarding a cottage. Prior to closing, the cottage burns down. The contract may simply not be fulfilled due to no fault of either party. Therefore the contract is at an end.

Operation of Law

A contract may be discharged by operation of law, e.g., death of a party, bankruptcy of a party, unauthorized unilateral alteration of contractual terms. Example: A brokerage declares bankruptcy and is no longer registered under REBBA. As a result, the brokerage is unable to lawfully trade in real estate, therefore all representation and customer service agreements entered into with the brokerage are now void and unenforceable.

Breach

Breach or the breaking of the contract by one of the parties, results in conferring a right of legal action on the party injured by the breach. Example: The seller, following much consideration, decides that they no longer wish to move and instructs their lawyer not to close the transaction despite the lawyer’s advice to the contrary. Failure to complete the contract is reasonably considered a fundamental breach and may result in the seller facing significant legal consequences. Exam Study Guide

Lesson 3 | Page 12 of 13

There are five common methods to terminate a contract involving real property. Question #9: Which situation describes Impossibility of performance as the appropriate way to terminate the contract? There are five options. There is only one correct answer. 1

The buyer, whose offer was accepted by the seller, could not find financing for the purchase of the new home. Though the contract is not being fulfilled, both the seller and buyer want to avoid any legal hassles.

2

A builder is hired for building an addition onto the house. After signing the contract, it is discovered that the zoning bylaws don’t permit the construction.

3

The buyer purchases the property and alters the contract to extend the closing date without the seller’s consent.

4

A seller refuses to give up possession of the property at closing because his job offer in another city has been withdrawn.

5

A buyer purchases a property and the transaction completes on the specified closing date. The object of the contract is fulfilled and the contract is at an end.

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Lesson 3 | Page 13 of 13

Congratulations, you have completed the lesson! A good salesperson knows how to handle difficult situations, like when a contract is breached. The knowledge of remedies for a breach of contract can help the salesperson work in the best interests of their clients or customers and guide them towards the next logical step. There are three sections on this page with a summary of the key topics that were covered in this lesson.

Breach of contract

A breach is a failure to fulfill or perform an obligation under a contract by one of the contracting parties. If the breach does not go to the root of the contract, it may give rise to a right of the impacted party to sue for damages, without the option to discharge the contract; this is sometimes referred to as a minor or compensable breach.

Remedies for a breach of contract

Five remedies available in relation to a breach of contract involving real property are: • Rescission: Revocation or cancellation of a contract • Damages: Compensation for losses incurred • Quantum meruit: A reasonable sum for services rendered • Specific performance: Party in breach to carry out specific obligation • Injunction: Restrain the offending party from breaking a promise

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Termination of a contract

Five common methods to terminate a contract involving real property are: • Performance: Obligations of the performing party are fulfilled and the rights of the other party are satisfied. • Mutual Agreement: Contract discharged by mutual consent of the parties that it shall no longer bind them. • Impossibility of Performance: Unanticipated circumstances arising after the making of the contract are held to release the parties from their obligations. • Operation of Law: Discharge of contract by law, e.g., death of a party, bankruptcy of a party, or unauthorized unilateral alteration of contractual terms. • Breach: Breaking of the contract by one of the parties, resulting in conferring a right of legal action on the party injured by the breach.

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Lesson 4 | Page 1 of 7

Lesson 4: Electronic Commerce Act

This lesson identifies the impact of the Electronic Commerce Act on contracts used by a brokerage and the requirements when electronic signatures are used.

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Lesson 4 | Page 2 of 7

Historically, the real estate industry is an early adopter of advancements in technology, the use of digital technology in transactions is the latest example of this. Using digital technology the industry can deliver faster turnaround times for agreements and complete the necessary documentation more efficiently. With the utility and accessibility of electronic documents, sellers and buyers also appreciate a salesperson’s technological expertise. Sellers, buyers and salespersons alike are moving away from maintaining bundles of files or printing, faxing, and scanning documents. In this lesson, you will be introduced to the Electronic Commerce Act, 2000 that governs the electronic contracts used in real estate transactions. Upon completion of this lesson, you will be able to: • Identify the impact of the Electronic Commerce Act, 2000, on contracts used by a brokerage • Identify the requirements of a brokerage when using electronic signatures • Outline the process for obtaining an electronic signature for an Agreement of Purchase and Sale Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented. Exam Study Guide

Lesson 4 | Page 3 of 7

Electronic Signatures in Real Estate

Often the seller, the buyer, and the salesperson find it convenient and more efficient to complete transactions online instead of dealing with physical paper or scanned documents. For instance, as a salesperson, you could negotiate and obtain acceptance of an agreement of purchase and sale from the sellers while they are on a vacation because of the use of electronic signatures. You could email the agreement, discuss the details with the seller, then have the negotiations completed using electronic signature software. Prior to using electronic transactions, you will need to understand the Electronic Commerce Act that governs such transactions. Exam Study Guide

The following four sections contain some frequently asked questions by a salesperson about the legislation and the requirements for electronic signatures.

What is the purpose of the Electronic Commerce Act?

The Electronic Commerce Act and its regulations govern the creation, recording, transmission, and storage of contracts electronically. The purpose of this act is to allow any legal relationship that requires paper documents to be considered legal and enforceable when in an electronic format. It provides that a legal requirement for a document to be signed or endorsed can be satisfied by electronic signature.

Which contract documents of a brokerage can be signed electronically?

The Electronic Commerce Act permits brokerages to use an electronic signature for all agreements relating to trading, including representation agreements, agreements of purchase and sale, and agreement of lease.

What happens if a party prefers a written signature instead of an electronic signature?

If any party to an agreement insists on using written signatures instead of electronic signatures, a salesperson must oblige them. Electronic signatures can be used in an agreement only when all parties to an agreement consent to the use of electronic signatures. While consent can be implied, to avoid misunderstandings, it is recommended that the consent be in writing. Mortgage providers and financial institutions may also insist on paper documents with written signatures.

What are the requirements for using an electronic signature?

In order to use electronic signatures, as per Electronic Commerce Act, Sec. 11: (a) the electronic signature must be reliable for the purpose of identifying the person; and (b) the association of the electronic signature with the relevant electronic document must be reliable. Other requirements for a signature include: (a) the electronic signature meets the prescribed requirements, if any, as to Exam Study Guide

method; and (b) the electronic signature meets the prescribed information technology standards.

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Lesson 4 | Page 4 of 7

Precautions and Policies for Electronic Signatures Similar to the precautions used for written signatures, as a salesperson, where you must personally witness the signing of the documents, you need to be cautious with the use of electronic signatures. The obligations a registrant has under REBBA remain the same. For instance, if two spouses share an email account, then, as the salesperson, you would have to verify that each spouse has signed individually. Similarly, all appropriate security precautions must be completed prior to anyone signing electronically where the salesperson is not physically present. Due to the critical nature of real estate contracts, you should seek guidance from your brokerage to ensure the proper procedures and appropriate software are used, and audit trails are maintained when using electronic agreements. To ensure compliance with REBBA and the Electronic Commerce Act when using electronic signatures, every brokerage is expected to have established and published its own policies and best practices. Brokeragespecific policies should include the following guidelines: • Ensure that the places where the electronic signatures have to be made by the sellers and the buyers are identified in the document beforehand. Highlight only those specific fields where the concerned party needs to sign. • Ensure that the fields of date and time are also completed along with the signature by the signing party. • Ensure that both options regarding how to accept or reject an offer presented electronically are explained to the parties beforehand. • Ensure the electronic documents are sent to the correct email address of the sellers and the buyers and include a relevant subject line in the email. • Ensure an acknowledgement of receipt is received from the concerned parties when the electronic documents are received.

Exam Study Guide

Lesson 4 | Page 5 of 7

Using Electronic Signatures

The technology of electronic signature software provides for the following: • Authentication: The ability to confirm the signature is from the person from whom it is supposed to be. • Authorized use: The signature is permanent and tamper-proof to prevent fraudulent use of the signature. Example: Let’s see how the actual process of using electronic signatures unfolds between the salesperson, John, and his buyer client, Abraham. John uploaded the agreement of purchase and sale into the electronic signature system and indicated the places in the document where Abraham had to initial and sign. Abraham then received an email containing a link and simply followed the instructions and clicked on the places indicated to initial and sign the agreement of purchase and sale. When all steps were completed, Abraham received the signed form saved in PDF format to keep for his own records. The agreement of purchase and sale was saved in their email accounts, for future reference. Exam Study Guide

Lesson 4 | Page 6 of 7

A salesperson is working with buyers who are situated outside Canada and who want to buy a property they viewed when they were here. The salesperson suggests the use of electronic signatures to overcome the challenges due to distance and difference in time zones. Question #10: Which precautions should the salesperson follow when using electronic signatures in the transaction? There are five options. There are multiple correct answers. 1

Obtain written consent from all the concerned parties that they agree to the usage of electronic signatures.

2

Ensure all the places where the electronic signatures have to be made are highlighted for the respective parties.

3

Ensure there is a separate paper copy of the documents with written signatures for the purpose of records.

4

Ensure that all the transaction documents are sent to the correct email address.

5

Communicate online with the parties when the signatures are being performed to witness the signatures.

Exam Study Guide

Lesson 4 | Page 7 of 7

Congratulations, you have completed the lesson!

Here is a summary of the key topics that were covered in this lesson: • A salesperson needs to be aware of the permissible use of electronic signatures in real estate transactions. They could suggest to the seller and the buyer the option as a possible convenient use and for ease of completing the transaction. • The Electronic Commerce Act and its regulations govern the creation, recording, transmission, and storage of contracts electronically. • All agreements, including representation agreements, agreement of purchase and sale and agreement of lease, can be signed electronically. • When using electronic signatures for these agreements, ensure all parties to the agreement have consented to use electronic signatures. • Working electronically does not change any obligations a registrant has under REBBA. • A salesperson should seek guidance from their brokerage to ensure the proper procedures and appropriate software are used and audit trails are maintained when using electronic agreements. • The electronic signatures must be able to be authenticated, and must be permanent and tamper-proof. Exam Study Guide

Lesson 5 | Page 1 of 10

Lesson 5: Complying with Privacy Legislation

This lesson identifies the obligations of a brokerage and salesperson with respect to the privacy of both sellers and buyers.

Exam Study Guide

Lesson 5 | Page 2 of 10

Complying with Privacy Legislation

As a salesperson, you will learn personal information about the sellers and the buyers while working with them. The sellers and the buyers may share details about their personal life or their financial obligations. The Personal Information Protection and Electronic Document Act (PIPEDA) sets out requirements on how this information can be collected and used by the salesperson. As a salesperson, you will need to understand PIPEDA and its core principles that impact how you should treat information. PIPEDA doesn’t apply to all seller and buyer information and you should be able to distinguish and recognize what information needs to conform to PIPEDA requirements. Upon completion of this lesson, you will be able to: • Identify the impact of the PIPEDA on registrant activities • Outline the obligations of a brokerage and a salesperson for handling, retaining, and destroying personal information obtained during a real estate transaction Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented. Exam Study Guide

Lesson 5 | Page 3 of 10

Ten Principles of Privacy The essence of PIPEDA is summarized into 10 principles of privacy by the Canadian Standards Association Group that apply to all salespersons and brokerages. 1. Accountability An organization is responsible for personal information under its control and shall designate an individual or individuals who are accountable for the organization’s compliance with the following principles. 2. Identifying purposes The purposes for which personal information is collected shall be identified by the organization at, or before the time, the information is collected. 3. Consent The knowledge and consent of the individual are required for the collection, use or disclosure of personal information, except where inappropriate. 4. Limiting collection The collection of personal information shall be limited to that which is necessary for the purposes identified by the organization. Information shall be collected by fair and lawful means.

Exam Study Guide

5. Limiting use, disclosure, and retention Personal information shall not be used or disclosed for purposes other than those for which it was collected, except with the consent of the individual or as required by law. Personal information shall be retained only as long as necessary for the fulfilment of those purposes. 6. Accuracy Personal information shall be as accurate, complete, and up-to-date as is necessary for the purposes for which it is to be used. 7. Safeguards Personal information shall be protected by security safeguards appropriate to the sensitivity of the information. 8. Openness An organization shall make readily available to individuals' specific information about its policies and practices relating to the management of personal information. 9. Individual access Upon request, an individual shall be informed of the existence, use, and disclosure of their personal information and shall be given access to that information. An individual shall be able to challenge the accuracy and completeness of the information and have it amended as appropriate. 10. Challenging compliance An individual shall be able to address a challenge concerning compliance with these principles to the designated individual or individuals accountable for the organization’s compliance.

Exam Study Guide

Lesson 5 | Page 4 of 10

Three Types of Information

Not all client information is treated the same under PIPEDA. Some information may be considered especially confidential. As a salesperson, you will need to understand this and be able to identify and categorize the information accordingly. PIPEDA identifies three information types: 1. Personal Information: Information about an identifiable individual; for example, including details easily associated with a person; for example, name, residential address. Exam Study Guide

2. Sensitive Personal Information: A subset of personal information dealing with sensitive data; for example, financial information and physical or mental condition. 3. Personal Facts: Non-identifiable facts; storage of personal facts is not regulated, provided information is anonymous. For example, the data in a demographic analysis may reveal the age-groups of people living in the neighbourhood, but the ages of individuals would not be given as a personal fact. PIPEDA only applies to the first two information types, personal information, and sensitive personal information. The third information type constitutes facts that are not readily associated with an individual. In other words, the facts are not identifiable with an individual, as in the case of business statistics.

Exam Study Guide

Lesson 5 | Page 5 of 10

Person in Charge of Privacy at the Brokerage

Brokerages and individual sales representatives have information in their files. Canadian Real Estate Association has established guidelines for every brokerage to institute internal privacy policies to ensure compliance with PIPEDA. Brokerages must have a designated privacy officer to formulate and implement the policies and procedures for PIPEDA compliance. The responsibilities of a privacy officer at a brokerage are: • To implement policies and procedures for handling, retention, and destruction of personal information at the brokerage • To ensure adequate levels of security are set up to ensure safekeeping of data at the brokerage • To ensure consumers can correct or add details, as well as access the information stored by the brokerage • To include statements about the privacy provision in listing agreements, buyer representation agreements and other similar forms used by the brokerage Exam Study Guide

Some policies developed by brokerages to comply with PIPEDA include the following: • Preparing a brochure for clients/customers explaining about privacy legislation and how their information would be protected • Adding a sentence that the brokerage complies with privacy legislation in all the promotional materials of the brokerage

Exam Study Guide

Lesson 5 | Page 6 of 10

Salesperson’s Obligations under PIPEDA As a salesperson, you will directly encounter privacy legislation through the compilation of client/customer mailing lists, retention of your transaction files, and gathering selected information regarding sellers and buyers, which you archive for future reference. Brokerage principles require a salesperson to: • State the purpose of obtaining information and get consent for using the information. • Identify to consumers the intended uses of their personal information; for example, intention to include buyers’ names on a mailing list. • Collect only the information that is necessary for the uses identified. • Disclose information only for the reason it was collected. Information collected is restricted to the stated purpose, unless further consent is obtained. • Obtain the consent of the consumer for the collection and disclosure of information. Explicit written consent is the best, though the legislation does contemplate oral consent or consent expressed through conduct. The more sensitive the information, the greater the need for explicit consent. Consent may also be withdrawn. • Maintain privacy of files and records, by safeguarding physical documents in locked cabinets and password protecting electronic files. • When no longer required, then the salesperson must return the information to the client or destroy the information. Example: A salesperson in charge of an open house asks all visitors to sign the sign-in sheet. When they ask why, the salesperson explains that it is for security purposes, as the seller wants to know who is coming into their home. This does not give the salesperson the right to email the visitors later. However, the visitors may be asked to check a box on the sign-in sheet if they want to receive information about properties in the area. If they check this box, then the salesperson can contact them later. Exam Study Guide

Lesson 5 | Page 7 of 10

During his interactions with his client, a salesperson discovered that the seller is selling the house because of a divorce and is also suffering from depression due to the trauma of the divorce. The salesperson also knows the exact amount of seller’s salary and how much spousal support he would have to pay his wife. Additionally, the salesperson has collected details such as the seller’s business address, current address, email address, contact number, ethnic background, age, etc. Question #11: PIPEDA is applicable to which of the following items of information about the seller that was collected by the salesperson? There are four options. There are multiple correct answers. 1

The seller makes $60,000 a year

2

The seller is suffering from depression due to trauma

3

The seller’s business address is 99, Work Street, Downtown

4

The seller’s email address is [email protected]

Exam Study Guide

Lesson 5 | Page 8 of 10

The associations of real estate professionals require brokerages to have a designated Privacy Officer to formulate and implement the policies and procedures to ensure compliance with PIPEDA. Question #12: Which of the following are responsibilities of a Privacy Officer at a brokerage? There are six options. There are multiple correct answers. 1

To implement policies and procedures for handling, retention and destruction of personal information

2

To ensure adequate levels of security for the safekeeping of data

3

To ensure records are made available to anyone requesting access

4

To include statements about the brokerage's privacy provisions in listing agreements, buyer representation agreements and other forms

5

To ensure personal information is safeguarded in perpetuity

6

To ensure customers can correct or add details and access the information stored

Exam Study Guide

Lesson 5 | Page 9 of 10

Salesperson Kevin wants to collect the information from the people who attend an open-house for security purposes and to also add them to his email list to share updates about the property. Question #13: What should Kevin do to ensure that he collects information in compliance with PIPEDA principles? There are five options. There are multiple correct answers. 1

Kevin should state the reasons why he is collecting the information.

2

Kevin should state what kind of information he is collecting.

3

Kevin should explicitly seek the consent to collect and to use the information obtained.

4

Kevin should destroy this information immediately after the open house.

5

Kevin should add this information into brokerage’s marketing emailing list.

Exam Study Guide

Lesson 5 | Page 10 of 10

Congratulations, you have completed the lesson! As a salesperson, you will be obligated to ensure that the privacy of information that clients or customers share is maintained in compliance with PIPEDA. There are four sections on this page with a summary of the key topics that were covered in this lesson.

Ten privacy principles

The essence of PIPEDA is identified in 10 principles of privacy by the Canadian Standards Association Group that apply to all salespersons and brokerages. The 10 privacy principles are: 1. Accountability 2. Identifying purposes 3. Consent 4. Limiting collection 5. Limiting use, disclosure, and retention 6. Accuracy 7. Safeguards 8. Openness 9. Individual access 10. Challenging compliance

Exam Study Guide

Three types of information

PIPEDA applies to two types of information – personal information and sensitive personal information. The details easily associated with a person is considered personal information, such as place of residence, and other further sensitive data, such as health conditions, is considered sensitive personal information. PIPEDA does not apply to personal facts which are non-identifiable such as the data in a demographic analysis.

Typical policies and privacy officer at the brokerage

PIPEDA requires that the brokerages must have a designated privacy officer to formulate and implement the policies and procedures for PIPEDA compliance. The privacy officer must ensure adequate levels of security are set up to ensure safekeeping of data at the brokerage. The typical policies at a brokerage to comply with PIPEDA include preparing a brochure for clients/customers explaining about privacy legislation and how their information would be protected. The salesperson is obliged to state the purpose of obtaining information and get consent for using the information from the persons supplying the information. The salesperson has to maintain the privacy of files and records by safeguarding physical documents in locked cabinets and password protecting the electronic files.

Salesperson’s obligations under PIPEDA

Exam Study Guide

Lesson 6 | Page 1 of 7

Lesson 6: Family Law Act

This lesson explains the key provisions of the Family Law Act related to listing and selling of a matrimonial home and how that impacts a salesperson’s activities.

Exam Study Guide

Lesson 6 | Page 2 of 7

Family Law Act

The Family Law Act recognizes the concept of equal partnership in marriage relationships with regards to the matrimonial home. As a salesperson, you will often face issues related to spousal rights when listing and selling residential property; therefore, you need to understand how this legislation impacts your activities. Part I of the Family Law Act deals with the orderly distribution of assets following a marriage breakdown or the death of a spouse with some exclusions; for example, property inherited or received as a gift. Part II details the rights of the non-owner spouse to equal possession of the matrimonial home and sets out rights of possession of that home, the designation of a matrimonial home and limitations on ability to encumber or dispose of the matrimonial home. As a salesperson, you must be aware of various statutory provisions relating to spouses, particularly in the signing of documents such as the listing agreement and the agreement of purchase and sale. Upon completion of this lesson, you will be able to: • Identify key provisions of the Family Law Act related to the listing and selling of a matrimonial home • Identify the impact of a property designated as a matrimonial home on a salesperson’s activities Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented. Exam Study Guide

Lesson 6 | Page 3 of 7

Matrimonial Home

The Family Law Act defines a matrimonial home as “every property in which a person has an interest and that is or, if the spouses have separated, was at the time of separation ordinarily occupied by the person and his or her spouse as their family residence is their matrimonial home”. On the other hand, a matrimonial property would be any family asset not considered to be the matrimonial home with exceptions such as inheritances and insurance settlements. It is important for you as the salesperson to know the distinction between a matrimonial home and a matrimonial property. Both spouses have an equal right to possession of a matrimonial home. The Act confirms the rights of the nonExam Study Guide

owner spouse to equal possession of a matrimonial home. This right is a personal one and is not an interest in land. The Act further provides that the spouse has the right to be notified of any proceedings by a third-party that could affect that possessory right. The registered owner cannot dispose of, or encumber, the matrimonial home without the consent of the other spouse. It is possible for spouses to have more than one matrimonial home; for example a home in the city where they live year-round and a cottage that they use every summer. However, they have the ability to designate only one as the matrimonial home if they choose to do so. A designation of a residence as a matrimonial home essentially means that the property is deemed to be the only family residence at the time of designation. Any property can be designated by both spouses as a matrimonial home by joint registration. All other matrimonial homes are then released from the protection of Part II of the Family Law Act and issues concerning possession and the consent of the non-owner spouse are eliminated. If only one spouse completes a designation, all of the remaining matrimonial homes retain their status despite that registration.

Exam Study Guide

Lesson 6 | Page 4 of 7

Spousal Rights in a Matrimonial Home

According to the Family Law Act, there can be more than one matrimonial home (e.g., a home in the city and a home in the country) within Ontario. As a salesperson, you will need to understand the Family Law Act to be able to clarify the ownership of property. If there is any question as to the status of a matrimonial home, the seller should seek qualified legal advice. If a property is a designated matrimonial home, to avoid any issues regarding conflicting ownership, you must always ensure that all parties consent to the transaction. You need to obtain the signature of both spouses for all the legal documents, such as a listing agreement, and the agreement of purchase and sale. The party who owns the property will sign the documents as a seller and the non-owner will provide spousal consent. Consent of the non-titled spouse is required only for the matrimonial home, not the matrimonial property. Therefore, investment properties do not require consent of the non-owner spouse in order to sell the property. Exam Study Guide

Matrimonial home rights are extended to the spouse who is a non-owner or whose name is not present on the title of the property. The rights of the non-titled spouse in a matrimonial home are listed as follows: • If a property is designated as a matrimonial home, both spouses have an equal right to its possession. Even if the spouse is a non-owner, the Family Law Act confirms the rights of the non-owner spouse to equal possession of a matrimonial home. This means that even though only one spouse might be on title, the nonowner spouse still has rights for the matrimonial home and, as the salesperson, you must ensure that written consent is given by the non-owner spouse, to be able to list and sell the home as per the Family Law Act. The registered owner cannot dispose of, or encumber, the matrimonial home without the consent of the other spouse. This means that the owner spouse cannot sell or mortgage the matrimonial home without the consent of the non-owner spouse. • The Act further provides that the non-owner spouse has the right to be notified of any proceedings by a thirdparty that could affect that possessory right. • A spouse can also bring a court application to determine ownership rights and to restrain the other spouse from disposing of the property without consent. The court can determine the ownership and order property sold or transferred to a spouse.

Exam Study Guide

Lesson 6 | Page 5 of 7

Rights of a Common-law Spouse

As per the Family Law Act (Ontario), the term spouse includes same-sex partners and common-law partners who have cohabited continuously for a period of not less than three years. If they are in a relationship of some permanence and are the natural or adoptive parents of a child, they only need to be cohabited for a period of one year. It is important to understand that spouses who live together and are not married may have a family home, but it is not considered a matrimonial home for the purposes of the Family Law Act. There is a fundamental difference in the legal status of family home and a matrimonial home. For instance, if one common-law spouse owns the family home, they can sell or mortgage it without the other common-law spouse’s permission, whereas this is expressly prohibited in the case of the matrimonial home of a legally married couple. In a common-law relationship, in the event the family home is sold and the relationship is dissolved, the registered owner may be required to make arrangements for satisfactory accommodation of the common-law spouse and/or provide support payments. The parties should seek independent legal advice to clarify their rights relating to the sale of the family home. Exam Study Guide

Lesson 6 | Page 6 of 7

A salesperson is meeting with a seller to list the property for sale. While viewing the property the salesperson notices children's toys and women's clothes in a closet. The seller explains that he and his wife, after 15 years of marriage, are now separating however there hasn't been any formal separation agreement as yet. As they are not on speaking terms, his spouse and two kids are living at the couple's nearby cottage. He is anxious to either sell the house or rent out the cottage because he cannot afford both mortgages. The salesperson, aware that the seller is the only one on title of both properties, explains that to sell or lease either of the properties, consent is required by both parties. Question #14: For which activities does the seller require consent from his spouse? There are three options. There are multiple correct answers.

1

Renovating the house or cottage before selling or renting it out

2

Selling the house or cottage

3

Leasing the house or cottage

Exam Study Guide

Lesson 6 | Page 7 of 7

Congratulations, you have completed the lesson!

Here is a summary of the key topics that were covered in this lesson. As a salesperson, you will be required to recognize spousal rights under the Family Law Act. If it is a matrimonial home, you must always ensure that both spouses consent to the transaction and to obtain the signature of both the spouses for all the legal documents, such as a listing agreement and the agreement of purchase and sale. As a salesperson, you should remember: • Any properties occupied jointly by married spouses may be considered a matrimonial home unless designated otherwise by them. • Any property can be designated as a matrimonial home by joint registration by both spouses and there can be more than one matrimonial home. • Both spouses have an equal right to possession of the matrimonial home, including non-owner spouses. • The registered owner cannot dispose of, or encumber, the matrimonial home without the consent of the other spouse. Exam Study Guide

Lesson 7 | Page 1 of 9

Lesson 7: Impact of the Planning Act and Official Plan on Land Development

This lesson identifies the role of an Official Plan and the authorities that plan land use in Ontario.

Exam Study Guide

Lesson 7 | Page 2 of 9

Land use planning directly affects the value of the real estate and therefore affects the property owner or tenant, as well as the salesperson. As the salesperson, you will be expected to know about the latest and current zoning restrictions and permitted land uses. In this lesson, you will get an overview of land use planning done at the federal, provincial, and municipal levels. Upon completion of this lesson, you will be able to: • Identify how the Planning Act, impacts land development in Ontario. • Identify the role of the Official Plan as it relates to land use development. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

Exam Study Guide

Lesson 7 | Page 3 of 9

Implementation of Planning

The Planning Act sets out the ground rules for land use planning in Ontario. It describes how land uses may be controlled, and who may control them. The purposes of this Act are: • To promote sustainable economic development in a healthy natural environment within the policy and by the means provided under this Act • To provide for a land use planning system led by provincial policy • To integrate matters of provincial interest in provincial and municipal planning decisions • To provide for planning processes that are fair by making them open, accessible, timely, and efficient • To encourage co-operation and co-ordination among various interests • To recognize the decision-making authority and accountability of municipal councils in planning Exam Study Guide

The Planning Act gives general administrative control of the land use planning in Ontario to the Minister of Municipal Affairs and Housing, which also broadly directs overall planning in the province by way of provincial policy statements. All planning bodies within the province must be consistent with provincial policy statements when applying planning policies. The Act permits selected agencies to make decisions on various matters such as patterns of land use, road networks, schools, recreational facilities, and water supply. The long-range effect of such decisions has tremendous impact on salespersons, as the value of real estate is often dependent on these factors. For instance, a residential property situated in proximity to a recreational facility may be more valued than a property without access to a recreational facility.

Exam Study Guide

Lesson 7 | Page 4 of 9

Types of Municipalities Municipalities are empowered to implement local planning under the Planning Act. Ontario has more than 400 municipalities. Based on the legal powers and responsibilities, the municipalities are grouped into three types: single-tier, two-tier with an upper-tier, and a lower-tier. 1. Single-tier municipality A single-tier municipality is one that assumes all municipal responsibilities set out under the Municipal Act and other provincial legislation. Some examples of single-tier municipalities are the City of Toronto, Ottawa, Sault Ste. Marie, Thunder bay, Greater Sudbury, Timmins, Windsor, London, Chatham-Kent, etc. 2. Upper-tier (in the two-tier municipality) An upper-tier municipality is one formed by two or more lower-tier municipalities. Municipal responsibilities set out under the Municipal Act and other provincial legislation are split between the upper-tier and lower-tier municipalities. Upper-tier is typically the region, county, or district. Upper-tier municipalities are responsible for preparation, adoption, and revision of the Official Plan, and the process of dividing and developing land. Examples of upper-tier municipalities are counties such as the Wellington County, Grey County, Simcoe County, etc., or a regional municipality such as the Regional Municipality of York, Halton, Durham, Peel, Muskoka, Niagara, Waterloo, etc. 3. Lower-tier (in the two-tier municipality) Lower-tier municipality is responsible for preparation, adoption, and revision of the Official Plan and the adoption of zoning bylaws, interim control bylaws, and other bylaws. Examples of lower-tier municipalities include the city of Cambridge, Mississauga, or the city of Brampton, the town of Richmond Hill, the town of The Blue Mountains, etc. Where an upper-tier municipality exists, its council will often coordinate planning between the respective lower-tier Exam Study Guide

municipalities, as well as address matters for which it may be directly responsible, including roads and water/sewer systems. In some instances, the upper-tier municipality may assume, by agreement, any of the planning responsibilities of the lower-tier municipality. Otherwise the lower-tier municipality will handle land-use matters within its jurisdiction, such as location, type, and density of development. The provisions of the Planning Act enable municipalities to mount comprehensive planning programs tailored to particular needs, resources, and inclinations. Although the actual process is carried out by municipal organizations, the provincial government maintains the function of approving proposals, following passage by municipal councils.

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Lesson 7 | Page 5 of 9

Provincial Interests

The Planning Act sets out specific provincial interests to outline what is considered to be sound planning within the province. The minister, municipalities, local planning boards, and the Local Planning Appeal Tribunal must be consistent with provincial interests when carrying out their responsibilities, as listed in the Section 2 of the Act. The provincial interests include the following: • The conservation and management of ecological systems, agricultural resources, natural resources, mineral resource base, and spaces of architectural, cultural, historical, and archaeological significance • The orderly development of safe and healthy communities ensuring the accessibility for persons with Exam Study Guide

disabilities to all facilities and services • The adequate provision and efficient use of communication, transportation, sewage and water services, and waste management systems • The adequate provision and distribution of educational, health, social, cultural and recreational facilities, housing, and employment opportunities • The resolution of planning conflicts involving public and private interests and the promotion of sustainable development • The promotion of built form that encourages a sense of place and provides spaces that are safe, attractive, and vibrant

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Lesson 7 | Page 6 of 9

Provincial Policy Statements

The Planning Act also authorizes the Minister of Municipal Affairs and Housing to issue provincial policy statements on land use planning issues of public interest, such as matters relating to municipal planning, mineral aggregate resources, flood plains, housing, and wetlands. Provincial policy statements contain major policy areas concerning the management of change, promotion of efficient, cost-effective development, and land use patterns that stimulate economic growth, while protecting the environment and public health. Officials and approval bodies engaged in the planning process must be consistent with provincial policy statements. Individuals, committees, councils, planning bodies, and others involved with planning must align with specific policy provisions when carrying out any planning responsibility.

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The provincial policy statement is reviewed every five years. It includes the policies to: • Support long-term planning for alternative and renewable energy sources such as wind power • Discourage urban sprawl across Ontario by supporting intensification in appropriate areas and the efficient use of land and resources • Support the protection of Ontario's environment through enhanced policies, including stronger protection of the province's water resources • Protect the province's natural heritage resources including habitats, provincially significant wetlands on the Canadian Shield, and coastal wetlands • Promote development of affordable housing by requiring municipal targets • Respond to concerns about the loss of farmland by prohibiting retirement lots and residential infilling on prime agricultural lands • Support and protect rural areas, by allowing development that is in keeping with the unique character of rural Ontario

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Lesson 7 | Page 7 of 9

Official Plan

The Planning Act establishes parameters for the development of an Official Plan. An official plan deals mainly with issues such as where new housing, industry, offices, and shops will be located; what services like roads, watermains, sewers, parks, and schools will be needed; and when, and in what order, parts of the community will grow. The Official Plan is approved by the Minister of Municipal Affairs and Housing. Each municipality is required to have an Official Plan. This Official Plan describes the upper, lower, or single-tier municipal council’s or planning board's policies on how land in the community should be used. The Official Plan normally extends for a period of 10 to 15 years, and is reviewed every 5 to 10 years based on growth or the needs of the community. In areas of Ontario where there are no organized municipalities, the responsibility for the application of Planning Act, which would include development of an Official Plan if necessary, is the responsibility of the province of Ontario. The following five sections contain information about Official Plan in detail. Exam Study Guide

The Official Plan

The Official Plan contains: • Goals, objectives, and policies concerning the management and direction of physical change with due regard to the effects such changes have on the social, economic, and natural environment • Details about where new housing, industry, offices, and shops will be located, what services like roads, watermains, sewers, parks, and schools will be needed and in what order, parts of the community will be developed • Description of measures and procedures to attain these objectives and a description of such measures and procedures to inform the public and obtain views regarding amendments to the plan

The purpose of the Official Plan

The Official Plan for a municipality is designed to provide a framework for future decision-making and to respond in an organized fashion to trends and influences currently experienced within that municipality or anticipated in the future.

The creation of the Official Plan

A formal process is followed in the preparation of an Official Plan, including input from citizens, to help ensure that future planning and development properly meet the needs of the municipality.

The approval process of the Official Plan

The plan typically requires provincial approval by the Ministry of Municipal Affairs and Housing before becoming official. However, certain Official Plans may not require such approval. For example, a regional government may be authorized by the Ministry to approve local Official Plans within that region. Once approved, no development can take place within a municipality unless it is in general conformity with the policies and designations established in the Official Plan. The municipality can acquire land for the purpose of developing any feature of the Official Plan, but it cannot physically undertake any public works unless such activities conform with the plan.

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The process and timeline for review of the Official Plan

An Official Plan amendment is a formal document that alters the current Official Plan, usually due to new situations that have arisen in the municipality. Changes to a plan are handled in much the same way as the plan itself. Changes may be needed because of new circumstances in the community or because of requests made by property owners. An approved Official Plan can be reviewed at any time, but each local council is required to update its Official Plan not less than 10 years from the date the plan came into effect in the case of a new comprehensive Official Plan. In situations where an Official Plan is not being replaced in its entirety it should be updated at least every five years to ensure the plan is consistent with the provincial policy statements.

Exam Study Guide

Lesson 7 | Page 8 of 9

A salesperson assisted a buyer to buy a condominium with a nice view of the lake. There is a vacant lot between the condominium and the lakeshore. The buyer wants to know whether that land would be developed in the future and could obstruct the view of the lake from the condominium. Question #15: Which document should the salesperson refer to for information about the land use of the vacant lot? There are four options. There is only one correct answer. 1

Official Plan

2

Provincial Policy Statements

3

Provincial Interests

4

Planning Act

Exam Study Guide

Lesson 7 | Page 9 of 9

Congratulations, you have completed the lesson!

Here is a summary of the key topics that were covered in this lesson. As a salesperson, you will need to be cognizant of the permissible use of a property and the land use in the vicinity of a property, and its impact on the value of a property. Municipalities, classified as either upper-tier or lower-tier, have the authority to implement local planning as per the Planning Act. You should recognize that the Planning Act: • Sets out the ground rules for land use planning in Ontario. • Gives general administrative control of the planning system in Ontario to the Minister of Municipal Affairs and Housing. • Sets out specific provincial interests to outline what is considered to be sound planning within the province. • Authorizes the Minister of Municipal Affairs and Housing to issue provincial policy statements on matters relating to municipal planning, mineral aggregate resources, flood plains, housing and wetlands, etc. • Establishes parameters for the development of Official Plans—planning documents for geographic areas approved by the Minister of Municipal Affairs and Housing. Exam Study Guide

Lesson 8 | Page 1 of 21

Lesson 8: Key Considerations Related to Zoning

This lesson explains zoning bylaws and how minor variance or zoning bylaw amendments may be obtained.

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Lesson 8 | Page 2 of 21

There are situations when a buyer would like to purchase a property and change the present use. For example, a buyer may intend to run a home business out of their new residence. They may look to a salesperson for guidance about what is permissible and what should be done to obtain approval from the municipality. As a salesperson, you need to understand what governs land use and how it can be changed, if at all. Upon completion of this lesson, you will be able to: • • • • •

Describe the impact of zoning bylaws on land use Outline typical provisions found in a residential zoning bylaw Explain when a zoning bylaw amendment or a minor variance may be required Outline the relevance of a non-conforming use or a non-conforming structure under a zoning bylaw Identify the role of the Committee of Adjustment for issues relating to zoning, variances, and non-conforming uses

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

Lesson 8 | Page 3 of 21

Often, the permitted use of the property directly determines its value. A property that can have a commercial unit on the first floor and residential unit on the upper floor will typically be more valuable than a duplex that is restricted to residential units. Therefore, the permitted uses of the property may be relevant to negotiations between the seller and the buyer. As a salesperson, you will be expected to verify and inform your clients or customers of the current legal use of a property.

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Lesson 8 | Page 4 of 21

Zoning Bylaw

Zoning bylaws are enacted by municipalities to identify the permitted use, building structure standards (e.g., minimum setbacks and lot coverage), and other necessary regulations (e.g., signage, noise, and parking) for properties. Zones are further divided into classifications (such as residential) and sub-classifications (such as single family), each with its own detailed standard. Existing properties or new developments must comply with the zoning bylaw of the municipality. A zoning bylaw: • Implements the objectives and policies of a municipality's Official Plan • Is the legal method of managing land use and future development • Protects the community from conflicting and possibly dangerous land used Exam Study Guide

• Controls the use of land and states exactly: o How land may be used o Where buildings and other structures can be located o The types of buildings that are permitted and how they may be use o The lot sizes and dimensions, parking requirements, building heights, and setbacks from the street (The term setback refers to the minimum distance that a building(s) must be from the front, rear, and side boundaries of the property)

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Lesson 8 | Page 5 of 21

Zoning Designations

The zoning bylaw typically divides and classifies an entire municipality into a minimum of six general uses such as the following: • • • • • •

Residential Commercial Industrial Institutional Open space Agricultural

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Each class is further divided into subclasses or zones designated with appropriate symbols. For example, Residential would be symbolized as R, Agricultural would be symbolized as AG, etc. Residential (R) would further be categorized as R1, R2, R3, R4, etc., with higher numbers typically used to indicate greater density. An example illustrating typical residential classifications symbolized by R is: • The zone class R is categorized as R1, which describes detached single-family dwellings, and R2 to R5, which describe to accommodate varying urban densities in detached single family developments. • The zone class RS is categorized as RS1, which describes semi-detached single-family dwellings. • The zone class RM is categorized as RM1, which describes multiple-unit residential buildings, and RM2, RM3, which describe to accommodate varying urban densities in multiple-unit residential buildings. • The zone class RR is categorized as RR1, which describes rural non-farm dwelling units within rural settlement areas, and RR2, which describes rural non-farm dwelling units outside of rural settlement areas. As a salesperson, you should be aware of the zoning of any property you are dealing with so that you can communicate the property’s permissible uses to your client or customer. For instance, if a buyer is purchasing a river-front property, it would be your duty to determine whether the property is impacted by any zoning bylaw and whether the municipality will allow any new construction.

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Lesson 8 | Page 6 of 21

The Impact of Zoning Designations on Property Development

As a salesperson, you need to be able to explain to the buyers of a property that the zoning designation determines how that property can be developed. For example, two properties may be on exactly the same lot size, but will have to be developed differently if they have different zoning designations, as each designation might have different requirements for front yard, rear yard, and side yard setbacks. Typically, height restrictions and maximum lot coverage is also detailed in the zoning designation. Exam Study Guide

As highlighted in this comparative illustration, in the zoning designation R1, the house covers a larger surface area of the lot and has a greater setback from the various lot boundaries than the houses in R2, R3, and R4.

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Lesson 8 | Page 7 of 21

Typical Residential Bylaws As a salesperson, you should also be aware of the guidelines and restrictions for residential properties established by the municipalities regarding several issues, such as parking, signage, and outside storage of business-related equipment. A home based business in a residential area may have specific zoning bylaw compliance provisions. The following three sections contain information about some typical residential bylaws in detail.

Sign bylaw Different municipalities have different sign bylaws specifying the dimensions of an acceptable sign and often mention the permissible distance of the sign from a curb, an intersection, pedestrians, and cyclists. Some signs like “no trespassing,” “open house,” or “for sale” can be erected without obtaining a permit, whereas other signs like promotional banners require prior permit from the municipality. Some municipalities insist that real estate signage should be removed within specified number of days after the property is no longer for sale or lease. A local listing service located within a municipality may also have rules and regulations regarding what is permitted with the use of real estate signage.

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Parking bylaw Municipalities have bylaws and restrictions to govern the parking of large commercial vehicles, recreational vehicles and cars in a residential neighbourhood. Municipality may have restrictions for parking on the street or for overnight parking. Municipalities can also prohibit parking on the boulevard and the driveway apron. For instance, some municipalities may allow small camping trailers, or boats stored on a boat trailer, but not allow large motorhomes to be stored in the driveway. The municipalities may specify the weight and dimensions of the vehicle and requirements such as that it should have a current year license plate identification. The bylaw can also specify how many vehicles may be parked in a driveway or backyard. Typically, municipalities will prohibit obstruction of sidewalks and may mark areas as no-stopping, noparking, and no-standing zones for motorists. Parking exceptions or specific parking zones may be made only for courier delivery vehicles that would be allowed to be parked for typically only 15-30 minutes. Municipalities may also impose fines for violations of parking bylaws.

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Noise bylaw This type of bylaw prohibits noise at any time that is likely to disturb others, typically late night and early morning. As per this type of bylaw, activities that cause a lot of noise, such as construction, are limited to the day time to minimize the disturbance to residents in the neighbourhood. Municipalities may specify decibel limits and timings for operating power equipment such as lawn mowers, chain saws, or leaf blowers.

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Lesson 8 | Page 8 of 21

A salesperson is working with seller clients. The salesperson wants to erect a ‘For sale’ sign on the property. Question #16: What should the salesperson do before installing the ‘For sale’ sign? There are four options. There are multiple correct answers. 1

Comply with the sign bylaws of the province

2

Comply with the sign bylaws of the municipality

3

Comply with the sign bylaws of the local listing service in the municipality

4

Obtain signage permit from the municipality

Exam Study Guide

Lesson 8 | Page 9 of 21

There might be instances when a buyer may like a certain property but desire a different use of the property beyond the current permitted use. In such situations, as a salesperson, you should be aware of who to contact in order to obtain clarification on a property’s permitted use and what would be required should your buyer want to apply for a permitted use change.

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Lesson 8 | Page 10 of 21

Committee of Adjustment

A Committee of Adjustment is appointed by the municipal council of a lower-tier municipality. The land division committee, appointed by an upper-tier municipality, performs similar functions at that level. In selected instances, the Ministry of Municipal Affairs and Housing may retain the right to grant consents; e.g., northern areas without municipal organization. The Committee of Adjustment has three functions: • Granting of minor variances • Providing consents to sever land • Granting consents for the continuation of a non-conforming use The Committee of Adjustment plays an important role in a municipality’s authority to control land use. As a salesperson, you must be aware of the function of the committee and its scope of authority so that appropriate information can be given to clients and customers requiring land-use decisions. Exam Study Guide

Lesson 8 | Page 11 of 21

As a salesperson, you should be able to recognize whether a desired change in the permissible use of a property would be minor or major, as different approaches are followed in each instance. When a major change is desired, there may be an impact of the change on the Official Plan of the municipality.

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Lesson 8 | Page 12 of 21

Minor Variance and Rezoning

A minor variance, for planning purposes, is generally described as a small or insignificant variation or slight modification concerning a particular property in relation to bylaws in force within a municipality. A rezoning application is required when a property owner wants to use a property in a manner not permitted in the zoning bylaw, and applies to amend the zoning bylaw. The council of a municipality will only consider a zoning bylaw amendment if the proposed use is in keeping with the Official Plan. A Committee of Adjustment established by a municipal council, or the land division committee as the case may be, may authorize minor variances deemed desirable for the appropriate development of a particular site and associated buildings/structures. Such a variance must be consistent with the general intent and purpose of applicable bylaws, as well as the Official Plan. Whether the minor variance is truly minor is up to the discretion of the Committee of Adjustment, as per the Planning Act. Each application for a minor variance is reviewed on its own merits. The Committee of Adjustment cannot add new uses to the zoning designation, but where the permitted uses in the bylaw are defined in general terms, they can approve a similar use if it conforms to the intent of the bylaw. Exam Study Guide

Amending a zoning bylaw is a much more complex and expensive process than a minor variance as it impacts the entire zoning area and can affect several properties and the municipal council and several stakeholders need to be involved. Minor variance, on the other hand, is comparatively easier, less time-consuming, and can be granted by the Committee of Adjustment. Example: Minor Variance A homeowner would like to build a detached garage which will extend 6 inches into the property lot line setback. In order to receive the approval to build the garage, the homeowner would need to apply for a minor variance from the Committee of Adjustment. Example: Committee of Adjustment The zoning bylaw states the minimum lot frontage required to build a single-family dwelling is 18.3m. An owner of a vacant lot with a 17.9m frontage, although zoned for the use, would normally not be issued a building permit. He/she could make application to the local Committee of Adjustment for relief from the provisions of the zoning bylaw. The decision of the committee would undoubtedly rest on whether such variance is judged to be minor in nature. The committee would typically rely on other comparable decisions and the impact on the area to arrive at a conclusion. Example: Rezoning A property is zoned R1 permitting the construction of a single-family residential home. The buyer of the property is contemplating demolishing the single-family home and constructing a four-plex. Because of the significant change in the use of the property and the accompanying impact on neighbouring properties, the municipality may insist that an application for a zone change be submitted rather than a request for a minor variance.

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Lesson 8 | Page 13 of 21

Steps for Minor Variance

The steps needed to apply for a minor variance are: 1. Pre-application consultation between the applicant and the municipal planners 2. Preliminary project review to identify the zoning bylaw requirements and prepare a list of the variances required by the proposal 3. Submit a completed application and the application fee 4. Scheduling of hearing and posting of public notice sign 5. Notice of public hearing and application details circulated to area property owners 6. Committee of Adjustment hearing and decision 7. Opportunity for a Third-Party appeal to the Local Planning Appeal Tribunal 8. Committee of Adjustment decision final and binding 9. Satisfying conditions of approval (if required) Exam Study Guide

Lesson 8 | Page 14 of 21

Steps for Rezoning

The required steps to apply for rezoning or zoning bylaw amendment are: 1. 2. 3. 4. 5. 6. 7. 8.

Pre-application consultation between applicant and municipal planners Submit complete application including relevant documents and the appropriate fee Opportunity for motion for directions to Local Planning Approval Tribunal Complete application decision Application circulation Technical response (impact of rezoning on municipal services, other government agencies, and the official plan) Community consultation (members of public invited to comment on the application) Preliminary Report to Community Council (if applicable) Exam Study Guide

9. Response to applicant (e.g., reviews indicate that current municipal services will not support the development proposed in the rezoning application) 10. Application revision and resubmission (e.g., applicant revises the application to be consistent with current municipal services) 11. Recirculation, consultation, further revisions, finalization, and staff report (if required) 12. Public meeting at Community Council (if applicable) 13. Council decision 14. Opportunity for third-party appeal to Local Planning Approval Tribunal 15. Official plan amendment (if necessary)/amended zoning bylaw in effect

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Lesson 8 | Page 15 of 21

After looking at various properties located in an urban community, a buyer finally takes interest in a property that a salesperson shows him. The salesperson is aware that the buyer wants to construct a small workshop in the rear yard where he plans to perform carpentry work. Question #17: If the proposed workshop does not fit within the setback requirements established by the city’s bylaws, what step should the salesperson take next? There are three options. There is only one correct answer. 1

Show other properties to the buyer

2

Advise the buyer a clause in the agreement of purchase and sale should be included for his protection

3

Advise the buyer to apply to Ministry of Municipal Affairs and Housing

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Lesson 8 | Page 16 of 21

A buyer is an electrician who wants to buy a house and operate an electronic repair business out of the garage. After seeing several houses shown by his salesperson, the buyer has finally shortlisted two properties – property A and property B. In property A, there is a small existing garage that is currently being legally used as an electronic repair business but the buyer would need to expand the garage for his business. In property B, even though the garage is sufficiently spacious, the buyer will need permission from the municipality to run his business as it is situated in a residentially zoned area. The buyer is discussing the issue with the salesperson and seeks his recommendation. Question #18: What should the salesperson recommend to the buyer? There are four options. There is only one correct answer. 1

The salesperson should recommend that the buyer consult with a third-party professional.

2

The salesperson should recommend property B to the buyer.

3

The salesperson should not recommend either of the two properties and encourage the buyer to see more properties.

4

The salesperson should not give any explicit recommendation in favour of any of the properties and probe further to understand which property the buyer likes more out of the two.

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Lesson 8 | Page 17 of 21

As a salesperson, you must be aware that sometimes the use of a property may be permitted even though it does not comply with the current zoning bylaws. You should be able to discuss with sellers and buyers that revisions in the zoning bylaws happen periodically but may not disallow the current permitted use of the property. This is typically referred to as legal non-conforming use, or a legal non-conforming structure. The question of the transfer of the non-conforming status to a new owner can be complex and current leading practices dictate that guidance from a third-party professional be sought.

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Lesson 8 | Page 18 of 21

Non-conforming Use and Non-conforming Structures

Zoning bylaws are reviewed and amended on a regular basis by municipalities in response to the evolution of the community and its changing needs. For example, a residential area may be rezoned as mixed-use to allow commercial activity or properties zoned as industrial may now be slated for commercial or residential purposes. Often as a result of rezoning initiatives, properties and existing structures may sometimes no longer comply with the new zoning bylaw. When this occurs, these properties and structures are referred to as non-conforming. Non-conforming uses or structures are considered legal because they complied with the zoning bylaws at the time they were established. Non-conforming structures have an implicit non-conforming right or the right to continue doing what was being done on the property earlier, even though it is no longer permissible in the zone. It’s important to note that the non-confirming right is lost if the non-conforming use is discontinued. After cessation, the non-conforming use cannot be re-established. Exam Study Guide

Example: Legal non-conforming use A mixed-use building permitting commercial on the main floor and residential on the upper floor may no longer comply with a new zoning bylaw that only permits residential uses. Although the new bylaw changed the allowable square footage for future structures, the existing building would not be impacted. The zoning for the existing property would now be classified as 'legal non-conforming' because it was deemed legal prior to the new bylaw becoming into force. Example: Legal non-conforming structure An existing building with a total floor area of 2,000 square feet no longer complies with the new zoning bylaw which states that the floor area may not exceed 1800 square feet. In this case, the property would again be considered legal non-conforming use athered because the structure had been permitted under the previous zoning bylaw. Due to the zoning change, this building would be declared a legal non-conforming structure. In many cases, when a non-conforming property or structure is being resold, the buyer is often concerned whether the non-conforming status may be continued. As a salesperson, you should advise the buyer that an independent third-party professional such as a lawyer or a certified planner be consulted. Some of the things that may be considered by the third-party professional or the Committee of Adjustment are as follows: • Continuous use of the property, for example, a business that has existed on the property for many years prior to the zoning change and will be continued by the new owner. • Demolition or substantial renovation of a structure, for example, any rebuilding on the site may have to comply with the new zoning bylaw however basic renovation and maintenance activities may be permitted provided the structure is not substantially altered. • Expansion of the current use, for example, a triplex being converted to a four-plex, which would require additional parking.

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Lesson 8 | Page 19 of 21

The seller has been running a daycare business at her home over the past two decades. However, due to a change in zoning bylaws three years ago, operating a business in the neighborhood is no longer permitted and the neighbourhood is zoned as single family residential. The daycare business is still allowed to continue as a legal, non-conforming use. A salesperson has found buyers who intend to continue the daycare business. The buyers also want to make renovations to the property after they purchase it and expect some temporary cessation in the business due to the renovations. Question #19: How should the salesperson advise the buyers? There are four options. There is only one correct answer. 1

The buyers should ensure that the cessation period of the daycare business should not be for a very long duration.

2

The buyers should look for a property in a commercial zone to run the daycare business.

3

The buyers should continue to involve the seller in their daycare business in some role in order to be able to continue the non-conforming use.

4

The buyer must apply for a minor variance to continue the business after they buy the house.

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Lesson 8 | Page 20 of 21

Zoning: Example A buyer is considering the purchase of vacant land in the Township of Northside. The lot measures 40 metres of frontage and 60 metres of depth. As per the zoning bylaw specifications for the Township of Northside, the minimum lot area requirement is 2,320 square metres and maximum lot coverage is 15 percent. The buyer wants to build a 300 square metre house and a 100 square metre garage. In this example, the total area of the lot complies with the minimum lot size of 2320 square metres as it is 2400 square metres (40m x 60m). As per the zoning specifications, the permissible maximum lot coverage is 15% of the lot, which is 360 square metres (0.15 x 2400 square metres). The buyer wants to build a 300 square metre house and a 100 square metre garage, so he would need lot coverage of 400 square metres (300 + 100), which is beyond the permissible maximum lot coverage of 360 square metres. The buyer would have to reduce the size of the house and/or garage in order to comply with the zoning specifications. However if the buyer is not willing or able to adjust the style and dimensions of the house and/or garage to accommodate the bylaw requirements, the buyer also has an option to apply for a minor variance from the municipality with the understanding there are no guarantees the minor variance will be approved.

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Lesson 8 | Page 21 of 21

Congratulations, you have completed the lesson! As a salesperson, it will be important for you to confidently interpret and communicate the permitted uses of a property to your clients. You should also be aware of the appropriate avenues through which a change in permitted use of a property may be sought. There are six sections on this page with a summary of the key topics that were covered in this lesson.

Zoning bylaw

Zoning bylaws are enacted by municipalities setting out permitted uses, building structure standards (e.g., minimum setbacks and lot coverage), and other necessary regulations (e.g., signage, noise, and parking). Zones are further broken into classifications (e.g., residential) and subclassifications (e.g., single family), each with its own detailed standard. A zoning bylaw: • Implements the objectives and policies of a municipality's Official Plan • Is the legal instrument for managing land use and future development? • Protects the community from conflicting and possibly dangerous land uses • Controls the use of land

Zoning designations & categories of residential dwellings

The zoning bylaw typically divides and classifies the entire land mass of a municipality into a minimum of six general uses: Residential, Commercial, Industrial, Institutional, Open Space, and Agricultural. Each class is further subdivided into subclasses or zones, indicated with appropriate symbols. For example, Residential would be symbolized as R, Agricultural would be symbolized as AG, etc. Residential (R) would further be categorized as R1, R2, R3, R4, etc., where a higher number usually indicates greater density. Residential could also be categorized as RS for residential semi-detached dwellings, RR for residential rural non-farm dwellings, RM for residential multiple-unit buildings, etc.

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Typical residential bylaws

Some typical residential bylaws are: • Sign bylaws directing how signage should be used on property • Parking bylaws establishing parking rules for vehicles on streets and in driveways of the municipality • Noise bylaws that establish when, how and how much noise is permitted in any particular area of the municipality

Committee of Adjustment

A Committee of Adjustment is appointed by the municipal council of the lower-tier municipality. The land division committee, appointed by the upper-tier municipality, performs similar functions. The Committee of Adjustment has three functions: • Granting of minor variances • Providing consents to sever land • Granting consents for the continuation of a non-conforming use

Minor variance and rezoning

A minor variance, for planning purposes, is generally described as a small variation or slight modification concerning a particular property in relation to bylaws in force within a municipality.

Nonconforming use and nonconforming structures

As a result of rezoning initiatives, some properties and existing structures may no longer comply with the new zoning bylaw. When this occurs, these properties and structures are referred to as non-conforming.

Rezoning is required when a property owner wants to use a property in a manner not permitted in the zoning bylaw and is seeking an amendment to permit the intended use. Amending a zoning bylaw is a more complex and expensive process than a minor variance, as it impacts the entire zoning area and can affect several properties, understandably in such requests the municipal council and interested stakeholders need to be involved.

As a salesperson, you should advise the buyer that an independent third-party professional such as a lawyer or a certified planner be consulted when a non-conforming property or structure is being sold. Non-conforming uses or structures may be recognized as legal non-conforming because they complied with the zoning bylaws at the time they were established. Exam Study Guide

Appendix | Page 1 of 1

Appendix Answer Key Question #1: 1 Question #2: 2 Question #3: 1 Question #4: 1 Question #5: 1, 3 Question #6: 1, 2, 4 Question #7: 1 Question #8: 1 Question #9: 2 Question #10: 1, 2, 4 Question #11: 1, 2, 4 Question #12: 1, 2, 4, 6 Question #13: 1, 2, 3 Question #14: 2, 3 Question #15: 1 Question #16: 2, 3 Question #17: 2 Question #18: 1 Question #19: 1

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Lesson 9 | Page 1 of 15

Lesson 9: Land Severance and Plans of Subdivision

This lesson outlines the steps to obtain consent for land severance and approval for a plan of subdivision.

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Lesson 9 | Page 2 of 15

Land Severances and Plans of Subdivision

Landowners with a large parcel of land may want to divide the land into smaller portions. In Ontario, land division applications can be viewed from two perspectives: land severances (consents) and subdivision plans. If a landowner in Ontario is attempting to divide one parcel of land into two or three parcels, they require consent. If a landowner is attempting to divide one parcel of land into many parcels, then an application for subdivision is required. The consent granting authority in the local area determines whether a consent is appropriate or a subdivision plan is necessary for proper and orderly development. However, no specific rule regulates this decision and sometimes various factors like compliance with the Official Plan and zoning bylaws, suitability of land for proposed purposes, and overall matters of provincial interest determine whether severance or subdivision is more suitable in the given situation. As a salesperson, you may not be regularly involved in the severance or subdivision process, but you must have a general understanding of the processes to enable general discussions with sellers and buyers who want to invest in land with plans to sever or subdivide. Upon completion of this lesson, you will be able to: • Outline the steps to obtain a consent for a land severance • Outline the major steps to obtain approval for a plan of subdivision • Identify the role of the Local Planning Appeal Tribunal for appeals made to a municipal planning decision Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

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Lesson 9 | Page 3 of 15

Land severance is the approved division of a property into two or three new lots, or dividing a property in order to add part of the property to an existing lot. Severance requires the consent of the local municipality. Landowners must seek official permission to sever their property, as the indiscriminate division of land without formal approval could have a long-term, negative impact on the community. For example, damage to the natural environment may occur if the lots are too small to accommodate adequate sewage disposal systems, or the severance could result in over-extension of municipal services, such as water and sanitation, garbage collection, and school capacities. Approval for land severance ensures that new lots adhere to the established planning framework and future planning goals of the municipality.

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Lesson 9 | Page 4 of 15

Consent-Granting Authority

Depending where the land is located, permission to sever lands usually rests with a local Land Division Committee or a Committee of Adjustment, which are appointed by the municipality or corporation responsible for overseeing the subject land under the Planning Act. The Minister of Municipal Affairs and Housing may also appoint such committees, or grant consents in certain areas of the province. In Ontario’s two-tiered planning system, aside from a local Land Division Committee or Committee of Adjustment, consent authority may be assigned to a council committee, an appointed official, or to the council itself. It is important, when dealing with clients that intend to sever a property, for a salesperson to be able to determine where their clients will need to go to apply for the permission they are seeking. As a general guide the division of a property into two to three smaller lots is usually submitted to a Committee of Adjustment, while more significant land division, such as a plan of subdivision, will require submission to the local Land Division Committee.

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Lesson 9 | Page 5 of 15

Steps for Land Severance As a salesperson, you must be aware of and able to discuss how consent is granted for land severance. A regulation under the Planning Act sets out the procedure for land severance consent applications. The following six sections contain information about the various steps that a property owner of a one acre lot of land fronting on a municipal road takes to sever his land into two half acre lots.

Consult & determine authority Severance approval may rest with one of a number of different governing bodies. Depending on the area, an upper-tier or single-tier municipal council may grant consents. An upper-tier municipality may delegate the function to a committee of council or an appointed officer. Alternatively, it may delegate the authority to a lower-tier municipality, a land division committee, or to a municipal planning authority. A single or lower-tier municipality may also delegate its approval functions to a committee of council, an appointed officer, or to a Committee of Adjustment. In Northern Ontario, where planning approval has not been assigned or delegated to a municipality or planning board, the Minister of Municipal Affairs grants consents. The property owner/applicant should consult with the municipal staff or the consent-granting authority, either the Land Division Committee or the Committee of Adjustment, to identify which one is Exam Study Guide

able to grant the severance to determine jurisdiction. In this case, if the property fronts on a municipal road, the lower tier of the municipality has the authority.

Complete application The applicant must complete the applicable consent application form, including sketches, and submit it to the consent-granting authority. An application fee may apply. An application should include the following: • Name and address of owner • Type and purpose of proposed transaction • Name of person to which an interest in land is to be transferred or leased • Description of the property • Detailed information concerning the land being severed and the land being retained (e.g., dimensions, method of access, and provision of water and sewage) • Any previous application relating to the subject land • A sketch outlining boundaries of the land and any abutting lands owned by the applicant • A description of any previously severed lands from the lot – natural (watercourses, slopes, and banks) and artificial features (buildings, septic tanks, etc.) • Use of adjoining land • Location of road allowances, streets, private roads and right-of-way Exam Study Guide

• Nature of any restrictive covenants or easements The consent-granting authority may not accept an application that fails to provide the information or material prescribed by the minister’s regulation and, in some cases, the information set out in the Official Plan. If a consent-granting authority confirms that an application is incomplete, an applicant who disagrees may make a motion to the Local Planning Appeal Tribunal. You will learn more about this tribunal later in this lesson. There is a 90-day timeframe for making a decision, it does not commence until all the required information is received. The consent-granting authority may consult with agencies, boards, authorities, or commissions before making a decision.

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Application review The consent-granting authority reviews the application. If required, a public meeting is also held. In considering each application for land severance, the consent-granting authority evaluates the merits of each proposal against criteria, such as: • Conformity with the Official Plan and compatibility with adjacent uses of land • Conformity with the Provincial Policy Statement (PPS) and conformity with any applicable provincial plan • Compliance with local zoning bylaws • Suitability of the land for the proposed purpose, including the size and shape of the lot(s) being created • Adequacy of vehicular access, water supply, sewage disposal • The need to ensure protection from potential flooding

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Decision issued A decision is made by the consent granting body to refuse, consent or grant provisional consent (acceptance with conditions that must be complied with). The decision is made within the 90-day timeframe after all the required information is received. Incomplete applications will face delays in the process.

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Appeal process (if applicable) The decision is sent to the applicant and those requesting notification. Any person or public body may appeal the decision to the Local Planning Appeal Tribunal. The tribunal or local appeal body may dismiss the appeal without holding a hearing or hold a hearing and make a final decision.

Issuing of certificate If no appeal is filed, and the conditions of consent are satisfied, then upon application, a deed for the newly created lot is stamped with the consent of the municipality and the deed is registered at the applicable Land Registry Office.

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Lesson 9 | Page 6 of 15

Conditional Consent for Land Severance

When severance consent is conditional, the time period of one year is typically given to satisfy the conditions. Some conditions for approval of consent might include requirements for re-grading the property, widening the roads, dedicating a portion of the property to parkland, preparation of a new survey, or rezoning (or minor variance) of the property to allow a new land use.

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Lesson 9 | Page 7 of 15

A salesperson must be aware of how consent is granted for land severance to have a general discussion with sellers or buyers. A regulation under the Planning Act sets out the procedure rules for land severance consent applications. Question #20: Which of the following statements about obtaining consent for a land severance are correct? There are four options. There are multiple correct answers. 1

Most land severance consents in Ontario are granted by a Land Division Committee or a Committee of Adjustment.

2

After a severance application is completed and submitted, the consent-granting authority will issue a decision within 30 days.

3

The authority can refuse, consent or grant provisional consent (acceptance with conditions). The decision of the authority can be appealed by any person or public body to the Local Planning Appeal Tribunal (LPAT).

4

If a severance consent is conditional, the applicant usually has one year to satisfy the conditions.

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Lesson 9 | Page 8 of 15

When a landowner wants to divide their land into multiple parcels, typically more than three, the planned land division will go through the subdivision approval process. In Ontario’s past, the subdivision of land was loosely regulated without a formal approval process. Problems arose when people found out that their lots were not registered on their municipalities’ Official Plan, making it difficult for them to sell their properties. Additionally, tax regulation led to lots without adequate water supply and sanitation, improper or restricted access, and unregistered internal roads. Formal subdivision approval ensures that the land is suitable for its proposed new use and that it conforms to the Official Plan and zoning, as well as the province’s legislation and policies.

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Lesson 9 | Page 9 of 15

Steps for Subdivision: Draft Plan Approval

When a landowner is attempting to divide one lot of land into several lots, a plan of subdivision registration is required by completing the necessary steps outlined in the Planning Act. Registration is a two-stage process: draft plan approval and final plan approval. The following five sections contain information about the various steps for approval of a Plan of Subdivision.

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Consult & determine authority The approval body is typically an upper tier municipality (region or district), the council of a city, or certain counties identified in the Planning Act. A variety of other situations (e.g., towns, townships, and territorial districts) fall to the Minister of Municipal Affairs and Housing. In Northern Ontario, a planning board may be the delegated authority. (Note: The minister also has the right under the Act, with written explanation, to revoke approval authority from approval bodies detailed above.)

Prepare a draft plan The draft plan is generally viewed as the first official step by a developer in the planning process leading to a plan of subdivision. The developer creates a draft plan in consultation with engineers, solicitors, surveyors, and planning consultants. The resulting detailed plan of the proposed project is commonly referred to as the draft plan. The Planning Act sets out various requirements for a draft plan of subdivision including: o Boundaries of the land proposed to be subdivided o Locations and names of proposed highways in the plan or highways abutting the property o Adjacent subdivisions and property in which the applicant has an interest Exam Study Guide

o Proposed use, dimensions, and layout of proposed lots and existing uses of adjoining lands o Natural and artificial features (e.g., buildings) within, or adjacent to, the proposed subdivision o Soil conditions and existing contours/elevations o Existing or planned municipal services o Nature and extent of restrictions affecting the land, such as from the Conservation Authority

Complete application Each authority maintains application forms that require information identified by the minister's regulation, as well as other information required by the municipality. A 180day time frame for approval begins after the completed application is received.

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Approval authority (provide notices and hold public meetings) The approval-granting authority ensures notices of the application are sent to surrounding property owners, and a public meeting may be held. Other agencies/bodies may also be consulted to ensure compliance with the area and the availability of services. Examples of other agencies or bodies are: • Clerks of the local municipality, county, region, and/or district having jurisdiction for the area being considered and, as applicable • Conservation authorities • Electric utilities, natural gas utilities, natural gas, or oil pipeline companies • Local architectural conservation advisory committees • The Niagara Escarpment Commission and federal parks commissions • Chiefs of First Nation councils within one kilometre of the area covered by the proposed plan of subdivision

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Decision and notice of decision (draft plan approval) Once all the information has been reviewed the approval authority determines whether to approve the draft plan of subdivision with conditions or refuse it. Notice of the decision is sent to the applicant and those requesting notification. Notices of the application are routinely mailed to neighbouring land owners within a prescribed distance of the land. A direction requiring the posting of signs on the land that are clearly visible from a public highway or other accessible point is also standard procedure. A notice in a newspaper with circulation sufficient to provide reasonable notice to the public may be used in lieu of mailing, if an official of the approval authority agrees. The notice includes a description of the proposal plan, a map locating the property under proposal, a source of additional information, statements concerning appeal, and notification of a decision relating to the application.

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Lesson 9 | Page 10 of 15

Steps for Subdivision: Final Plan Approval The following three sections contain information about the steps for the final approval of a Plan of Subdivision.

Appeal decision (if applicable) If dissatisfied with the refusal of the request for a plan of subdivision, an appeal may be filed. With some restrictions, any qualifying person or public body may appeal to the Local Planning Appeal Tribunal. You will learn more about this later in this lesson.

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Final plan approval After the draft plan approval, the applicant may normally proceed with fulfilling of all conditions such as the construction of roads in accordance with the Surveys Act and the Land Titles Act. Subsequently, the approval authority will issue the final approval of the plan of subdivision, assuming that the plan conforms with the approved draft plan and that any conditions imposed have been or will be fulfilled. This process is usually referred to as final plan approval with the plan being referred to as the final plan. At that point, the plan of subdivision may be tendered for registration in the appropriate land registry office. If a final plan of subdivision is not registered within a specified time period, the approval authority may withdraw its approval. Upon completion of all requirements as set out in the Planning Act and its regulations, the approval authority forwards its decision along with various documents to the Provincial Planning Services Branch of the Ministry of Municipal Affairs and Housing.

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Final plan registration The final step involves registration of the plan. Under the Land Titles Act, a new plan parcel register is created. This plan is prepared by a land surveyor showing lots, blocks, or parcels of land intended to be dealt with separately and this type of separation has been fully approved. The plan is registered in the land registry office and must be in full compliance with the Planning Act. Once a plan of subdivision receives final approval and registration, lots can be sold and transferred.

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Lesson 9 | Page 11 of 15

When one parcel of land is being divided into many parcels, a plan of subdivision registration is required, and the applicant must complete the steps outlined in the Planning Act. Registration is a two-stage process: draft plan approval and final plan approval. Question #21: Which of the following steps are steps for approval of a draft plan? There are six options. There are multiple correct answers. 1

Consult before applying to determine authority

2

Submit complete application

3

Review of application by consent-granting authority

4

Notice of decision and Appeal to Local Planning Appeal Tribunal

5

Final plan approval and registration Sale of lots

6

Decision of Draft Plan Approval

Exam Study Guide

Lesson 9 | Page 12 of 15

Whenever landowners are dissatisfied with the decision of the approving authority, or wish to complain about delays in the review process, they may file an appeal to the Local Planning Appeal Tribunal. The Local Planning Appeal Tribunal is an independent administrative tribunal responsible for hearing appeals on a variety of contentious municipal matters. Its members are appointed by the Lieutenant Governor in Council and typically include lawyers, architects, planners, and public administrators. The tribunal operates under the Local Planning Appeal Tribunal Act, 2017, as well as its own rules of practice and procedure.

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Lesson 9 | Page 13 of 15

Local Planning Appeal Tribunal

The Local Planning Appeal Tribunal was formerly known as the Ontario Municipal Board (OMB). It is an independent adjudicative tribunal that conducts hearings and makes decisions on land use planning issues, as well as other matters. It is part of the Environment and Land Tribunals Ontario, a cluster of tribunals that adjudicate matters related to land use planning, environmental and heritage protection, property assessment, land valuation, and other matters. The following three sections contain information about the Local Planning Appeal Tribunal.

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Purpose of local planning appeal tribunal

The Local Planning Appeal Tribunal is an administrative tribunal that hears cases in relation to a range of municipal planning, financial, and land matters. These include issues such as Official Plans, zoning bylaws, subdivision plans, consents and minor variances, land compensations, development charges, electoral ward boundaries, municipal finances, aggregate resources, and other issues assigned by numerous Ontario statutes.

Area of jurisdiction regarding first appeals

Local Planning Appeal Tribunal accepts first and second appeals regarding various issues. The jurisdiction for first appeals includes: • Appeals of a council decision to adopt or amend an Official Plan • Appeals of a decision by an approval authority to approve a decision adopting or amending an Official Plan • Appeals of a council decision to refuse a private amendment to an Official Plan a non-decision (not deciding within 210 days) of a private amendment application • Appeals of a council decision to refuse a private amendment to a municipal zoning bylaw or non-decision of a private amendment application • Appeals of a decision by a council to adopt a zoning bylaw or zoning bylaw amendment • Appeals of a non-decision by an approval authority • Appeals of a non-decision on a subdivision

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Area of jurisdiction regarding second appeals

The jurisdiction for second appeals includes: • Appeals on all issues that can have a first appeal • Appeals of a non-decision of a site plan application by council or requirements imposed on a site plan application by the municipality/county or by the regional metropolitan/district municipality • Appeals of a Committee of Adjustment decision to approve or refuse a minor variance application • Appeals of a decision to approve or refuse a consent/severance application, conditions imposed or changed for a consent/severance application or a nondecision of a consent/severance application by an approval authority

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Lesson 9 | Page 14 of 15

A seller applied for subdivision of his property into multiple lots. The application was refused and now the seller and a builder, a partner in the development, are considering their next steps. Question #22: What should the seller do? There are three options. There is only one correct answer. 1

The seller should approach the Ontario Municipal Board.

2

The seller should approach the Local Planning Appeal Tribunal.

3

The seller should approach the Environment and Land Tribunal of Ontario.

Exam Study Guide

Lesson 9 | Page 15 of 15

Congratulations, you have completed the lesson! As a salesperson, it will be important for you to be aware of the steps involved in land severance and subdivision so you will be able to discuss these options with buyers when they arise. There are four sections on this page with a summary of the key topics that were covered in this lesson.

Consentgranting authority

Depending where the land is located, permission to sever lands usually rests with a local Land Division Committee or a Committee of Adjustment, which are appointed by the municipality or the corporation responsible for overseeing the subject land under the Planning Act. The Minister of Municipal Affairs and Housing may also appoint such committees, or grant consents in certain areas of the province.

Land severance and the steps for approval

Land severance is the approved separation of a piece of land to form, typically, two to three lots, from an already existing larger piece of land and is normally called a consent. Landowners must apply for an approval and obtain a consent to sever as the indiscriminate division of land could have a long-term, negative impact on the community. A regulation under the Planning Act sets out the procedure rules for land severance consent applications. The outline of steps for obtaining approval for land severance are: 1. Consult before applying to determine authority 2. Submit complete application 3. Review of application by consent-granting authority 4. Decision 5. Notice of decision and Appeal to the Local Planning Appeal Tribunal 6. Issuing of certificate Exam Study Guide

Subdivision and the steps for approval

When a landowner wishes to divide one property into many lots, a plan of subdivision registration is required by completing the necessary steps outlined in the Planning Act. Registration is a two-stage process: draft plan approval and final plan approval. The outline of steps for obtaining approval for subdivision are: 1. Consult before applying to determine authority 2. Submit complete application 3. Review of application by consent-granting authority 4. Decision or Draft Plan Approval 5. Notice of decision and appeal to the Local Planning Appeal Tribunal 6. Final plan approval and registration 7. Sale of the lots

Local Planning and Appeal Tribunal

The Local Planning and Appeal Tribunal is an adjudicative tribunal that hears cases concerning a range of municipal planning, financial and land matters, and appeals in case of non-decision in severance or subdivision. Local Planning Appeal Tribunal accepts first appeals and second appeals regarding various issues.

Exam Study Guide

Lesson 10 | Page 1 of 9

Lesson 10: Authority of a Municipality

This lesson explains the key provisions of the Municipal Act and discusses the impact of municipal authority on the activities of the salesperson.

Exam Study Guide

Lesson 10 | Page 2 of 9

Authority of a Municipality

Most properties in the province are situated within a certain municipality. In a situation where there is no municipality, such as an unincorporated area, local guidelines should be consulted. As a salesperson, you should understand how municipalities are governed to work efficiently within the system in order to consult the appropriate office to provide the correct information to sellers or buyers and to know when to refer clients to more experienced local salespersons when necessary. Upon completion of this lesson, you will be able to: • Identify the authority of a municipality under the Municipal Act, 2001 • State the impact of a municipal authority on registrant activities Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

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Lesson 10 | Page 3 of 9

Authority of a Municipality

The municipal level of governance is the third level of governance in Canada, after federal and provincial. Among a vast array of other duties, the federal government oversees airport facilities/lands, oceans/fisheries, lands adjacent to Great Lakes, federal canal systems and may also be involved in provincial planning. However, in most circumstances provincial governments are responsible for overseeing all land use planning within their provincial boundaries. The most direct land control is at the provincial or municipal level. Municipalities provide the most local form of government and infrastructure to a community. Municipalities have a major role in the framework of the Planning Act and establishing bylaws for the properties within their jurisdiction. The Municipal Act, 2001 is the main statute that governs the creation, administration, and the governance of Ontario municipalities. The original Municipal Act from 1849 was reviewed after more than 150 years to update it to meet the needs of modern municipalities. The revision moves away from its former rigid control over municipalities to recognize municipal governments as responsible, accountable, and autonomous. This statutory empowerment enables local government to undertake necessary initiatives without the need for lengthy, often complex legislative changes.

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Lesson 10 | Page 4 of 9

Authority of City of Toronto

Ontario has more than 400 municipalities, including upper and lower tiers, governed by the Municipal Act, 2001, with one exception, Toronto. Due to its significance, size, and subsequent responsibilities, a separate municipal statute, the City of Toronto Act, 2006, was enacted to govern the operation of the city. The City of Toronto Act: • Provides for the broad, permissive legislative framework for the city’s municipality and balances the interests of the province and the city • Enables Toronto’s council to better respond to the city’s needs and pass bylaws on matters ranging from health and safety to the city’s economic, social and environmental wellbeing, subject to certain limitations • Enables determination of the appropriate mechanisms for delivering municipal services, the appropriate levels of municipal spending, and use of fiscal tools to support the city’s activities • Helps to ensure that the city is accountable to the public and that the processes for making decisions are transparent

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Lesson 10 | Page 5 of 9

Municipalities’ Spheres of Influence There are ten areas or spheres of influence over which municipal governments have authority, subject to certain limitations. These spheres encompass various powers and activities that can be carried out directly. These ten spheres of influence are: 1. 2. 3. 4. 5. 6. 7. 8. 9. 10.

Public Utilities Waste Management Transportation Systems (Other than Highways) Highways (Public Roads) Including Parking & Traffic Culture, Parks, Recreation, & Heritage Drainage & Flood Control (Except Storm Sewers) Structures (Including Fences and Signs) Parking (Other than Highways) Animal Control Economic Development Services

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Lesson 10 | Page 6 of 9

Typical Municipal Bylaws

Municipal governance affects the day-to-day activities of a salesperson and a property owner alike. As a salesperson, you will notice increasing responsibilities within municipalities for many service-related areas, and more particularly those impacting real property, such as: • Sign bylaw: Placing “for sale” signs and “open house” signs may not require a permit, however a salesperson must adhere to the municipalities rules and regulations as it pertains to the placement of signs or the length of time a sign may remain on a property. • Fence bylaw: Some municipalities prohibit the use of barbed wire fences and specify the height of fence that can be used in a front yard or the side and rear yards. • Floodplain management bylaw: If the municipality has flood prone zones, it may enact special guidelines for flood management, like specifying the construction ground level and the maximum depth of a house.

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• Noise bylaw: Municipalities may require the property owners to meet various standards in the control of noise, vibration, odour, dust, and outdoor illumination. • Building energy standards: Municipalities may establish building energy standards and may provide incentives for energy conservation programs for commercial and residential property owners. • Fill bylaw: Municipalities may regulate the placing and extraction of fill, the storage and removal of topsoil and any alterations to the grade of land. • Sewage bylaw or solid waste bylaw: Municipalities may regulate permissible sewage and create guidelines for materials recycling or composting. • Municipalities may specify guidelines for new home construction, such as the minimum height of egress (exit) windows.

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Lesson 10 | Page 7 of 9

Municipal governments have authority in ten spheres of influence that can impact real estate marketplace activities. Question #23: Identify which of the following are municipal spheres of influence? There are five options. There are multiple correct answers. 1

Public Utilities and Waste Management

2

Transportation Systems including public roads, parking, and traffic

3

Culture, Parks, Recreation and Heritage

4

Automobile Licensing

5

Planning processes and land use control

Exam Study Guide

Lesson 10 | Page 8 of 9

Municipalities have authority over several areas that impact real property. Question #24: Which of the following municipal bylaws would impact the daily activities of a salesperson? There are six options. There is only one correct answer. 1

Sign bylaws

2

Fence bylaws

3

Floodplain management bylaws

4

Role of the municipality’s Committee of Adjustment

5

Sewage bylaw or solid waste bylaw

6

Noise bylaws

Exam Study Guide

Lesson 10 | Page 9 of 9

Congratulations, you have completed the lesson!

Here is a summary of the key topics that were covered in this lesson. Most properties in the province are situated within a certain municipality. As a salesperson, you should understand how municipalities are governed, to work efficiently within the system in order to consult the appropriate office to provide the correct information to sellers or buyers, and to know when to refer clients to more experienced local salespersons when necessary. As a salesperson, you should be aware that: • The federal government oversees airport facilities/lands, oceans/fisheries, lands adjacent to Great Lakes, federal canal systems, and may also be involved in provincial planning. • Municipalities provide the most local form of government and infrastructure to a community. • Municipalities have a major role in the framework of the Planning Act and establishing bylaws for the properties within their jurisdiction. • The Municipal Act, 2001 is the main statute that governs the creation, administration, and the governance of Ontario municipalities. • Due to its significance, size, and subsequent responsibilities, a separate municipal statute, the City of Toronto Act, 2006, was enacted to govern the operation of the city.

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• There are 10 areas or spheres of influence over which municipal governments have authority, subject to certain limitations. The spheres of influence of municipality include public utilities, waste management, transportation systems, drainage and flood control, parking, animals, economic development services, etc.

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Lesson 11 | Page 1 of 13

Lesson 11: Compliance with FINTRAC

This lesson explains what FINTRAC is and the requirements of a brokerage and a salesperson to comply with FINTRAC.

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Lesson 11 | Page 2 of 13

Compliance with FINTRAC

Property is expensive. Financial transactions of large sums of money are susceptible to money laundering and other financial crimes. As a salesperson, it will be your responsibility to ensure that all property-related financial transactions that you facilitate are legal. It is important to be aware that criminal activity in real estate may be the result of someone trying to inject illicit funds into the housing market. Upon completion of this lesson, you will be able to: • Outline the role of the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) • Outline the requirements of a brokerage and a salesperson under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act • Identify the consequences of non-compliance with FINTRAC requirements Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

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Lesson 11 | Page 3 of 13

The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) is Canada's financial intelligence unit and it has established several guidelines for institutions that engage in financial transactions, including real estate brokerages. FINTRAC also implements criminal and administrative penalties if these established compliance requirements are not met. Therefore, it is important for a salesperson and a brokerage to be aware of, and adhere to, the FINTRAC requirements.

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Lesson 11 | Page 4 of 13

Role of FINTRAC

The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) is Canada’s financial intelligence unit. It assists in detecting, preventing and deterring money laundering and terrorist financing. FINTRAC was established by a law, called the Proceeds of Crime (Money Laundering) and Terrorist Financing Act (PCMLTFA) and its Regulations, and it functions within its scope. According to its website, FINTRAC fulfills its mandate by: • Receiving financial transaction reports and voluntary information on money laundering and terrorist financing, according with the PCMLTFA and its regulations and safeguarding personal information under its control • Ensuring compliance of reporting entities, such as real estate salespersons and brokerages, with the PCMLTFA and its regulations • Generating financial intelligence on money laundering, terrorist financing, and security threats to Canada

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• Researching and analyzing data from various sources on trends and patterns in money laundering and terrorist financing • Maintaining a registry of money services businesses in Canada • Enhancing public awareness and understanding of money laundering and terrorist financing The real estate sector is considered a reporting entity, and as a result, faces eight obligations under the PCMLTFA. Three obligations apply directly to you as a salesperson who must fulfill them as the brokerage’s representative. Besides overseeing salesperson compliance with these three obligations, your brokerage also faces five additional obligations. These obligations are commonly referred to as FINTRAC requirements or FINTRAC obligations.

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Lesson 11 | Page 5 of 13

PCMLTFA Know your Client Obligation The first of three salesperson’s obligations you will review is the Know your Client Obligation. There are three components to this obligation: understanding your client, ascertaining client identity, and determining third-party involvement. The following five sections contain information about the Know your Client Obligation.

Understand your client The first component of the Know your Client obligation is to understand your client. It is necessary to understand your client to effectively identify irregular or suspicious transactions or activities. Take steps like the following: • Ask how they found you/your brokerage. • Learn about their family. • Determine how they are connected to the community. • Find out what they do for a living.

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Ascertain client identity The second component of the Know your Client obligation is to ascertain client identity. Use one of these three methods to ascertain, or verify, a client’s identity. 1) Single process method: • Use a photo ID issued by a federal, provincial, or territorial government (or a foreign-issued driver’s license or passport). • View the original ID in front of your client to compare the client and photo. • Record client name, ID type and number, issuing jurisdiction, date of expiry, and date verified. 2) Credit file method: Use a Canadian credit file that has been in existence for a minimum of three years. The credit file must be from a valid Canadian credit reporting agency, such as Equifax or TransUnion. You must: • Confirm the name, address, and date of birth match what the client told you. • Record the client identification information, such as the credit file, the number of the person’s credit file, and the date verified. 3) Dual process method: Use two independent and reliable sources to confirm client identity. Confirm two of the three following categories of information, each with a different source document or information: • Name and address – With a document or information issued by the Canadian government (CRA document) or by other Exam Study Guide

Canadian sources (T4, Record of Employment, Investment Account/RRSP/GIC statement). • Name and date of birth – With a document or information issued by the Canadian government (e.g., original birth certificate, marriage certificate) or issued by other Canadian sources (e.g., home/auto/life insurance documents). • Name and financial account – With credit card/bank/loan account/mortgage statement or a cleared cheque. View the original paper or electronic document, ensuring it is current (not expired or if no expiration date, it’s the most recent version of the document) and no information has been redacted. Confirm it matches what you already know about your client. Record client name, categories of information and source documents used, account or reference numbers, and date verified.

Ascertain client identity—working with foreign clients If you’re working with a foreign client (who you can’t meet in person to identify and who also doesn’t have three years of a Canadian credit file or documents issued by a Canadian government or Canadian source), have an agent/mandatary act on your behalf. Record the full name of the agent, mandatary, or entity that identified your client, the written agreement with agent, mandatary or entity, identification method used, information gathered according to the method used, date verified, and the date you referred their verification.

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Ascertain client identity – business relationships A business relationship is established the first time that a real estate broker or salesperson is required to verify the identity of a client. Best practice is to establish the business relationship within 30 days of the transaction.

Determine third-party involvement The third component of the Know your Client obligation is to determine third-party involvement. A third party is an individual who you are not interacting directly with, but who is providing the instructions or supplying the funds for a real estate purchase. To determine if there is third-party involvement, you can: • Ask the individual you’re dealing with if they are conducting this deal on their own, or on someone else’s behalf. • Obtain the third party’s name, address, and: o If a person – date of birth and principal business. o If an entity – principal business. o If a corporation – principal business and incorporation number and place of issue. • Record the relationship between the client and the third party.

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Lesson 11 | Page 6 of 13

PCMLTFA Reporting Obligation The second obligation that applies directly to salespersons is the Reporting Obligation. There are three types of reporting you are responsible for: Suspicious Transaction Reporting, Large Cash Transaction Reporting, Large Virtual Currency Transaction Reporting, and Terrorist Property Reporting. The following four sections contain more information about the Reporting Obligation.

Suspicious Transaction Reporting (STR) • You only need reasonable grounds to suspect that a financial transaction is related to money laundering or terrorist financing to submit a Suspicious Transaction Report, or STR. “Reasonable grounds” means you can explain your reasons for being suspicious that money laundering or terrorist financing is possibly happening, but your reasons do not need to be verified or confirmed. • An STR must be filed with FINTRAC for any type of real estate transaction, attempted or completed and whether or not it involves cash. • You must submit an STR to FINTRAC, usually through your brokerage’s Compliance Officer, as soon as practicable after determining that a transaction is suspicious.

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Large Cash Transaction Reporting (LCTR) You must submit a Large Cash Transaction Report, or LCTR, if you receive over $10,000 in a single transaction OR multiple amounts from (or at the instruction of) the same source, in a 24-hour period, totaling over $10,000. The LCTR must be submitted to FINTRAC, usually through your brokerage’s Compliance Officer within 15 calendar days of the transaction.

Large Virtual Currency Transaction Reporting (LVCTR) You must submit a Large Virtual Currency Transaction Report , or LVCTR, if you receive an amount equivalent to or over $10,000 in a single transaction OR multiple amounts from (or at the instruction of) the same source, in a 24-hour period, totaling over or being equivalent to $10,000. The LVCTR must be submitted to FINTRAC, usually through your brokerage’s Compliance Officer within five working days after the day upon which the amount is received.

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Terrorist Property Reporting (TPR) Terrorist property reporting, or TPR, is required when you know or believe a property is owned or controlled by or on behalf of a terrorist or terrorist group. TPR covers the reporting of property owned or controlled by a suspected terrorist or terrorist group. Listed terrorist entities can be found on Public Safety Canada website or the Office of the Superintendent of Financial Institutions website. You must disclose this information to the RCMP or CSIS and submit the TPR report to FINTRAC without delay. You must also submit a STR if there is a real estate transaction, completed or attempted.

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Lesson 11 | Page 7 of 13

PCMLTFA Recordkeeping Obligation

The third obligation that applies directly to you as a salesperson, as the brokerage’s representative, is Recordkeeping. You are required to keep five kinds of records: client information, receipt of funds, all submitted reports, unrepresented party, and reasonable measures taken. The following five sections contain information about Recordkeeping.

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Client information records

• Keep records for all clients—individuals, corporations, and entities

Receipt of funds records

• Keep records of all funds you receive (in cash or in another form) for a real estate trade

• Use your branch template • Keep records for five years

• Use your branch template • Keep records for five years

Records of all submitted reports (STRs, LCTRs, LVCTRs or TPRs)

• Keep records of any submitted STRs, LCTRs, and LVCTRs for five years

Unrepresented party records

• Take reasonable measures to ascertain the identity of an unrepresented party (i.e., a seller or buyer who is not working with a brokerage) and confirm the existence of any unrepresented entities

• There’s no timeframe for keeping records of submitted TPRs

• Keep a record of measures taken to determine their identity/confirm their existence, and the dates you did this • You are not required to keep client information records for an unrepresented party

Records of reasonable measures taken

• Keep a record when reasonable measures were taken but unsuccessful (for example, you were unable to make a conclusive determination on an unrepresented party’s existence) • Record measures you have taken, the dates, and reasons why you were unsuccessful

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Lesson 11 | Page 8 of 13

Additional Obligations Under PCMLTFA In addition to ensuring its salespersons comply with the three obligations (Know Your Client, Reporting, and Recordkeeping), the brokerage has five additional obligations under the PCMLTFA and its Regulations. These are: • Name a compliance officer • Have written compliance policies and procedures • Provide training to everyone acting on its behalf • Complete a written risk assessment, and • Carry out a two-year program effectiveness review The following five sections contain information about these five brokerage obligations.

Name a Compliance Officer The brokerage must appoint an individual who has the appropriate knowledge to be the Compliance Officer. It is usually the managing broker but may also be administrative staff.

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Have written compliance policies and procedures The brokerage must have documented compliance policies and procedures that specify how the compliance program works. These policies and procedures are tailored to the brokerage’s particular situation – for example, the type of business it does, its client base, its geographical location, and so on. The policies and procedures are used to guide decisions and actions to help ensure the brokerage and salespersons meet their obligations.

Provide training The brokerage must provide training to everyone acting on its behalf and keep a record of all training events, attendees, minutes, and material. The training must address all obligations and include an overview, specifics, frequency, and method for each. While the training program must be documented, the delivery modes for the training can vary – for example webinar, live classroom, in writing (e.g., an email or memo) – and so on.

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Complete a written risk assessment The written risk assessment is an analysis of potential threats and vulnerabilities to money laundering and terrorist financing that the brokerage faces. Although available worksheets can be used, the risk assessment must be customized and relevant to each brokerage. The brokerage also needs to implement mitigation strategies associated with the risks and document the process and the results.

Carry out a two-year program effectiveness review At least every two years, a program effectiveness review must be carried out by the brokerage. It needs to check for the effectiveness of the compliance program, not just its existence. It also needs to identify any gaps, so the realities of the day-to-day operations can be adjusted. Completing this review helps ensure the brokerage is up to date with new regulations, changes to business lines, new risks, and so on.

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Lesson 11 | Page 9 of 13

Brokerages and salespersons have specific requirements under PCMLTFA. Question #25: Which of the following are requirements of brokerages and/or salespersons? There are six options. There are multiple correct answers. 1

Appoint Compliance Officer

2

PCMLTFA Training

3

Submit required reports

4

Verify client identification

5

Prevent terrorist financing

6

Report suspicious transactions

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Lesson 11 | Page 10 of 13

Penalties

• FINTRAC compliance is mandatory. There is no opt-out to FINTRAC obligations, and failure to comply can lead to very serious consequences.

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Lesson 11 | Page 11 of 13

Types of Penalties Penalties for non-compliance with FINTRAC include fines starting in the thousands of dollars all the way to the millions of dollars. There could also be prison terms of up to five years. For example, salespersons could be fined thousands of dollars for failing to verify a client’s identification properly or for keeping incomplete records. A brokerage could be penalized for failing to develop and maintain a training program, or for failing to assess and document the risks of money laundering and terrorist financing. The following two sections contain information about the violations that lead to criminal or administrative penalties.

Penalties for non-compliance FINTRAC penalties for non-compliance can include: • Failure to report suspicious transactions: up to $2 million and/or five years imprisonment. • Failure to report a large cash transaction or an electronic funds transfer: up to $500,000 for the first offence, up to $1 million for subsequent offences. • Failure to meet record-keeping requirements: up to $500,000 and/or five years imprisonment. • Failure to provide assistance or provide information during compliance examination: up to $500,000 and/or five years imprisonment. • Disclosing the fact that a suspicious transaction report was made, or disclosing the contents of such a report, with the intent to prejudice a criminal investigation: up to two years imprisonment.

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Administrative Monetary Penalties (AMPs) • Violations are classified by degree of importance with the following Administrative Monetary Penalties (AMP) ranges: Minor violation: from $1 to $1,000 per violation • Serious violation: from $1 to $100,000 per violation • Very serious violation: from $1 to $100,000 per violation for an individual, and from $1 to $500,000 per violation for an entity (e.g. corporation) Multiple violations can result in total amounts above these limits.

Exam Study Guide

Lesson 11 | Page 12 of 13

A compliance officer at a real estate brokerage is delivering training to the salespeople regarding the penalties for non-compliance of the FINTRAC Legislation for real estate brokers, salespeople and real estate developers. Question #26: Which of the following can lead to penalties? There are six options. There are multiple correct answers. 1

Failure to report suspicious transactions

2

Failure to report a large cash transaction or an electronic funds transfer

3

Failure to meet recordkeeping requirements

4

Failure to complete compliance training organized by the brokerage

5

Disclosing the fact that a suspicious transaction report was made to the person who is the subject of the report, or disclosing the contents of such a report, with the intent to prejudice a criminal investigation

6

Disclosing the fact that a large cash transaction was made to the person who provided the cash, or disclosing the exact amount of the cash

Exam Study Guide

Lesson 11 | Page 13 of 13

Congratulations, you have completed the lesson! As a salesperson, you will need to be compliant with FINTRAC, as FINTRAC may implement administrative and criminal penalties for non-compliance of their requirements. There are three sections on this page with a summary of the key topics that were covered in this lesson.

Role of FINTRAC and the Proceeds of Crime (Money Laundering) and Terrorist Financing Act

The Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) is Canada's financial intelligence unit and it has established several guidelines for institutions that engage in financial transactions, including real estate brokerages. FINTRAC has the mandate to facilitate the detection, prevention, and deterrence of money laundering and the financing of terrorist activities, while ensuring the protection of personal information under its control. FINTRAC is responsible for ensuring compliance with the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and its associated regulations.

FINTRAC requirements and responsibility to comply with FINTRAC

Each salesperson and brokerage in Ontario is subject to reporting requirements set out by FINTRAC. Salespersons and brokerages must fulfill their responsibilities to ensure compliance with FINTRAC. Every brokerage must: • Appoint a Compliance Officer to implement and oversee compliance with the Proceeds of Crime (Money Laundering) and Terrorist Financing Act and establish a compliance regime through training programs • Report suspicious transactions and maintain its record • Report large cash transactions ($10,000 or more) • Report large virtual currency transactions (equivalent to $10,000 or more in virtual currency) • Maintain a record of every receipt of funds Exam Study Guide

• Report property in their possession or control that is owned or controlled by (or on behalf of) a terrorist organization A salesperson and a brokerage are required to collect the documents as required, including the documents of client information, unrepresented party records, and records of reasonable measures taken to meet obligations of Proceeds of Crime (Money Laundering) and Terrorist Financing Act, as well as instances when they are not successful. The documents must be retained by the brokerage for a period of five years.

Penalties

Either criminal or administrative monetary penalties (AMPs) may be imposed in situations of non-compliance with Proceeds of Crime (Money Laundering) and Terrorist Financing Act. When determining the penalty amount, FINTRAC considers the following criteria: • Harm caused by the violation(s) • Compliance history of the reporting entity • Non-punitive nature of an administrative monetary penalty (AMP)

Exam Study Guide

Lesson 12 | Page 1 of 22

Lesson 12: Key Legislative Requirements Impacting Condominiums

This lesson explains how a condominium corporation is registered and created and how the Condominium Act affects a salesperson.

Exam Study Guide

Lesson 12 | Page 2 of 22

Key Legislative Requirements Impacting Condominiums

This lesson introduces a type of ownership other than a freehold home, and explains what a condominium is legally and what a salesperson should know about condominiums. Upon completion of this lesson, you will be able to: • • • •

Identify the requirements to register a condominium and create a condominium corporation Identify key aspects of condominium legislation or regulations Identify how key provisions in the Condominium Act affect a salesperson Identify the provisions of the Condominium Management Services Act, 2015

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

Exam Study Guide

Lesson 12 | Page 3 of 22

A condominium is not just a type of property, but also a system of unique ownership. The owners of the units of a condominium make up a condominium corporation, which is a legal entity representing the collective interests of the unit owners. Many requirements need to be met before a condominium corporation can be formed. These will be explained in the next screen.

Exam Study Guide

Lesson 12 | Page 4 of 22

Condominium Corporation

As a salesperson, you must be aware of how condominiums are created, as you will likely need to discuss condominium corporations with sellers and buyers. A condominium is legally created when both a declaration (the condominium constitution) and the description (the diagrammatic presentation of the property) are registered at the applicable Land Registry Office. The following four sections contain information about the creation of the condominium, invoking of the Condominium Act, and the formation of the condominium corporation.

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Declaration for creation of the condominium

The declaration contains both required and optional information as set out in the Condominium Act. Required information includes: • Statement that the Condominium Act governs the corporation • Consent of registered mortgagees • Proportionate share of common elements appurtenant to each unit • Proportionate contribution of unit owners to common expenses • Corporation address for service • Common elements for designated units (exclusive use common element), if applicable • Any conditions required by approving authority

Description for creation of the condominium

The description contains a series of plans, surveys, and specifications describing the property and structures, together with certificates attesting to compliance and accuracy. Documentation will vary based on the individual project and typically includes: • Plan of survey • Architectural plans and Certificate of Architect • Unit boundaries • Unit shape, dimension, and location • Structural plans (if any) and Certificate of Engineer • Certificate of Ontario Land Surveyor • All interests appurtenant to the land that is included in the property

Invoking the Condominium Act

The Condominium Act is legislation that regulates most aspects of a condominium’s formation, purchasing, and governance. Each condominium document has to be based on this Act. The Condominium Act is invoked by the declarant through the registration process. The declarant is the individual who holds the freehold or leasehold interest in the land on which the condominium sits. The declaration to the invocation of the Act must receive consent from the registered encumbrancers against the property, such as mortgagees and lien holders.

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Forming and naming of a condominium corporation

A corporation without share capital is automatically formed upon incorporation in which members are the unit owners. The declaration serves as notice of the creation of the corporation and describes the property in specific terms. The land registrar for the applicable land registry office gives the corporation a name and a sequential number. Example: Anycity, South Condominium Corporation 986, which would refer to the 986th condominium corporation registered in Anycity South.

Exam Study Guide

Lesson 12 | Page 5 of 22

Residential Condominium Conversion Projects

The conversion of warehouses and other industrial structures into residential condominium lofts that incorporate some of the building’s more interesting features (e.g., large windows, framing, brick walls) into the design are becoming more popular as municipalities look to repurpose existing building stock. The industry term for these types of developments is residential condominium conversion projects. The Ontario New Home Warranties Plan Act has been amended to include protection for converted buildings (previously not included in the Provincial Warranty). This amendment provides more protection to buyers of these condominiums. The extension of provincial warranty coverage to eligible conversion projects is part of the Provincial Warranty Authority and the provincial government’s commitment to enhance consumer protection. Provincial warranty coverage applies to projects where an agreement of purchase and sale of units (or proposed units) in a conversion project is signed on or after January 1, 2018. However, it’s important to be aware that the condominium conversion of an existing residential building, such as an apartment block, is not eligible for provincial warranty coverage. This distinction is based on the scale and requirements of re-purposing a non-residential building to residential versus the, typically, minor changes of converting an old rental apartment into condominiums. Exam Study Guide

Lesson 12 | Page 6 of 22

Residential condominiums represent a major sector of the Ontario real estate market. A salesperson must be aware of the unique nature of condos to discuss them with sellers and buyers. Question #27: Which of the following statements about condos are correct? There are four options. There are multiple correct answers. 1

Condo ownership is essentially the same as single family detached home ownership

2

A condo is created through registration

3

The Condominium Act is invoked when an owner takes possession of a unit

4

A condo is automatically formed and named at registration

Exam Study Guide

Lesson 12 | Page 7 of 22

As a salesperson, you must be aware of, and be able to discuss, the legislation in place to protect condominium owners when buying and living in a condominium, such as the following: • The Condominium Act regulates how condominium corporations are created, owned, and governed. • The Condominium Management Services Act establishes rules that condominium managers and condominium management companies must follow. • The Protection for Owners and Purchasers of New Homes Act establishes a deposit protection and a warranty program that protects owners against many building defects. • The Protecting Condominium Owners Act protects the condominium owners. This Act is the product of the government’s comprehensive review of the existing Condominium Act, 1998 to address the growth and change in Ontario’s condominium sector over the past decades.

Exam Study Guide

Lesson 12 | Page 8 of 22

Condominium Authority To streamline disputes between the condominium owners and the board, the Protecting Condominium Owners Act, 2015 created two new independent authorities, the Condominium Authority of Ontario and the Condominium Management Regulatory Authority of Ontario. The role of the Condominium Authority of Ontario includes providing: • Affordable access to quicker, accessible, and lower cost resolution of disputes primarily between corporations and owners • Self-help tools, case management, and mediation to prevent easy-to-resolve disputes from being tied up in costly and time-consuming legal proceedings • Education and awareness for condominium owners about their rights and responsibilities, and the basics of condominium living and how it differs from other freehold ownership • Education for condominium directors • A registry of all condominium corporations in Ontario, including their boards of directors and contact information • A guide for condominium buyers, setting out unit owners’ roles and responsibilities

Exam Study Guide

Lesson 12 | Page 9 of 22

Mandatory Training for Condominium Board

Condominiums are operated by a board of directors on behalf of the unit owners. Directors are required to complete mandatory training established and conducted by the Condominium Authority of Ontario. The mandatory training requirements are as follows: • Directors appointed, elected, or re-elected on or after November 1, 2017, have to complete the training program provided by the Condominium Authority of Ontario within six months of the date of their appointment, election, or re-election. • Directors do not have to re-take the training if they have completed the Condominium Authority of Ontario Director Training Program within the preceding seven years. • Training courses completed through any organization other than the Condominium Authority of Ontario cannot be applied to these new director training legal requirements. • Directors appointed by a developer or elected by owners to the pre-turnover board (that is controlled by the developer) are exempt from the mandatory training requirement. Once a turn-over meeting has been held, the newly elected and/or appointed directors must complete the Condominium Authority of Ontario’s mandatory training within six months.

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The failure to complete training would lead to disqualification from the role of a director. The Condominium Authority of Ontario’s system maintains a permanent record of when directors have completed the online Director Training Program on the “Contacts” page of the corporation’s profile. Directors (and all other people who complete the training) can access their electronic certificate of completion when logged in to the Condominium Authority of Ontario Director Training Program. This electronic certificate is considered as evidence of completion.

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Lesson 12 | Page 10 of 22

Condominium Reserve Fund

The Condominium Act, 1998 requires that all condominiums have a reserve fund. A reserve fund is a special account with a regulated financial institution such as a bank, loan and trust corporation, or credit union. This account must be separate from the condominium’s operating fund, and it is used to pay for major repairs and replacements to the condominium’s common elements as the property ages (e.g., roof, exterior of the building exterior finishes, roads, sidewalks, electrical, heating and plumbing systems, and recreational/parking facilities). A portion of each owner’s monthly common expenses fee is required to be deposited into the reserve fund every month. Interest or other income from the reserve fund forms part of that fund. If repair costs to common elements exceeds the amount in reserve, a special assessment may be required to meet such expenses. Repayment terms can vary considerably but, essentially, the unit owners are required to contribute a specified sum in addition to normal monthly common expenses. In the event the funds fall below the required level set out in the regulation, a third-party opinion on whether a special study should be conducted regarding the adequacy of the funds is required. Corporations are required to undertake reserve fund studies in accordance with prescribed time limits. The initial reserve fund study is required to be completed during a condominium’s first year of incorporation, with regular follow-up studies required every three years thereafter.

Exam Study Guide

Lesson 12 | Page 11 of 22

A salesperson is showing a condominium unit to a buyer who is concerned about the amount of the monthly common expenses of the condominium. The buyer feels that this amount is high and wants to know if the common expenses are likely to change in the near future. Question #28: How should the salesperson address these concerns? There are four options. There are multiple correct answers. 1

A reserve fund study must be completed on a regular basis to determine if there will be enough money in the fund to address future repair and replacement of the common elements.

2

If repair costs to common elements exceed monies in the reserve fund, a special assessment may be required in addition to the monthly maintenance fee.

3

The amount spent towards common expenses will remain the same and is not likely to change in the near future.

4

An adequacy of funds is performed in order to set the amount of common expenses for the next five years.

Exam Study Guide

Lesson 12 | Page 12 of 22

As a salesperson, you should be able to have informed discussions with the sellers and the buyers of condominiums and verify with the corporation whether approval was received for alterations completed in the property.

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Lesson 12 | Page 13 of 22

Key Provisions of Condominium Act As a salesperson, you will often discuss key provisions of the Condominium Act with sellers and buyers. You should, therefore, understand these provisions, and how they will affect your activities as a salesperson. Rules that will affect a potential buyer’s enjoyment of the property, how the budget and common expenses are calculated, and updates to the reserve fund, are discussed. The following six sections contain information about how the key provisions in the Condominium Act affect a salesperson.

Rules, regulations, and bylaws A salesperson should be aware of rules impacting condominiums being marketed, as they can directly impact the buyer. Bylaws are documented standard procedures and requirements regarding a condominium’s internal operations that involve governance; e.g., establishing procedures for borrowing funds, electing directors, setting director remuneration, and other regulatory matters. Bylaws are made, amended, or repealed by the board of directors and must be consistent with the Act and the declaration. Bylaws are not effective unless the owners of the majority of units vote in favour. A copy must be registered in the land registry office. Registered bylaws made by the declarant (e.g., the owner/developer) are valid until replaced. Rules are passed by the directors in order to promote the safety, security, and welfare of owners, as well as the property and assets of the corporation. Rules also prevent Exam Study Guide

unreasonable interference with the use and enjoyment of the units and common elements.

Board of Director duties The board of directors can make, amend, or repeal rules that are reasonable concerning the common elements. The board must provide owners with a copy of the rules (made, amended, or repealed), the effective date and notice that they may requisition a meeting. Rules are not effective until approved by the owners at a requisitioned meeting within 30 days. If no meeting is requisitioned within that period, the rules become effective. Example: Many condominium boards have recently passed rules to prohibit the smoking or growing of cannabis anywhere in the condominium building. Directors will also pass the budget for the corporation each year to determine all the costs required to maintain the condominium building, including security, landscaping, repairs, and a contribution to the reserve fund. Based on the budget, each owner’s common expense contribution is calculated based on the square footage of each unit. If there are insufficient funds in the budget or reserve fund to pay for necessary repairs, the board can declare a special assessment, requiring each unit owner to pay an additional amount over and above their common expenses. Directors may also have to approve changes made to a unit that are not cosmetic and may involve structural Exam Study Guide

work, which is not normally permitted by the condominium documents.

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Adequacy of reserve funds The purpose of a reserve fund study is to ensure there are adequate funds available for the corporation to make any necessary repairs to, or replacement of, common element components. Corporations are required to undertake reserve fund studies in accordance with prescribed time limits. Adequacy of reserve funds, that are formed by contributions from all condominium owners, is determined through a performance audit. A performance audit involves detailed examination and scrutiny of the common elements and the reserve fund typically by a combination of qualified engineers and accountants. This engineering portion of the audit includes inspecting major building components, reviewing condominium documentation, and conducting a survey of owners concerning damage or defects. The financial portion will predict the amount of funds required to be allocated to the reserve fund each year in order to pay for the repairs noted by the report. The auditors then prepares and submits a written report to the board of directors.

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Common expenses Common expenses are the fees payable by every unit owner to satisfy the requirements of the condominium corporation budget each year. Any default in paying common expenses can result in a lien being registered against the owner’s unit (including legal costs and other expenses), which can be enforced in the same manner as a mortgage. No owner is exempt from this requirement, even if they have waived or abandoned the right to use the common elements, are making a claim against the corporation, or are restricted from using such common elements.

Status certificate The status certificate provides fundamental information for a buyer. A salesperson should be familiar with all aspects of the status certificate. This certificate contains information regarding the status of the individual unit and the overall operational, legal, and financial dimensions of the condominium corporation. The corporation is required to give each person, a status certificate with respect to a unit in the corporation if requested. The certificate must be provided within 10 calendar days by the corporation to anyone who requests this document, for a fee not exceeding $100, including taxes.

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Restrictions to owner alterations and additions Alterations and additions to common elements (particularly exclusive use common elements) have proven troublesome in the resale market. While the Condominium Act is quite specific regarding approval processes and required agreements, changes to balconies, privacy fences/decking, and interior renovations in older condominiums may lack such approvals. In some instances, documentation regarding ownership and ongoing repair responsibilities may be vague or non-existent. Such issues can pose problems at closing, if not addressed in advance. A salesperson may prefer to include the representation and warranty clause regarding the alterations made to the condominium in such situations, to confirm that any alterations to the unit or common elements comply with, and have consent of, the condominium corporation. Some condominium corporations may also have rules such as: • No outside installations; e.g., antennae, clotheslines, satellite dishes or other exterior telecommunication/radio devices • No alterations with respect to the unit, exclusive use common areas or common elements requiring condominium corporation consent can be made without the appropriate written consent • No temporary structures or incidental permanent outside structures or improvements

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• No awnings, canopies or shutters, unless approved by the corporation

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Lesson 12 | Page 14 of 22

A salesperson is negotiating a deal for a resale of a condominium. The seller had made some renovations in the kitchen. However, the buyer client is not convinced these renovations were permissible by the condominium corporation and is seeking advice from the salesperson. Question #29: How can the salesperson advise the buyer regarding the permissibility of the renovations? There are three options. There are multiple correct answers. 1

A status certificate can be obtained to determine whether the corporation provided consent for the alterations.

2

A written assurance from the condominium corporation can be obtained that the alterations are permissible and have consent.

3

A written assurance from the seller can be obtained regarding the alterations.

Exam Study Guide

Lesson 12 | Page 15 of 22

Buyers may have questions about condominium management and how to resolve potential disputes. As a salesperson, you should be able to explain how a condominium is managed, as per the Condominium Management Services Act, 2015 and be able to discuss the key provisions under the Act.

Exam Study Guide

Lesson 12 | Page 16 of 22

Condominium Manager Training and Licensing

It is important that a condominium manager is competent in providing the relevant services; as such, the Condominium Management Services Act requires managers to be licensed and trained. The Condominium Management Regulatory Authority of Ontario is the administrative body that oversees the Condominium Management Act. The Condominium Management Regulatory Authority of Ontario is also the training and licensing authority for condominium managers. The Condominium Management Regulatory Authority of Ontario issues four types of licenses, three of which are for individuals depending on their level of experience and education in condominium management. The fourth type of license is for condominium management companies. Obtaining a license requires completion of educational requirements, including courses about condominium law, physical building management, financial planning, administration, and human relations. Another requirement is proven experience in the role of a condominium manager. All licenses need to be renewed annually. License renewal requires a condominium manager to retake training courses as part of their continuing education. Some people may be exempt from licensing if they are providing services within the specialization of their profession (e.g., lawyers, engineers, architects, accountants). Exam Study Guide

Lesson 12 | Page 17 of 22

Code of Ethics for Condominium Managers

Condominium managers must act ethically as they execute functions on behalf of the condominium corporation. The Code of Ethics in the Condominium Management Services Act details the general obligations of condominium managers and condominium management companies, in terms of professionalism, reliability, and quality of service. Some of the requirements covered by the Code of Ethics include: • • • • • • •

Treating people fairly, honestly, and with integrity Not engaging in acts of discrimination or harassment Providing reasonable accommodations for people with disabilities Providing reliable and responsive service while demonstrating knowledge, skill, and competence Keeping accurate records Being financially responsible Making best efforts to prevent error, fraud, or any unethical practices

• Not accepting gifts from any person or company if a reasonable person might believe that the gift will Exam Study Guide

influence the condominium manager when providing management services • Not interfering with the reasonable use and enjoyment of common elements, the units or assets of the client • Promoting and protecting best interest of clients The Code of Ethics is an important resource for condominium owners, residents, and boards of directors. If a condominium owner believes that a condominium manager or a management company has violated the Code of Ethics, they may file a formal complaint with the Condominium Management Regulatory Authority of Ontario.

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Lesson 12 | Page 18 of 22

Condominium Complaints Resolution

Unfortunately, disputes between condominium owners, managers and condominium boards are common place. If a condominium owner or a tenant has a dispute with a condominium manager or condominium management service provider company, the Condominium Management Regulatory Authority of Ontario has jurisdiction to address and determine the issue. Handling complaints is an important part of public protection and the promotion of ethical and competent condominium management services across Ontario. Once a complaint is received, the Condominium Management Regulatory Authority of Ontario may first attempt to resolve the issue between the complainant and the licensee. This could include engaging the parties in settlement discussion. If a complaint cannot be resolved the Condominium Management Regulatory Authority of Ontario may refer the matter to a discipline hearing to determine if a licensee violated the Code of Ethics. Depending on the nature of the complaint a site inspection by the CMRAO may be necessary to gather more information. Exam Study Guide

Lesson 12 | Page 19 of 22

The aim of the Condominium Management Regulatory Authority of Ontario (CMRAO) is to build trust in condo management services and protect the interests of the province’s condo communities. To this end, the CMRAO established a Code of Ethics for Condominium Managers and a complaint resolution process. Question #30: Which statement is correct regarding the most important features of the code and complaint mechanism? There are two options. There is only one correct answer. 1

The CMRAO ensures condo managers and management companies are approved, meet industry requirement, and comply with Code of Ethics.

2

The CMRAO ensures condo managers and management companies are licensed, meet education standards, and comply with Code of Ethics.

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Lesson 12 | Page 20 of 22

The aim of the Condominium Management Regulatory Authority of Ontario (CMRAO) is to build trust in condo management services and protect the interests of the province’s condo communities. To this end, the CMRAO established a Code of Ethics for Condominium Managers and a complaint resolution process. Question #31: Which statement is correct regarding the most important features of the code and complaint mechanism? There are two options. There is only one correct answer. 1

If a condominium owner believes that a condominium manager or a management company has violated the Code of Ethics, they may file a complaint with the condo board.

2

If a condominium owner believes that a condominium manager or a management company has violated the Code of Ethics, they may file a complaint with CMRAO.

Exam Study Guide

Lesson 12 | Page 21 of 22

The aim of the Condominium Management Regulatory Authority of Ontario (CMRAO) is to build trust in condo management services and protect the interests of the province’s condo communities. To this end, the CMRAO established a Code of Ethics for Condominium Managers and a complaint resolution process. Question #32: Which statement is correct regarding the most important features of the code and complaint mechanism? There are two options. There is only one correct answer. 1

If a condominium owner has a dispute with a licensed condominium manager or condominium management service provider, they can contact the CMRAO who will carefully review the details of the complaint inform the condominium owner of the outcome within 15 days. Some complaints may require a site inspection to gather information and may result in a discipline hearing.

2

If a condominium owner has a dispute with a licensed condominium manager or condominium management service provider, they can contact the CMRAO who will carefully review the details of the complaint inform the condominium owner of the outcome within 15 days. Some complaints may require a court hearing to gather information and may result in a significant fine.

Exam Study Guide

Lesson 12 | Page 22 of 22

Congratulations, you have completed the lesson! As the popularity of condominiums increases, especially in cities, as a salesperson, you should be aware of various issues that may face condominium owners or tenants. There are seven sections on this page with a summary of the key topics that were covered in this lesson.

Condominium corporation Condominium authority & training for condominium board

A condominium is legally created when both a declaration (the condominium constitution) and the description (the diagrammatic presentation of the property) are registered at the applicable Land Registry Office. To streamline disputes between the condominium owners and the board, the Protecting Condominium Owners Act, 2015, created two new independent authorities, the Condominium Authority of Ontario and the Condominium Management Authority of Ontario. Condominiums are operated by a board of directors on behalf of the unit owners. Directors are required to complete mandatory training established and conducted by the Condominium Authority of Ontario.

Condominium reserve fund

The Condominium Act, 1998 requires that all condominiums have a reserve fund. A reserve fund is a special account with a regulated financial institution such as a bank, loan and trust corporation, or credit union. This account must be separate from the condominium’s operating fund, and it is used to pay for major repairs and replacements to the condominium’s common elements as the property ages (e.g., roof, exterior of the building, exterior finishes, roads, sidewalks, electrical, heating and plumbing systems, and recreational/parking facilities).

Converted condominiums

The conversion of warehouses and other industrial structures into residential condominium lofts that incorporate some of the building’s more interesting features (e.g., large windows, framing, brick walls) into the design are becoming more popular as municipalities look to repurpose existing building stock. The industry term for these types of developments is residential condominium conversion projects. Exam Study Guide

The Ontario New Home Warranties Plan Act has been amended to include protection for converted buildings (previously not included in the Provincial Warranty). This amendment provides more protection to buyers of these condominiums.

Key provisions of Condominium Act, 1998

Key provisions in the Condominium Act, 1998 that a salesperson should be aware of: • Rules, regulations, and bylaws • Board of Director duties • Adequacy of reserve funds • Common expenses • Status Certificate • Restrictions to owner alterations and additions

Condominium manager training and Code of Ethics

The Condominium Management Services Act, 2015 requires managers to be licensed and trained. The Condominium Management Regulatory Authority of Ontario is the administrative body that oversees the Act. The Condominium Management Regulatory Authority of Ontario is also the training and licensing authority for condominium managers. Condominium managers must act ethically as they execute functions on behalf of the condominium corporation, the Code of Ethics in the Condominium Management Services Act, the general obligations of condominium managers, and condominium management companies, in terms of professionalism, reliability, and quality of service.

Condominium complaints resolution

If a condominium owner or a tenant has a dispute with a licensed condominium manager or condominium management service provider company, the Condominium Management Regulatory Authority of Ontario is entrusted with impartial assessment of concerns and complaints.

Exam Study Guide

Lesson 13 | Page 1 of 14

Lesson 13: Differentiating Between Residential and Commercial Tenancies

This lesson explains when and how a tenancy is regulated by the Residential or the Commercial Tenancies Act.

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Lesson 13 | Page 2 of 14

Differentiating Between Residential and Commercial Tenancies

As a salesperson, you may work with landlords and tenants of residential and commercial buildings. When you discuss tenancies, you will need to be mindful of the different legislation governing residential and commercial tenancies, to avoid any confusion, misunderstandings, or conflicts. Upon completion of this lesson, you will be able to: • Identify what determines whether the Residential Tenancies Act or the Commercial Tenancies Act regulates a tenancy • Differentiate between key aspects of the Residential Tenancies Act and the Commercial Tenancies Act Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

Exam Study Guide

Lesson 13 | Page 3 of 14

In your role as a salesperson, there may be situations in which you will be hired to lease multiple units within the same building, or required to prepare residential leases for a building’s upper floors and commercial leases for its lower floors. As a salesperson, you need to be able to discuss, with tenants and landlords, what makes these two kinds of leases different.

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Lesson 13 | Page 4 of 14

Tenancy Types: Residential and Commercial

As a salesperson, you must be able to distinguish between residential and commercial tenancies. The applicable laws provide residential tenants a wide range of statutory rights that do not routinely apply to commercial lease arrangements. To identify the type of tenancy, the principal use of the property is a good starting point. The principal use can be determined by assessing the primary activity carried out on that property. If a property is primarily used for business or commercial activity, the Commercial Tenancies Act will apply. If a property is used mainly as a residence, although there are some exceptions, it is likely a residential tenancy and the Residential Tenancies Act, 2006 will apply. Example: A property owner leases a property to a tenant to occupy as his home. The tenant is an appraiser and operates his small home business in an office in the home. The principal use of the property is residential, not commercial, therefore the Residential Tenancies Act would apply.

Exam Study Guide

Example: In some situations, as a salesperson, you will need to verify the property’s primary use. If a home-office is established and some business operations are being performed from the home premises, then the main use of the property will likely remain residential even though some business activity is taking place. However, if a building is used primarily for business activity on the main floor and as a residence on the upper floors, then the Commercial Tenancies Act would apply to the tenants of the main floor and the Residential Tenancies Act, 2006, would apply to the residents on upper floors.

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Lesson 13 | Page 5 of 14

A 30-acre rural property with a house and a stable is being leased to a tenant for business purposes. A salesperson prepares a single lease for both tenancies. Question #33: Which legislation will apply to the tenanted properties? There are two options. There is only one correct answer. 1

Residential Tenancies Act

2

Commercial Tenancies Act

Exam Study Guide

Lesson 13 | Page 6 of 14

The rights of the landlord and tenant vary in commercial and residential tenancies. Overall, the Residential Tenancies Act, 2006 gives residential tenants a wider range of rights than commercial tenants receive in the Commercial Tenancies Act. It is important for you, as a salesperson, to be able to correctly identify which tenancy exists in a given situation and advise the landlords and the tenants accordingly.

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Lesson 13 | Page 7 of 14

Legal Rent

The difference between the Residential Tenancies Act and the Commercial Tenancies Act on legal rent is: Under the Residential Tenancies Act: • Rent is negotiated prior to occupancy with the landlord. • No charge of rent, or increase of rent, is allowed greater than the lawful rent permitted. Lawful rent for a new tenant is the first rent charged to that new tenant, subject to certain qualifications outlined in the Act, such as specific provisions relating to rent premiums and discounts. Under the Commercial Tenancies Act, commercial rents are predominately determined by the terms of the lease agreement, which may contain multiple rent formulations. Base rent (often referred to as minimum rent) is the basic rent payable by the tenant under a lease. This is different from additional rents associated with operating costs and from percentage rent.

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Lesson 13 | Page 8 of 14

Security Deposit

The difference between the Residential Tenancies Act and the Commercial Tenancies Act on security deposit is: Under the Residential Tenancies Act, the landlord cannot demand a security deposit over and above any rent deposit requested. Any reference to a security deposit is automatically deemed to be a rent deposit for the purposes of the Act. Security deposit under the Commercial Tenancies Act is negotiable.

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Lesson 13 | Page 9 of 14

Rent Deposit

The difference between the Residential Tenancies Act and the Commercial Tenancies Act on rent deposit is: Under the Residential Tenancies Act, the landlord can collect a rent deposit from a new tenant on or before the start of a new tenancy. If the tenant pays rent by the month, the deposit cannot be more than one month’s rent and if the tenant pays rent by the week, the deposit cannot be more than one week. • A salesperson should be aware of certain important requirements regarding rent deposits: o A tenant is not required to provide a landlord with postdated cheques or agree to automatic debit payments from an account, to a credit card or similar automatic withdrawal for rent payment. Any landlord stipulation to that effect in a tenancy agreement is in violation of the Act. The landlord must provide receipts relating to rents and rent deposits upon the tenant’s request. Under the Commercial Tenancies Act, rent deposits and security deposits are permitted without any rules or restrictions and is up to the landlord and the tenant to negotiate. The rent deposit is considered to be the last month's rent. Exam Study Guide

A security deposit is a sum of money that cannot exceed the amount of one month's rent. The tenant pays to the landlord as a guarantee that the tenant will fulfill all obligations under the lease and is held for the term of the lease. Should the tenant damage the property (normal "wear and tear" excluded) or if the Tenant has not paid rent, the landlord is entitled to recoup the debt from the security deposit. Usually the tenant must provide the landlord with the security deposit at the start of the lease term. At the end of the lease term, the tenant will receive the deposit back minus any deductions for repairs/restoration.

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Lesson 13 | Page 10 of 14

Rent Increase

The differences between the Residential Tenancies Act and the Commercial Tenancies Act on rent increase are: Under the Residential Tenancies Act: • The landlord must give at least 90 days’ notice on an approved form for any rent increase. This includes an increase involving higher operating costs or capital expenditures. • No landlord may increase the rent by more than the guideline, except in accordance with the Act. Under the Commercial Tenancies Act: • Most commercial tenancy agreements outline in detail issues such as the amount of rent charged, and frequency of rental fee increases. The Commercial Tenancies Act does not regulate rent increases, as is the case with residential tenancies under the Residential Tenancies Act. • There are no restrictions on the rent increase.

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Lesson 13 | Page 11 of 14

Dispute Resolution

The differences between the Residential Tenancies Act and the Commercial Tenancies Act on dispute resolution are: Under the Residential Tenancies Act: • The Landlord and Tenant Board provides information about the Act and resolves disputes between landlords and tenants. • Upon receipt of an application, the Landlord and Tenant Board may resolve a dispute through mediation in an effort to settle the dispute. • Failing settlement, a hearing will be conducted to decide the dispute. Under the Commercial Tenancies Act, depending on the dollar amount in dispute, conflict resolution may be commenced at the Superior Court of Justice or the Small Claims Court branch of the Superior Court of Justice.

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Lesson 13 | Page 12 of 14

End of Lease

The differences between the Residential Tenancies Act and the Commercial Tenancies Act on end of lease are: Under the Residential Tenancies Act: • At the end of the lease period, the lease automatically converts to a month-to-month periodic tenancy. • Termination of a tenancy agreement is only possible in accordance with the Act. A notice of termination must identify the rental unit, the date of the tenancy termination and be signed by the person giving the notice or their agent. When the landlord is the terminating party, the notice must also set out the reasons and details for the termination. • The Act outlines required notices, specifically the length of the notice period, to be used based on a range of circumstances. A notice of termination is not required if the tenant and landlord agree to terminate.

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• The landlord may proceed with a notice of termination either before the end of the tenancy period or at the end of the term, based on specific reasons listed in the Act. Under the Commercial Tenancies Act: • Under the Commercial Tenancies Act, the landlord or tenant may terminate a month-to-month tenancy with a minimum one-month written notice. • Fixed-term tenancy agreements specify the length or term of the lease. Under the Act, once the tenancy ends, the tenant no longer has the right to occupy the premises. If a tenant continues to occupy the rental premises after the landlord has requested that the tenant move out, that tenant may be subject to a penalty of two months’ rent for every month they remain on the premises, plus applicable costs. In addition to imposing a financial penalty, the landlord may also apply to the Ontario Superior Court of Justice to obtain an eviction order.

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Lesson 13 | Page 13 of 14

A salesperson is working with a tenant who has separately leased a shop on the main floor and a residential unit on the top floor of the same building, where he currently lives. The landlord wants the tenant to vacate both the shop and the residential unit before the lease ends, as he has found another tenant who is willing to pay a substantially higher rent. The tenant is reluctant to vacate before the end of lease and asks the salesperson about his rights as a tenant. The salesperson explains that he can take different approaches for both properties as the Commercial Tenancies Act applies to the shop and the Residential Tenancies Act applies to the residential unit. Question #34: Which statement applies to the residential unit on the top floor? There are three options. There is only one correct answer. 1

Disputes will have to be resolved at the Superior Court of Justice or Small claims court.

2

At the end of the lease period, the lease will be automatically converted to a month to month tenancy.

3

There are no restrictions on the landlord for rent increases.

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Lesson 13 | Page 14 of 14

Congratulations, you have completed the lesson!

Here is a summary of the key topic that was covered in this lesson. A salesperson must be able to discuss the rights and duties of tenants and landlords when leasing with residential or commercial properties. These include: • To identify the type of tenancy, the principal use of the property is a good starting point. • In commercial tenancies, rent deposit is permitted without restriction. Whereas, in residential tenancies, rent deposit must not amount to more than the agreed rent for one rental period. • In commercial tenancies, there are no restrictions on the rent increase as per the Commercial Tenancies Act. Whereas, in residential tenancies, no landlord may increase the rent by more than the guideline, except in accordance with the Residential Tenancies Act, 2006. In commercial tenancies, disputes are resolved at the Superior Court of Justice. Whereas, in residential tenancies, the Landlord and Tenant Board has jurisdiction.

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Lesson 14 | Page 1 of 7

Lesson 14: Summary Practice Activities

These activities will test your understanding of the key concepts covered in this module.

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Lesson 14 | Page 2 of 7

Salespersons are expected to be aware of the law that impacts their work in real estate. Aside from the common-law of contract, registrants are expected to be able to knowledgably discuss legislation such as the Electronic Commerce Act, Personal Information Protection and Electronic Documents Act (PIPEDA), Family Law Act, Planning Act, Municipal Act, Condominium Act, Commercial Tenancies Act and Residential Tenancies Act. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

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Lesson 14 | Page 3 of 7

Complying with legislation is important because any violation can jeopardize the career of a salesperson and the reputation of the brokerage. Question #35: Which activity of a salesperson would be considered acceptable? There are four options. There is only one correct answer. 1

Accepting verbal assurances from a young-looking buyer that he is 18 years old and having him enter into a contract for a condominium unit.

2

Leaving the client’s information in an open file folder on top of a desk at the brokerage office.

3

Obtaining signatures electronically on a real estate agreement.

4

Accepting three consecutive cash deposits from the buyer of $5,000 each within a 24 hour period for the same transaction as that requires less paper work.

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Lesson 14 | Page 4 of 7

Considering all the legislation that a salesperson must comply with when becoming a real estate registrant can be a daunting task. However, rather than an expectation of perfect recall, a salesperson must definitely know where to look for information, must understand it, and most importantly, must know when to apply the legislation. Question #36: Identify the correct statement? There are three options. There is only one correct answer. 1

A salesperson is representing a couple who recently got married and would like to buy a bigger house after selling their current house. The husband owns the current house and the wife is not on the title of this property. Family Law Act would need to be referred in this situation.

2

A salesperson is representing a tenant and helping him find a rental accommodation. The tenant is really concerned about future rent increases. Steps for applying for minor variance would need to be referred in this situation.

3

A salesperson is showing buyers a property with a single car garage. They would like to buy the property but require a double car garage. Based on side yard setback requirements in the zoning bylaw, the property may not be quite wide enough to permit the expansion of the garage. Residential Tenancies Act would need to be referred in this situation.

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Lesson 14 | Page 5 of 7

Clients can rely on their salesperson for real estate knowledge and guidance. It is a salesperson’s duty to advise their clients and point them towards helpful resources or recommend the opinion of a lawyer or third-party experts whenever required. Question #37: Which of the following are examples of appropriate advice to give to clients? There are four options. There is only one correct answer. 1

Advise a condominium buyer to learn about the management of the condominium board by referring to The Condominium Act, 1998.

2

Advise a client that a security deposit for lease of a commercial property can be negotiated.

3

Advise a client to apply for land severance for the creation of two separate lots from a single lot.

4

Advise a buyer client to apply for rezoning if they want to purchase a property and continue an existing home-based daycare business that has been in operation since before the new zoning bylaws declared the area strictly residential.

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Lesson 14 | Page 6 of 7

For processes like land severance and subdivision, often clients are unaware of their right to appeal to a higher tribunal. Although clients are best represented by experienced lawyers in any appeal, a salesperson is expected to be able to generally advise them of their rights to contest decisions they are unhappy with. The sequence of steps in the land severance process are: 1. Pre-application consultation 2. Complete application submission 3. Scheduling of public meeting 4. Decision 5. Notice of decision 6. Issuing of certificate Question #38: When can an applicant file an appeal in the land severance process? There are four options. There is only one correct answer. 1

Scheduling of public meeting

2

Decision

3

Notice of decision

4

Issuing of Certificate

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Lesson 14 | 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 Learning Objectives.

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Module Summary | Page 3 of 3

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

Explain how contract law impacts the activities of a salesperson

A salesperson should be able to understand contract law in order to: • Define a contract. • Implement REBBA (CODE, Sec. 11, 12, 13, 14, 15, 27, 28, 29), the Statute of Frauds, and the Vendors and Purchasers Act on contracts. • Identify the types of contract documents used in a real estate transaction such as Agreement of Purchase and Sale, Agreement to Lease, Seller Representation Agreement, Buyer Representation Agreement, and Customer Service Agreement. • Detail how the essential elements of a contract apply to a real estate transaction, including offer and acceptance, capacity, consideration, terms, lawful object, and genuine intention. • Explain factors that may contribute to a contract lacking genuine intention and differentiate between three types of mistakes (common, mutual, and unilateral) and three types of misrepresentation (innocent, negligent, and fraudulent). Explain duress or undue influence and failure to disclose. • Describe the potential outcomes of an incomplete or illegal contract that render it void, voidable, or illegal. Describe the difference between a void contract and a voidable contract and the impact of a void and/or voidable contract on the related real estate transaction. • Identify what constitutes a breach of contract in a real estate transaction and differentiate between a breach that goes to the root of the contract and one that does not. • Explain the remedies available to address a breach of contract, including rescission, damages, quantum meruit, specific performance, and injunction. Exam Study Guide

• Explain the methods to terminate a contract: breach, mutual agreement, performance, impossibility of performance, and operation of law.

Identify in detail how the Electronic Commerce Act, 2000 impacts the activities of a salesperson

A salesperson should be aware of the:

Identify in detail how the Personal Information Protection and Electronic Documents Act (PIPEDA) impacts the activities of a salesperson

A salesperson should be aware of the:

• Impact of the Electronic Commerce Act, 2000, on contracts used by a brokerage. All contract agreements used by a brokerage can be signed electronically, and all the parties to an agreement must consent to the use of a document in an electronic form and to the use of electronic signatures.

• Requirements of a brokerage when using electronic signatures, such as a brokerage’s specific policies, and that working electronically does not change any obligation a registrant has under REBBA.

• Impact of the Personal Information Protection and Electronic Document Act (PIPEDA) on their activities by implementing the 10 privacy principles of PIPEDA, understanding the three forms of personal information, and which ones fall under PIPEDA, as well as satisfying the requirement to designate a privacy officer at the brokerage. • Obligations of a brokerage and a salesperson for handling, retaining, and destroying personal information obtained during a real estate transaction, which includes purpose and consent, use of brokerage policies and forms, as well as a salesperson files and records or shadow files.

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Identify in detail how the Family Law Act impacts the activities of a salesperson

A salesperson should understand the Family Law Act and how it may affect any transactions of matrimonial homes. A salesperson should be aware of the: • Key provisions of the Family Law Act related to the selling of a matrimonial home such as the requirements to designate a property as a matrimonial home, the requirement of the non-titled spousal consent on a mortgage document, and other legislative provisions concerning matrimonial homes and spousal rights. • Impact of a property designated as a matrimonial home on a salesperson’s activities such as the possibility of having more than one matrimonial home, the rights of the non-titled spouse, the responsibilities of a salesperson to ask questions to confirm status prior to listing, the need to advise sellers to seek independent legal advice when required, and the need to obtain spousal consent and signatures on agreement of purchase and sale, and the rights of a commonlaw spouse.

Identify in detail how the Planning Act impacts the activities of a salesperson

The Planning Act directs land development in Ontario. Accordingly, a salesperson should be able to understand how this Act: • Gives general control of the planning system in Ontario to the Ministry of Municipal Affairs and Housing • Requires two tiers of local planning, provincial interests, and delegates authority to the municipality • Gives authority to the Ministry of Municipal Affairs and Housing, to issue policy statements on matters relating to municipal planning, mineral aggregate resources, flood plains, housing, and wetlands • Identifies the role of the Official Plan, determines that every municipality has an Official Plan for land use development, the purpose of the Official Plan, how it is created and approved as well as the process and timeline for its review • Describes the impact of zoning bylaws on land use • Outlines mandatory provisions for residential zoning bylaw: categories of residential dwellings within municipalities, common provisions in a zoning bylaw Exam Study Guide

related to use, lot size, lot frontage, lot coverage, and set-back requirements, and residential property restrictions regarding use of signage, parking, outside storage of business-related equipment, deliveries being limited to courier, and related services such as large trucks • Explains when a zoning bylaw amendment or a minor variance may be required, and how to apply for either • Outlines the relevance of a non-conforming use or a non-conforming structure under a zoning bylaw and any factors that impact the continuance of a nonconforming use or structure • Identifies the role of the Committee of Adjustment for issues relating to zoning, variances, and non-conforming uses • Outlines the steps to obtain a consent for a land severance including the authority involved in granting a consent to sever, steps to make an application for a consent to sever, the documents used throughout the application, approval, and registration process, as well as considerations regarding time associated with approvals for a property to be sold once severed • Outlines the major steps to obtain approval for a plan of subdivision and the key considerations of registering a Plan of Subdivision in a land registry office • Identifies the role of the Local Planning Appeal Tribunal for appeals made to a municipal planning decision

Identify in detail how the Municipal Act impacts the activities of a salesperson

In order to better understand the influence of a municipality on the property, salesperson should be aware of the: • Authority of a municipality under the Municipal Act, 2001 and the authority of City of Toronto under the City of Toronto Act, 2016, as well as the 10 spheres of influence • Impact of a municipal authority on registrant activities such as restrictions regarding signs, owner’s responsibility to control noise, vibration, dust, and odour, construction of fences, energy conservation, waste and sewage discharge, placing Exam Study Guide

or removal of soil and grading, and provisions for flood-prone areas

Identify in detail how the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC) impacts the activities of a salesperson

A salesperson must comply with FINTRAC requirements in all of their transactions. Accordingly, a salesperson should:

Identify in detail how the Condominium Act, 1998 impacts the activities of a salesperson

To best provide information to buyers who are interested in purchasing a condominium, a salesperson should understand the Condominium Act, 1998 and should be aware of the:

• Understand the role of the FINTRAC, what and when transactions should be reported and how to report suspicious transactions, as well as how to maintain records and complete the FINTRAC documents • Understand the requirements of a brokerage and a salesperson under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act • Identify the consequences of non-compliance with FINTRAC requirements, which include criminal and/or administrative penalties against salespersons and/or brokerages

• Requirements to register a condominium and create a condominium corporation • Key aspects of condominium legislation or regulations such as the new provincial warranty protection available to buyers of certain condominium conversion projects, the role of the Condominium Authority, the mandatory training for a condominium board of directors, reserve fund requirements, and the use of funds • Provisions of the Condominium Management Services Act, 2015 such as condominium manager training and licensing, condominium manager compliance with a Code of Ethics, and the appropriate handling of complaints by the Condominium Management Services and the resolution of disputes by Condominium Management Regulatory Authority of Ontario

Exam Study Guide

Identify in detail how the Commercial Tenancies Act and the Residential Tenancies Act, 2006 impact the activities of a salesperson

A salesperson should be able to identify if a property falls under the Commercial Tenancies Act and the Residential Tenancies Act, 2006 and the requirements of each Act. Accordingly, a salesperson should be aware: • That the principal use determines whether the Residential Tenancies Act, 2006 or the Commercial Tenancies Act regulates a tenancy and that a property could have multiple tenants and that each distinct tenancy would be determined as either residential or commercial • Of the differences between key aspects of the Residential Tenancies Act, 2006 and the Commercial Tenancies Act such as legal rent, rent deposit, security deposit, dispute resolution, and the end of lease

Exam Study Guide

Appendix | Page 1 of 1

Appendix Answer Key Question #20: 1, 3, 4 Question #21: 1, 2, 3, 6 Question #22: 2 Question #23: 1, 2, 3 Question #24: 1 Question #25: 1, 2, 3, 4, 5, 6 Question #26: 1, 2, 3, 5 Question #27: 2, 4 Question #28: 1, 2 Question #29: 1, 2 Question #30: 2 Question #31: 2 Question #32: 1 Question #33: 2 Question #34: 2 Question #35: 3 Question #36: 1 Question #37: 2 Question #38: 3

Exam Study Guide

Module: Introducing Other Relevant Legislation and Regulations This is a study guide to help you prepare for the qualifying exam. There are multiple study guides that are provided for preparation. Each study guide contains several decision points to test your knowledge. The answer key to these decision points is present in the “Appendix” section at the end of the guide. Please use Adobe Acrobat Reader (Recommended version 9 or above) to navigate through this PDF. Real Estate Pre-Registration 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 Pre-Registration Program learner.

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Module: Introducing Other Relevant Legislation and Regulations

As a real estate salesperson, you will need to interact with consumers through various marketing activities. This module helps you understand the legislation and regulations that may impact your trading activities and influence the decisions of sellers and buyers. Your responsibility is not to provide advice relating to such legislation and regulations but to be aware of them so that you can refer sellers and buyers to the appropriate professionals when necessary.

Exam Study Guide

Menu: Introducing Other Relevant Legislation and Regulations Number of Lessons

11 Lessons

Lesson Number

Lesson Name

Lesson 1

Legislation Impacting the Marketing Activities of a Salesperson

Lesson 2

Understanding the Potential Impact of Tax Legislation on the Purchase, Sale, or Lease of a Property

Lesson 3

Impact of Environmental Legislation on Property Ownership, Use, and Development

Lesson 4

Additional Legislation Impacting the Use and Potential Development of a Property

Lesson 5

Legislation Promoting Energy Conservation

Lesson 6

Legislation Impacting New Home Purchases

Lesson 7

Key Considerations Under the Ontario Fire Code and Ontario Building Code

Lesson 8

Considerations Under the Ontario Electrical Safety Code

Lesson 9

Compliance with Fuel Storage Tank Regulations

Lesson 10

Summary Practice Activities Module Summary Appendix

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Lesson 1 | Page 1 of 38

Lesson 1: Legislation Impacting the Marketing Activities of a Salesperson

This lesson describes how legislation such as the Telecommunications Act, which created a legislative framework for the National Do Not Call List (DNCL) and Canada’s Anti-Spam Legislation (CASL), impacts the marketing activities of a salesperson.

Exam Study Guide

Lesson 1 | Page 2 of 38

To expand your list of contacts, as a salesperson, you may use telemarketing and various electronic channels to reach out to prospective sellers and buyers. These activities may fall within scope of several regulations, to which you will need to comply. This lesson describes the federal legislation that regulates such marketing activities. Upon completion of this lesson, you will be able to: • Identify the impact of the National Do Not Call List (DNCL) on a brokerage’s activities • Identify the impact of the National DNCL on a salesperson’s activities • Identify the purpose of Canada’s Anti-Spam Legislation (CASL) • Outline the requirements for sending a commercial electronic message (CEM) • Describe the issues related to obtaining CEM consent • Identify the impact of the Competition Act on a salesperson’s trading activities

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Lesson 1 | Page 3 of 38

As a salesperson, you will be expected to have knowledge of legislation and regulations that may impact real estate activities. One such legislation is the Telecommunications Act, the legislation that created the National Do Not Call List (DNCL). The following screens will detail what the National DNCL entails and how it will impact you as a salesperson.

Exam Study Guide

Lesson 1 | Page 4 of 38

National Do Not Call List (DNCL) Defined

Telemarketing is defined as the marketing of goods or services by means of telephone calls, typically unsolicited, to potential customers. Unsolicited calls to potential clients or customers with whom you have had no prior contact are commonly referred to as cold calls. 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). The National Do Not Call List (DNCL) impacts all businesses involved in cold calling or telemarketing. The National DNCL provides consumers with a choice to reduce the number of unsolicited telemarketing calls they receive by registering their land line, cellular phone, and fax machine numbers on the National DNCL. By federal law, a telemarketer cannot contact a consumer whose name and telephone number are in the National DNCL to solicit business. Any violations by a telemarketer could lead to penalties. Administrative penalties for violations are up to $1,500 for an individual and $15,000 for a corporation.

Exam Study Guide

Brokerages and their registered employees who engage in cold calling or telemarketing are required under federal law to be registered with, and have access to, the National DNCL. They must also ensure compliance with the National DNCL Rules to avoid penalties. The authority to create and oversee the National DNCL and the related National DNCL Rules rests with the Canadian Radio-television and Telecommunications Commission (CRTC). Bell Canada operates the National DNCL service and provides the National DNCL lists, by way of subscription or query services, to telemarketers. The broker of record must first establish whether the brokerage and its salespersons will be involved in telemarketing activities, such as placing cold calls and sending unsolicited faxes, and determine if the brokerage will fall under provisions concerning the National DNCL. The brokerage must be registered with the National DNCL operator, subscribe to the National DNCL, and pay for subscription-related services.

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Lesson 1 | Page 5 of 38

Internal National Do Not Call List A brokerage, as a telemarketer, must not only register with the National DNCL but also maintain an internal brokerage list (internal DNCL). Consumers who are contacted and state that they do not want to receive calls or faxes from the brokerage must be placed on this list. This will ensure that you will not make telemarketing calls to consumers who do not want to be contacted. The internal DNCL should contain the: • Date and time of the request • Consumer’s name and contact information • Applicable 10-digit phone number(s) Numbers recorded on the internal DNCL must be kept for a minimum of three years. The brokerage must ensure that both the National DNCL and the internal DNCL are continually maintained and updated.

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Lesson 1 | Page 6 of 38

Exemptions to the National DNCL

While the National DNCL Rules specify that a brokerage cannot contact a consumer whose name and telephone number are registered on the National DNCL, certain exceptions apply. For example, you will be permitted to call a consumer who has an existing business relationship with the brokerage. A business relationship exists if the consumer: • Made an inquiry within the last six months (for example, a consumer contacting the brokerage for details of properties for sale or lease, or wanting to discuss the sale or lease of their property) • Purchased, leased, or rented a property through the brokerage in the past 18 months • Had a written agreement with the brokerage (for example, a representation or customer service agreement that is still in effect or expired within the past 18 months)

Exam Study Guide

In addition, you may contact a consumer if they specifically asked to be contacted (even when registered on the National DNCL). For example, a buyer at an open house may give written permission to be contacted by signing an open house guest book, assuming that the guest book clearly indicates that such permission is being given. The federal legislation applies to residential consumers and NOT to business consumers. Further, certain organizations are exempt from the legislation, such as political parties, polling firms, and registered charities.

Exam Study Guide

Lesson 1 | Page 7 of 38

Telemarketing Guidelines As a salesperson, if you make telemarketing calls to consumers registered on the National DNCL, it could lead to complaints from consumers, sanctions, and/or fines from the CRTC for the brokerage and the salesperson. The following four sections contain information on the guidelines that salespersons need to follow when telemarketing on behalf of a brokerage.

Verify that the brokerage has subscribed to the National DNCL and that the brokerage is a registered telemarketer.

Do not engage in telemarketing unless your brokerage has subscribed to the National DNCL.

Check with the broker of record and/or manager for the brokerage’s policies and procedures on telemarketing and the National DNCL.

Brokerage policy manuals will vary based on brokerage structure and internal handling of telemarketing lists. Duties of the individual coordinating the telemarketing activities are outlined in the policy, including responsibilities for the registration process, arranging necessary National DNCL subscription services, and updating brokerage lists at least once every 31 days. The brokerage policy may require that all telemarketing calls be recorded and that the National DNCL and the internal DNCL be checked before any calls are made. If the brokerage is going to record calls, it will need to obtain consent from the recipient before the call is recorded.

Exam Study Guide

Use both the National DNCL and the internal DNCL.

Use these lists to identify people who do not want to receive solicitation calls. A consumer’s number may not be on the National DNCL but may be on the internal DNCL.

Monitor the National DNCL and the internal DNCL regularly.

Before starting any telemarketing activities, check both the National DNCL and the internal DNCL as new numbers are being added to the list on a regular basis.

Exam Study Guide

Lesson 1 | Page 8 of 38

A brokerage has been operating in Ontario since 1995. The broker of record is quite enterprising and has been implementing innovative strategies to reach out to consumers since the inception of the brokerage. The brokerage maintains a list of all consumers they contacted in the past and tags them as red, amber, or green depending on whether they showed any interest in pursuing a real estate transaction. Consumers who do not seem to be interested are tagged as red. The broker of record reviews the list once a quarter and removes details of consumers tagged as red. The salespersons involved in telemarketing are encouraged to find new leads every month. Question #1: To comply with the National DNCL Rules, what actions should the brokerage avoid? There are four options. There is only one correct answer.

1

Ask the salespersons to get references from their friends and make calls to those references.

2

Maintain their own internal DNCL.

3

Use either the National DNCL or the brokerage’s internal DNCL, whichever is available, when having salespersons cold calling consumers.

4

Have a salesperson contact a consumer on the National DNCL who has reached out to the brokerage to discuss the sale of their property a few months ago.

Exam Study Guide

Lesson 1 | Page 9 of 38

Sam is a diligent salesperson who joined a brokerage recently. Sam's manager gives her a list of people to call. Sam is supposed to ask if they are considering or would consider selling their home and, if not, if they know someone who is thinking about selling their home. The brokerage’s telemarketing policy is that the National DNCL and the internal DNCL must be checked before any calls are made. Sam reviews both the National DNCL and the internal DNCL before making calls. The first 15 calls Sam makes go directly to voicemail. On her 16th call, Judy answers. After Sam’s initial question, Judy gets upset, saying she has been receiving enquiries about her house after making it clear to salespersons calling her that she does not want to sell her house. Sam reviews the National DNCL and the internal DNCL again and finds that Judy’s name does not exist on either list. Question #2: What should Sam do? There are three options. There is only one correct answer.

1

Ask Judy to register her name and number on the National DNCL.

2

Ask Judy if she would want her number added to the National DNCL.

3

Add Judy’s name and contact details to the internal DNCL.

Exam Study Guide

Lesson 1 | Page 10 of 38

Canada’s Anti-Spam Legislation (CASL) became law on July 1, 2014. CASL is also known as: “An Act to promote the efficiency and adaptability of the Canadian economy by regulating certain activities that discourage reliance on electronic means of carrying out commercial activities, and to amend the Canadian Radio-television and Telecommunications Commission Act, the Competition Act, the Personal Information Protection and Electronic Documents Act, and the Telecommunications Act” (S.C. 2010, c. 23). The goal of CASL is to help create a safer and more secure online environment by setting requirements for sending commercial electronic messages (CEMs). Next, you will learn how CASL defines CEMs and the requirements a salesperson must follow.

Exam Study Guide

Lesson 1 | Page 11 of 38

Impact of CASL and CEMs

The federal government introduced CASL to protect Canadians from unsolicited CEMs that could potentially lead to spam, malware, and other internet-related threats. The intent of CASL is to provide a relatively secure online environment for consumers. A CEM is any electronic message that encourages participation in a commercial activity regardless of whether there is an expectation of profit. Examples of commercial activities include offering properties for sale, and advertising/promoting goods, services, or persons. A CEM can be sent by any means of telecommunication, such as email, telephone, or instant messaging. It can include a text, sound, voice, or image message. It can also include hyperlinks in the message to content on a website or other database with the intent to promote commercial activity. Messages sent to other users on a social media platform, such as Facebook or LinkedIn, also qualify as CEMs. CASL does not apply to: • Twitter and Facebook wall posts • Websites • Blogs • Two-way voice communication between individuals • Faxes and voice recordings sent to a telephone account (however, salespersons should be aware of the requirements of the National DNCL) Since CASL closely mirrors the DNCL, many brokerages have policies that apply to both the DNCL and CASL. Exam Study Guide

Lesson 1 | Page 12 of 38

Requirements for Sending a CEM

As a salesperson, before you send a CEM to an electronic address, you will have to comply with certain provisions in CASL. Non-compliance can lead to substantial fines for you (up to $1 million) and your brokerage (up to $10 million) per violation. The following three sections contain information on these provisions.

Obtain consent from the recipient

Get express consent or implied consent from recipients, either written or oral. Although implied consent is permitted, express written consent is recommended. Written consent can be by email.

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Identify yourself

Provide the following information in the CEM: • Your name • Details related to the business you represent • Your contact information If you send the CEM on behalf of another person or brokerage, provide the name of that person or brokerage as well. Provide the present mailing address and other contact details, such as phone number, email address, or web address. Ensure that the information you provide is correct and valid for a minimum of 60 days after sending the message.

Provide a means for Provide details on how the recipient may unsubscribe from the CEM in each message the recipient to you send. It is your responsibility to take action on an unsubscribe request within 10 days or fewer, at no cost to the recipient. withdraw consent

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Lesson 1 | Page 13 of 38

Fazia is an enterprising salesperson working for a large brokerage. She is active on social media and engages in a variety of marketing activities to increase her contact list. She writes a blog on the booming real estate market in Ontario and adds links to some of the upscale properties available for sale. She adds a link to her blog on her LinkedIn profile. Question #3: This scenario violates CASL. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 1 | Page 14 of 38

Richard is an enterprising salesperson working for a large brokerage. He is active on social media and engages in a variety of marketing activities to increase his contact list. He creates a post on his Facebook wall on behalf of a tenant looking for an apartment for rent, and many people respond to the post. Question #4: This scenario violates CASL. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 1 | Page 15 of 38

Gavin is an enterprising salesperson working for a large brokerage. He is active on social media and engages in a variety of marketing activities to increase his contact list. He sends details of a niche condominium targeting senior citizens to all the names in his mailing list. Question #5: This scenario violates CASL. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 1 | Page 16 of 38

Ana is an enterprising salesperson working for a large brokerage. She is active on social media and engages in a variety of marketing activities to increase her contact list. She sends CEMs weekly on behalf of her brokerage includes details on how to unsubscribe in the first CEM of each month. Question #6: This scenario violates CASL. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 1 | Page 17 of 38

As a salesperson, you will need to understand that you can only send a CEM if you have written or implicit consent from the recipient.

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Lesson 1 | Page 18 of 38

Express Consent

Express consent in the context of electronic communication means the recipient has opted in through an online or physical sign-up form (such as a newsletter, by phone, at the point of purchase, or by responding to a contest). Some aspects to consider when requesting express consent: • Consent can be oral or in writing. If challenged, you will need to prove that you obtained consent to send the CEM. • Silence or inaction on the part of the intended recipient cannot be construed as providing consent. • Consent must be obtained through an opt-in mechanism rather than an opt-out mechanism. A pre-checked box for consent is not permitted as this would assume consent where it was not intended. • You must provide complete and accurate information related to the specific purpose of the CEM and your name, business, and contact details. Note that express consent does not expire until the recipient withdraws their consent.

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Lesson 1 | Page 19 of 38

Implied Consent

Implied consent is less direct and is based on the brokerage or salesperson having a prior relationship with the recipient. Even though the condition for express consent has not been met, it is reasonable to assume that the brokerage or the salesperson has permission to send a CEM. Implied consent is assumed based on the actions of the recipient. Consent can be implied in situations where: • You or your brokerage have an existing business relationship with the recipient for the last two years (such as the purchase of a property, a listing agreement, or a buyer representation agreement). In the case of an existing business relationship, the implied consent expires after two years. You will be able to use this transition time to get express consent for sending CEMs. • A recipient made an enquiry within the last six months. The time limit for sending a CEM without express consent is six months from the date of enquiry. You will be able to use this six-month period to obtain express consent for sending CEMs where consent is currently implied.

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• You have an existing non-business relationship with the recipient for the last two years (such as fellow members of an association, club, or voluntary organization). • The recipient of a CEM has conspicuously published their electronic address (such as on a website) or has disclosed their electronic address (such as through distribution of a business card). Where the recipient has conspicuously published or disclosed their electronic address, a CEM can only be sent if: • The content of the message relates to the recipient’s role, functions, or duties in an official or business capacity; and • The recipient, when providing a business card or publishing their electronic address on a website, did not state that they do not wish to receive CEMs at that address. Note that the requirement for identification information of the sender and an unsubscribe mechanism still exists for implied consent. A recipient can terminate the consent if they no longer wish to receive CEMs.

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Lesson 1 | Page 20 of 38

Consent in the Case of a Referral Consent from the recipient is not required in the case of a referral provided that certain conditions are met: • The referral must have been made by an individual who has an existing business relationship, an existing non-business 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 must be included in the CEM. • The CEM must contain the sender’s identification information and an unsubscribe mechanism. You may only send one CEM. Any further CEMs will require consent from the recipient of referral CEM.

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Lesson 1 | Page 21 of 38

Information to Include in a CEM

CEM is a form of advertising that a brokerage uses to market their services to prospective consumers. As a salesperson, you may use a CEM to market your services. The information in the CEM should conform to the minimum requirements for advertising specified in Section 37 of the Act and Section 36 of the Code of Ethics. The following four sections contain information on the minimum requirements.

Identification of registrant

The CEM must clearly and prominently display the name of the registrant (such as the brokerage, broker of record, broker, or salesperson) sending the CEM. The name must be printed and positioned in the CEM so that it can be easily seen and understood by the recipients. All advertising by a registrant must clearly and prominently include the name under which the registrant is registered when placing the advertisement.

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Identification of individuals

If you send a CEM after having obtained consent, you must identify yourself using the same name in which you are registered with the Real Estate Council of Ontario (RECO).

Identification of brokerage

The CEM must clearly and prominently display the name of the brokerage that employs you. The brokerage’s name must be the same as it is registered with RECO.

Description of registrant

The CEM must include the designation of the sender (such as salesperson, broker, broker of record, or brokerage, real estate agent, broker real estate agent, REALTOR®, REALTOR® broker, REALTOR® salesperson). If you are the owner of a sole proprietorship brokerage, you must clearly indicate that you are both a registered brokerage and the broker of record.

Exam Study Guide

Lesson 1 | Page 22 of 38

CEM Guidelines

The prohibitions specified in the Code of Ethics and other sections of REBBA for advertising also apply to CEM. The guidelines are as follows: • Do not use terms, such as sales agent, associate, or consultant, which can possibly confuse the recipient about the identity of the sender of the CEM. • Do not include any details related to the seller, buyer, property, or agreement of a sold property unless written consent is available from the parties involved. Whose consent is required—the seller’s, the buyer’s, or both—depends on the timing of the advertisement and who is placing the advertisement. This will be covered in more detail later. • Do not provide inaccurate representations related to the services provided by the sender or about a property being marketed, and do not furnish false or deceptive information relating to a trade in real estate. As a salesperson, you will be responsible for creating or sending CEMs that comply with the guidelines.

Exam Study Guide

Lesson 1 | Page 23 of 38

Ana frequently uses CEMs to attract potential sellers and buyers. She solicits consumers’ email addresses by holding a contest on a website. She asks contestants to deselect a checkbox on the web page if they do not wish to receive email updates from her. Question #7: This CEM is a violation of CASL. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 1 | Page 24 of 38

Richard frequently uses CEMs to attract potential sellers and buyers. He hopes to attract more leads with his digital newsletter by using a photo of himself in college and identifying himself solely by his former nickname, Big Ricky. Question #8: This scenario violates CASL. There are two options. There is only one correct answer. 1

True

2

False

Exam Study Guide

Lesson 1 | Page 25 of 38

Gavin frequently uses CEMs to attract potential sellers and buyers. He shares details of condominium apartments available for rent by replying to a customer’s request in a Facebook message. Question #9: This CEM is a violation of CASL. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 1 | Page 26 of 38

Fazia frequently uses CEMs to attract potential sellers and buyers. She emails details of the upscale property she is listing to a customer who requested information regarding a previously listed property three years ago. Question #10: This CEM is a violation of CASL. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 1 | Page 27 of 38

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. You will learn how this Act will impact a salesperson’s activities. You will also learn about advertising guidelines related to misleading advertising practices.

Exam Study Guide

Lesson 1 | Page 28 of 38

The Competition Act The Competition Act is a federal statute addressing many forms of competition in the interest of promoting a fair and efficient Canadian marketplace. This legislation seeks to protect consumers by regulating selected business conduct throughout Canada. The Competition Act applies, with few exceptions, to all business enterprises, including real estate brokerages. The Commissioner of Competition (head of the Competition Bureau) is responsible for administration and enforcement of the Act. The following four sections contain information on some aspects of the Competition Act.

Misleading advertising

The Competition Act prohibits misleading advertising and deceptive business practices in the promotion of a service or the supply/use of a product. Section 52 of the Act will be relevant to you as a salesperson; it relates to services. 52 (1) “No person shall, for the purpose of promoting, directly or indirectly, the supply or use of a product or for the purpose of promoting, directly or indirectly, any business interest, by any means whatever, knowingly or recklessly make a representation to the public that is false or misleading in a material respect.” Example: A salesperson cannot advertise that they always sell their listings for 105% of the list price.

Conspiracies

Conspiracies are unlawful agreements between competitors to fix or increase prices, manipulate markets, or in some way control output. In real estate, this could involve agreements to establish remuneration or other fees, or amounts paid to cooperating brokerages. Example: Three brokerages agree to charge the same remuneration. Exam Study Guide

These types of agreements need not be in writing to prove that a conspiracy exists.

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. Price maintenance provisions also extend to situations where a salesperson refuses to negotiate with, or otherwise deal with, a competitor because of that competitor’s pricing policy, remuneration structure, or business model. Example: A salesperson does not show listings of another brokerage that only offers $1 remuneration to the co-operating brokerage. Note that under the Code of Ethics Section 19, registrants must inform clients and customers of all properties that meet their search criteria, regardless of the amount of remuneration offered by the listing brokerage.

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. Bid-rigging is a criminal offence. Example: Bid-rigging may occur if a real estate brokerage agrees to submit a bid to perform services at an unreasonably high rate so that another brokerage will be successful on this bid and so that the other brokerage will do the same for them at the next opportunity.

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Lesson 1 | Page 29 of 38

Maintaining Compliance with the Competition Act

As a salesperson, you will be able to ensure compliance with the Competition Act by following these three best practices: • Do not collude: You must not enter into an agreement with a competitor to fix, maintain, increase, or control the price of a product (for example, fixing commissions).

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• Do not discriminate: You must not engage in price maintenance practices that can adversely affect competition in the market, such as the exclusion of rivals (due to their discounted pricing) or new entrant competitors. Any conduct used to inhibit competition among brokerages would be a violation of the Act. • Do not mislead: You must be truthful and accurate in making performance claims, and avoid false and misleading representation in your advertisements (for example, claiming to be number one in a neighbourhood without giving proof of the statement and the criteria for establishing the claim). In addition, you must avoid making or participating in situations where anti-competitive statements are made. Example: A salesperson states, “We won’t do business in your territory if you don’t trade in our area”. This would be an example of a statement regarding market allocation. Example: Three competitors meet for coffee and agree to charge the same fee for specific services, such as the amount of commission charged to list properties or to give market evaluations. This would be an example of a price-fixing situation.

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Lesson 1 | Page 30 of 38

Guidelines for Salespersons

You will need to be careful about what information you share with colleagues in informal settings. As a salesperson, you should avoid any conversation or communication with other registrants that might be in conflict with the Competition Act at all times. Example: Never discuss your brokerage’s remuneration structure with a competitor as this would be considered a violation of the Competition Act. You do not know what another brokerage charges unless they advertise it, and you do not need to know their business model. Contravention of the Competition Act can be a serious matter, leading not only to significant penalties, but also lost time and negative publicity for the brokerage and yourself. Specific potential penalties under the Competition Act include criminal fines of up to $25 million and civil fines of up to $10 million.

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If you discover your brokerage has disclosed misleading information, you must advise the broker of record, who can take appropriate actions to correct the misleading information. Example: If marketing material advertises that all brokerage’s listings sell over the asking price, but this is incorrect, then the salesperson should correct the material immediately. The salesperson should request a review of all new marketing materials by the brokerage as it is the brokerage’s responsibility to approve the advertisement before it is distributed.

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Lesson 1 | Page 31 of 38

A salesperson can generally avoid violations to the Competition Act if they follow three principles: do not collude, do not discriminate, and do not mislead. Question #11: Making small talk at the gym, two people discover they are both real estate salespersons at different brokerages. One salesperson asks the other how much they charge when they list a property for sale. This situation violates the Competition Act. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 1 | Page 32 of 38

A salesperson can generally avoid violations to the Competition Act if they follow three principles: do not collude, do not discriminate, and do not mislead. Question #12: A salesperson is told by a potential seller that a competitor is offering to charge a lower remuneration rate or fee to list their property. The salesperson says that the competitor charges less because they are inexperienced and new to the business. This situation complies with the Competition Act. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 1 | Page 33 of 38

A salesperson can generally avoid violations to the Competition Act if they follow three principles: do not collude, do not discriminate, and do not mislead. Question #13: Utility costs are at an all-time high for a property that a salesperson is listing in their promotional materials, so they quote the average monthly cost of a typical listing in the area. This situation violates the Competition Act. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 1 | Page 34 of 38

To expand her list of potential sellers and buyers, Ana uses telemarketing and various electronic channels to find contacts. She also uses competitive practices to increase her marketing outreach. She contacts a consumer on the National DNCL who contacted her to discuss the sale of their investment property. Question #14: This scenario is a violation of federal legislation that regulates such marketing activities. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 1 | Page 35 of 38

To expand her list of potential sellers and buyers, Fazia uses telemarketing and various electronic channels to find contacts. She also uses competitive practices to increase her marketing outreach. She sends CEMs weekly on behalf of herself and her brokerage and makes sure to include details on how to unsubscribe. Question #15: This scenario is a violation of federal legislation that regulates such marketing activities. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 1 | Page 36 of 38

To expand his list of potential sellers and buyers, Gavin uses telemarketing and various electronic channels to find contacts. He also uses competitive practices to increase his marketing outreach. He and a salesperson from another brokerage agree to charge the same price to list a property for sale. Question #16: This scenario is a violation of federal legislation that regulates such marketing activities. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 1 | Page 37 of 38

To expand his list of potential sellers and buyers, Richard uses telemarketing and various electronic channels to find contacts. He also uses competitive practices to increase his marketing outreach. He emails details of the upscale properties he is listing to a customer who made an enquiry five months ago. Question #17: This scenario is a violation of federal legislation that regulates such marketing activities. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 1 | Page 38 of 38

Congratulations, you have completed the lesson! There are six sections on this page with a summary of the key topics that were covered in this lesson.

Impact of the National DNCL on a brokerage’s activities

The National Do Not Call List (DNCL) provides consumers with a choice to reduce the number of unsolicited telemarketing calls they receive by registering their land line, cellular phone, and fax machine numbers on the National DNCL. By federal law, a telemarketer cannot contact a consumer whose name and telephone number are in the National DNCL to solicit business. Any violations by a telemarketer could lead to penalties. Brokerages involved with cold calling or telemarketing are required under federal law to be registered with, and have access to, the National DNCL. They must also ensure compliance with the National DNCL Rules to avoid penalties. A brokerage, as a telemarketer, must also maintain an internal brokerage list (internal DNCL). Consumers who are contacted and state that they do not want to receive calls or faxes from the brokerage must be placed on this list.

Impact of the National DNCL on a salesperson’s activities

If a salesperson makes telemarketing calls to consumers registered on the National DNCL, it could lead to complaints from consumers, sanctions, and/or fines for the brokerage from the CRTC. Before making telemarketing calls on behalf of a brokerage, the salesperson must check the brokerage’s policies and procedures on telemarketing and the National DNCL.

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Purpose of CASL

The federal government introduced CASL to protect Canadians from unsolicited CEMs that could potentially lead to spam, malware, and other internet-related threats. The intent of CASL is to provide a relatively secure online environment for consumers.

Requirements for sending a CEM

Before sending a CEM, a salesperson must obtain consent from the recipient, identify themselves, and provide a means for the recipient to withdraw consent.

Issues related to obtaining CEM consent

A salesperson can send a CEM only if they have written or implicit consent from the recipient. In addition, the information in the CEM should conform to the minimum requirements for advertising specified in Section 36 of the Code of Ethics. Written or express consent in the context of electronic communication means the recipient has opted-in through an online or physical sign-up form, such as a newsletter, by phone, at the point of purchase, or by responding to a contest. Implied consent is less direct and is based on the brokerage or the salesperson having a prior relationship with the recipient. Even though the condition for express consent has not been met, it is reasonable to assume that the brokerage or the salesperson have permission to send a CEM.

Impact of the Competition Act on a salesperson’s activities

The Competition Act is a federal statute addressing many forms of competition in the interest of promoting a fair and efficient Canadian marketplace. This legislation seeks to protect consumers by regulating selected business conduct throughout Canada. The Competition Act applies, with few exceptions, to all business enterprises, including real estate brokerages. Contravention of the Competition Act can lead to significant penalties, lost time, and negative publicity for the brokerage and the salesperson.

Exam Study Guide

Lesson 2 | Page 1 of 15

Lesson 2: Understanding the Potential Impact of Tax Legislation on the Purchase, Sale, or Lease of a Property

This lesson describes the differences between business income and capital gains, and factors that determine whether a property qualifies as a principal residence. In addition, the lesson explains the impact of the Income Tax Act where the seller is a non-resident of Canada.

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Lesson 2 | Page 2 of 15

As a salesperson, you will need to understand the impact of taxation on various real estate transactions so you can advise a seller or a buyer to consult with the appropriate third-party professional. For a resident of Canada, the sale proceeds may be subject to taxes depending on whether the sale amount falls under the category of capital gains or business income. If a non-resident of Canada sells their Canadian property, the seller may need to pay the capital gains tax on the sale proceeds. If the non-resident seller fails to meet the tax requirements established under the Income Tax Act, the buyer becomes liable to remit the required tax. The information provided in this lesson is meant to give learners an awareness of different taxation issues that may be relevant in certain trades. Matters of taxation are complex and are not topics on which registrants should be offering opinions. The importance of advising buyers and sellers to consult qualified professionals, such as lawyers or accountants, cannot be understated. Upon completion of this lesson, you will be able to: • Identify the differences between business income and capital gains • Outline the unique treatment of a principal residence under the Income Tax Act • Identify the impact of the Income Tax Act on the sale of property by a non-resident of Canada Throughout this lesson, you will participate in interactive activities and decision points to test your knowledge on the topics presented.

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Lesson 2 | Page 3 of 15

Capital gains differ from business income. As a salesperson, you will need to understand these differences so that you are aware of the situations where an individual may be liable to pay capital gains tax.

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Lesson 2 | Page 4 of 15

Capital Gains and Business Income Defined Capital gain refers to the net increase in value of a capital property from the date the property was purchased or the valuation date of December 22, 1971 (whichever is later) to the date the property is sold. Capital property includes any item that, if sold, would result in a capital gain or a capital loss (such as a cottage, investment duplex, land, buildings, shares, bonds, funds, and trust units). Business income refers to income a person earned from an activity undertaken for profit (such as income from a house painting or consulting business, or from rental income) but does not include salaries a person received from an employer.

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Lesson 2 | Page 5 of 15

Difference Between Capital Gains and Business Income

Capital gains are taxed differently than business income. With business income, the net income after deducting expenses is taxed. With a capital gain, only 50% of the net proceeds is added to the income of the taxpayer and taxed at the appropriate tax rate. Example: A property that was bought for $200,000 and sold for $300,000 increased in value by $100,000. If it was considered business income, the entire $100,000 would be added to the seller’s income and then taxed accordingly in the year the property was disposed of. If instead, it was a capital gain, only 50% of the $100,000 ($50,000) would be added to the seller’s taxable income. The Canada Revenue Agency (CRA) will consider many factors when determining whether the increase in value is a capital gain or business income. These factors will be discussed on the following screen.

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Lesson 2 | Page 6 of 15

Capital Gains and Business Income

The Income Tax Act does not specify whether a gain or loss is considered business income or a capital gain. The taxpayer (the seller) is responsible for reporting the gain as business income or capital gain. The CRA could challenge this report and the onus of proof would be on the taxpayer. Over the years, several factors have been used to determine if the gain is a capital gain or business income. Should a case be investigated by the CRA, it may be addressed through a CRA resolution process or it may proceed to the Tax Court of Canada. Relevant factors concerning taxpayer conduct before, during, and after the period under appeal will be considered. Certain factors carry more weight in the process. Expert advice from the appropriate professionals, including lawyers and accountants, should be sought before any agreement for the acquisition or disposition of property is signed. The following five sections contain information on the various factors.

Intention

A key factor used to distinguish between capital gain and business income is the intention of the taxpayer when they purchased the property. If an individual buys a property as an investment with the intention to resell it for a profit at a future date, the Exam Study Guide

CRA could consider the resale profit taxable as business income. The Tax Court would consider factors such as the reason for the sale, or a change in the seller’s circumstance. For farmlands, if an individual purchased or inherited the land and lived on it for a period of time, the CRA will likely treat the profit from the sale of the property as a capital gain. If the property was not acquired with the purpose of wanting to resell it, a brokerage was not involved, the property was not advertised, and no sign or other visible evidence of active marketing was present, the CRA may treat the profit as a capital gain. Example: An individual purchases a new home from a builder with the intent to reside in it. Within a short period of time from the offer being accepted, the individual gets a job transfer to another city and now needs to sell the home. In this case, if there was an increase in value from the sale of the home, it would be considered a capital gain and not business income.

Relationship to the taxpayer’s business

The Tax Court will classify profits as taxable business income if the taxpayer uses expertise acquired in their day-to-day business activities to generate a profit on the sale or purchase of a similar or related commodity. Example: A salesperson buying, renovating, and selling property for themselves and making a profit on the sale could be considered making business income. The salesperson, who is a buyer in this case, should seek legal and tax advice. When a salesperson is working with a buyer, this issue of relationship to the taxpayer’s business should be remembered. The salesperson should ask the buyer if they intend to live in the property indefinitely, or if they intend to sell or rent it out. The salesperson should advise the buyer to seek legal and tax advice to understand their tax obligations.

Frequency of transaction

The CRA will assess how often a taxpayer engages in the sale of capital property. The frequency usually suggests conducting a business for profit, resulting in assessment of the profit as business income. Even an isolated transaction can be considered taxable income, given the right circumstances.

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Nature of transaction and assets

Taxability as income may be indicated if the asset cannot normally be used either personally or for investment purposes. Mortgages are often judged under this test. If a mortgage is purchased at a substantial discount or has a short maturity date, the mortgagee may be viewed as being in a business that realizes profit from the transaction, thus invoking business income as opposed to capital gain.

Objects of the corporation

The Tax Court will review the articles of incorporation to determine if a transaction falls under the objects of the corporation and if it is part of their usual business activities. However, the Court may decide that a transaction, such as the sale of real estate for profit, is taxable, even if it was not stated as an objective of the corporation. Proving that a specific sale fell beyond the normal course of the company’s day-to-day activities is complicated and expert legal advice should be sought.

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Lesson 2 | Page 7 of 15

Salesperson’s Obligation

The tax provisions that apply to the sale of a property are complex and will vary. As a salesperson, you will need to know which situations may qualify for capital gains so that you can refer clients and customers to the appropriate professionals, typically lawyers and accountants. Examples of situations where a property will be subject to capital gains tax on disposition may include: • Sale of a single-family home used as a rental property • Sale of a cottage that is not the seller’s principal residence • Sale of a property that was inherited and temporarily rented but never lived in by the seller • Sale of a commercial property, whether occupied by the owner or tenanted You will need to bring up the subject of possible tax obligations with the seller before listing and selling the property. You must ensure the seller knows you are not qualified to provide expert advice on taxation. If a seller asks for tax-related advice, you will need to advise them to consult with a third-party professional who specializes in taxation. The seller should seek to understand their tax obligations and whether their property is subject to tax.

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Lesson 2 | Page 8 of 15

Gregor is a contractor who buys old properties, renovates them, and tries to sell them for a profit. He inherited a house from his mother, who recently passed away. Gregor wants to put his mother’s house on the market, but he is trying to determine whether it is worth the financial investment to renovate it first. As a part of this analysis, Gregor asks a salesperson for his advice on his potential tax obligations. Question #18: How should the salesperson respond? There are four options. There is only one correct answer.

1

Tell Gregor that if he sells the house without renovating, it will trigger a capital gains tax but it will not be taxed as business income.

2

Tell Gregor that if he renovates the house before selling it, it will trigger a capital gains tax, and his income will also be taxed as business income.

3

Tell Gregor that whether he sells the house as is or renovates it first, his potential tax implications will be the same.

4

Tell Gregor to consult an accountant for advice on his potential tax obligations.

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Lesson 2 | Page 9 of 15

Now that you have read about the difference between business income and capital gains, you will learn about the treatment of principal residences under the Income Tax Act. As a salesperson, you will need to know about a major tax exemption whereby a seller does not need to pay a capital gains tax if the property qualifies as a principal residence. The following screens will explain what a principal residence is and how to qualify a property as a principal residence.

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Lesson 2 | Page 10 of 15

A Principal Residence

A principal residence is a house, an apartment in a duplex or apartment building or condominium, a cottage, a houseboat, a trailer or mobile home, or a share in a co­operative housing corporation, where a person usually lives. The Income Tax Act specifies different tax treatment depending on whether a property is used as a principal residence or for generating business/investment income. While the principal residence is generally excluded from taxation under the Act, taxes are payable on the business and investment income. When a property is sold, the increase in value from when the property was purchased is viewed as a capital gain. According to Canadian tax laws, if the property was solely the principal residence of the seller for each year they owned it, the seller does not have to pay tax on the capital gain. If at any time during the seller’s ownership period, the property was not the principal residence (or not solely the principal residence) of the seller, the seller

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may have to pay the proportional amount of capital gains tax based on the change in value during the period of time the property was not used as a principal residence. Example: A buyer purchased a property in 2010 and moved into it as their principal residence. In 2015, the buyer bought another property as their principal residence and rented this one out until 2018, at which time they sold it. Under CRA rules, the increase in value from 2010 until 2015 would not be taxable as it was their principal residence. The increase in value from 2015 to 2018 would be taxable (probably as a capital gain) as it was no longer their principal residence. To qualify as a principal residence, certain criteria must be met: • The taxpayer must own the housing unit, either jointly or solely. • A family unit may only have one principal residence at a time. • The land upon which the housing unit sits cannot exceed approximately 1.24 acres. However, if the taxpayer can prove that they require more land for personal use and enjoyment, the Income Tax Act can consider more than 1.24 acres as part of their principal residence. For example, this may happen if the minimum lot size imposed by a municipality at the time the taxpayer bought the property is larger than a 1/2 hectare. Additional acreage could be treated as business income or capital gain depending on property use. • The unit must be ordinarily inhabited in the year (ordinarily inhabited is not defined in the Income Tax Act). • The unit must be designated as the taxpayer’s principal residence for the year. As a salesperson, if the seller you are representing is selling their principal residence and asks you about the possibility of having to pay capital gains tax, you will have to advise the seller to consult with a qualified thirdparty professional.

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Lesson 2 | Page 11 of 15

A salesperson is representing a homeowner who is selling his property. Before listing the property, the salesperson needs to ask the homeowner if the property is a principal residence. If the property is a principal residence, or if the homeowner is unclear as to what constitutes a principal residence, the salesperson will need to refer them to a tax expert, such as a lawyer or accountant. Question #19: Which of the following are criteria of a principal residence? There are four options. There are multiple correct answers.

1

The taxpayer must only have sole ownership of the housing unit.

2

The taxpayer may have only one principal residence in Canada.

3

The land upon which the housing unit sits does not exceed three acres.

4

The unit must be inhabited in the year.

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Lesson 2 | Page 12 of 15

The remainder of this lesson will discuss the impact of the Income Tax Act on the sale of a property by a nonresident. Non-residents may be subject to capital gains tax on the disposition of taxable Canadian property, which includes real estate located in Canada. As a salesperson, you will need to discuss residency status with a seller you are representing. This discussion is part of your duty to promote and protect the seller’s best interests and provide conscientious service (as outlined in Sections 4 and 5 of the Code). In all cases the seller, as well as the buyer, should be directed to the appropriate professional lawyer and tax expert.

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Lesson 2 | Page 13 of 15

Impact of the Income Tax Act on the Sale of a Property by a Non-resident

To ensure there are no outstanding tax obligations where the seller is a non-resident of Canada, Section 116 of the Income Tax Act imposes the tax obligation on the buyer. The buyer is expected to make reasonable inquiry about the seller’s residency status and take appropriate steps to protect themselves. Non-residency is particularly relevant in recreational areas where cottages and other vacation properties are located. If the seller is a resident of Canada, the buyer’s lawyer will ask the seller’s lawyer to have the seller sign a statutory declaration that they are not a non-resident (both at the time of signing the offer and upon sale completion). This would demonstrate that the buyer has made reasonable enquiry and there is no tax liability concern to the buyer. If the seller is a non-resident of Canada, the seller may pay the tax liability in advance of the completion of sale. The actual tax that the non-resident seller owes is calculated using the estimated sale proceeds minus the

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property’s adjusted cost base. The adjusted cost base is the original price paid for the property plus any legal fees or remuneration and capital costs for any improvements made to the property. Once the seller files the necessary documents and pays the required taxes, the Minister of National Revenue issues a certificate. If the seller obtains this certificate before closing, then no credit needs to be applied. And once again the buyer has demonstrated reasonable enquiry, and there is no tax liability concern to the buyer. If the tax certificate is not received prior to the completion of the sale, the buyer’s lawyer will hold back 25% of the sale price in order to have the money to pay the seller’s tax liability and protect the buyer from being responsible for it. If the buyer does not consider the residency status of the seller and/or the tax liability of the non-resident seller and pays the full purchase price to the seller, the buyer could become liable for the payment of taxes. This issue is not applicable where the seller is a resident of Canada. As a salesperson representing a seller who is a non-resident of Canada, you will need to advise them to seek professional third-party advice about the tax that may apply if they sell their property. As a salesperson representing a buyer, you will need to be aware of the obligations when dealing with non-resident sellers as the tax obligations, or part thereof, may fall to the buyer if not paid by the seller. A residency clause in an Agreement of Purchase and Sale is directed to a non-resident seller disposing of Canadian property. Tax calculation is based on anticipated capital gains payable. The Canada Revenue Agency may reassess actual amounts owing and may recapture any further amounts owing based on information that may not have been declared. The selling salesperson’s role will be to introduce and explain the clause to the buyer when going over the Agreement of Purchase and Sale. The buyer’s lawyer will protect them by enforcing the terms of the clause.

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Lesson 2 | Page 14 of 15

Impact of the Residency Clause in the Agreement of Purchase and Sale The onus of responsibility is on the buyer to confirm the seller's country of residence. The residency clause in an agreement of purchase and sale contains a seller's warranty that the seller is not and on closing will not be a non-resident of Canada under the provision of the Income Tax Act otherwise the buyer of any taxable Canadian property is required to withhold a calculated 25 per cent capital gains tax from the purchase price and remit such funds to the CRA unless the non-resident seller obtains a clearance certificate from the Minister of National Revenue/the CRA verifying that the non-resident seller has made appropriate arrangements to pay the tax. Where the non-resident seller does not obtain this certificate, the Canadian resident buyer is then responsible for the 25 per cent of the purchase price remittance unless after reasonable inquiry the buyer has no reason to believe that the non-resident person was not a resident in Canada.

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Lesson 2 | Page 15 of 15

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were covered in this lesson.

Differences between business income and capital gains

Business income refers to income a person earned from an activity undertaken for profit (such as, the sale of a property). Business income does not include salaries a person received from an employer. Capital gain refers to the increase in value of a capital property from the date the property was purchased or the valuation date of December 22, 1971 (whichever is later) to the date the property is sold. Capital gains are taxed differently than business income. With business income, the entire amount is taxed. With a capital gain, only 50% of it is taxed.

Treatment of a principal A principal residence is a house, an apartment in a duplex or apartment building or condominium, a cottage, a houseboat, a trailer or mobile home, or a share in a residence under the co­operative housing corporation, where a person usually lives. Income Tax Act The Income Tax Act specifies different tax treatment depending on whether a property is used as a principal residence or for generating business/investment income. While the principal residence is generally excluded from taxation under the Act, taxes are payable on the business and investment income.

Impact of the Income Tax Act on the sale of property by a nonresident of Canada

To ensure there are no outstanding tax obligations where the seller is a nonresident of Canada and the seller has not paid the tax required on the capital gain, Section 116 of the Income Tax Act imposes the tax obligation on the buyer. If the seller’s lawyer does not receive a certificate from the Ministry of National Revenue stating that the tax has been paid, the buyer’s lawyer will hold back a percentage of the sale price in order to have the money to pay the seller’s tax liability.

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Lesson 3 | Page 1 of 15

Lesson 3: Impact of Environmental Legislation on Property Ownership, Use, and Development

This lesson describes the purpose of the Environmental Protection Act (EPA), an environmental site assessment, and how these impact the activities of a salesperson. The role of the Ministry of the Environment, Conservation and Parks will also be outlined as it relates to the EPA.

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Lesson 3 | Page 2 of 15

Ontario’s Ministry of the Environment, Conservation and Parks has enacted regulations to safeguard the environment and ensure clean and safe air, land, and water. Violations of the ministry’s regulations could lead to significant penalties and litigation. As a salesperson, you must be aware of potential environmental hazards and issues so you can advise a seller or abuser to consult a third-party expert and to add the appropriate conditions to an offer. This lesson describes the impact of the Environmental Protection Act (EPA) and an environmental site assessment on real estate transactions. Upon completion of this lesson, you will be able to: • Identify the purpose of the EPA • Outline the role of the Ministry of the Environment, Conservation and Parks as it relates to compliance with the EPA • Describe the purpose of an environmental site assessment • Describe the impact of the EPA on the salesperson’s trading in real estate Throughout this lesson, you will participate in interactive activities and decision points to test your knowledge on the topics presented.

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Lesson 3 | Page 3 of 15

This lesson will first describe the purpose of the EPA. You will be given a brief overview of the EPA and its role in preventing pollution and protecting the environment and human health in Ontario. You should be familiar with this legislation as you will be required to identify potential environmental issues that may arise. You will also be required to perform due diligence in terms of directing a seller and a buyer to the correct third-party professionals.

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Lesson 3 | Page 4 of 15

Purpose of the EPA

The EPA is the primary environmental legislation impacting the ownership and use of real property in Ontario. The objective of this legislation is to promote sustainable development that benefits the present generation without compromising the future generation’s ability to meet their own needs. The EPA outlines processes, assessments, tools, and regulations to ensure: • The health of the environment is protected • Risks are assessed • Remediation is carried out • Citizen participation is encouraged The purpose of this legislation is to prevent pollution and protect the environment and human health. As a salesperson, you will want to have general awareness of typical hazards so that you can refer your seller or buyer to the appropriate third-party professional, such as a home inspector or an environmental site assessor. If a property does not comply with environmental guidelines established in the EPA, it may adversely affect the saleability and/or the sale price of the property under consideration. In the following screens, you will learn about the ministry that administers the EPA.

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Lesson 3 | Page 5 of 15

The Role of the Ministry of the Environment, Conservation and Parks

The Ministry of the Environment, Conservation and Parks works to promote clean and safe air, land, and water. The ministry ensures that communities are kept healthy by protecting and improving all aspects of the environment. As the ministry that administers and enforces the EPA, the Ministry of the Environment, Conservation and Parks is empowered to investigate matters concerning pollution, waste management, waste disposal, and litter management/disposal with an objective to protect and conserve the natural environment. The ministry exercises a range of powers, including search and seizure provisions to ensure adherence to environmental regulations. The EPA empowers officers to enter and search premises, interview individuals, and examine documents to ensure that violations of the EPA are dealt with expediently.

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The Ministry of the Environment, Conservation and Parks is empowered to issue various licenses, permits, and certificates of approval concerning a range of activities that impact the environment, such as: • Permits relating to private water wells • Approvals concerning herbicide use by cottage owners to control aquatic plant life • Remediation of contaminated lands • Land development and associated sewage works • Haulage of septic waste • Air quality including the control of emissions The ministry also issues approvals to allow businesses to emit a certain amount of pollution. These restrictions are intended to minimize the environmental impact. Air pollution includes chemical contaminants, odours, and noise. As a salesperson, you will need to be aware if the property under consideration has the required approvals from the Ministry of the Environment, Conservation and Parks. If there are environmental issues, you need to refer them to the appropriate third-party professional for closer scrutiny, as required by Section 8 of the Code of Ethics.

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Lesson 3 | Page 6 of 15

Now that you have learned about the EPA and how it protects the environment, you will learn how it will affect your activities as a salesperson.

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Lesson 3 | Page 7 of 15

Impact of the EPA on a Property Owner

Under the EPA, every person who causes or permits a spill and every person who has control over the contaminant must notify the Ministry of the Environment, Conservation and Parks and the affected municipality about the spill. They also need to take steps to prevent, eliminate, and remedy the adverse effect of the spill and to restore the natural environment. Where a person refuses to comply with an order or will not carry out the order competently, the ministry may itself do the work. The ministry may then order that person to pay for the work. The EPA grants the Ministry of the Environment, Conservation and Parks broad powers to issue a variety of administrative orders to deal with the discharge of contaminants causing adverse effect. The Ministry of the Environment, Conservation and Parks also plays a role in relation to approvals for the development of real estate.

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Example: When an individual is planning a multi-home development and applies for subdivision approval, the ministry would determine whether significant harm could be done to the environment as a result of the development. There might be a requirement for an Environmental Impact Study before any development work can start. This is true for municipalities, roads, and many forms of development where it might impact the property vegetation and animals (some of which may be species at risk). An environmental site assessment may also be required to confirm there is no negative impact of development. You will learn more about environmental site assessments later in this module. The EPA sets a national framework for environmental controls, but you and the homeowner will commonly encounter restrictions and regulations through the provincial Ministry of the Environment, Conservation and Parks, who oversees the EPA.

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Lesson 3 | Page 8 of 15

Impact of the EPA on a Salesperson’s Activities As a salesperson, you will need to have a general understanding of how the EPA applies in Ontario. You will not be expected to be an expert on environmental legislation, but having an awareness of how development can impact existing lands, the potential hazards, and key environmental provisions will be beneficial in your day-today interactions with a seller or a buyer. Four ways to minimize risk concerning environmental issues are: 1.

Be well-informed

2.

Ensure honesty and fairness in negotiations

3.

Draft accurate agreements/contracts

4.

Seek expert advice when necessary

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Lesson 3 | Page 9 of 15

The remainder of this lesson will discuss the different stages of an environment site assessment and their purpose.

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Lesson 3 | Page 10 of 15

Purpose of an Environmental Site Assessment

The purpose of an environmental site assessment is to determine if there is any environmental contamination (such as petroleum) and any contamination within the building (such as asbestos). The environmental site assessment is performed by a third-party professional. Anyone who has or had ownership or possession (such as a tenant) over a contaminated property and those who caused or contributed to it can be found liable for civil and regulatory liability (resulting in fines or imprisonment) for breaching environmental laws and for the clean-up of the property. A buyer should be aware of possible environmental problems with a property before purchasing to minimize the risk of any civil or regulatory liability. While an environmental site assessment is most often associated with industrial and commercial lands, they can also be used for different property types including residential (such as when there is a buried oil tank on a property, asbestos wrapping around a heating supply, or return lines from a boiler). As a salesperson you would recommend to a buyer that you are representing to engage the services of a third-party professional to obtain an Exam Study Guide

environmental assessment report (ESA) as part of your due diligence in cases where the property’s present or past uses are causes for concern (for example, an auto repair garage, landfill, or scrapyard) and the extent and nature of a possible violation is unknown. The environmental site assessment will help the buyer understand if any environmental concerns are associated with the site, the scope of those concerns, and the next steps needed to remedy the situation. If an environmental site assessment indicates that further investigation and possible remediation are needed, this may have a negative impact on the transaction. Some buyers may choose not to proceed with an offer on a site that requires remediation. However, other buyers may use the findings of the assessment during their negotiations. Additionally, they will require the seller to provide a Phase 3 remediation report indicating the contamination has been remediated according to the current ministry guideline complete with a reliance letter in favour of the buyer and the buyer’s lender.

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Lesson 3 | Page 11 of 15

Three Levels of Analysis Performed in an Environmental Site Assessment Environmental site assessments are broadly grouped under three levels of analysis, referred to as phases. Phase 1 and Phase 2 analysis could apply in the case of due diligence. Phase 3 involves remedial work. Now, you will learn more about each of the three levels of analysis performed in an environmental site assessment. The following three sections contain information on each phase.

Phase 1: Environmental site assessment

A Phase 1 environmental site assessment done by a certified environmental site assessor is intended to identify potential contamination. In a Phase 1 assessment, the assessor: • Visits the property to obtain visual evidence of actual or potential contamination • Reviews background documents, usually including historical aerial photos and title searches, and requests for information from the Ministry of the Environment, Conservation and Parks and the relevant municipality • Interviews site personnel, government officials, and third parties • Finally, reports the findings and conclusions In a Phase 1 assessment, no laboratory testing, sample gathering, intrusive investigation, or physical analysis is required. A Phase 1 assessment determines if reasons exist to believe that a property may have some form of contamination.

Phase 2: Environmental site assessment

A Phase 2 environmental site assessment is triggered by a Phase 1 assessment that raises the possibility of contamination. A Phase 2 assessment attempts to: • Confirm if an environmental problem exists • Quantify the extent of contamination • Suggest a remediation plan to resolve the issue

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A Phase 2 assessment requires collecting samples of soil and groundwater by on-site drilling. The samples are put through physical analysis and laboratory testing to determine if contamination exists and to what extent. As with a Phase 1 assessment, the assessor reviews and reports the results of the Phase 2 assessment. The reasons for performing a Phase 2 assessment are the same as those for a Phase 1 assessment. Additionally, a governmental authority can order it for sites where contamination is already known to exist as part of a remediation action plan to address it. It does not give a final, definitive conclusion on the environmental state of a property, but it does provide a better understanding of the condition of the land, groundwater, and structures in, on, and upon the property at that time. Much depends on the nature, extent, and location of the investigations made and samples taken, the qualifications and experience of the assessor, and the analysis of the samples.

Phase 3: Environmental site assessment

A Phase 3 environmental site assessment continues with the development of an environmental remediation strategy and work plan, which will be carried out. This assessment involves remediation of the site, which may be completed in a short period of time or may take months or years to complete. A Phase 3 environmental site assessment report confirms if the remediation was successful and if the site meets the required guidelines. When environmental clean-up is complete, a formal report is provided. The report outlines the follow-up monitoring for residual contaminants, if necessary. It also confirms contaminant removal, treatment, and the current status of the site. If remediation of the site is not feasible, the assessment report may include a site-specific risk assessment (SSRA) that defines the level of contamination and recognizes if there may be a level of developable use with certain restrictions.

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Lesson 3 | Page 12 of 15

A salesperson is working with a buyer who is interested in purchasing an old school that was later converted to a small engine repair shop. The buyer intends to convert this property into a single-family home. The salesperson advises the buyer to have an environmental site assessment done before purchasing the property. The buyer asks what to expect from this. Question #20: What can be determined from an engineer’s Phase 1 environmental site assessment report? There are four options. There are multiple correct answers.

1

Whether there is likelihood of some form of contamination

2

Whether a Phase 2 environmental site assessment is required

3

Steps required to remove contamination

4

Ways to monitor residual contamination

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Lesson 3 | Page 13 of 15

Renata wants to move closer to her son who lives in the United States so she can see her granddaughter more often. Her cottage in Ontario was built about three decades ago and is a bit dated. Renata made some recent renovations to make it look more attractive and saleable. Renata calls a salesperson and sets up an appointment to have the property listed for sale. Over coffee with the salesperson, she fondly recalls that her late husband singlehandedly built the cottage. Renata mentions that her cottage had an oil-fired furnace, but when they converted to gas 10 years ago, they did not remove the buried oil tank. The salesperson realizes that the cottage property may have an environmental issue as a result of the buried oil tank since it may have rusted and leaked oil into the soil. Question #21: What should the salesperson do? There are three options. There is only one correct answer.

1

Ask Renata if she got the required approvals from the Ministry of the Environment, Conservation and Parks when they built the cottage.

2

Advise Renata to consult with an environmental site assessor regarding her obligations with respect to the underground storage tank.

3

Advise the buyer that removing the tank is their responsibility, as Renata was unwilling to do so.

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Lesson 3 | Page 14 of 15

Steps to Prevent Violation of the EPA Situation: A seller is showing the salesperson their home for the first time. While viewing the basement, the salesperson notices something that could potentially violate the EPA: a pipe from the furnace leading through the foundation wall. This might indicate that there is a buried fuel oil tank just beyond the foundation, which may have become rusted and leaked oil into the soil. Steps must be taken to protect the seller. If the seller is not able to provide any pertinent details on the fuel tank, the salesperson should recommend the seller engage the services of a third-party professional to provide a report confirming the location and condition of the oil tank and if it is currently in use. The results and recommendations indicated in the report should be disclosed to any future buyers and what the seller is or is not willing to do to rectify the situation in order to comply with current legislation. Depending on the outcome after the third-party party professional inspection, an agreement of purchase and sale may have to contain specific clauses to ensure all parties to the agreement are fully aware of the circumstances surrounding the results of the report obtained and who will be responsible for any costs if any.

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Lesson 3 | Page 15 of 15

Congratulations, you have completed the lesson! There are four sections on this page with a summary of the key topics that were covered in this lesson.

Purpose of the EPA

The EPA is the primary environmental legislation impacting the ownership and use of real property in Ontario. The objective of this legislation is to promote sustainable development that benefits the present generation without compromising the future generation’s ability to meet their own needs.

Role of the Ministry of the Environment, Conservation and Parks as it relates to compliance with the EPA

As the ministry that administers and enforces the EPA, the Ministry of the Environment, Conservation and Parks is empowered to investigate matters concerning pollution, waste management, waste disposal, and litter management/disposal with an objective to protect and conserve the natural environment. The ministry exercises a range of powers, including search and seizure provisions to ensure adherence to environmental regulations. The EPA empowers officers to enter and search premises, interview individuals, and examine documents to ensure that violations of the EPA are dealt with expediently.

Impact of the EPA on the salesperson’s activities

A salesperson needs to have a general understanding of how the EPA applies to Ontario. Having an awareness of potential hazards and a general knowledge of key environmental provisions will be beneficial in their day-to-day interactions with a seller or a buyer.

Purpose of an environmental site assessment

The purpose of an environmental site assessment is to determine if there is any environmental contamination (such as petroleum) and any contamination within the building (such as asbestos). The environmental site assessment is performed by a third-party professional. Environmental site assessments are broadly grouped under three levels of analysis, referred to as phases. Phase 1 and Phase 2 analysis could apply in the case of due diligence. Phase 3 involves remedial work.

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Lesson 4 | Page 1 of 16

Lesson 4: Additional Legislation Impacting the Use and Potential Development of a Property

This lesson describes how the Provincial Policy Statement, 2020 under the Planning Act, Greenbelt Plan, and the Endangered Species Act, impacts property development and land use.

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Lesson 4 | Page 2 of 16

The Government of Ontario has enacted legislation to protect environmental areas of importance and endangered species. This lesson will help you understand how these types of legislation will impact you as a salesperson because they can impact and, in some cases, prohibit development. Upon completion of this lesson, you will be able to: • Outline the impact of environmental protection on property development within the Provincial Policy Statement, 2020 under the Planning Act and Greenbelt Plan • Identify the impact of the Endangered Species Act on property use in Ontario Throughout this lesson, you will participate in interactive activities and decision points to test your knowledge on the topics presented.

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Lesson 4 | Page 3 of 16

Ontario has many environmentally protected areas. Real estate development in these areas may be restricted or disallowed entirely. In the following screens, you will learn about the relevance of the Provincial Policy Statement, 2020 and Greenbelt Plan to specific geographic areas in Ontario and how they will impact your activities as a salesperson.

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Lesson 4 | Page 4 of 16

Provincial Policy Statement, 2020 Under the Planning Act and the Greenbelt Plan

The Provincial Policy Statement, 2020 is the statement of the government’s policies on land use planning. It applies province-wide and provides provincial direction on land use planning. The Provincial Policy Statement is issued under the authority of Section 3 of the Planning Act. Section 3 of the Planning Act requires that decisions affecting planning matters “shall be consistent with” policy statements issued under the Act. Land use planning decisions made by municipalities, planning boards, the Province, or a commission or agency of the government must be consistent with the Provincial Policy Statement. Provincial plans, such as the Greenbelt Plan, the Growth Plan for the Greater Golden Horseshoe, and the Growth Plan for Northern Ontario, build upon the policy foundation provided by the Provincial Policy Statement, 2020. They provide land use planning policies to address issues facing specific geographic areas in Ontario.

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The Greenbelt Act, 2005, provided for the creation of a Greenbelt Plan, protects about 1.8 million acres of environmentally sensitive land in the Golden Horseshoe. The Greater Golden Horseshoe is an area that is home to more than two-thirds of the province’s population and more than a quarter of Canada’s population. With its diverse economy, the Greater Golden Horseshoe also has some of Canada’s most productive and desirable farmland owing to its rich soil, more moderate climate, and substantial water resources. The Greenbelt Plan, the Oak Ridges Moraine Conservation Plan, and the Niagara Escarpment Plan work together to determine where urbanization should not take place. This collaboration ensures that agricultural, ecological, and hydrological features, areas, and functions are protected. As a salesperson working in any of these areas, you will need to be familiar with the Greenbelt Act, 2005 and the Greenbelt Plan because of their significant impact on residential and commercial development.

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Lesson 4 | Page 5 of 16

Lands Protected by the Greenbelt Plan

The Greater Golden Horseshoe is located in the heart of the Great Lakes region. The Greenbelt Act, 2005 protects about 1.8 million acres (723,400 hectares) of environmentally sensitive and ecologically important natural environments that include, as of 2017, the Oak Ridges Moraine, the Niagara Escarpment, the Parkway Belt West Plan Area, and the Glen Orchy Conservation Area. These areas provide clean air, clean drinking water, and varied flora and fauna; they also provide opportunities for recreational activities that benefit overall quality of life. As a salesperson, you will be required to know if a development under consideration falls within the Greenbelt area. You will need to understand the restrictions associated with lands within the Greenbelt Plan so you can inform a seller or buyer about these restrictions. In addition, determining if a development is in the Greenbelt area is part of your due diligence regarding material facts. According to Subsections 21(1) and 21(2) of the Code of Ethics:

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• If you have a seller or a buyer client, you must take reasonable steps to determine the material facts related to the property that may affect the client’s decision to sell or buy, and to disclose this information to them. • If you are providing customer service to a seller or a buyer, you must disclose to them material facts related to the purchase and sale that you know or ought to know.

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Lesson 4 | Page 6 of 16

Golden Horseshoe Growth Plan

The Greenbelt is part of Ontario's Greater Golden Horseshoe Growth Plan (Growth Plan). The Growth Plan clarifies where and how future urban structural growth should be accommodated and what must be protected for current and future generations. The Greenbelt Plan, the Growth Plan, the Niagara Escarpment Plan, and the Oak Ridges Moraine Conservation Plan use the Provincial Policy Statement, 2020 to form a land use planning framework that supports the economy, environment, and social infrastructure. Taken together, these plans specify Ontario’s Climate Change Strategy: the government’s commitment to reducing greenhouse gas emissions.

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Lesson 4 | Page 7 of 16

Impact of the Greenbelt Plan on Ontario Real Estate

Demand for single-family homes, such as detached and semi-detached houses, continues to grow at a steady rate, sometimes prompting environmental interests to clash with developmental needs. The coordinated land use planning review of the Growth Plan for the Golden Horseshoe has shown that the government has no intention to ease the Greenbelt restrictions. The Greenbelt Plan mainly affects owners who may want to develop their vacant land or expand properties that fall under the Greenbelt Plan areas. As a salesperson, you will need to know that the Greenbelt Plan includes a large and important strip of land and that development in these areas may be curtailed or disallowed. If you list and sell a property within areas included in the Greenbelt Plan, particularly land development projects, you must advise your seller or buyer to seek legal advice or guidance from the Ministry of Municipal Affairs and Housing and the local municipality directly. In addition, if a buyer wants to purchase and expand a property located within the Greenbelt Plan, you will be required to inform them that further development of property in the area may be restricted or banned and encourage them to seek advice from a professional planner and a lawyer.

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Lesson 4 | Page 8 of 16

Olivia is representing a new buyer, Aaron, who is interested in purchasing vacant land in the Golden Horseshoe. Olivia is concerned that the property is located within the Greenbelt and this could impact the buyer’s proposed use. She advises Aaron to consult with the Ministry of Municipal Affairs and Housing, professional planners, and lawyers to help ensure Aaron’s plans are not in conflict with the Greenbelt Plan. Question #22: If Aaron wants to build a detached home on farmland, it is appropriate for Olivia to advise him to seek expert advice to ensure his property complies with the Greenbelt Plan? There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 4 | Page 9 of 16

Olivia is representing a new buyer, Aaron, who is interested in purchasing vacant land in the Golden Horseshoe. Olivia is concerned that the property is located within the Greenbelt and this could impact the buyer’s proposed use. She advises Aaron to consult with the Ministry of Municipal Affairs and Housing, professional planners, and lawyers to help ensure Aaron’s plans are not in conflict with the Greenbelt Plan. Question #23: If Aaron wants to purchase a unit in a condominium development built in the Blue Mountains, it is appropriate for Olivia to advise him to seek expert advice to ensure his property complies with the Greenbelt Plan? There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 4 | Page 10 of 16

Olivia is representing a new buyer, Aaron, who is interested in purchasing vacant land in the Golden Horseshoe. Olivia is concerned that the property is located within the Greenbelt and this could impact the buyer’s proposed use. She advises Aaron to consult with the Ministry of Municipal Affairs and Housing, professional planners, and lawyers to help ensure Aaron’s plans are not in conflict with the Greenbelt Plan. Question #24: If Aaron wants to purchase some land in the Oak Ridges Moraine Area and build a rural residence, it is appropriate for Olivia to advise him to seek expert advice to ensure his property complies with the Greenbelt Plan? There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 4 | Page 11 of 16

Olivia is representing a new buyer, Aaron, who is interested in purchasing vacant land in the Golden Horseshoe. Olivia is concerned that the property is located within the Greenbelt and this could impact the buyer’s proposed use. She advises Aaron to consult with the Ministry of Municipal Affairs and Housing, professional planners, and lawyers to help ensure Aaron’s plans are not in conflict with the Greenbelt Plan. Question #25: If Aaron wants to purchase land in the area of the City of Kawartha Lakes, it is appropriate for Olivia to advise him to seek expert advice to ensure his property complies with the Greenbelt Plan? There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 4 | Page 12 of 16

The government is making continual efforts to protect and recover plants and animals that are at risk of disappearing from Ontario and to protect their habitat through the Endangered Species Act. You will now learn about how the Endangered Species Act will impact your activities as a salesperson.

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Lesson 4 | Page 13 of 16

The Endangered Species Act

In Ontario, more than 200 species are threatened due to loss of habitat, pollution, roads, invasive species, and other threats. Administered by the Ministry of Natural Resources and Forestry, the Endangered Species Act aims to protect these threatened plants, animals, and their habitats that are at a risk of disappearing. Each species is categorized into one of the following: • Extirpated: Exists somewhere in the world and at one time existed in the wild in Ontario but is now extinct in Ontario • Endangered: Exists in the wild in Ontario but is facing possible extinction or extirpation • Threatened: Exists in the wild in Ontario and is not endangered, but steps need to be taken to address factors threatening it • Special concern: Exists in the wild in Ontario and is not endangered or threatened, but biological characteristics and/or identified threats may cause it to become threatened or endangered

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Plants and animals classified as being endangered, threatened, or extirpated are automatically protected from harm or harassment. The habitat of species classified as endangered or threatened is also protected. Species classified as special concern are not protected. The Endangered Species Act sets out: • Timelines to strategize and plan recovery for at-risk species • Tools to help reduce human impact on species and their habitats • Tools to promote protection and recovery

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Lesson 4 | Page 14 of 16

Impact of the Endangered Species Act on Salespersons

The Endangered Species Act will impact real estate construction activities on sites that are home to an endangered species. Example: If a butternut tree, an endangered species, is found on a site, the homeowner is not permitted to cut the tree. The homeowner may also have to preserve the nearby land to provide the tree with a suitable environment to grow. If the site is home to an endangered or threatened animal, protection may be even greater. Example: The Jefferson Salamander is an endangered species that has been a source of numerous environmental and land use planning restrictions in the Waterloo Region and the County of Brant. A buyer wanting to develop a property in an area that could impact endangered species may be required to complete an Environmental Impact Study. The Environmental Impact Study will demonstrate whether the impact is non-existent or the development may not be permitted. A permit is required to build a new subdivision or install infrastructure that will affect a newly protected species or habitat. The permit establishes that certain rules are followed. The rules depend on: • When the project received approval

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• When the work began or will begin • The project’s current status • The project type • When a species was classified as threatened or endangered The Ministry of Natural Resources and Forestry can grant different types of permits or other authorizations for activities that would otherwise not be allowed, with conditions aimed at protecting and recovering species at risk. As a salesperson representing the seller or buyer, you will need to take reasonable steps to determine if there are any endangered species on a site and, if present, then disclose at the earliest practical opportunity before proceeding with a transaction. Even in a customer service relationship with a seller or a buyer, you will be required to disclose the material facts at the earliest practical opportunity. The potential buyer may have plans for the property that may be restricted under the Endangered Species Act. This information could influence the buyer’s decision to acquire the property.

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Lesson 4 | Page 15 of 16

Nelly is representing a buyer interested in purchasing vacant land. Nelly is excited to help the buyer find the perfect property. She advises the buyer that developing land is difficult because of regulations that limit or restrict land use. Nelly explains that one of these regulations is the Endangered Species Act. Question #26: When would the Endangered Species Act impact the buyer’s desired property? There are four options. There is only one correct answer.

1

If the desired property is near a forest with wildlife

2

If the desired property is in the Greenbelt zone

3

If the desired property is on a site that is home to a species at risk

4

If the desired property is near a lake or creek that is home to salmon and other wildlife

Exam Study Guide

Lesson 4 | Page 16 of 16

Congratulations, you have completed the lesson! There are two sections on this page with a summary of the key topics that were covered in this lesson.

Impact of environmental protection on property development within the Provincial Policy Statement, 2020 and Greenbelt Plan

The Provincial Policy Statement, 2020 provides the foundation for land use planning policies to address issues facing specific geographic areas in Ontario. The Greenbelt Plan, the Oak Ridges Moraine Conservation Plan, and the Niagara Escarpment Plan work together to determine where urbanization should not take place. This collaboration ensures that agricultural, ecological, and hydrological features, areas, and functions are protected.

Impact of the Endangered Species Act on property use in Ontario

In Ontario, more than 200 species are threatened due to loss of habitat, pollution, roads, invasive species, and other threats. Administered by the Ministry of Natural Resources and Forestry, the Endangered Species Act aims to protect these threatened plants, animals, and their habitats that are at a risk of disappearing.

The Greenbelt Plan includes a large and important strip of land, and development in these areas may be curtailed or disallowed.

The Endangered Species Act will impact real estate construction activities on sites that are home to an endangered species.

Exam Study Guide

Lesson 5 | Page 1 of 20

Lesson 5: Legislation Promoting Energy Conservation

This lesson describes how energy conservation initiatives impact the obligations of a property owner and the salesperson’s responsibilities to point out these issues to consumers so that they can seek advice from the appropriate professionals.

Exam Study Guide

Lesson 5 | Page 2 of 20

Energy efficiency, along with the efficient use of resources, is becoming increasingly important in residential and commercial construction and real estate negotiations. Residential buyers want energy savings and a clean environment; commercial investors want energy-efficient structures to reduce costs and increase profits. Upon completion of this lesson, you will be able to: • Identify the role of the Government of Canada relating to energy efficiency • Describe factors that contribute to an energy-efficient home • Describe the importance of green buildings in promoting energy efficiency • Outline the features of the EnerGuide program that promote energy efficiency in products and housing Throughout this lesson, you will participate in interactive activities and decision points to test your knowledge on the topics presented.

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Lesson 5 | Page 3 of 20

Many home buyers want homes that are more energy-efficient and greener so they can save energy, lower their utility bills, and reduce the impact on the environment. In this lesson, you will learn about the role that the federal government plays in promoting energy efficiency measures. You will also learn how a home can be made more energy-efficient and environmentally friendly. As a salesperson, you will use this knowledge in your conversations with a prospective buyer who wants an energy-efficient and/or green living space.

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Lesson 5 | Page 4 of 20

Role of Natural Resources Canada (NRCan) With advancements in technology, there are increasing opportunities to be energy-efficient. The role of Natural Resources Canada (NRCan) is to help Canadians take advantage of the advancements, specifically in terms of lowering energy costs, reducing emissions, and increasing the value of assets. NRCan plays a vital role in housing, industry, and transportation. It administers both the Energy Efficiency Act and other Energy Efficiency regulations and ensures that the energy-using products imported, manufactured, sold, or leased in Canada comply with both federal and provincial regulations. The Energy Efficiency Regulations impact these categories of energy-using products: • Household appliances • Water heaters • Heating and air-conditioning equipment • Lighting products • Electronic products • Refrigeration equipment • Other commercial and industrial products The Natural Resources Canada website has a list of energy efficiency regulations that apply to these products

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Lesson 5 | Page 5 of 20

An Energy-efficient Home

A new home can be made energy-efficient by using energy-efficient design, construction, and appliances. An energy-efficient home will be: • Well insulated and airtight with high-efficiency heating and cooling appliances that reduce energy bills • Furnished with low-flow showers and toilets that lower water usage and heating costs • Using energy-efficient lighting and appliances that lower energy and electricity consumption, including ones identified by the ENERGY STAR® program to be discussed later in this lesson The image here shows features that make a home energy-efficient.

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Lesson 5 | Page 6 of 20

Small Changes to Make a Home Energy-efficient Homeowners can make small changes to improve the energy efficiency of older homes. As a salesperson, you will discuss these home improvement methods with potential buyers. The following seven sections contain information on some of the changes that homeowners can make.

Use a programmable thermostat Use a programmable thermostat to automatically lower the home temperature at night and whenever the home is not in use for several hours.

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Seal air leaks Use weather stripping and caulking to prevent air leakage from doors and windows.

Replace old bulbs Replace old bulbs with ENERGY STAR® certified compact fluorescent lights (CFLs) or light emitting diodes (LEDs).

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Insulate hot and cold water pipes Insulate the first two metres of the pipes with foam sleeves or insulating wrap to reduce water heating costs and lower water consumption. Heat can escape from the hot water tank through cold water pipes as well as hot water pipes, and bare hot water pipes make you wait longer for hot water to come out of the faucets.

Upgrade the exhaust fans Replace existing exhaust fans with ENERGY STAR® certified exhaust fans and vent them outdoors. Use timers to reduce power usage.

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Use water-saving faucets, showerheads, and toilets Repair leaky faucets and, if feasible, install water-saving toilets, showerheads, and faucet aerators (which mix air with the water to restrict the flow of water from a tap without reducing water pressure thereby reduces the amount of water used).

Use power bars that do not consume standby power Replace existing power bars with models that have timers or master plugs that do not consume standby power.

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Lesson 5 | Page 7 of 20

Green Building

Green building refers to house construction techniques that promote: • Energy-efficiency and effective use of resources • Durability in component products • Sound environmental planning Green building is a broad initiative. At present, no standardized set of green building products or universally held standards exist. Green building advocates originally focused on resource conservation, such as water-efficient appliances, faucets, and fixtures, high-efficiency heating and cooling systems, renewable energy systems, heat recovery systems, solar power applications, and fuel cells. However, green proponents have expanded their perspective into related areas, such as non-toxic building products, solvent-free finishes and adhesives, improved indoor air quality, smart technologies, and adaptability/sustainability in housing design.

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Green building now includes broader-based initiatives involving environmental, energy, resource, and conservation management issues. New technologies promote energy conservation and lowered energy costs for both residential and commercial marketplaces. As a salesperson, you will need to make a seller and a buyer aware of the benefits of living in a green building and address concerns related to the relatively higher cost of the building. Some buyers may be willing to pay more for energy-efficient home features, such as solar-assisted or geothermal heating and cooling systems and new window technologies.

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Lesson 5 | Page 8 of 20

Rating Systems for Green Buildings Comprehensive home rating systems that certify green buildings are now available. These home rating systems provide an independent and reliable assessment of homes based on defined parameters. Some home rating systems may be identified by a sticker on the electrical panel, although other systems are only identified by a certificate given to the home owner. The following two sections contain information on the two rating systems.

Leadership in Energy and Environmental Design (LEED)

Leadership in Energy and Environmental Design (LEED) is an independent rating system that benchmarks the design, construction, and functioning of green buildings run by the Canada Green Building Council (CaGBC), a not-for-profit national organization. LEED provides the tools that a homeowner can use to measure and improve the energy efficiency of their building

R-2000

R-2000 was launched in the 1980s to encourage energy-efficient and environmentally responsible home construction. The R-2000 program, managed by the Office of Energy Efficiency (Natural Resources Canada), includes technical performance standards exceeding energy efficiency requirements set out in building codes. R-2000 is also considering additional factors, such as indoor air quality and sustainable material sourcing.

Exam Study Guide

Lesson 5 | Page 9 of 20

Factors that Help Make a Building Green Green building is a win-win situation. It addresses social issues and makes sound economic sense assuming a reasonable payback period for the added costs. The green building techniques that apply for residential and commercial buildings are similar. The following four sections contain information on the factors that builders and homeowners can consider to make their building green.

Ecological considerations Consideration for the natural environment can result in both economic and ecological benefits (for example, use of green roofs, retention of existing trees during construction, improved storm water runoff control, and effective use of indigenous plantings to increase energy conservation and minimize environmental impact).

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Indoor air quality Air quality within residential and commercial structures is a growing priority. Activities typically include filtration and ventilation systems for all building areas, sealed-combustion heating systems/appliances to minimize indoor air contaminants, recycled products where feasible in construction, restricted or non-use of products impacting indoor air quality (such as aerosols and certain types of cleaners), air intake monitoring, and the selection of environmentally friendly, non-toxic green building materials.

Waste recycling/diversion Waste management is also key in green building. Initiatives include recycling programs for organic and inorganic materials, grey-water reclamation systems, reduced water consumption through more efficient showerheads, faucets, and toilets, and use of recycled materials wherever possible.

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Energy efficiency Various techniques can reduce energy consumption. Passive methods, such as building orientation to maximize passive solar potential and appropriate shading, can be used. Structural/mechanical activities include: • Shading and glazing windows • Smart-window technologies • Insulation with a high thermal resistance (such as R50) • High furnace efficiency • Integrated furnace/hot water heating systems • Stationary fuel cell use (which generates electricity through an electro-chemical reaction —not combustion—providing clean, efficient, and reliable off-grid power) • Heat recovery ventilators (which reduce high humidity by replacing stale air with fresh warm air) • Energy-efficient lighting (Compact Florescent lamps and LED lights) • Zoned heating/cooling systems and improved ductwork distribution • Programmable thermostats and smart technologies

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Lesson 5 | Page 10 of 20

EnerGuide is the official mark of the Government of Canada used to rate and label consumer items, such as houses, light-duty vehicles, and some energy-using products, based on their energy efficiency. EnerGuide works with Canada’s Energy Efficiency Regulations and the ENERGY STAR® Canada program to improve energy efficiency. In this topic, you will learn about the key aspects of the EnerGuide program.

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Lesson 5 | Page 11 of 20

The EnerGuide Program EnerGuide is a program administered by the Office of Energy Efficiency pursuant to the Energy Efficiency Act and the Energy Efficiency Regulations. These statutory provisions promote the production, purchase, and use of energy-efficient products in the Canadian marketplace. The EnerGuide program includes EnerGuide for equipment and heating, ventilation, and air conditioning (HVAC), EnerGuide for houses, and EnerGuide for vehicles. The following two sections contain information on the EnerGuide programs.

EnerGuide for equipment and HVAC The EnerGuide label must be affixed to all new electrical appliances manufactured or imported into Canada. Affixing the label does not mean that the appliance is energy-efficient but rather that it has undergone federal standards testing. The consumption level shown on the label identifies the estimated energy use for a particular appliance in relation to other appliances of similar size and type. This information provides a comparison guide only, based on pre-determined testing standards and conditions. Usage patterns, energy rates, and other locational factors will impact energy consumed and savings realized.

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EnerGuide for houses EnerGuide for houses is an energy rating system designed to evaluate the efficiency of existing houses according to NRCan guidelines. EnerGuide for houses uses software to analyze house data and produce an energy-efficiency rating based on the home’s estimated annual energy consumption. The EnerGuide rating system, administered by Natural Resources Canada, measures a home’s energy performance using a unit of energy measurement known as a joule. The energy efficiency of a home is measured by its annual energy consumption in units known as gigajoules. A low number of gigajoules indicates a better energy performance of the house. Zero is the best energy performance a home can achieve. It shows that the home produces the energy it consumes. Older homes are typically less energy efficient than newer ones. An energy efficiency audit may determine the gigajoule rating when carried out by an industry professional. The evaluation usually takes into account five primary house components: • Airtightness and thermal resistance of the building envelope • Heating system

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• Domestic water supply • Ventilation system(s) • Permanently installed renewable energy equipment

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Lesson 5 | Page 12 of 20

ENERGY STAR® Symbol

The ENERGY STAR® symbol identifies the most energy-efficient products in the marketplace. The ENERGY STAR® program works in concert with EnerGuide labelling to inform consumers of the energy consumption level of selected products and identify products that are the most energy-efficient. ENERGY STAR® labels are most commonly seen by consumers on residential appliances. ENERGY STAR® is administered by the Office of Energy Efficiency (Natural Resources Canada), as is the case with EnerGuide.

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Lesson 5 | Page 13 of 20

ENERGY STAR® Rating

New homes can also qualify under ENERGY STAR® if they meet technical specifications set out under ENERGY STAR® and are built by an ENERGY STAR® qualified builder. The ENERGY STAR® name and symbol are trademarks registered in Canada by the United States Environmental Protection Agency and are administered and promoted by Natural Resources Canada. The technical specifications that determine the ENERGY STAR® rating relate to heating/cooling systems, ducts, windows, insulation levels in walls and ceilings, and ventilation/air leakage criteria—including the use of a recovery ventilation system (HRV). The efficiency level of the new home is stated on the EnerGuide label, which is attached to the electrical panel once an energy evaluation is completed by a qualified ENERGY STAR® energy evaluator. The label shown here indicates that the home is built to ENERGY STAR® for New Homes specifications and provides the homeowner with contact information for the home builder and evaluator. Exam Study Guide

New houses are rated on a scale of 0 to 100 with most new homes receiving a rating of 68 or higher. The minimum acceptable rating of an ENERGY STAR® home is 80 or higher. A rating of 80 indicates that the building performs better than 80% of similar buildings in terms of energy consumption. If the home does not meet a score of 80, then no label will be applied.

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Lesson 5 | Page 14 of 20

Energy Efficiency Evaluation Report

An EnerGuide evaluation can be completed for new construction and resale homes. For new homes, a preliminary analysis is conducted based on plans with final evaluation being conducted after home completion. An EnerGuide for houses label is affixed to the electrical panel. The Energy Efficiency Evaluation Report for both new and resale home contains the following information: • Efficiency rating • Estimated annual energy consumption and costs • Energy consumption by end use (including space heating, lighting and appliances, and hot water) • Estimated heat loss through various house components (including air leakage and ventilation, basement, ceilings, exposed floors, main walls, windows, or other openings) • Recommendations for retrofits that will reduce energy use

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Lesson 5 | Page 15 of 20

A prospective seller was considering making improvements to their 80-year-old house before putting it on the market. An energy efficiency evaluation report revealed the house had an energy efficiency rating of 25. Question #27: What could this rating indicate? There are five options. There are multiple correct answers.

1

Limited insulation

2

Low energy consumption

3

Dilapidated exterior siding

4

Poor southern exposure to the sun

5

Possibility of air leakage

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Lesson 5 | Page 16 of 20

Buyers Gagan and Simran, IT professionals with young children, are interested in purchasing a home designed to be environmentally sustainable. They view a property with their salesperson, Jason, that satisfies the definition of a green home. In reviewing the electrical and gas bills, they are surprised by the high costs that are indicated. Based on this information, the buyers are reconsidering the benefits associated with a green home. Question #28: If Gagan and Simran decide they are still interested in a green home, Jason should advise them to buy an old home at a lower cost, use the additional funds to install ENERGY STAR® appliances, and retrofit it to make it energy-efficient. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 5 | Page 17 of 20

Buyers Gagan and Simran, IT professionals with young children, are interested in purchasing a home designed to be environmentally sustainable. They view a property with their salesperson, Jason, that satisfies the definition of a green home. In reviewing the electrical and gas bills, they are surprised by the high costs that are indicated. Based on this information, the buyers are reconsidering the benefits associated with a green home. Question #29: If Gagan and Simran decide they are still interested in a green home, Jason should advise that green homes generally have reduced ecological footprints and provide a healthier indoor environment. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 5 | Page 18 of 20

Buyers Gagan and Simran, IT professionals with young children, are interested in purchasing a home designed to be environmentally sustainable. They view a property with their salesperson, Jason, that satisfies the definition of a green home. In reviewing the electrical and gas bills, they are surprised by the high costs that are indicated. Based on this information, the buyers are reconsidering the benefits associated with a green home. Question #30: If Gagan and Simran decide they are still interested in a green home, Jason should advise them that the initial investment in a green home may pay off in a few years due to improved energy efficiency; however, consultation with a third-party professional in this field is recommended. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 5 | Page 19 of 20

Buyers Gagan and Simran, IT professionals with young children, are interested in purchasing a home designed to be environmentally sustainable. They view a property with their salesperson, Jason, that satisfies the definition of a green home. In reviewing the electrical and gas bills, they are surprised by the high costs that are indicated. Based on this information, the buyers are reconsidering the benefits associated with a green home. Question #31: If Gagan and Simran decide they are still interested in a green home, Jason should advise them that there is a green home for every budget. If the cost of a LEED home is too expensive, an ENERGY STAR® home could be another option to consider. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 5 | Page 20 of 20

Congratulations, you have completed the lesson! There are four sections on this page with a summary of the key topics that were covered in this lesson.

Role of the government of With advancements in technology, there are increasing opportunities to be Canada relating to energy energy-efficient. The role of Natural Resources Canada (NRCan) is to help Canadians take advantage of the advancements, specifically in terms of efficiency

lowering energy costs, reducing emissions, and increasing the value of assets through various initiatives. NRCan plays a vital role in housing, industry, and transportation. It administers both the Energy Efficiency Act and Energy Efficiency Regulations and ensures that the energy-using products imported, manufactured, sold, or leased in Canada comply with both federal and provincial regulations.

Factors that contribute to an energy-efficient home

A new home can be made energy-efficient by using energy-efficient design, construction, and appliances. Homeowners can make small changes to improve the energy efficiency of older homes.

Green building

Green building refers to house construction techniques that promote energyefficient, effective use of resources, durability in component products, and sound environmental planning. Comprehensive home rating systems that certify green buildings are now available. These home rating systems provide an independent and reliable assessment of homes based on defined parameters.

EnerGuide program

EnerGuide is the official mark of the Government of Canada used to rate and label consumer items, such as houses, light-duty vehicles, and some energyusing products, based on their energy efficiency. EnerGuide works with Canada’s Energy Efficiency Regulations and the ENERGY STAR® Canada program to improve energy efficiency.

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Lesson 6 | Page 1 of 13

Lesson 6: Legislation Impacting New Home Purchases

This lesson describes how the Ontario New Home Warranties Plan Act applies to the construction of residential structures and how it impacts the activities of a salesperson. It also explains the warranty coverage provided to owners under the Ontario New Home Warranties Plan.

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Lesson 6 | Page 2 of 13

As a salesperson, when working with a buyer interested in purchasing a newly constructed home, you will have to search for a property that matches the buyer’s needs. You will need to discuss potential issues with the buyer regarding new home construction, such as the completion timeline and the standards of construction. This lesson will help you understand how the Ontario New Home Warranties and Protection Plan protects buyers of newly constructed homes. Upon completion of this lesson, you will be able to: • Identify how the Ontario New Home Warranties Plan Act applies to the construction of residential structures • Outline the warranty coverage provided to owners under the Ontario New Home Warranties Plan Throughout this lesson, you will participate in interactive activities and decision points to test your knowledge on the topics presented.

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Lesson 6 | Page 3 of 13

Scope of the Ontario New Home Warranties Plan Act

The Ontario New Home Warranties Plan Act governs most new home construction. This legislation outlines warranty coverage for new homes and condominiums in Ontario. The warranty requires every builder and vendor selling new homes to warrant that a home is constructed in an efficient and competent manner, free from defects in material, fit for habitation, constructed in accordance with the Ontario Building Code, free of major structural defects, and subject to any other warranties as prescribed by the regulations. In addition, there are provisions regarding protection for the buyer’s deposit, delayed closing, and substitution of finishes during construction. You will learn more about these later. The Tarion Warranty Corporation is a not-for-profit corporation that administers the Ontario New Home Warranties Plan Act on behalf of the provincial government. Tarion ensures that homeowners receive the warranty coverage provided under the legislation (usually referred to as statutory warranty coverage). Further, Tarion is responsible for ensuring that builders meet minimum service standards when fixing or otherwise resolving warrantied items under the statutory warranty coverage. The total coverage available on each home or condominium unit is capped at $300,000. A maximum of $15,000 applies to warrantied damage that involves environmentally harmful substances. Claims involving septic systems are subject to a $25,000 limit. Condominium common elements are covered for a total of $50,000 times the

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number of units to a maximum of $2.5 million. The total coverage for a condominium project (units and common elements combined) is capped at $50 million.

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Lesson 6 | Page 4 of 13

Requirement to Enrol a Home

Anyone building or selling new homes (including condominiums) in Ontario must be registered with Tarion. The Ontario New Home Warranties Plan Act warrants that any builder who constructs (or offers to construct) a new home must be registered with Tarion and must meet the prescribed requirements. Similarly, any vendor who sells or transfers (or offers to sell or transfer) a new home must be registered with Tarion and must meet the prescribed requirements. The builders and vendors of new homes are required to enrol the new homes prior to construction and to provide the required warranties. Builders and vendors enrol new homes by submitting enrolment forms along with prescribed fees. As a salesperson, you will need to check if the builder or the vendor under consideration is registered with Tarion.

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Lesson 6 | Page 5 of 13

Warranty Coverage Under the Ontario New Home Warranties Plan, builders and vendors of new homes in Ontario must provide warranty coverage to buyers. A home is eligible for three warranties with specific coverage for one-, two-, and seven-year periods. Each warranty period for a new home or condominium unit begins on the date of possession, except for the warranty on a condominium’s common elements, which begins upon the registration of the condominium declaration and description. The following three sections contain information on the three types of warranty programs.

One-year warranty protection

The builder warrants for one year from the date of possession that the home is free from defects in construction and materials, is fit to live in, meets the Ontario Building Code requirements, and has no major structural defects as outlined under the seven-year warranty.

Two-year warranty protection

The two-year warranty addresses items, such as: • Water seepage through the basement or foundation walls (in condominiums, this protection includes all below-ground areas, such as parking garages) • Defects in materials and work (including caulking around windows and doors) so that the building envelope prevents water penetration • Defects in materials and work in the electrical, plumbing, and heating delivery/distribution systems • Defects in materials and work that result in the detachment, displacement, or deterioration of exterior cladding, leading to detachment or serious deterioration • Ontario Building Code violations in relation to health and safety provisions • Major structural defects as outlined under the seven-year warranty

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Seven-year warranty protection

The seven-year warranty addresses major structural defects as defined in the Ontario New Home Warranties Plan Act as: • Any defect in materials or work that results in the failure of a load-bearing part of the home’s structure • Any defect in materials or work that significantly and adversely affects the buyer’s use of the building as a home

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Lesson 6 | Page 6 of 13

Salesperson’s Obligations

As a salesperson, when you are involved in the marketing and sale of a new home, you will have to obtain detailed warranty information about the property from the builder or the seller so you can counsel your buyer appropriately. Ask the builder for its registration number and the home’s enrolment number. Condominiums should have an enrolment number for each unit and a number for the common elements. When a home resells, the warranty stays with the home up to the end of the warranty period. A subsequent buyer may assume any remaining warranties. When dealing with the resale of a newer home, you should check details of the original purchase (such as name of builder, enrolment number, and warranty start date) to determine whether statutory warranty coverage remains for the home. This information is also available on the Certificate of Completion and Possession sticker located on the electrical panel and the Warranty Certificate. You can also obtain this information by contacting Tarion.

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Lesson 6 | Page 7 of 13

Exclusions to Warranty Coverage

As a salesperson, you will need to be familiar with various properties that are excluded under the Ontario New Home Warranties Plan Act. While this is not an exhaustive list, some of the exclusions are listed here: • Temporary or seasonal homes (such as cottages not built on permanent foundations and not insulated sufficiently to enable year-round living) • Homes built on existing footings/foundations (for example, a builder having demolished an existing residential structure but leaving the foundation intact and rebuilding the house from the foundation up) • Homes that have been lived in or rented out by the builder or the vendor before the sale to the first owner • Existing rental residential buildings converted to and registered as residential condominiums • Residential properties held for investment purposes by limited partnerships in which investors purchase interests or units (The purchase of a partnership interest does not fall under the definition of a home.) • Homes in which the contractor only erects the shell and the owner completes/finishes the interior work • An owner owning a vacant lot and contracting the building of a home through subcontractors because the owner is not deemed to be a builder Exam Study Guide

As a general guideline, homes purchased from a trustee or receiver do not have coverage, but as with all exclusions, Tarion should be contacted directly for guidance. You will need to know if a new home or condominium purchased for rental purposes is covered as the new owner is not required to occupy the home. Purchasers considering new residential properties not covered by the Ontario New Home Warranties Plan may want to pursue private contractual warranties. Alternatively, contractors may furnish such warranties (for example, large-scale building conversion projects).

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Lesson 6 | Page 8 of 13

Sasha is representing a home buyer, Jake. As Sasha searches for the perfect property, she tells Jake that, depending on the type of property and its age, it may be covered under the Ontario New Home Warranties Plan. Question #32: If Jake purchases a small, uninsulated seasonal cottage constructed by a local builder, the property would be covered under the Ontario New Home Warranties Plan. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 6 | Page 9 of 13

Sasha is representing a home buyer, Jake. As Sasha searches for the perfect property, she tells Jake that, depending on the type of property and its age, it may be covered under the Ontario New Home Warranties Plan. Question #33: If Jake purchases a new condominium, the property would be covered under the Ontario New Home Warranties Plan. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 6 | Page 10 of 13

Sasha is representing a home buyer, Jake. As Sasha searches for the perfect property, she tells Jake that, depending on the type of property and its age, it may be covered under the Ontario New Home Warranties Plan. Question #34: If Jake purchases a home built a year ago, which did have warranty coverage, the property would be covered under the Ontario New Home Warranties Plan. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 6 | Page 11 of 13

Sasha is representing a home buyer, Jake. As Sasha searches for the perfect property, she tells Jake that, depending on the type of property and its age, it may be covered under the Ontario New Home Warranties Plan. Question #35: If Jake’s contractor builds the shell of his home while Jake finishes the interior himself, the property would be covered under the Ontario New Home Warranties Plan. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 6 | Page 12 of 13

A buyer is considering the purchase of a newly built home and asks the salesperson if it would be covered under any building warranty. The salesperson explains that it would be covered under the Ontario New Home Warranties Plan. The buyer then asks the salesperson for more information about the plan. Question #36: Which are the correct statements about the Ontario New Home Warranties Plan? There are five options. There are multiple correct answers.

1

It outlines warranty coverage for new homes and condominiums in Ontario.

2

It allows homes to be eligible for five types of warranty coverage on the building.

3

It requires that if the home changes ownership, a new warranty must be purchased by the new owners.

4

It requires that a home is constructed in an efficient manner and free from defects in material.

5

It requires that a home be constructed to be architecturally sound and aesthetically appealing

Exam Study Guide

Lesson 6 | Page 13 of 13

Congratulations, you have completed the lesson! There are two sections on this page with a summary of the key topics that were covered in this lesson.

Scope of the Ontario New Home Warranties Plan Act

The Ontario New Home Warranties Plan Act governs most new home construction. This legislation outlines warranty coverage for new homes and condominiums in Ontario. The warranty requires every vendor to warrant that a home is constructed in an efficient and competent manner, free from defects in material, fit for habitation, constructed in accordance with the Ontario Building Code, free of major structural defects, and subject to any other warranties as prescribed by the regulations. In addition, there is protection for the buyer’s deposit, delayed closing, and substitution of finishes during construction. Tarion, the provincial warranty authority, administers the Ontario New Home Warranties Plan Act and regulates the new home building industry.

Warranty Coverage under the Ontario New Home Warranties Plan Act

Under the Ontario New Home Warranties Plan Act, builders and sellers of new homes in Ontario must provide warranty coverage to buyers. According to the Plan, a home is eligible for three warranties with specific coverage for one-, two-, and seven-year periods.

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Lesson 7 | Page 1 of 19

Lesson 7: Key Considerations Under the Ontario Fire Code and Ontario Building Code

This lesson describes how the Ontario Fire Code and the Ontario Building Code apply to existing residential structures and how they impact the obligations of a homeowner, and a salesperson’s responsibility to make consumers aware of these obligations.

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Lesson 7 | Page 2 of 19

Shops and condos During interactions with a prospective seller or buyer, as a salesperson, you will encounter issues related to building code requirements and minimum construction standards in both residential and commercial real estate. You will need to be aware of the relevant building codes so you can identify violations and advise the seller or the buyer accordingly. Upon completion of this lesson, you will be able to: • Outline the purpose of the Ontario Building Code • Identify key considerations for a salesperson regarding construction and renovations that would require a building permit • Outline the relevance of the Ontario Fire Code in relation to existing structures • Identify the requirement to install smoke and carbon monoxide alarms in residential dwellings Throughout this lesson, you will participate in interactive activities and decision points to test your knowledge on the topics presented.

Exam Study Guide

Lesson 7 | Page 3 of 19

In the first part of this lesson, you will learn about the Ontario Building Code and how it impacts situations involving the listing and sale of new construction and structures that have been renovated.

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Lesson 7 | Page 4 of 19

Ontario Building Code

The Ontario Building Code sets out minimum standards for building design and provisions regarding building safety, fire protection, and structural integrity. The Ontario Building Code is a regulation under the Building Code Act, 1992 that generally follows the National Building Code of Canada. The Ontario Building Code also contains requirements that exceed the national codes to reflect provincial needs and circumstances. For example, Ontario amended the Ontario Building Code to: • Allow the construction of mid-rise wood buildings up to six floors to support increased affordable construction options and the forestry sector • Enhance barrier-free requirements for buildings to support accessibility

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Lesson 7 | Page 5 of 19

Administration of the Ontario Building Code The Building and Development Branch of the Ministry of Municipal Affairs and Housing administers the Ontario Building Code. The ministry reviews and amends the Ontario Building Code approximately every five years. Amendments reflect changes in technology and emerging public safety issues.

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Lesson 7 | Page 6 of 19

Common Projects that Require a Building Permit

A person cannot construct or demolish a building as defined in the Ontario Building Code unless a building permit (sometimes referred to as a construction permit) is issued. Homeowners who are unaware of this requirement inadvertently violate the Ontario Building Code by not obtaining a building permit for a home renovation project. Building permits are typically required for a variety of projects. For example: • Finishing previously unfinished spaces, such as family rooms, recreation rooms, or attics • Repairing and underpinning of foundations • Installation of pools • Construction of decks in excess of a specific height above the ground • Construction of any building in excess of 10 square metres • Construction of attached and detached garages • Renovation or repair of a building As a salesperson, you will need to advise the seller or the buyer to contact their local municipal building department if they have any questions about the requirement to obtain a building permit.

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Lesson 7 | Page 7 of 19

Common Projects that do not Require a Building Permit

The requirements for building permits may differ across municipalities. Examples of projects where a building permit may not be required include: • Building an uncovered platform or deck where the deck is not attached to a residential building and does not exceed a specified height • Mounting a skylight in a building that does not exceed three floors and does not require removing more than one rafter, joist, or other similar structural member (with the exception of a truss) • Re-cladding a building that does not exceed three floors with non-combustible material other than brick or stone veneer • Installing or replacing a sump pump, cooling and heating systems, air purifiers, and other similar home appliances • Adding or replacing insulation, a furnace, or a boiler • Replacing windows, doors, or existing roofing material, provided no structural work is required • Repairing and replacing plumbing fixtures

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As mentioned in the previous screen, you will need to advise the seller or the buyer to contact the local municipal building department if they have any questions about the requirement to obtain a building permit.

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Lesson 7 | Page 8 of 19

Key Considerations for a Salesperson

Homeowners sometimes start construction projects without obtaining a building permit. Example: A homeowner may begin work on their basement without applying for a building permit. Even if renovations comply with building code standards, a building permit is required to ensure compliance to the Ontario Building Code. In the event of violations, the municipality can impose heavy fines on the homeowner ($50,000 for a first offence and up to $100,000 for subsequent offences) or order the structure to be removed. In extreme cases, the municipality can deem the house unfit to live in. A homeowner must obtain a building permit, specifically for any work that may impact the structure of the building. As a salesperson, when you are representing a buyer, you will have an obligation to discover and disclose material facts about a property, as required by the Code of Ethics. If there is something about a property that you think would have required a building permit, you should ask the listing salesperson whether one was obtained. If a required permit was not obtained and the buyer wishes to proceed with an offer on the property, this should be brought to the attention of the buyer’s lawyer.

Exam Study Guide

Lesson 7 | Page 9 of 19

Lucas has shown a property to Charu, a buyer he is representing. The property has a 1,200-square-foot bungalow with a new addition: a 400-square-foot family room on the main floor. The property seems to be of exceptionally high quality and appears to have been done in accordance with the Building Code. Charu likes the property and wants to make an offer. Question #37: What can Lucas do to protect his buyer from future problems as a result of the addition? There are four options. There are multiple correct answers.

1

Ask the listing salesperson if there are any building permit records available for construction of the family room.

2

Check with the municipal office to see if a building permit was issued for the construction of the family room.

3

Have the property evaluated by a home inspector if a building permit for the family room is not available.

4

Ignore the need to review the building permit for the family room as the property appears to be in good condition.

Exam Study Guide

Lesson 7 | Page 10 of 19

Fire safety in residential and commercial dwellings will be an important consideration when you begin to list and sell a property. In this topic, you will learn how the Ontario Fire Code impacts existing structures, including the retrofitting of such structures.

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Lesson 7 | Page 11 of 19

Ontario Fire Code

The Ontario Fire Code provides for the safety of occupants in existing buildings through the elimination or control of fire hazards in and around buildings, the maintenance of life safety systems in buildings, and the establishment of a fire safety plan in those buildings where necessary. The Fire Protection and Prevention Act, in addition to being the enabling legislation for the Ontario Fire Code, sets out responsibilities for fire protection services; the duties and powers of the fire marshal and those appointed by the fire marshal; rights of entry in emergencies and fire investigations; inspections and related orders, offences, and enforcement; recovery of costs; and employment and labour relations issues. The Ontario Fire Code requires that: • All buildings occupied by tenants and visited by members of the public should have fire alarm systems, smoke and heat detectors, carbon monoxide alarms, and sprinkler systems. In addition, fire doors and their

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automatic closers must be kept operational. In addition to provincial statute, a buyer needs to investigate the municipal bylaws to understand the impact of the Ontario Fire Code on the property under consideration. The requirements may differ based on the size of the building, purpose of use, and the city bylaws. • Where possible, the alarm system should be connected to a monitoring station so there is immediate response in the event of fire. • Apart from the alarm system, hand-held fire extinguishers and fire hoses should be installed on every floor. • Fire prevention systems and equipment installed in a building should be inspected regularly to ensure they are operational.

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Lesson 7 | Page 12 of 19

Difference Between the Ontario Building Code and the Ontario Fire Code

The Ontario Fire Code is a regulation made under the Fire Protection and Prevention Act, 1997 consisting of a set of minimum requirements respecting fire safety within and around existing buildings and facilities. This Provincial legislation enables a municipality to ensure all buildings are maintained to an acceptable standard. The Code is a Regulation under the Fire Protection and Prevention Act and serves as a maintenance document to the Ontario Building Code. The Building Code Act, 1992 (BCA) lays out the legislative framework governing the construction, renovation, demolition and change of use of buildings in Ontario. The Building Code is a regulation made under the Building Code Act and sets out technical and administrative requirements. The Ontario Building Code applies to construction of new buildings and alterations, additions, and changes within existing buildings. On the other hand, the Ontario Fire Code regulates fire safety in existing structures (including two-unit residential occupancies). Exam Study Guide

Part 3 of the Ontario Building Code sets out requirements concerning fire protection, occupant safety, and accessibility in the construction of new buildings or the renovation of existing ones. The Ontario Building Code provides detailed minimum standards for various types of buildings and occupancy requirements and addresses issues, such as fire resistance, fire separations and closures, firewalls (a portion of building’s passive fire protection systems), and flame-spread ratings for finishes and coverings. The Ontario Building Code also details fire safety provisions involving fire alarm and detection systems, provision for firefighting equipment, additional requirements for selected types of buildings, safety within floor areas by type of occupancy, exits, and other standards designed to maximize occupant safety. As of August 6, 2001, carbon monoxide alarms are mandatory in all new residential buildings that contain a fuel-burning appliance or a storage garage.

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Lesson 7 | Page 13 of 19

Retrofit Requirements When new Ontario Fire Code regulations are passed, a property may require some upgrades or retrofits to comply with it. As a salesperson, you will need to consider the retrofit status of the property—specifically for twounit residential properties—to avoid an unanticipated retrofit expense for the buyer. If a home has an accessory apartment in the basement, you will want to know if the secondary unit meets the standards of the Ontario Fire Code, if it has achieved retrofit status, and if the use of the basement as an accessory apartment is permitted under municipal zoning by-laws. It is the seller’s obligation to disclose the retrofit status of the accessory apartment when listing the property. For a single-family home equipped with fuel burning appliances, such as oil, gas, and propane, the retrofit requirements are: • Smoke alarms (which must be placed outside bedroom areas and on every level of the dwelling, including the basement) • Carbon monoxide alarms (which must be adjacent to each sleeping area and on each floor) The following four sections contain information on the fire safety provisions that all two-unit residential properties need to incorporate.

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Containment Containment is having the adequate separation between residential units to protect occupants living in a unit from a fire occurring in the other unit. Example: The walls or ceiling between residential units must be made of fire-resistant or fire-retardant material.

Means of egress Means of egress is having at least two exits from the unit, such as a door to the staircase and a window that is easily accessible and large enough for the occupants to climb out.

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Smoke and carbon monoxide alarms Smoke and carbon monoxide alarms are required to detect fire and carbon monoxide. The Ontario Fire Code requires working smoke alarms on every level of a property including the basement and outside all sleeping areas. Carbon monoxide alarms are required near all sleeping areas in residential homes that contain at least one fuel-burning appliance (gas water heater, gas furnace), fireplace, or an attached garage. Multiresidential properties where a fuel-burning appliance or a fireplace is installed in the apartment suite, a CO alarm is required to be installed adjacent to each sleeping area within the suite. If the apartment building’s service room contains a fuel-burning appliance associated with building services, a CO alarm is required to be installed in the service room. It is the landlord’s responsibility to comply with this legislation.

Electrical safety Electrical safety includes having a satisfactory inspection of the electrical wiring by an Electrical Safety Authority inspector before obtaining retrofit status for the accessory apartment. Once any deficiencies are corrected, the Electrical Safety Authority inspector will re-inspect the unit and issue a certificate.

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Lesson 7 | Page 14 of 19

The Ontario Fire Code specifies when and where smoke alarms and carbon monoxide alarms should be installed. In this topic, you will learn about the requirements related to smoke alarms and carbon monoxide alarms so that you will be able to point out any deficiencies you notice to your buyer when you conduct a visual inspection of a property.

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Lesson 7 | Page 15 of 19

Ontario Fire Code Requirements for Smoke Alarms

The Ontario Fire Code requires every home to have working smoke alarms on every storey, and smoke alarms must be installed outside all sleeping areas. These requirements apply to all single-family, semi-detached, and town homes, whether owner-occupied or rented. A smoke alarm is a combined smoke detector and audible device designed to sound an alarm within the room or suite in which it is located when smoke is detected. An illustration indicating the proper smoke alarm placement is shown here. Both homeowners and landlords who do not meet smoke alarm requirements could receive a $360 fine or a fine of up to $50,000 for an individual and $100,000 for a corporation.

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Lesson 7 | Page 16 of 19

Ontario Fire Code Requirements for Carbon Monoxide Alarms

Carbon monoxide is a colourless, odourless, and tasteless gas that can cause flulike symptoms and, in higher concentrations, death. It occurs when fuels such as propane, natural gas, heating oil, or wood have insufficient air to burn off completely. The Ontario Fire Code (which only applies to existing structures) requires that a carbon monoxide alarm be installed adjacent to each sleeping area of a single-family dwelling that contains a fuel-burning appliance, fireplace, or an attached garage. For a multi-family dwelling (such as a condominium or apartment building), a carbon monoxide alarm is required adjacent to each sleeping area where: • The unit contains a fuel-burning appliance or fireplace within the suite • The unit has a common wall or common floor/ceiling assembly with a storage garage or a service room containing a fuel-burning appliance

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For multi-family dwellings, a carbon monoxide alarm is also required within the service room containing the fuelburning appliance. Alarms can be permanently wired, battery operated, or plugged into an electrical outlet.

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Lesson 7 | Page 17 of 19

Smoke Alarms and Carbon Monoxide Alarms in Rental Residential Units

In rental residential units, the landlord is expected to ensure that the smoke alarms and carbon monoxide alarms are in working condition. However, a tenant or any other occupant can be held liable for intentionally disabling an alarm and making it inoperable. Tenants and any other occupants are expected to ensure the smoke alarms are always in working order. For this reason, they are expected to inform the landlord if: • The low battery signal is activated on battery-operated smoke alarms • The “power on” indicator malfunctions on AC-powered smoke alarms • The smoke alarm is damaged or any electrical problems that may affect the functioning of the alarms occurs The landlord will then:

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• Take steps to replace or repair a malfunctioning or damaged smoke alarm • Make arrangements to test the smoke alarm and ensure it is working appropriately any time the tenant is away for seven or more days The tenant is required to support the landlord in performing the required testing and maintenance activities. The guidelines that apply for smoke alarms also apply for carbon monoxide alarms. A tenant must be given a copy of the carbon monoxide alarm manufacturer’s maintenance instructions, and that tenant must notify the landlord, as soon as they become aware, that the carbon monoxide alarm is disconnected, impaired, or not operating. It is illegal for anyone to disarm the alarm. A landlord needs to test the carbon monoxide alarm: • Annually, and after every change in tenancy • After the battery is replaced if the alarm is battery-operated • After any change is made to an electrical circuit, if the alarm is connected to an electrical circuit

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Lesson 7 | Page 18 of 19

A potential buyer asks his salesperson about an unoccupied house he would like to purchase with the intent to rent it out to a tenant. When viewing the home, the salesperson notices the absence of smoke alarms. Question #38: What recommendation can the salesperson provide to the buyer? There are four options. There is only one correct answer.

1

Advise the buyer to ask the seller to install smoke alarms on every floor before the transaction has been completed.

2

Advise the seller to install one smoke alarm on every floor before putting the property up for sale.

3

Advise the buyer to consult with the fire department and identify places where the alarms need to be installed, after the transaction has been completed.

4

Advise the buyer to ensure their prospective tenants install smoke alarms before they move into the property.

Exam Study Guide

Lesson 7 | Page 19 of 19

Congratulations, you have completed the lesson! There are four sections on this page with a summary of the key topics that were covered in this lesson.

Purpose of the Ontario Building Code

The Ontario Building Code sets out minimum standards for building design and provisions regarding building safety, fire protection, and structural integrity.

Requirement for a building permit

A person cannot construct or demolish a building as defined in the Ontario Building Code unless a building permit (sometimes referred to as a construction permit) is issued. Homeowners who are unaware of this requirement inadvertently violate the Ontario Building Code by not obtaining a building permit for a home renovation project. The requirements for building permits may differ across municipalities.

Relevance of the Ontario Fire Code

The Ontario Fire Code provides for the safety of occupants in existing buildings through the elimination or control of fire hazards in and around buildings, the maintenance of life safety systems in buildings, and the establishment of a fire safety plan in those buildings where necessary. When new Ontario Fire Code regulations are passed, a property may require some upgrades or retrofits to comply with it.

Requirement to install smoke and carbon monoxide alarms

The Ontario Fire Code requires every home to have working smoke alarms on every storey, and smoke alarms must be installed outside all sleeping areas. These requirements apply to all single-family, semi-detached, and town homes, whether owner-occupied or rented. The Ontario Fire Code (which only applies to existing structures) requires that a carbon monoxide alarm be installed adjacent to each sleeping area of a singlefamily dwelling that contains a fuel-burning appliance, fireplace, or an attached

Exam Study Guide

garage. For a multi-family dwelling (such as a condominium or apartment building), a carbon monoxide alarm is required adjacent to each sleeping area where the unit contains a fuel-burning appliance or a fireplace within the suite, or the unit has a common wall or common floor/ceiling assembly with a storage garage or a service room containing a fuel-burning appliance.

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Lesson 8 | Page 1 of 12

Lesson 8: Considerations Under the Ontario Electrical Safety Code

This lesson describes the role of the Electrical Safety Authority in Ontario. It also explains the requirement to file a Notification of Work with the Electrical Safety Authority and the salesperson’s due diligence related to advising their customers and clients of electrical issues.

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Lesson 8 | Page 2 of 12

A property that is listed for sale may require electrical work, or it may have undergone electrical work. All electrical work falls under the jurisdiction of the Electrical Safety Authority. As a salesperson, you should be aware of the Electrical Safety Authority’s mandate so that you can advise your seller or your buyer to obtain the services of the appropriate third-party professional where required. Upon completion of this lesson, you will be able to: • Outline the role of the Electrical Safety Authority in Ontario • Identify the Electrical Safety Authority requirements before starting electrical work • Outline a salesperson’s obligations when listing or selling a property to verify that electrical work has been performed as required by the ESA Throughout this lesson, you will participate in interactive activities and decision points to test your knowledge on the topics presented.

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Lesson 8 | Page 3 of 12

Ontario Electrical Safety Code

The Ontario Electrical Safety Code specifies safety standards for installing and maintaining electrical equipment. The Ontario Electrical Safety Code is mainly a technical document that prescribes what must be done. The purpose of the Ontario Electrical Safety Code is to ensure a house or building complies with all required safety standards. The Ontario Electrical Safety Code is updated by the Electrical Safety Authority on an ongoing basis in response to changes in technology and new safety practices. The Electrical Safety Authority is an administrative authority mandated by the provincial government to enhance public electrical safety in the province. The Electrical Safety Authority is both a safety regulator and an advocate. The Electrical Safety Authority’s primary activities are: • Identifying and targeting leading causes of electrical safety risk

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• Ensuring compliance with regulations • Promoting awareness of electrical safety • Providing education and training about electrical safety • Collaborating with stakeholders, such as contractors, consumers, and businesses, to improve the state of electrical safety in Ontario As a salesperson, you will encounter electrical issues (such as old wiring) when you conduct a visual inspection of a property. In such cases, an electrical inspection by a licensed electrical contractor will be required to ensure compliance with the Ontario Electrical Safety Code. You will need to understand the role of the Electrical Safety Authority and the obligations that homeowners have with the Ontario Electrical Safety Code so you can advise a seller or a buyer to get expert advice when the need arises.

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Lesson 8 | Page 4 of 12

Enforcement of the Ontario Electrical Safety Code by the Electrical Safety Authority

The Electrical Safety Authority provides inspection services to ensure electrical safety in Ontario homes and commercial and industrial installations in the following ways: • Wiring inspections: Electrical work in all new construction and renovations must be inspected as required. • General inspections: A visual inspection of a facility or residence by the Electrical Safety Authority will identify whether any electrical defects need to be corrected. • Certificate of Acceptance: A record confirming that the electrical installation(s) in the home meet the requirements of the Ontario Electrical Safety Code will be issued upon conditions being met. Inspections are required in the following situations:

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• Before new services can be connected to the local electrical distribution system • After upgrades are done to the electrical service • Before a customer whose electrical service has been disconnected for six months can be reconnected • Before power can be reconnected at a property that has experienced a fire • For obtaining insurance on a property

Exam Study Guide

Lesson 8 | Page 5 of 12

Submitting a Notification of Work Electrical work related to installations, repairs, replacements, or alterations that a homeowner undertakes through an electrical contractor must comply with the Ontario Electrical Safety Code, and all necessary notifications must be filed. Most electrical work requires that the contractor submits a Notification of Work with the ESA within 48 hours of starting the work. A Notification of Work differs from a building permit, as their respective codes are governed by different authorities. Retrofit conditions apply to the Ontario Electrical Safety Code, but they do not generally apply to the Ontario Building Code. As a salesperson, you will need to know the steps involved in filing a Notification of Work so you can direct a seller or a buyer to an appropriate third-party professional. The following four sections contain information on the steps involved in filing a Notification of Work.

Hire a licensed electrical contractor

The Ontario Electrical Safety Code specifies that only the homeowner or a licensed electrical contractor can do electrical work in a house. General handymen and other service providers are not qualified to do electrical work.

Filing a Notification of Work

The Ontario Electrical Safety Code requires that most electrical work needs to be reported to the Electrical Safety Authority (ESA) by filing a notification of work within 48 hours of when the electrical work starts. The person doing the electrical work must file the notification.

Hiring a licensed electrical contractor is the first step towards ensuring that all the electrical work done in a house complies with the Ontario Electrical Safety Code.

If a licensed electrical contractor has been hired, the contractor will file the notification, arrange for various inspections, and will calculate the notification fees. If the homeowner is doing their own electrical work, they will need to file the notification, make inspection arrangements, and pay the appropriate fee.

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Submit a request for inspection

The party undertaking the electrical work would submit a request for inspection or contact the customer service centre to schedule a review by an Electrical Safety Authority inspector of the work for an existing notification. The inspection and/or review process by an Electrical Safety Authority inspector could vary depending on the complexity of the project. If the work done does not comply with the Ontario Electrical Safety Code, the inspector will issue a defect notice indicating the required corrections.

Obtain a Certificate of Acceptance

A Certificate of Acceptance is issued to the contractor or homeowner as applicable, once the electrical work has passed inspection. A homeowner who hires licensed electrical contractor should expect to see a Certificate of Acceptance at the end of the work. A Certificate of Acceptance is a legal document that confirms that the completed electrical work complies with the Ontario Electrical Safety Code. It is useful for insurance purposes and resale.

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Lesson 8 | Page 6 of 12

Consequence of Not Complying with ESA Requirements

Electrical work performed in a house without the appropriate Electrical Safety Authority requirements could pose a safety risk to occupants. In addition, an insurance company may not be liable to pay for damages that may occur due to electrical work performed without ESA compliance. If anybody makes a complaint to the Electrical Safety Authority against a homeowner for undertaking work without filing a Notification of Work (whether done by the current or a previous homeowner), the Electrical Safety Authority may open an investigation. If any problems are identified during the inspection, the owner (or electrician) would be required to fix the problems. The Electrical Safety Authority will also charge for the inspection and all related costs.

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Lesson 8 | Page 7 of 12

Salesperson’s Obligations

As a salesperson, when representing a seller or a buyer, you will need to promote and protect their best interests as set out in Section 4 of the Code of Ethics. If you are working with a seller, you should ask if they are aware of any defects with their property and if they have made any improvements to the property during their time of ownership. In other words, you will need to take reasonable steps to determine material facts and disclose this responsibility of yours to the seller at the earliest possible opportunity. You may use a form to gather the information, but you will also need to conduct a thorough visual inspection of the property. A seller needs to disclose any known defects related to the electrical system and the type of wiring used in the house that may make the house unsafe for its occupants. Example: Homes built in the 1960s to the mid-1970s may have aluminum wiring with faulty connections that could possibly result in fires. Knob-and-tube wiring in older houses may also cause problems with damaged insulation and the Exam Study Guide

absence of ground wires. Many insurance companies require the homeowner to upgrade from aluminum or knob-and-tube wiring to grounded copper wiring before offering a new policy. All electrical work that a homeowner undertakes must have a Certificate of Acceptance that establishes that the work was reviewed and complies with the Ontario Electrical Safety Code. If you are representing a buyer, you will need to: • Pay attention to information provided in the listing • Conduct a visual inspection when showing the property to the buyer • Disclose material facts about the property at the earliest possible opportunity If the buyer decides to purchase the property but is concerned about an electrical issue, advise the buyer to obtain the services of a third-party professional.

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Lesson 8 | Page 8 of 12

David is showing a salesperson his property before it is listed. While conducting a visual inspection, the salesperson notices that the house has aluminum wiring. Question #39: To ensure compliance to the Ontario Electrical Safety Code, the salesperson should ask David to have the wiring inspected by a licensed electrician. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 8 | Page 9 of 12

David is showing a salesperson his property before it is listed. While conducting a visual inspection, the salesperson notices that the house has aluminum wiring. Question #40: To ensure compliance to the Ontario Electrical Safety Code, the salesperson should inform David that the aluminum wiring needs to be disclosed. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 8 | Page 10 of 12

David is showing a salesperson his property before it is listed. While conducting a visual inspection, the salesperson notices that the house has aluminum wiring. Question #41: To ensure compliance to the Ontario Electrical Safety Code, the salesperson should ask David to hire a licensed electrical contractor to replace the aluminum wiring to copper wiring. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 8 | Page 11 of 12

A seller intends to have the electrical wiring in their house updated by an electrician before listing their property for sale. Question #42: What should the salesperson tell the seller to ensure that the updates comply with the requirements of the Ontario Electrical Safety Code? There are four options. There are multiple correct answers.

1

To hire a licensed electrical contractor

2

To apply for a permit to the ESA

3

To schedule an inspection by the ESA

4

To ensure the electrical contractor provides a Certificate of Inspection from the Electrical Safety Authority after the electrical work is completed

Exam Study Guide

Lesson 8 | Page 12 of 12

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were covered in this lesson.

Role of the Electrical Safety Authority

The Ontario Electrical Safety Code specifies safety standards for installing and maintaining electrical equipment. The purpose of the Ontario Electrical Safety Code is to ensure a house or building complies with all required safety standards. The Ontario Electrical Safety Code is updated by the Electrical Safety Authority on an ongoing basis in response to changes in technology and new safety practices.

Requirement to file a Notification of Work with the Electrical Safety Authority

Electrical work related to installations, repairs, replacements, or alterations that a homeowner undertakes through an electrical contractor must comply with the Ontario Electrical Safety Code, and a Notification of Work must be filed within 48 hours of the commencing of work. Most electrical work requires that the contractor file the Notification of Work.

A salesperson’s obligations

A salesperson representing a seller or a buyer needs to promote and protect their best interests as set out in Section 4 of the Code of Ethics. If working with a seller, they should ask if they are aware of any defects with their property and if they have made any improvements to the property during their time of ownership.

Electrical work performed in a house without the appropriate filings with the Electrical Safety Authority could pose a safety risk to occupants. In addition, an insurance company may not be liable to pay for damages that may occur due to the electrical work performed without ESA compliance.

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Lesson 9 | Page 1 of 9

Lesson 9: Compliance with Fuel Storage Tank Regulations

This lesson explains how the Technical Standards and Safety Authority (TSSA) impacts the obligations of homeowners with respect to fuel storage tanks. It also explains regulatory requirements and environmental issues associated with fuel storage tanks.

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Lesson 9 | Page 2 of 9

Many houses in Ontario use fuel storage tanks to meet their power and energy requirements where natural gas service is not available. These tanks can be located either above ground or underground. Any leakage from these tanks can contaminate both soil and groundwater. This lesson will help you understand how the regulations related to fuel storage tanks impact a seller or a buyer so that, as a salesperson, you will be able to identify potential problems and know when to recommend they consult with a qualified third-party professional. Upon completion of this lesson, you will be able to: • Outline the Technical Standards and Safety Authority (TSSA) regulatory requirements for fuel storage tanks • Identify the environmental risks associated with fuel storage tanks

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Lesson 9 | Page 3 of 9

Role of Technical Standards and Safety Authority (TSSA)

The Technical Standards and Safety Authority (TSSA) is responsible for regulating all aboveground fuel storage tanks. An aboveground tank refers to any tank that is installed at or above ground level within a building or within a secondary containment. Some environmentalists believe that abandoned underground fuel storage tanks are the number one environmental hazard in North America. Since underground fuel storage tanks pose a great risk, this lesson explains aspects related to underground fuel storage tanks. An underground oil tank, or fuel storage tank, is a buried or partially buried container (in direct contact with earth or backfill) that contains fuel oil to be used in appliances (such as furnaces or boilers). These tanks have fallen under close scrutiny over the past few years because of the possibility of leakage into the soil and the resulting contamination. In addition, many tanks in Ontario have been abandoned and remain underground, posing a threat to their surroundings.

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To safeguard the environment against such threats, the TSSA, which reports to the Ministry of Government and Consumer Services, oversees gasoline handling and underground fuel storage tanks. All underground fuel storage tanks must now be registered with the TSSA and inspected or fuel will not be delivered to the tanks. The regulatory controls under the Technical Standards and Safety Act, 2001 apply to a range of activities including installation, testing, maintenance, repair, removal, replacement, inspection, and use of appliances, equipment, components, and accessories where fuel oil is to be used as a fuel. To register an underground fuel storage tank, a homeowner must submit the Underground Fuel Oil Application Form to TSSA. After approval, the TSSA issues a registration number that the homeowner can provide to the fuel distributor to access fuel supply.

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Lesson 9 | Page 4 of 9

Requirements for Upgrading/Disposing of Underground Fuel Storage Tanks

Underground fuel storage tanks may begin to corrode over time, leading to situations where fuel may leak from the tanks and seep into the ground, contaminating soil and groundwater. This can cause serious damage to the environment and may require costly environmental clean-up. To safeguard against oil leakages and to address safety and environment concerns with underground fuel storage installations, the TSSA specifies that underground fuel storage tanks must be upgraded with specific leak and spill prevention equipment or be removed. All tanks currently in use most likely will have been upgraded to the required standards. However, this would not apply to tanks that have been abandoned and whose location is unknown. Only a TSSA-registered contractor is allowed to install, repair, and/or remove an underground fuel storage tank. In addition to being a TSSA-registered contractor, the contractor also needs to be certified as a Petroleum Equipment Mechanic 2 to work on underground fuel storage tanks. A homeowner must verify the contractor’s registration number before hiring them for any work related to an underground fuel storage tank. If a contractor is hired to remove a fuel storage tank, they should also be able to take care of its disposal. The storage tank may be recycled if it is made of metal. Otherwise, it must be disposed of at a sanitary landfill that accepts toxic waste. Exam Study Guide

Lesson 9 | Page 5 of 9

Action to Take If Leakage Happens If an oil spill occurs from an underground fuel storage tank, the property owner must contact a TSSA-registered fuel oil contractor to help find and stop the leak and clean-up any leaked fuel oil. The owner is also required to call the Spills Action Centre of the Ministry of the Environment, Conservation and Parks. The fuel may leak into the ground and other neighbouring areas and also affect local drinking water sources. The earlier a leak is detected and remedial measures are taken, the lower the impact on the environment. Clean-up costs can also be minimized at early stages of a leak. These costs, along with any enforcement action initiated by the TSSA or the Ministry of the Environment, Conservation and Parks, would be the responsibility of the property owner. In some cases, the property owner’s insurance policy may cover all or a portion of the costs.

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Lesson 9 | Page 6 of 9

Repercussions to the Seller and Buyer If Leakage Happens

If a seller’s property has an underground fuel storage tank installed, according to the legislation, the tank must be inspected by the TSSA in order for the fuel oil company to continue to deliver fuel oil. The seller is obligated to disclose the presence of the tank to the buyer and to provide the appropriate documentation regarding the installation. Any problems associated with an underground fuel storage tank can be costly. Example: If a seller sells their property and does not reveal the existence of an underground fuel storage tank, they may be subject to legal action in the future. If the tank leaks, the homeowner may be responsible for the cost of the clean-up of their property and any adjacent property. A buyer may consider purchasing a property with an underground fuel storage tank, but it is highly unlikely. As a salesperson, you will have to make the buyer aware of issues, such as occupant safety, resale prospects, and whether they could obtain insurance. In addition, you should ensure the buyer understands that if a leak occurred, they would be responsible for paying for the clean-up. If a buyer was interested in a property with an

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underground fuel storage tank, they may prefer to submit an offer requiring the seller to remove the tank, have the soil tested for any contamination, and pay for any clean up before the closing date.

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Lesson 9 | Page 7 of 9

Role of a Salesperson As a salesperson, when representing a seller whose property contains an underground fuel storage tank, you will need to advise the seller to consult with an appropriate third-party professional, such as a TSSA-registered contractor or a professional engineer with knowledge of the issue. The following four sections contain information on your obligations as a salesperson in situations involving fuel storage tanks.

Verify if the property has an underground fuel storage tank

Check with the seller if they know whether the property has an underground fuel storage tank, inspect the property during the listing process (look for pipes sticking out of the ground, check if there are any indications of oil leakage, or check if the oil supply line to the furnace or hot water tank runs below the basement floor), discuss the matter with the seller, and advise the seller to contact the TSSA as appropriate. Older properties are more likely than newer properties to have an underground fuel storage tank. If a seller is unable to confirm or rule out the presence of an abandoned underground storage tank on their property, you will need to advise the seller to engage a home inspector or an environmental site assessor to investigate. Example: Girish, the salesperson, is conducting a visual inspection of a rental property that contains four residential units. Girish discovers a small raised concrete platform in the basement that was probably a base for an old furnace, long since replaced. Girish asks the seller, Kevin, who claims to have no knowledge of an older oil-burning furnace; Kevin purchased the property approximately five years earlier and the conversion to gas had already been completed. Girish and Kevin look around the walls for any sign of an oil pipeline. On closer inspection, they discover a protruding capped pipe in the west wall. Further investigation reveals a deteriorating vent pipe hidden under a newly constructed patio area at the rear of the property.

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Girish advises Kevin to contact the TSSA. An inspector from the TSSA can confirm that there was an underground fuel storage tank at one time, but it had subsequently been removed by an approved contractor.

Provide tips to the property owner to maintain the underground fuel storage tank

In situations where the property owner wants to keep the underground fuel storage tank, advise the owner to contact the TSSA to confirm the existence of the tank, its technical specifications, and the details of the installation. Also, a TSSA contractor may be able to assist with the assessment of the condition of the tank.

Disclose the existence of the underground fuel storage tank to the buyer

Always disclose the existence of any underground fuel storage tanks to prospective buyers. The mere existence of an underground tank does not automatically threaten a transaction, but expert advice is required and procedures must be followed. Many buyers will be reluctant to buy a property with an underground fuel storage tank.

When representing a buyer, draft a clause within the offer addressing the storage tank

If the property contains an underground fuel storage tank, draft a clause to include in the Agreement of Purchase and Sale. Clauses involving underground tanks typically focus on the fact that the tank complies with statutory requirements, that a tank was located on the property but was removed, or that a tank exists but the seller agrees to remove it.

As a salesperson, you will have to advise the seller that buyers may be reluctant to purchase a property with an underground fuel storage tank as they may have problems obtaining insurance on the property. If a buyer does consider buying a property with an underground fuel storage tank, they may expect to pay a lower price due to the additional liabilities associated with an underground fuel storage tank.

When a seller is required to remove the tank, the clause will stipulate that they will have the surrounding soil tested for contamination, and if contamination is discovered, the seller is expected to pay for the cost of clean-up prior to date of completion.

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Lesson 9 | Page 8 of 9

A buyer is looking at a property. The seller is also present, showing them around the property and answering questions. As they walk around the property (along with their respective salespersons) the seller is pointing things out to the buyer. Suddenly, the seller’s salesperson notices a depression in the ground that could be an indication of an underground fuel storage tank. Question #43: What advice should the salesperson give the seller? There are four options. There are multiple correct answers.

1

Obtain an assessment of the situation by a professional to determine the actual cause of the depression.

2

Hire a landscaper to level the depression in the yard using clean fill material.

3

Recommend to the seller that a formal written disclosure of the potential problem be included in any agreement of purchase and sale that may be forthcoming.

4

Inform the Spills Action Centre of the Ministry of the Environment, Conservation and Parks.

Exam Study Guide

Lesson 9 | Page 9 of 9

Congratulations, you have completed the lesson! There are two sections on this page with a summary of the key topics that were covered in this lesson.

The TSSA regulatory requirements for fuel storage tanks

The TSSA is responsible for all aboveground fuel storage tanks. An aboveground tank refers to any tank that is installed at or above ground level within a building or within a secondary containment. An underground oil tank or fuel storage tank is a buried or partially buried container (in direct contact with earth or backfill) that contains fuel oil to be used in appliances, such as furnaces or boilers. These tanks have fallen under close scrutiny over the past few years because of the possibility of leakage into the soil and the resulting contamination. To safeguard the environment against such threats, the TSSA, which reports to the Ministry of Consumer Services, oversees gasoline handling and underground fuel storage tanks. All underground fuel storage tanks must now be registered with the TSSA and inspected or fuel will not be delivered to the tanks. The regulatory controls under the Technical Standards and Safety Act, 2001 apply to a range of activities including installation, testing, maintenance, repair, removal, replacement, inspection, and use of appliances, equipment, components, and accessories where fuel oil is to be used as a fuel.

Environmental risks associated with fuel storage tanks

If an oil spill occurs from an underground fuel storage tank, the property owner must contact a TSSA-registered fuel oil contractor to help find and stop the leak and clean-up any leaked fuel oil. The owner is also required to call the Spills Action Centre of the Ministry of the Environment, Conservation and Parks. The fuel may leak into the ground and other neighbouring areas, and also affect local drinking water sources.

Exam Study Guide

Lesson 10 | Page 1 of 29

Lesson 10: Summary Practice Activities

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

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Lesson 10 | Page 2 of 29

This lesson contains summary decision points that will test your knowledge regarding the topics covered in this module on legislation and regulations.

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Lesson 10 | Page 3 of 29

Ali is a salesperson with a leading brokerage in the city. Among his various responsibilities, Ali also needs to make telemarketing calls to find leads for a condominium unit. Ali has identified some prospects and needs to verify if it is legal to make calls to these prospects. Question #43: Ali can call Satbir who had called the brokerage about four months earlier because he wanted to buy a unit in a condominium. Later, Satbir decided against buying a property. Satbir’s name is on the National DNCL but not on the internal DNCL. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 10 | Page 4 of 29

Ali is a salesperson with a leading brokerage in the city. Among his various responsibilities, Ali also needs to make telemarketing calls to find leads for a condominium unit. Ali has identified some prospects and needs to verify if it is legal to make calls to these prospects. Question #45: Ali can call Ana who has posted a request on her Facebook wall seeking a suitable two-bedroom house available around the Lake region. Ana’s name appears in the National DNCL. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 10 | Page 5 of 29

Ali is a salesperson with a leading brokerage in the city. Among his various responsibilities, Ali also needs to make telemarketing calls to find leads for a condominium unit. Ali has identified some prospects and needs to verify if it is legal to make calls to these prospects. Question #46: Ali can call Gemma who is looking for buyers for her shop. Gemma’s name does not exist on the National DNCL, but her name appears on the internal DNCL that was updated six months earlier. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 10 | Page 6 of 29

Ali is a salesperson with a leading brokerage in the city. Among his various responsibilities, Ali also needs to make telemarketing calls to find leads for a condominium unit. Ali has identified some prospects and needs to verify if it is legal to make calls to these prospects. Question #47: Ali can call Alex who bought a property for investment purposes through the brokerage two years earlier. Ali thinks Alex might be interested in this condominium unit. Alex’s name is on the National DNCL but not on the internal DNCL. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 10 | Page 7 of 29

Tisca is a newly registered salesperson with a brokerage that has been engaged to find appropriate buyers for an upcoming real estate project. She is responsible for generating leads for the project. She identifies some actions to generate the leads using commercial electronic messages (CEMs). Question #48: Sending details of the project to individuals that the brokerage engaged with in the past five years is a violation of Canada’s Anti-Spam Legislation (CASL). There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 10 | Page 8 of 29

Tisca is a newly registered salesperson with a brokerage that has been engaged to find appropriate buyers for an upcoming real estate project. She is responsible for generating leads for the project. She identifies some actions to generate the leads using commercial electronic messages (CEMs). Question #49: Posting details of the project on her Facebook wall is a violation of Canada’s Anti-Spam Legislation (CASL). There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 10 | Page 9 of 29

Tisca is a newly registered salesperson with a brokerage that has been engaged to find appropriate buyers for an upcoming real estate project. She is responsible for generating leads for the project. She identifies some actions to generate the leads using commercial electronic messages (CEMs). Question #50: Writing a blog on the booming real estate market and adding a link to the property on the blog is a violation of Canada’s Anti-Spam Legislation (CASL). There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 10 | Page 10 of 29

Tisca is a newly registered salesperson with a brokerage that has been engaged to find appropriate buyers for an upcoming real estate project. She is responsible for generating leads for the project. She identifies some actions to generate the leads using commercial electronic messages (CEMs). Question #51: Writing a blog on the booming real estate market and sending an email to all people who read the blog is a violation of Canada’s Anti-Spam Legislation (CASL). There are two options. There is only one correct answer.

1

True

2

False

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Lesson 10 | Page 11 of 29

Ana often receives queries from the sellers she is representing related to their tax obligations. While she directs the sellers to experts on tax-related matters, she wants to build her understanding on situations that may be subject to capital gains tax. Question #52: Akash and Saritha moved to Ontario in the early 1990s and purchased a home as joint owners. They are relocating to India and want to sell their residence in Ontario. They are liable to pay capital gains tax. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 10 | Page 12 of 29

Ana often receives queries from the sellers she is representing related to their tax obligations. While she directs the sellers to experts on tax-related matters, she wants to build her understanding on situations that may be subject to capital gains tax. Question #53: Kristy inherited a house from her grandfather a few years ago. She has been renting the house but now wants to sell it. She is liable to pay capital gains tax. There are two options. There is only one correct answer. 1

True

2

False

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Lesson 10 | Page 13 of 29

Ana often receives queries from the sellers she is representing related to their tax obligations. While she directs the sellers to experts on tax-related matters, she wants to build her understanding on situations that may be subject to capital gains tax. Question #54: Maya lives in the United States for most of the year and visits Ontario once every six months. When in Ontario, she stays in the vacation home that she built years ago. Maya now wants to sell her vacation home. She is liable to pay capital gains tax. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 10 | Page 14 of 29

Ana often receives queries from the sellers she is representing related to their tax obligations. While she directs the sellers to experts on tax-related matters, she wants to build her understanding on situations that may be subject to capital gains tax. Question #55: Sharad relocated to Ontario from the United Kingdom three years ago. He bought a one-bedroom condominium unit and moved into it two years ago. He now wants to sell this unit and purchase a larger one. He is liable to pay capital gains tax. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 10 | Page 15 of 29

Harry is looking for a site to build a commercial retail plaza. Laura, Harry’s salesperson, finds a site that seems appropriate and meets Harry’s requirements. Laura finds out that the land was previously used as a gas station a few years ago, and there is a high likelihood of environmental contamination at the site. Harry is keen to invest in the property and seeks advice from Laura on how to deal with this issue. Laura refers Harry to an environmental site auditor who advises Harry to get a Phase 2 environmental site assessment. Question #56: What benefits would a Phase 2 environmental site assessment provide that cannot be achieved by a Phase 1 environmental site assessment? There are four options. There is only one correct answer.

1

Provide visual evidence of actual or potential contamination

2

Understand the extent of environmental contamination

3

Identify the cost and strategies for managing risks related to environmental contamination

4

Identify methods to remove instances of environmental contamination from the site

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Lesson 10 | Page 16 of 29

Joe has an underground fuel storage tank on his property. A friend has told him about issues related to underground fuel storage tanks. Joe wants to know about the steps to take if an oil spill is suspected from the tank on his property. Question #57: Joe should get a TSSA-registered contractor to investigate and fix the issue. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 10 | Page 17 of 29

Joe has an underground fuel storage tank on his property. A friend has told him about issues related to underground fuel storage tanks. Joe wants to know about the steps to take if an oil spill is suspected from the tank on his property. Question #58: Joe should engage an accredited environment consultant to do a Phase 3 environmental site assessment There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 10 | Page 18 of 29

Joe has an underground fuel storage tank on his property. A friend has told him about issues related to underground fuel storage tanks. Joe wants to know about the steps to take if an oil spill is suspected from the tank on his property. Question #59: Joe should inform the Spills Action Centre of the Ministry of the Environment. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 10 | Page 19 of 29

Sandra wants to buy land and build recreational properties in a rural area. A friend recommends that she should be careful not to invest in land found in the Greenbelt area of Ontario. Question #60: Which properties fall in the Greenbelt protected areas? There are four options. There are multiple correct answers.

1

Oak Ridges Moraine

2

The Blue Mountains

3

Kawartha Lakes

4

Niagara Escarpment

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Lesson 10 | Page 20 of 29

A buyer has purchased a farmhouse that has some trees where birds belonging to an at-risk species have built nests. The buyer plans to cut some of these trees and use the cleared area to build a kennel for his dogs. Question #61: In which cases would restrictions related to the Endangered Species Act apply? There are four options. There are multiple correct answers.

1

If the birds belong to the species of special concern category

2

If the birds belong to the threatened species category

3

If the birds belong to the category of species that no longer exists

4

If the birds belong to the endangered species category

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Lesson 10 | Page 21 of 29

A buyer is looking for a property that has a low carbon footprint and is environmentally friendly. Question #62: When looking for appropriate properties, the salesperson should consider that the property includes ENERGY STAR® rated appliances. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 10 | Page 22 of 29

A buyer is looking for a property that has a low carbon footprint and is environmentally friendly. Question #63: When looking for appropriate properties, the salesperson should consider that the property comprises low-flow equipment in bathrooms. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 10 | Page 23 of 29

A buyer is looking for a property that has a low carbon footprint and is environmentally friendly. Question #64: When looking for appropriate properties, the salesperson should consider that the property comprises solar-assisted heating and cooling systems. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 10 | Page 24 of 29

A buyer is looking for a property that has a low carbon footprint and is environmentally friendly. Question #65: When looking for appropriate properties, the salesperson should consider that the property comprises electrical appliances that have an EnerGuide label. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 10 | Page 25 of 29

A salesperson involved in the marketing and sale of new homes must have an awareness of the warranty coverage applicable to the property under consideration so they can respond to queries from prospective buyers and homeowners. Question #66: Smith bought a small seasonal cottage constructed by a local builder. His cottage would be eligible for warranty coverage under the Ontario New Home Warranties Plan. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 10 | Page 26 of 29

A salesperson involved in the marketing and sale of new homes must have an awareness of the warranty coverage applicable to the property under consideration so they can respond to queries from prospective buyers and homeowners. Question #67: Hartfield bought a house in a residential subdivision from a new home builder and leased it to an IT professional for two years. His house would be eligible for warranty coverage under the Ontario New Home Warranties Plan. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 10 | Page 27 of 29

A salesperson involved in the marketing and sale of new homes must have an awareness of the warranty coverage applicable to the property under consideration so they can respond to queries from prospective buyers and homeowners. Question #68: Philippe inherited a condominium unit from his mother, Stephanie, who passed away within two years of purchasing the unit in a new condominium building. His condominium unit would be eligible for warranty coverage under the Ontario New Home Warranties Plan. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 10 | Page 28 of 29

A buyer is considering purchasing a two-storey house with parking within the basement area. The house has been unoccupied for the past three years. The house has copper wiring. The seller has reported that minor flooding happens in the basement during spring. The buyer plans to rent the house as a single-family dwelling after doing some renovations. Question #69: What change should the salesperson suggest the buyer make before renting the house? There are three options. There is only one correct answer.

1

Change the wiring of the house from copper to aluminum wiring.

2

Install a sump pump in the basement.

3

Install a skylight.

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Lesson 10 | Page 29 of 29

Congratulations, you have completed the lesson!

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Module Summary | Page 1 of 4

Module Summary

This lesson contains a summary of the entire module.

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Module Summary | Page 2 of 4

Congratulations, you have completed this module!

This lesson will present a summary of Learning Objectives.

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Module Summary | Page 3 of 4

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

Legislation impacting the marketing activities of a salesperson

The marketing activities that you will perform as a salesperson are governed by the National Do Not Call List (DNCL), brokerage’s telemarketing policy, the internal DNCL that a brokerage maintains, Canada’s Anti-Spam Legislation (CASL), and the Competition Act. There are restrictions regarding who can receive unsolicited calls and/or CEMs. You will need to be familiar with the restrictions and the processes relating to any marketing activities. You will need to be familiar with the Competition Act and to comply with all provisions of it as you perform your day-to-day activities. Completion of this lesson has enabled you to: • Identify the impact of the National DNCL on a brokerage’s activities • Identify the impact of the National DNCL on a salesperson’s activities • Identify the purpose of CASL • Outline the requirements for sending a commercial electronic message (CEM) • Describe the issues related to obtaining CEM consent • Identify the impact of the Competition Act on a salesperson’s activities

Understanding the impact of taxation when a property is sold

As a salesperson, you will often be asked tax-related questions by a seller or a buyer, often in the context of capital gains and business income. You will need to be familiar with the situations that qualify for capital gains, specifically when the seller is a non-resident or the property under consideration is not a principal residence. You will also need to advise the seller or the buyer to consult an expert on taxrelated matters.

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Completion of this lesson has enabled you to: • Identify the differences between business income and capital gains • Outline the unique treatment of a principal residence under the Income Tax Act • Identify the impact of the Income Tax Act on the sale of property by a nonresident of Canada

Impact of environmental legislation on property ownership

The Environmental Protection Act (EPA) is the primary environmental legislation that impacts the ownership and use of real property in Ontario. The Ministry of the Environment, Conservation and Parks has enacted the EPA to safeguard the environment and ensure clean and safe air, land, and water. Violations could lead to huge penalties and litigation for the property owner. The purpose of an environmental site assessment is to determine if there is environmental contamination before a property is bought or sold. Environmental site assessments are broadly grouped under three levels of analysis, referred to as phases. Phase 1 and Phase 2 analysis could apply in the case of due diligence. Phase 3 involves remedial work. You will need to be familiar with the EPA and the scope of environmental site assessments so you can direct sellers or buyers to the appropriate third-party professionals. Completion of this lesson has enabled you to: • Identify the purpose of the EPA • Outline the role of the Ministry of the Environment, Conservation and Parks as it relates to compliance with the EPA • Describe the impact of the EPA on the salesperson’s activities • Describe the purpose of an environmental site assessment

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Additional legislation impacting property development

The Provincial Policy Statement, 2020 provides the foundation for land use planning policies to address issues facing specific geographic areas in Ontario. The Greenbelt Plan, the Oak Ridges Moraine Conservation Plan, and the Niagara Escarpment Plan work together to determine where urbanization should not take place. The Endangered Species Act aims to protect plants and animals that are at risk of disappearing. The Provincial Policy Statement, 2020 and the Endangered Species Act place some restrictions on where property can be developed. As a salesperson, you will need to be familiar with the legislation so you can advise a buyer appropriately. Completion of this lesson has enabled you to: • Outline the impact of environmental protection on property development within the Provincial Policy Statement, 2020 and Greenbelt Plan • Identify the impact of the Endangered Species Act on property use in Ontario

Legislation promoting energy conservation

With advancements in technology, there are increasing opportunities to be energy-efficient. The role of Natural Resources Canada (NRCan) is to help Canadians take advantage of the advancements, specifically in terms of lowering energy costs, reducing emissions, and increasing the value of assets through various initiatives. Completion of this lesson has enabled you to: • Identify the role of the Government of Canada relating to energy efficiency • Describe factors that contribute to an energy-efficient home • Describe the importance of green buildings in promoting energy efficiency • Outline the features of the EnerGuide program that promote energy efficiency in products and housing

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Module Summary | Page 4 of 4

There are four sections on this page with a summary of the additional key topics that were covered in this module.

Legislation impacting new home purchases

The Ontario New Home Warranties Plan Act aims to safeguard new home buyers through various warranty coverage plans. As a salesperson, you will need to know if the property is covered under the warranty coverage plan and advise a buyer accordingly. Completion of this lesson has enabled you to: • Identify how the Ontario New Home Warranties Plan Act applies to the construction of residential structures • Outline the warranty coverage provided to owners under the Ontario New Home Warranties Plan

Key considerations under the Ontario Building Code and the Ontario Fire Code

The Ontario Building Code sets out minimum standards for building design as well as provisions relating to safety in buildings, fire protection, and structural sufficiency. The Building and Development Branch of the Ministry of Municipal Affairs and Housing administers the Ontario Building Code. The Ontario Fire Code provides for the safety of occupants in existing buildings through the elimination or control of fire hazards in and around buildings, the maintenance of life safety systems in buildings, and the establishment of a fire safety plan in those buildings where necessary. As a salesperson, you may encounter compliance issues related to the Ontario Building Code or the Ontario Fire Code. You will need to know when a building permit is required and direct a seller or a buyer to obtain the services of a thirdparty professional. Completion of this lesson has enabled you to: • Outline the purpose of the Ontario Building Code • Identify key considerations for a salesperson regarding construction and renovations that would require a building permit

Exam Study Guide

• Outline the relevance of the Ontario Fire Code in relation to existing structures • Identify the requirement to install smoke and carbon monoxide alarms in residential dwellings

Considerations under the Ontario Electrical Safety Code

The Ontario Electrical Safety Code specifies safety standards for installing and maintaining electrical equipment. The Ontario Electrical Safety Code is mainly a technical document, and it is prescriptive in approach. As a salesperson listing a property for sale or evaluating a property for purchase, you will need to know when Notifications of Work are required under the Ontario Electrical Safety Code and to direct a seller or a buyer to obtain services of other third-party professionals. Completion of this lesson has enabled you to: • Outline the role of the Electrical Safety Authority in Ontario • Identify the Electrical Safety Authority requirements before starting electrical work • Outline a salesperson’s obligations when listing or selling a property to verify that electrical work has been performed as required by the ESA, or direct the seller or the buyer to obtain the services of an expert

Compliance with fuel storage tank regulations

An underground oil tank or fuel storage tank is a buried or partially buried container (in direct contact with earth or backfill) that contains fuel oil to be used in appliances, such as furnaces or boilers. The Technical Standards and Safety Authority (TSSA) provides guidance on how to treat an underground fuel storage tank and how to minimize the environmental impact if there is a spill. As a salesperson, you will need to be familiar with the regulations and advise a homeowner appropriately when questions and issues arise related to fuel storage tanks. Completion of this lesson has enabled you to:

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• Outline the TSSA regulatory requirements for fuel storage tanks • Identify the environmental risks associated with fuel storage tanks

Exam Study Guide

Appendix | Page 1 of 3

Appendix Answer Key Question #1: 1 Question #2: 3 Question #3: 2 Question #4: 2 Question #5: 1 Question #6: 1 Question #7: 1 Question #8: 1 Question #9: 2 Question #10: 1 Question #11: 1 Question #12: 2 Question #13: 1 Question #14: 2 Question #15: 2 Question #16: 1 Question #17: 2 Question #18: 4 Question #19: 2, 4 Question #20: 1, 2 Question #21: 2 Question #22: 1 Question #23: 2

Exam Study Guide

Appendix | Page 2 of 3 Question #24: 1 Question #25: 2 Question #26: 3 Question #27: 1 Question #28: 2 Question #29: 1 Question #30: 1 Question #31: 2 Question #32: 2 Question #33: 1 Question #34: 1 Question #35: 2 Question #36: 1, 4 Question #37: 1, 2 Question #38: 1 Question #39: 1 Question #40: 1 Question #41: 2 Question #42: 1, 4 Question #43: 1, 3 Question #44: 1 Question #45: 2 Question #46: 2 Question #47: 2 Question #48: 1 Question #49: 2 Question #50: 2

Exam Study Guide

Appendix | Page 3 of 3 Question #51: 1 Question #52: 2 Question #53: 1 Question #54: 1 Question #55: 2 Question #56: 2 Question #57: 1 Question #58: 2 Question #59: 1 Question #60: 1, 4 Question #61: 2, 4 Question #62: 2 Question #63: 1 Question #64: 1 Question #65: 2 Question #66: 2 Question #67: 1 Question #68: 1 Question #69: 2

Exam Study Guide

Module: Explaining Services Available to a Seller or a Buyer This is a study guide to help you prepare for the qualifying exam. There are multiple study guides that are provided for preparation. Each study guide contains several decision points to test your knowledge. The answer key to these decision points is present in the “Appendix” section at the end of the guide. Please use Adobe Acrobat Reader (Recommended version 9 or above) to navigate through this PDF. Real Estate Pre-Registration 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 PreRegistration Program learner.

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Module: Explaining Services Available to a Seller or a Buyer

Sellers, Buyers, and Brokerages The relationship between a seller or a buyer and a brokerage can appear straightforward. A seller hires a brokerage to market and sell a property, while a buyer hires a brokerage to assist them in their search for a property to purchase. Although the role of a brokerage may be apparent, there are many aspects of accomplishing these goals for a seller or a buyer that are impacted by the specific type of relationship established. Sellers and buyers have options in terms of the services provided by a brokerage and the level of advice or assistance included in those services. A seller or a buyer can be either a client or a customer, depending on the service options they choose. Establishing this relationship is an important first step. A salesperson must be able to explain how the duties and obligations of a brokerage will differ to a client or to a customer and be able to clearly communicate the relationship options available, so an informed decision can be made.

Exam Study Guide

Menu: Explaining Services Available to a Seller or a Buyer Number of Lessons

10 Lessons

Lesson Number

Lesson Name

Lesson 1

Fundamentals of Agency

Lesson 2

Brokerage Authority and Principal’s Duties

Lesson 3

Duties and Obligations of a Salesperson

Lesson 4

Representation

Lesson 5

Service Options Available to Sellers and Buyers

Lesson 6

Providing Services to a Seller

Lesson 7

Providing Services to a Buyer

Lesson 8

Obligations when Dealing with Others

Lesson 9

Summary Practice Activities Module Summary Appendix

Exam Study Guide

Lesson 1 | Page 1 of 19

Lesson 1: Fundamentals of Agency

This lesson introduces the terms used to describe an agency relationship including the parties in that relationship. The lesson details how an agency relationship can be created and how it can be terminated.

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Lesson 1 | Page 2 of 19

Under Ontario common law, agency is a relationship between a principal and an agent wherein the agent is authorized to represent the principal in dealing with a third party. Agency can apply to many fields such as relationships with lawyers, travel agents, stockbrokers, property managers, insurance agents, and real estate brokerages. However, the actual practice of agency varies according to the profession or trade and related legislation. To understand an agency relationship formed in a real estate transaction, you should know the proper usage of terms. Common law uses different terminology than that used in REBBA. For example, common law uses the terms principal and third party, while these same parties are referred to as a client and customer under REBBA. An important aspect of the real estate profession is relationships, and agency is fundamental to creating those relationships. Upon completion of this lesson, you will be able to: • Define terms related to agency under common law and identify associated terms used within REBBA. • Describe how an agency relationship can be created. • Describe how an agency relationship can be terminated.

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Lesson 1 | Page 3 of 19

Agency and Agency Terms

In a real estate transaction, the parties involved would be a brokerage, a salesperson, a seller, and a buyer. The underlying relationship between these parties is based on the common law of agency. Agency is the relationship between two parties in which one party (the agent) accepts responsibility for representing the other party (the principal) in dealing with a third party. Under REBBA, the equivalent term for agency is representation. The brokerage is the agent, and the salesperson is authorized to trade on behalf of the brokerage when representing the principal in a transaction. The seller or buyer could be the principal, for example: • A seller (principal) and brokerage (agent) enter into an agency relationship when the brokerage is contracted to represent the seller in the marketing and sale of their property.

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• A buyer (principal) and brokerage (agent) enter into an agency relationship when the brokerage is contracted to represent the buyer in the purchase of a property. Let’s look at how these roles are defined under agency. The next few screen provides definitions of terms used to describe an agency relationship and to identify the roles and responsibilities in an agency relationship. For each of the agency law terms, the matching term found in REBBA is specified.

Exam Study Guide

Lesson 1 | Page 4 of 19

Terms used in an Agency Relationship Under an agency relationship, there are specific terms used to describe a seller, a buyer, a brokerage, and other potential parties. The following three sections contain information on descriptions of these terms in an agency relationship along with examples of how they apply in a real estate transaction.

Agent An agent is authorized by a principal to represent the principal in business transactions with another party. An agent acts on behalf of a principal when performing professional services that can bring the principal into legal relationships with others. For real estate purposes, an agent is a brokerage that is expressly or implicitly authorized to act for a principal. Brokers and salespersons are employed by brokerages and authorized to trade on behalf of their respective brokerages. As such, a salesperson lacks the legal capacity to trade on their own account and is viewed as having an employee/employer relationship with their brokerage. Once an agency relationship is established, all brokers and salespersons employed by the brokerage fall under the same relationship and obligations established between the principal (seller or buyer) and the agent (brokerage). They must protect and promote the best interests of the principal. Although consumers typically refer to salespersons as agents, it is actually the brokerage that is the agent. Exam Study Guide

Principal A principal is an individual who authorizes an agent to act on their behalf in an agency relationship. The principal provides information and lawful instructions to the agent regarding the transaction. In REBBA, the term “client” is used to identify the principal and a client can be a seller or a buyer. Example: When a brokerage represents a seller when listing a property for sale, the seller is known as the principal. Example: When a brokerage represents a buyer when showing properties for sale, the buyer is known as the principal.

Third party A third party is an individual who is not directly connected with a legal transaction but may be affected by it. A third party can be a potential seller or buyer when a brokerage has an existing client relationship established. Example: A brokerage representing only a seller would consider a buyer as a third party or customer. Example: A brokerage representing only a buyer would consider a seller as a third party or customer. A third party may also be another individual otherwise involved in the transaction. Example: A brokerage representing only a buyer, and the buyer’s parents are providing the deposit. The buyer's parents would be considered a third party. Exam Study Guide

Lesson 1 | Page 5 of 19

Agency Relationship Obligations and Authorities Once an agency relationship has been established, it will invoke specific obligations on the agent while also providing authority to represent the principal. The following two sections contain information to read the obligations owed and authority granted in an agency relationship along with examples of how they apply in a real estate transaction.

Fiduciary Fiduciary generally refers to a relationship of trust with one or more parties. An agent (specifically, a brokerage) as a fiduciary has the legal obligation to act in the principal’s (specifically, a seller’s or buyer’s) best interests. As the relationship is fiduciary in nature, the agent’s obligations to the principal include: • Full disclosure—disclosure of all facts known • Obedience—obey the lawful instructions of the principal • Confidentiality—all information that is confidential will not be disclosed • Competence—provide all services competently • Accounting—responsible handling of all documents and funds related to the transaction • Loyalty—promote and protect the principal’s best interests at all times In a real estate transaction, the brokerage—and by extension all salespersons—are required to uphold these obligations. Exam Study Guide

Example of Disclosure: A salesperson discovers a material fact that may impact their buyer client’s decision to purchase a specific property. The salesperson fully discloses the information to the buyer so that an informed decision can be made. Example of Confidentiality: A salesperson knows a seller is motivated to sell the property due to relocation. This information is not shared with any buyer who may ask why the seller is selling.

Authority Authority is the legal power or right given by a principal, and accepted by the agent, to act on the principal’s behalf in business transactions with a third party. Authority relating to a representation agreement is typically analyzed in terms of actual and implied authorities. In real estate, the principal gives permission to the brokerage to offer the property for sale and to represent their best interests in a transaction. Example of Actual Authority: A seller gives the brokerage authority to offer their property for sale. Example of Implied Authority: The brokerage will determine the best marketing methods to offer the property for sale.

Exam Study Guide

Lesson 1 | Page 6 of 19

Understanding the Agency Relationship In an agency relationship, the brokerage is representing a seller or a buyer. There may be times when a brokerage represents more than one seller or buyer during a transaction. The following three sections contain examples of agency relationships.

Agency Agency is the relationship between a principal and that person’s agent. Once established, the agent has specific obligations owed to the principal under the common law of agency. In real estate, when a salesperson provides advice to a seller or to a buyer, this action creates an agency relationship. In REBBA, the term “representation” is used, as the brokerage is deemed to “represent” the seller. Example: A seller and salesperson agree that the brokerage will list and market their property for sale, and the salesperson provides advice on the appropriate listing price. The agency relationship establishes the brokerage as representing the seller.

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Single agency Single agency occurs when there is one agent (brokerage) representing one principal (seller or buyer) within a transaction with a third party. In REBBA, single agency is referred to as “single representation”. Example: A brokerage is representing a seller in the sale of a property. A buyer is being represented by a different brokerage when submitting an offer on the seller’s property. Both the seller and the buyer are represented by different brokerages for the transaction, which results in each relationship being single agency/representation.

Dual agency Dual agency occurs when there is one agent (brokerage) representing two or more principals (sellers and/or buyers) within the same transaction. Under REBBA, dual agency is referred to as “multiple representation”. There are several circumstances in which dual agency can occur, such as representing a seller and a buyer, or representing two competing buyers. These circumstances can also be referred to as concurrent representation, which is a legal term generally referring to a brokerage representing two clients at the same time. The underlying legal assumption is that all salespersons in a brokerage share each other’s Exam Study Guide

confidences. For example, this could include confidential information regarding the seller’s motivation. Under dual agency, there is an inherent conflict of interest with the agent representing competing interests. Example: A brokerage is representing a seller in the marketing of their property. A buyer is also represented by the same brokerage when submitting an offer on the seller’s property. Both the seller and the buyer are represented by the same brokerage for the transaction which results in dual agency/multiple representation. You will learn more about multiple representation later in the module.

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Lesson 1 | Page 7 of 19

Question #1: Identify which of the following statements are true. There are four options. There are multiple correct answers. 1

Under REBBA, agency is referred to as representation

2

Under REBBA, agent is referred to as brokerage

3

Under REBBA, principal is referred to as customer

4

Under REBBA, third party is referred to as client

Exam Study Guide

Lesson 1 | Page 8 of 19

Quincy wants to sell her property, so she contacts Natalie, a salesperson with ABC Real Estate Ltd. Quincy signs an agreement with the brokerage to list her property and represent her in the transaction. Natalie’s co-worker is representing a buyer who is interested in the property. There is also a second buyer who is interested in the property, who is being represented by a different brokerage. Question #2: Identify which of the following statements are true. There are five options. There are multiple correct answers. 1

The relationship is of single agency if the buyer working with Natalie’s co-worker submits an offer.

2

The relationship is of dual agency if the buyer represented by the other brokerage places an offer on Quincy’s property.

3

Implied authority allows the brokerage may select the marketing methods used to promote the listing.

4

A fiduciary relationship creates obligations on the brokerage, such as ensuring loyalty and confidentiality.

5

Actual authority allows the brokerage is authorized to list Quincy’s property for sale.

Exam Study Guide

Lesson 1 | Page 9 of 19

Introduction to Creating an Agency Relationship

There are many ways in which a brokerage can enter into an agency relationship with a seller or a buyer. The most common way is by agreement, which can be either express or implied. An express agreement can be written or verbal and creates a definite understanding between the parties of the agency relationship. Implied agreements can be created by the words and actions of one party, which leads the other party to believe there is an agency relationship when no formal acknowledgment of the relationship exists. Although common law does not require a written agreement, nor a particular form to be used, proper documentation of the relationship is required under REBBA. A salesperson needs to be mindful that an agency relationship can be created by their words or actions. Once that relationship is created, there are many obligations and duties owed to the principal (client). It is important to explain the services being provided, so there are no misunderstandings by the seller or the buyer.

Exam Study Guide

Documenting the relationship in writing will provide a clear record of the expectations and requirements of all parties. This is considered a leading practice for a salesperson. A salesperson should at all times avoid putting themselves in a position where the court would determine whether an agency relationship has been established under a particular set of circumstances. Later in this module, you will look at different types of agreements between a brokerage and a seller or a buyer in more detail.

Exam Study Guide

Lesson 1 | Page 10 of 19

Agency Relationship by Agreement An agency relationship can be created by an express agreement, which would occur when there is a definite understanding between the parties, such as a written or verbal agreement. Alternatively, the agency relationship can be implied based on the circumstances or actions of the agent and principal. The following three sections contain examples of how an agency relationship can be created by agreement.

Written agreement A written agreement details the obligations of all parties and would be signed by the brokerage and the seller or the buyer. A brokerage would document the agency relationship by using a Seller Representation Agreement or a Buyer Representation Agreement. There are requirements for a salesperson under the Code of Ethics whenever a representation agreement is required. Example: A buyer discusses their requirements for purchasing a home with a brokerage and agrees the brokerage will represent them. A representation agreement is then signed by the buyer and the brokerage confirming the details.

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Verbal agreement A verbal agreement could include many of the same aspects of a written agreement, only the details are not documented. Example: A buyer has met with a salesperson and has verbally given them the authority to search for a property for them. The agreement is verbal only, but the salesperson has identified suitable properties and has shown these to the buyer even though there is no written agreement.

Implied agreement An implied agreement can be unintentionally created based on the words and actions of the salesperson, the seller, or the buyer. If a seller or a buyer and the brokerage act in a manner that suggests an express agreement exists, an agency relationship is formed even though no formal understanding is reached between them. Example: A salesperson and their friend are spending the day skiing. On their way to the ski hills, they notice a home that is listed for sale. The friend states the property is one they have longed to purchase. The salesperson provides advice about obtaining a mortgage, the amount of down payment required, and follows up the next day with information on the property and copies of recent sales to help determine an offer price. Even though there is no agreement between the parties, an implied agency relationship is created based on their actions. Exam Study Guide

Lesson 1 | Page 11 of 19

Additional Ways to Create an Agency Relationship Most agency relationships are created by an express agreement, and a written document confirming the agency relationship is strongly encouraged. However, some situations do not allow for this to occur. The following three sections contain examples of other methods by which an agency relationship is created and the potential challenges and considerations for each. Note that these examples illustrate principles under the common law of agency but do not reflect the requirements under REBBA.

By ratification

An agency relationship by ratification is when the authority is granted retroactively. Ratification applies if the agent has acted either without authority or in excess of the authority granted. In such instances, when the principal subsequently agrees to be bound by such unauthorized acts, the agency relationship is ratified. Example: A property was previously listed for sale by a salesperson which did not sell. A few months later, this salesperson is approached by another salesperson asking if the seller would consider an offer from their buyer who viewed the property when it was listed. The salesperson obtains the offer and approaches the seller who agrees to sell. When the seller accepts the offer, the agency relationship has been created by ratification.

By estoppel

An agency relationship can be created by estoppel when a principal leads a third party to believe they are being represented by the agent, and that the agent has the authority to act on behalf of the principal. In real estate, a relationship can be created by estoppel when the seller or buyer gives the impression to a third party that they already have an agency relationship with a brokerage.

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There must be clear evidence that the seller or buyer has by words or actions indicated that the brokerage has the authority to act on their behalf. Example: A buyer is viewing a property that is being privately offered for sale. The buyer is concerned about the condition of the electrical system and makes enquiries with an electrician to inspect it. The buyer is not available to attend when the inspection is done but indicates to the electrician that a salesperson they know will be able to attend and has the authority to approve any expenses related to the inspection. An agency relationship by estoppel is created as the buyer has clearly indicated the salesperson—as an extension of the brokerage—has the authority to act on their behalf.

By operation of law

Operation of law creates an agency relationship where a duty created by circumstance is imposed on an agent to act on behalf of the principal, where previously no agency relationship existed. The agency relationship would be based on established legal principles rather than by a formal agreement. In real estate, operation of law is rare and happens in emergency situations. Example: A property manager has been retained to oversee the day–to-day operations of a property, but the owner clearly indicates major expenses must be approved first. After a violent storm, the property manager visits the site and discovers significant damage. Despite being unable to reach the owner, the property manager arranges for repairs to be made immediately to the structure at a significant cost, as the building was unsafe and would have put others at risk. Under operation of law, an agency relationship was established. Even though the actions were outside of what had been agreed to, the owner will be obligated to pay for the repairs even though they were not authorized.

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Lesson 1 | Page 12 of 19

Marvin is a salesperson with ABC Real Estate Ltd. who has been working with several sellers and buyers this month. Question #3: In which scenario, would an agency relationship be created by ratification? There are five options. There is only one correct answer. 1

2

Marvin explains the relationship options to Marta, who wants to sell her condominium. Marta signs a representation agreement with Marvin’s brokerage. Harish does not want to sign an agreement until they have looked at a few properties and believes Marvin will be able to act in his best interest. Marvin agrees and shows Harish several properties and provides advice on market value and appropriate offer prices.

3

Marvin is not currently working with Bruno but knows that his dream is to own a waterfront property someday. When one becomes available, Marvin gathers the information and sends it to Bruno. Bruno and Marvin discuss his financial requirements for the purchase and decide to view the property. After the viewing, Bruno and Marvin review recent sales, discuss an appropriate offer price, and prepare an offer. Marvin presents the offer to the seller and listing salesperson.

4

Marvin has discussed property value with Jiten who is considering selling his cottage. Marvin discussed Jiten’s property with a co-worker, who is currently working with a buyer interested in buying a cottage. Marvin states that Jiten has agreed to work with Marvin, should he or his brokerage obtain an offer on his property.

5

Marvin, a salesperson, meets Bernie at a social function. Marvin gives him his business card and invites Bernie to call him if he has any questions related to listing his property for sale. A month later, Bernie decides to sell his property himself and places a “For Sale” sign on his front lawn. An interested buyer knocks on his door asking to view the property, but Bernie is now unsure about letting the individual come in. Bernie gives the buyer Marvin’s business card and tells them to call Marvin for any information or to view the property. Exam Study Guide

Lesson 1 | Page 13 of 19

Terminating an Agency Relationship

There are several ways in which an agency relationship is terminated, but these can be generally categorized as either by agreement or by operation of law. Termination does not disturb legal rights and obligations associated with the relationship unless otherwise agreed to by the parties. As a salesperson, you need to understand how agency relationships can be terminated and the continued obligations for you and the brokerage. This is important from both legal and relationship management perspectives.

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Lesson 1 | Page 14 of 19

Termination of an Agency Relationship by Agreement At times, the termination of an agency relationship will automatically occur. Other times, specific actions by the parties involved must occur for the relationship to be terminated. The following four sections contain examples of the ways an agency relationship can be terminated by agreement.

Completion or performance Termination by performance is automatic once the obligations under the terms of the agreement are fulfilled. In real estate, termination occurs when the sale is completed and not when an offer has been accepted between the seller and buyer. It is important to understand this distinction, as all fiduciary and regulatory obligations owed by the brokerage and salesperson continue uninterrupted and unaltered throughout this time period. Example: A salesperson has represented a buyer in purchasing a home. The sale has now closed, and the buyer has possession of the property. The agency relationship that was created is now automatically terminated.

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Mutual agreement An agency relationship can be terminated by mutual agreement between the agent and the principal. In real estate, both the brokerage and the seller or the buyer must mutually agree to terminate the relationship. Both the principal and the agent would document this termination by mutual agreement using a termination or cancellation form. Example: A seller has listed their property for sale with a brokerage pending the seller being relocated to another province. The seller no longer wishes to sell their property as the relocation has been cancelled. Both the seller and the brokerage agree to terminate the listing agreement.

Expiry An agency relationship is automatically terminated on the expiry date agreed to by the parties. In real estate, a seller representation agreement or a buyer representation agreement is required to contain both an effective date and an expiration date. If the purpose of the agreement has not been fulfilled within the term of the agreement—or the agreement has not been extended prior to the expiry date—the agency relationship is ended. Example: A seller and brokerage have contracted to list and market a property for sale, and the parties have agreed to a 90-day term for the listing agreement. The seller received one offer on the property during the listing period, but the offer was not accepted. With no extension to the agreement, Exam Study Guide

the agency relationship is automatically terminated once the agreement has expired.

Revocation The principal has the power to revoke the authority of the agent to act on their behalf. Revocation may be either lawful or unlawful. In real estate, if the brokerage fails to fulfill their duties under the representation agreement, revocation would be lawful. However, if the brokerage has fulfilled their duties and the principal revokes their authority without justification, this is unlawful. The principal may then be liable for damages. Example: A seller is approached by a buyer, who wishes to purchase the property but suggests a private sale to avoid remuneration being paid. The seller revokes the listing agreement with the brokerage and proceeds to sell the property privately. The brokerage has been fulfilling their duties, so the seller’s attempt to revoke is unlawful. The brokerage could make a claim for remuneration as the property was sold during the term of the agreement.

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Lesson 1 | Page 15 of 19

Termination by Operation of Law On the previous screen, you viewed four ways of terminating an agency relationship by agreement. An agency relationship can also be terminated by operation of law. This means the courts have determined over time that specific circumstances provide for the termination of the agency relationship. The following three sections contain examples about the different ways an agency relationship can be terminated through operation of law.

Impossibility of performance An agency relationship can be terminated because of the impossibility of performance. This occurs when the subject matter of the agency ceases to exist. Thus, the duties and contractual obligations of the principal and the agent can no longer be fulfilled under normal circumstances. In real estate, unforeseen circumstances could arise, making it impossible for the brokerage to fulfill their obligations. Example: A seller’s house has burned down, and there is no longer a house to sell. In this instance, the seller and their brokerage would complete a cancellation of the listing agreement to confirm the termination of the agency relationship due to impossibility of performance.

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Illegality An agency relationship is terminated if the agency purpose or the agency relationship is unlawful. This could occur both from an agent’s and a principal’s perspective. In real estate, if the brokerage has their registration under REBBA terminated, then it is no longer authorized to trade in real estate. As such, all agency relationships to which the brokerage is a party to are terminated. Be aware that the relationship is between the brokerage and the seller or the buyer. If a salesperson’s registration is terminated or if the salesperson transfers to another brokerage, it does not affect the existing agency relationship. Example of Agent/Brokerage Perspective: A seller has listed their property for sale with a salesperson at a brokerage. The owner of the brokerage is retiring and has decided to cease operations as a brokerage. Once the brokerage’s registration under REBBA has been terminated, all agency relationships with sellers and buyers are automatically terminated. From the principal’s perspective, if the authority to bind the principal was illegally obtained, the relationship would be terminated. Example of Principal/Client Perspective: An agency relationship is terminated when the brokerage discovers that the seller’s son fraudulently signed a seller representation agreement for his own gain after forging a Power of Attorney to act for his father. This is an example of revocation due to unlawful conduct of the seller’s son. Exam Study Guide

Death, mental incapacity, or bankruptcy The agency relationship generally terminates with the death, bankruptcy, or mental incapacity of either the agent or the principal. In real estate, an exception to this can involve the principal’s death, if there is a provision within an agreement to extend the obligations to the person’s estate. In most cases, this provision would apply to a seller who has listed their property for sale rather than a buyer who is viewing properties for sale. Example of Termination Due to Death: A brokerage is representing a buyer in their search for a property to purchase. During the term of the agreement, the buyer passes away. The agency relationship is terminated on the buyer’s death. Example of Termination Due to Mental Incapacity: A seller contacts a brokerage to list their property for sale. During the listing process, the salesperson notices they are forgetful and distracted. Several weeks later, the seller’s niece informs the salesperson that the seller has been diagnosed with dementia and needs full-time care. The agency relationship between the seller and the brokerage is terminated. Example of Termination Due to Bankruptcy: A corporation has listed a property for sale due to financial difficulties. The property is listed with a brokerage, and during the listing, the corporation declares bankruptcy. The agency relationship is now terminated. Exam Study Guide

Lesson 1 | Page 16 of 19

Continuation of Rights and Obligations After Termination

The termination of an agency relationship does not affect the rights of either party, or any associated obligations owed by one of the parties, unless the parties agree otherwise. As a salesperson, understanding the continuation of rights and obligations owed both to the principal and by the principal is an important part of the agency relationship the brokerage has with a seller or a buyer. Continuing responsibilities to the principal are based on the fiduciary obligations owed under the relationship and include: • Confidentiality of personal information • Maintaining utmost loyalty • Protecting the principal’s best interests A salesperson must ensure that all obligations owed to the principal following the termination of an agency relationship are adhered to; otherwise there could be legal ramifications.

Exam Study Guide

Lesson 1 | Page 17 of 19

Question #4: Identify the scenarios that are true regarding agency termination. There are five options. There are multiple correct answers.

1

After looking at several properties, a buyer receives a notice from their employer that the company is restructuring, and their employment is terminated. The buyer no longer wishes to purchase a property, so the brokerage and the buyer sign a cancellation of the buyer representation agreement. In this scenario, the termination is due to mutual agreement.

2

A brokerage is representing a buyer in the purchase of a property. The transaction is completed, and the buyer gets ownership of the property. In this scenario, the termination is due to completion of performance.

3

A seller lists a property for sale with a brokerage. Prior to the property selling, the municipality expropriates the land for a road widening. In this scenario, the termination is due to illegality.

4

A brokerage lists a property for sale and confirms the ownership by reviewing a copy of the transfer/deed provided by the seller. It is later discovered that the document was fraudulent, and the seller is the tenant rather than the owner. In this scenario, the termination is due to impossibility of performance.

5

A salesperson lists a property for sale with a 60-day listing period. Two months later, the property has not sold, and the seller decides not to extend the agreement. In this scenario, the termination is due to expiry.

Exam Study Guide

Lesson 1 | Page 18 of 19

Neko, a salesperson with ABC Real Estate Ltd., has a property listed at 123 Market St. for sale that is owned by the Petersons. During the listing process, the Petersons shared with Neko there is an urgency to sell due to financial difficulties in making their mortgage payments. Neko, while conducting an open house at Petersons’ property, meets Sheryl who has expressed some interest in the property and asks Neko why the sellers are selling. Neko, who is mindful of his fiduciary obligations to the seller, explains the owners reasons for selling is confidential and he is not at liberty to disclose such information. The property does not sell and the listing expires. Sheryl, still interested in buying a property, visits an open house at 130 Market St., hosted by Neko. During her visit, she asks Neko if the house at 123 Market St. had sold as the “For Sale” sign had been removed. Neko commented that it had not and as per his knowledge it was no longer on the market. Sheryl is persistent in asking Neko why the owners of 123 Market St. were selling and if it was because of financial problems. Question #5: How should Neko respond to Sheryl’s statement regarding the Petersons? There are four options. There are multiple correct answers.

1

“The Petersons were having some troubles but are now looking at other options. I’m not sure if their property is still available to purchase.”

2

“The Petersons’ property has many similar features to this one. Why don't you look through the house and then we can discuss any questions you may have.”

3

“The owners of 123 Market St. may decide to relist their property, if they do, would you like me to contact you?”

4

“If you sign a representation agreement with me, I owe you full disclosure. Only then would I be able to discuss this.” Exam Study Guide

Lesson 1 | Page 19 of 19

Congratulations, you have completed the lesson! There are six sections on this page with a summary of the key topics that were covered in this lesson.

Agency terms and the equivalent terms within REBBA

In order to fully understand obligations both under the common law of agency and REBBA, it is important to know the applicable terms used. The terms used under agency are followed by terms used under REBBA: • Agency is equivalent to the term representation. This is the relationship between the parties that is fiduciary in nature. A brokerage will “represent” the party in an agency relationship. • Agent refers to a brokerage representing a seller or a buyer. The term agent is used incorrectly when referencing a salesperson. The term agent identifies the brokerage. • Principal is equivalent to the term client. This is a seller or a buyer who is represented by a brokerage. • Third party is equivalent to the term customer. This is an individual who is not directly connected with a legal transaction but may be affected by it. A brokerage representing only a seller would consider the buyer as the customer. A brokerage representing only a buyer would consider the seller as the customer. • Single agency is equivalent to the term single representation. This identifies a relationship where there is one agent (brokerage) and one principal (seller or buyer). • Dual agency is equivalent to the term multiple representation. This identifies a relationship where there is one agent (brokerage) and more than one principal (sellers and/or buyers) in the same transaction.

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Fiduciary

An agency/fiduciary relationship created between a brokerage and a seller or a buyer involves fiduciary responsibilities by the agent. The brokerage and salesperson’s obligations in a fiduciary relationship include: • • • • • •

Full disclosure Obedience Confidentiality Competence Accounting Loyalty

The brokerage—and by extension, all salespersons—are required to uphold these obligations.

Authority

Authority is the permissions granted to the agent by the principal. A seller or a buyer gives the brokerage express authority to represent their interests in a real estate transaction. Implied authorities are an extension of the express authority. Additional details regarding authority are detailed in the next lesson.

Creating an agency

An agency relationship can be created in several ways—

relationship

By agreement: • A written agreement details the obligations of all parties and would be signed by the brokerage and the seller or buyer. • A verbal agreement could include many of the same aspects of a written agreement, only the details are not documented. • An implied agreement can be unintentionally created based on the words and actions of the salesperson, seller, or buyer. If a seller or buyer and the brokerage act in a manner which suggests that an express agreement exists, an agency relationship is formed even though no formal understanding is reached between them. By ratification: • An agency relationship by ratification is created retroactively if both a principal and an agent later sign an agreement or give formal consent to an Exam Study Guide

action previously taken without explicit permission—thus ratifying the agent’s actions. By estoppel: • An agency relationship can be created by estoppel when a principal leads a third party to believe that they are being represented by the agent, and that the agent has the authority to act on behalf of the principal. By operation of law: • An agency relationship is created by operation of law when duty, created by circumstance, is imposed on an agent to act on behalf of a principal, where previously no agency relationship existed. The agency relationship would be based on established legal principles rather than by a formal agreement. A leading practice for creating any agency relationship is ensuring there is a written agreement. A written agreement will help to ensure there is no confusion, misunderstanding, or miscommunication with the seller or the buyer as to the authority granted, services provided, or the duties and obligations owed by all parties.

Termination of an agency relationship

An agency relationship can be terminated by: • Completion of performance: Termination by performance is automatic once the obligations under the terms of the agreement are fulfilled. • Mutual agreement: An agency relationship can be terminated by mutual agreement of the agent and the principal. • Expiry: An agency relationship is automatically terminated on the expiry date agreed to by the parties. • Revocation: The principal has the power to revoke the authority of the brokerage to act on their behalf. Revocation may be either lawful or unlawful. • Impossibility of performance: An agency relationship can be terminated because of the impossibility of performance or frustration. This is when the duties and contractual obligations of the principal and the agent cannot be fulfilled under normal circumstances. Exam Study Guide

• Illegality: An agency relationship is terminated if the agency purpose or the agency relationship is unlawful. This could occur both from an agent and a principal’s perspective. • Death, mental incapacity, or bankruptcy: If either the principal or the agent suffers death, becomes mentally incapacitated so as to be unable to continue the relationship, or becomes bankrupt, the agency relationship is terminated.

Continuation of rights and obligations

The termination of an agency relationship does not affect the rights of either party, or any associated obligations owed by one of the parties, unless the parties agree otherwise. As a salesperson, understanding the continuation of rights and obligations owed both to the principal and by the principal is an important part of the agency relationship the brokerage has with a seller or buyer.

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Lesson 2 | Page 1 of 13

Lesson 2: Brokerage Authority and Principal’s Duties

This lesson describes the authority granted to a brokerage by a seller or a buyer, the limitations to that authority granted, and the obligations owed by the seller or buyer when they are being represented by the brokerage.

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Lesson 2 | Page 2 of 13

To build upon the previous lesson where you learned about the fundamentals of an agency, this lesson will expand on key aspects of an agency relationship by exploring the details and examples relating to authorities, obligations, and limitations. Upon completion of this lesson, you will be able to: • Describe the authority granted to a brokerage by a principal. • Describe the limitations to the authority granted to a brokerage by a principal. • Describe the principal’s duties to the agent. 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

Granting Authority

The most common method of entering into an agency relationship with a seller or a buyer is by express agreement. Leading practice would be to document that agreement in writing. Once the agency relationship has been created, the principal grants authority to the agent to perform certain activities on their behalf. This authority is legally defined as a right or permission granted by one person to another to act. From a real estate perspective, a representation agreement would be used to document the agency relationship and also detail the authority granted to the brokerage. The next few screens explores the authority a seller or a buyer would grant to a brokerage under an agency relationship.

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Lesson 2 | Page 4 of 13

Authority Granted by a Principal Typically, an agency relationship between the agent (Brokerage) and the principal is documented in a buyer or a seller representation agreement. In real estate, there are two types of authority – express (Sometimes referred to as actual) and implied. Express authority is the authority granted by the principal (Buyer or seller) intentionally to the agent (Brokerage) and is outlined in the terms of the representation agreement. Implied authority is assumed given the nature of the relationship; this allow the agent (Brokerage) to complete the task properly, efficiently and competently.

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The following two sections contain information on express authorities granted to a brokerage by a seller or a buyer.

Express authority A seller grants express authority to a brokerage to offer their property for sale. granted by a seller A representation agreement must contain certain information to comply with REBBA, but specific wording can vary. An agreement will explicitly outline the main tasks the brokerage is to carry out. A seller’s express authorities can also include: • Allowing buyers to fully inspect the property. • Placing a “For sale” or “Sold” sign on the property. • Giving the exclusive authority to make all advertising decisions to the brokerage.

Express authority granted by a buyer

A buyer grants express authority to the brokerage to seek out suitable properties for the buyer to view. In addition to providing the brokerage with express authority to locate a suitable property, a buyer’s express authorities can also include: • The brokerage’s entitlement to receive and retain remuneration paid by the seller or the listing brokerage. • Providing information as needed to third parties retained by the buyer to assist in a transaction.

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Lesson 2 | Page 5 of 13

Implied Authorities Implied authorities grant the agent the ability to take actions and make decisions as an extension of the express authorities granted by the principal. Activities undertaken under implied authorities are consistent with the express authority granted, such as those authorities identified in a seller or a buyer representation agreement. Implied authorities allow the agent to undertake incidental activities and perform other acts usual to a real estate transaction, which are not specifically detailed in the agreement. The following two sections contain information on seller implied authorities and buyer implied authorities as they relate to a representation agreement.

Seller representation implied authorities A seller grants express authority to the brokerage to list and market their property for sale and to advertise the property. An implied authority allows the brokerage to determine the advertising specifics, such as arrangements for advertising materials and media placements. Additional implied authorities by a seller can include: • Delegation: The brokerage delegates various activities to brokers and salespersons employed by that brokerage to carry out the seller’s instructions. • Showings/Negotiations: The brokerage conducts showings to prospective buyers and assists in negotiations. • Deposit/Trust Account: The brokerage receives a deposit from a third party relating to an agreement to purchase the seller’s property and deposits these funds into the real estate trust account. • Notices: The brokerage has certain implied authorities involving receipt of notice. For example, a notice Exam Study Guide

received by a brokerage that a buyer has fulfilled a condition in an offer is deemed to be notice received by the seller. Certain implied authorities are further supported by provincial legislation (such as the authority to delegate to employed, appointed, or authorized brokers and salespersons, and the authority upon receipt of a deposit for the placement of same into the brokerage’s real estate trust account).

Buyer representation implied authorities A buyer grants express authority to the brokerage to locate suitable property within a geographic area. The implied authority allows the brokerage to select the appropriate methods to locate properties for viewing. Additional implied authorities by a buyer can include: • Delegation: The brokerage delegates various activities to brokers and salespersons employed by that brokerage to carry out the buyer’s express instructions. • Relevant Facts/Presentation: The brokerage obtains and presents relevant facts for consideration. • Negotiations: The brokerage arranges showings and assists in negotiations. • Notices: The brokerage has certain implied authorities involving receipt of notice. For example, a notice received by a brokerage that an offer has been accepted is deemed to be notice received by the buyer.

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Lesson 2 | Page 6 of 13

Yusong, a salesperson with XYZ Realty Ltd. is working with Amanda, who is looking to buy a house. Amanda is about to sign a buyer representation agreement. But first, Yusong will explain the actual and implied authorities associated with their relationship by providing examples of what activities he would complete on Amanda’s behalf. Question #6: Identify which of the given Yusong’s explanations would fall under the implied authority. There are four options. There are multiple correct answers.

1

Yusong explains he will review many of the property listings from a local listing service and then select the most appropriate five properties for Amanda to initially view.

2

Yusong explains he will gather and provide information regarding different school districts to Amanda to help her when considering which properties could be suitable for her to purchase.

3

Yusong explains the representation agreement is between herself and his brokerage, and he will be the individual assisting Amanda in her search for a property.

4

Yusong explains Amanda is retaining the brokerage for the next 60 days to locate properties meeting her criteria.

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Lesson 2 | Page 7 of 13

Limitations to a Brokerage’s Authority

You have examined the differences between express and implied authorities, which are fundamental to ensuring all parties understand the permissions granted and your role as their salesperson. While brokerages can pursue reasonable activities extending from express authority in a representation agreement, legal precedents and common practices have formed certain limitations to brokerage authority. Even though a particular authority is granted (for example, to market a property or to seek out an appropriate property) that authority is limited. During initial meetings and throughout the agency relationship, a salesperson will clearly communicate the activities undertaken to fulfill the goals of the relationship. Understanding the limitations to these activities is equally important. Follow the next screen for a detailed discussion of the limitations to a brokerage’s authority.

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Lesson 2 | Page 8 of 13

Brokerage Authority Limits If an agent acts outside of the scope of authority granted, the agent could be liable to the principal for any injuries or for breach of contract. As such, a brokerage must ensure the activities undertaken by a salesperson when representing a seller or a buyer fall within the authority granted. The following four sections contain examples of limitations to brokerage authority.

Contract Brokerages or salespersons do not have the authority to sign a contract on behalf of a principal, unless precise and clear authority is granted. Since signing on behalf of a principal could place a brokerage in a position with legal ramifications, a brokerage would not approve a salesperson participating in any such activity. Example: An offer has been received on a seller’s property listed with a brokerage. The seller is currently out of the country and would like to accept the offer but is not available to sign the offer before it expires. The seller asks the salesperson to accept the offer on their behalf. The salesperson would decline the seller’s request and could address the seller’s concerns in other ways, such as asking the buyer to extend the time period associated with acceptance of their offer.

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Delegation of duties As the agency relationship is established between the principal and the agent, delegation of duties to any salesperson or broker employed by the brokerage is acceptable. However, delegation of duties by the listing brokerage to use other brokerages in the marketing/selling process is neither presumed nor implied under agency law because the agency obligation is particular to that brokerage. For other brokerages to participate in the marketing/selling process, this authority must be specifically provided for in the agreement. A brokerage would document this authority in a listing agreement. Example: A brokerage obtains a listing and delegates the duties owed to the seller to a salesperson employed by the brokerage. The seller has also agreed that other brokerages may participate. This allows cooperating brokerages to show the property to prospective buyers and obtain an offer.

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Purchase price Brokerages have no implied authority to receive all or part of the purchase price; they can only receive a deposit relating to the purchase. The deposit is now considered monies held in trust for the seller. When a deposit is received by a brokerage (related to a transaction), the brokerage holds the deposit in trust. Upon completion of the transaction, the buyer receives a credit towards the purchase price for the deposit amount. Example: A listing brokerage receives a $10,000 deposit from a buyer related to an offer accepted on a seller’s property. The brokerage places the deposit into its real estate trust account and the funds are held in trust pending the completion or termination of the agreement. When the transaction has been completed, the buyer’s deposit is shown as a credit to the purchase price and the deposit funds are now held in trust for the seller. Typically, the brokerage then applies the deposit towards the remuneration owed by the seller to the brokerage.

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Expenses Brokerages cannot incur expenses on behalf of the principal or seek reimbursement without express authority. Typically, an agreement with a principal will identify the remuneration paid to the brokerage, which includes any expenses incurred. If the principal requests extra services, such as alternate forms of advertising, the agent can seek additional reimbursement, only if agreed to by the principal. Example: A brokerage agrees to list a property for sale and provides the seller with a marketing plan. The seller would like additional signage, the home staged by a professional, and a property inspection report completed. The brokerage and the seller agree that the seller will reimburse the brokerage for the additional expenses.

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Lesson 2 | Page 9 of 13

When a brokerage is granted the authority to represent a principal in a transaction, it comes with many obligations and duties. A salesperson is an extension of the brokerage and is required to conduct their daily activities within the limitations to the authority granted to the brokerage. All actions must be in compliance with legal precedents and common practices under agency law. Question #7: Which of the given scenarios could exceed the limits of authority granted to a brokerage? There are five options. There are multiple correct answers.

1

A brokerage is representing a seller, who is currently in offer negotiations with a buyer. The salesperson has been notified that the buyer has accepted the seller’s offer, which means the seller is deemed to have received the notice as well.

2

A seller has specifically chosen a salesperson to list their property for sale as they are experienced in this type of property. The salesperson will be going on holiday and has discussed with the seller that another salesperson from their brokerage will oversee the listing during this time. The seller agrees verbally but does not sign a new listing agreement identifying this.

3

A seller’s listing with a brokerage has expired. The seller calls the salesperson and indicates they would like to extend the listing but not lower the asking price. The salesperson relists the property as there were no changes to the terms.

4

A salesperson works with a professional stager to prepare a seller’s home prior to the marketing of the property. Afterwards, they advise the seller they will need to be reimbursed for the fees charged by the staging company.

5

A salesperson obtains their seller’s consent to place a “For Sale” sign on the property. When the property is sold, the salesperson changes the sign to read “Sold”. Exam Study Guide

Lesson 2 | Page 10 of 13

Principal’s Duties to the Agent

The principal will owe certain duties to the agent when entering into an agency relationship. These do not include any fiduciary or regulatory obligations but rather stem from the general obligations under the common law of agency. From a real estate perspective, an important extension of explaining the obligations and duties, the brokerage owes to the seller or buyer is to also clearly communicate and document the duties owed by that party to the brokerage. A misunderstanding at the onset of an agency relationship can have a negative impact on the brokerage and salesperson’s ability to fulfill their obligations. The principal owes the given duties to the agent: 1. Duty of indemnification 2. Duty of remuneration 3. Duty regarding any other obligations agreed to The next few screens describes each of these duties in more detail. Exam Study Guide

Lesson 2 | Page 11 of 13

Duties the Principal Owes to the Agent As a general rule of agency, the principal owes the agent indemnification and remuneration. In addition, the principal owes any other obligations agreed to, which are typically documented in an agreement between the principal and the agent. In real estate, the seller or buyer’s obligations to the brokerage would be documented in a representation agreement. The following three sections contain examples of the duties the principal (seller or buyer) owes to the agent (brokerage) within an agency relationship.

Duty of indemnification

The agent must act according to the lawful instructions of the principal, and in doing so, may not be held responsible for any liability, claim, loss, cost, damage, or injury resulting from these acts. As a general rule of agency, the principal must compensate an agent for loss or damage incurred in carrying out lawful acts. Seller perspective: The brokerage may be indemnified should the seller breach any warranty or representation made by the seller. Buyer perspective: The brokerage may be indemnified should any latent defect to the land or improvements not be identified by the brokerage, as the buyer will be required to make their own enquiries to confirm the condition of the property. Indemnity may also extend to reimbursement for expenses incurred. However, by the terms of most real estate representation agreements, the right to reimbursement does not generally apply when, for example, real estate brokerages receive a remuneration, unless specifically stated in the agreement. Find additional information under the topic “Duty of remuneration”.

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The principal has no duty to indemnify an agent who acts unlawfully or negligently or is in breach of duty. Seller Example: A buyer sued both the seller and the seller’s brokerage because five expensive appliances stated to be included in the purchase price within the agreement of purchase and sale were removed from the property by the seller on completion of the transaction. The court held that the seller must indemnify the brokerage and assume the full liability for the loss suffered by the buyer.

Duty of remuneration

The principal, upon signing the agreement, is obligated to pay the brokerage for the services agreed to and provided as part of the agency relationship between the parties. The payment is typically the remuneration paid to the agent for services rendered. For the duty of remuneration to apply, the agent must be duly authorized by provincial legislation to trade in real estate, and the terms of the representation agreement must be fully met. The brokerage’s remuneration must be specified in the representation agreement. Sample wording of brokerage remuneration provision in a seller representation agreement: “In consideration of you listing the property, I agree to pay the listing brokerage a remuneration rate of 5% of the sale price of the Property or for any valid offer to purchase or lease the Property from any source whatsoever obtained during the Listing Period and on the terms and conditions set out in this Agreement OR such other terms and conditions as I may accept.”

Duty regarding any other obligations agreed to

You will learn more about representation agreements later. The principal must perform any other obligations as agreed to by both parties in the representation agreement. It is strongly recommended that any other obligations be formally documented in the representation agreement rather than agreed to verbally in order to avoid any misunderstandings. Examples of other obligations typically agreed to by a seller as a principal include: • Payment of applicable taxes (such as HST on any remuneration paid)

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• Agreement to maintain insurance on the property, until the sale has been completed • Referral of enquiries to the brokerage, if a potential buyer contacts the seller directly for information regarding the property • Paying remuneration, if the sale does not close due to their default or neglect • Right of the brokerage to apply any deposit against remuneration Examples of other obligations typically agreed to by a buyer as a principal include: • To refer all properties of interest which the buyer may wish to view to the brokerage • Entitlement of the buyer’s brokerage to receive/retain remuneration from the seller’s brokerage or the seller • To pay remuneration, if the sale does not close due to their default or neglect

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Lesson 2 | Page 12 of 13

Question #8: Which of these scenarios demonstrate compliance with a duty typically owed by a seller or a buyer as a principal to a brokerage? There are three options. There are multiple correct answers.

1

A buyer attends an open house where the seller is privately selling their home rather than listing it with a brokerage. The seller does not agree to pay any remuneration to the buyer’s brokerage. The buyer is interested in purchasing the property and contacts their salesperson to arrange for another viewing.

2

A seller has listed their property with a brokerage and is promoting the new listing at work. A co-worker is interested in purchasing the property but states they have been working with another brokerage. The seller advises their salesperson of the interested co-worker and states they have now fulfilled their obligations to refer the buyer, but if the sale results from their introduction of the property, remuneration is owed only to the buyer’s brokerage.

3

A buyer viewing a property with a salesperson is unaware of an unused buried oil tank, which remains on the site. The seller did not disclose this to the brokerage and specifically warranted in the agreement of purchase and sale that there was no buried oil tank. After the transaction closes, the buyer discovers the buried oil tank and takes legal action against the seller.

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Lesson 2 | Page 13 of 13

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were covered in this lesson.

Brokerage authority

Authority is the legal power or right given by the principal and accepted by the agent to act on the principal’s behalf in transactions with a third party. The actual authorities are typically granted in a written document, which describes the permissions granted to the agent. A seller typically gives an express written authority to offer their property for sale. This differs from implied authorities that are assumed given the nature of the relationship. Implied authorities are additional assumed authorities allowing the agent to undertake incidental activities consistent with an authority granted expressly. An example of implied authority would include the determination of advertising specifics to market the seller’s property. Understanding the authority granted to the brokerage and the implied authorities that it entails is required by a salesperson to carry out appropriate tasks on behalf of the brokerage.

Limitations to brokerage authority

There are limitations to brokerage authority with regards to: • Contracts: A brokerage is not authorized to sign a contract on a principal’s behalf. • Delegation of duties: A brokerage can delegate duties to employed salespersons but must obtain specific permission to delegate any duties to another brokerage. • Purchase price: A brokerage may obtain a deposit from a third party but may not receive all or part of the purchase price.

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• Expense: A brokerage cannot incur expenses or seek reimbursement without express authority. A salesperson must be able to identify and put into practice the limitations to brokerage authority in order to ensure any action they take remains compliant.

Principal’s duties to the agent

The principal’s duties to the agent include: • Duty of indemnification: A brokerage will not be liable for certain lawful actions performed. • Duty of remuneration: A brokerage will be compensated as agreed to for performing the duties under the agreement. • Duty regarding any other obligations agreed to in a representation agreement: A brokerage will be owed additional obligations to which the parties have agreed.

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Lesson 3 | Page 1 of 25

Lesson 3: Duties and Obligations of a Salesperson

This lesson describes a salesperson’s duty of care and general obligations owed to a client and to a customer, as well as the fiduciary obligations owed to a client only. The lesson also identifies the obligations owed to a client and to a customer under the Real Estate and Business Brokers Act (REBBA).

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Lesson 3 | Page 2 of 25

This lesson describes and distinguishes between the duties and obligations a brokerage and salesperson owe to a client and those owed to a customer. These will be separated into various categories: • Duty of care: At all times, a salesperson must conduct themselves in accordance with a standard of care expected of a knowledgeable salesperson. However, the extent of that duty will differ significantly between a client and a customer. • General obligations: Various obligations are owed to a client under the common law of agency, however, only some of the obligations are owed to a customer. • Fiduciary obligations: A brokerage owes fiduciary obligations to a client, as these stem from the agency relationship. Fiduciary obligations are not owed to a customer. • Regulatory obligations: Specific obligations under REBBA are described. Only a select number of obligations relating to specific activities with sellers and buyers are being detailed. As a salesperson, you will need to differentiate between the obligations owed to a client and those owed to a customer to ensure the appropriate level of service is provided. A salesperson’s words and actions can create an agency relationship, so understanding how this will differ for a client or a customer will prevent an agency relationship from being created where one is not intended.

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Upon completion of this lesson, you will be able to: • Describe a salesperson’s duty of care owed to a client and to a customer. • Describe the obligations owed to a client and to a customer under agency law. • Describe the fiduciary obligations owed to a client. • Describe the obligations owed to a client and to a customer under REBBA. 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 25

Duty of Care

The phrase “duty of care” refers to the standard of care and skill provided by a salesperson to a client or a customer. A salesperson, whether new to the profession or not, must act within a standard expected of a knowledgeable, proficient salesperson. Perfection is not required, rather the standard is based on how ordinary and prudent salespersons would conduct themselves under similar circumstances. An important exception involves a salesperson, who claims to possess special expertise or experience. This salesperson’s conduct will be assessed according to that higher standard. Failure to provide an appropriate level of care as a salesperson can result in liability for professional negligence. When providing information or performing functions on behalf of a customer, a salesperson must understand the limitations, otherwise an unintended client relationship could be established, which can lead to misunderstandings or legal ramifications. Next, we’ll detail the requirements for duty of care and how they differ for a client and a customer.

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Lesson 3 | Page 4 of 25

Duty of Care Duty of care is owed to both clients and customers. The following three sections contain information on a brokerage’s duty of care, and how your obligations to a client and a customer will differ.

Duty of care owed to a client

Duty of care to a client applies to everything a brokerage and salesperson does for the client, and all services are to be provided in a conscientious and competent manner. One distinguishing aspect of an agency relationship is related to providing advice. Any information provided when giving advice by the brokerage or salesperson—whether

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written or verbal and no matter how honestly provided—can give rise to action for damages due to negligence. Negligence results from not providing competent services and/or not completing the required due diligence. Example: The seller asks for advice on whether or not to accept an offer. The salesperson meets an acceptable duty of care by providing input based on knowledge of existing sales, reviewing the benefits and drawbacks of the offer, pointing out any particular difficulties that might be encountered (such as the removal of any conditions), and answering seller questions as the need arises when reviewing the agreement.

Duty of care owed to a customer

Duty of care owed to a customer is limited and involves ensuring that honesty, fairness, and integrity is exercised, that information provided is accurate, and that any services the brokerage agrees to carry out on behalf of the customer are thorough and performed with reasonable care and skill. A brokerage and salesperson must also ensure the obligations regarding disclosure and privacy are followed. Certain disclosures must be made to a customer. These include but are not limited to: • Any material facts known or that ought to be known by the salesperson • Any direct or indirect interest held by the salesperson or brokerage related to a trade A salesperson must also ensure any obligations to protect the privacy of the customer and any personal information are complied with. It is important for a salesperson to be conscious of limiting their services to providing information only, not advice. Otherwise, the act of providing advice can unintentionally alter a customer relationship to that of a client. As noted earlier in the module, this would result in creating a potential conflict of interest when a brokerage is representing more than one client in a transaction (known as multiple representation).

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Example: The buyer, as a customer, asks for advice regarding the condition of the seller’s home. The salesperson states that the seller is their client, but that, in all honesty many buyers seek out a home inspector, as the responsibility rests with the buyer to satisfy themselves regarding the condition of the property.

Ensuring duty of care as a salesperson

A duty of care is implied when one party seeks information from another, who has special skills, such as a seller or buyer requesting advice or information from a salesperson. A salesperson is in a position of trust and must exercise due care when giving advice or providing information since they should know this will be relied upon. A salesperson can avoid problems relating to duty of care by the given guidelines: • Seek advice: Be aware of the limits to your knowledge and experience, seek advice or assistance when needed, and recommend the client or customer obtain legal or other appropriate advice. • Accuracy in documentation: Make certain that contracts are properly worded, documents are delivered appropriately, and persons signing are aware of associated implications of the contract or document. • Be informed: Stay up-to-date on relevant issues impacting property ownership in your trading area, such as zoning and taxation. • Make inquiries: Do not rely on information provided by others without completing proper investigations and due diligence to confirm the accuracy of the information.

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Lesson 3 | Page 5 of 25

Question #9: Identify which of the given circumstances are examples of duty of care in a real estate transaction. There are four options. There are multiple correct answers.

1

A salesperson completes a listing agreement and uses the room measurements provided by the seller rather than risking error by personally measuring.

2

A salesperson is asked by a buyer customer, if the vacant land adjoining a property will be developed soon. The salesperson discloses the property was recently sold and recommends the buyer confirm any development plans with the municipality.

3

A salesperson informs a buyer client that many buyers seek out the services of a property inspector rather than provide an opinion on the extent of a problem identified during a property viewing.

4

A salesperson does not disclose to the buyer customer that the basement apartment may not be legal to avoid providing advice.

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Lesson 3 | Page 6 of 25

General Obligations Owed to a Client and a Customer

Under the common law of agency, there are eight general obligations a brokerage and salesperson owe to a client. When interacting with a customer, only two of these obligations apply. These include exercising care and skill and ensuring honesty, as both of these general obligations also reflect the obligations under duty of care. A salesperson should apply these general obligations to the everyday functions performed on behalf of a seller or buyer with a clear understanding of the obligations owed to a client and the limited obligations owed to a customer. Next, these obligations will be detailed along with examples to illustrate how the obligations apply to you as a salesperson.

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Lesson 3 | Page 7 of 25

Obligations Owed to Both Clients and Customers

Two general obligations that are owed to both a client and a customer are: • Exercising care and skill • Ensuring honesty In interactions with a client or a customer, a salesperson must exercise care by being conscientious in answering questions, exercise skill by performing all obligations competently, and ensure honesty by providing accurate information. As detailed earlier, the level of competency expected is that of any prudent salesperson. Complying with these general obligations would include ensuring the completeness and accuracy of all information and recommending relevant experts when applicable. These two obligations under the common law of agency are also found within the Code, applying to all clients and customers. A salesperson must provide conscientious and competent services and treat every person with fairness, honesty, and integrity. Exam Study Guide

Exercise Care and Skill Example: A buyer who is viewing a property with their salesperson indicates concern over the water stains on the basement wall. The salesperson responds by saying that water stains can indicate larger problems, so a professional should be retained to investigate the extent of any damage and whether the problem still exists today. The salesperson also recommends including a condition in any offer allowing for an inspection to be completed and a satisfactory report received. The salesperson exercises care and skill in acknowledging the buyer’s concern and recommending that a third-party professional be retained. Honesty Example: The listing salesperson arrives at an open house 30 minutes before it is scheduled to begin. The seller is speaking to another individual, who has arrived early and is interested in viewing the property. The salesperson joins them as the seller states that the property features a large backyard and is priced very well considering the bush and stream at the rear. The potential buyer indicates owning a property that includes a bush and stream is very appealing. The salesperson concludes the potential buyer is mistaken by what the seller has said and explains that the bush and stream are not located on the property but are lands owned by the Crown, and the seller’s property ends prior to the treeline. The salesperson ensures honesty by ensuring the potential buyer is not misled about the seller’s property.

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Lesson 3 | Page 8 of 25

General Obligations Owed to Clients

Now, let’s review the additional six general obligations a brokerage and salesperson owe to a client.

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The following six sections contain information on client-exclusive obligations.

Negotiate favourable terms A brokerage must diligently advance the client’s interests by assisting in negotiations, discussing their options, and drafting favourable terms and conditions in agreements arising from these negotiations. Accordingly, a salesperson must possess the necessary knowledge and skills to successfully negotiate agreements and also ensure that legally binding agreements are drafted on behalf of their client. Example: A salesperson is presenting an offer received on a seller’s property. The salesperson points out concerns about a financing clause the buyer added to the offer and recommends a change that could result in more favourable terms from the seller’s perspective. The seller agrees to the change, and a counter offer is submitted with the revised terms to the buyer’s salesperson. The buyer reviews the terms and agrees to the change resulting in a successfully negotiated agreement of purchase and sale between the parties.

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Maintain confidentiality Maintaining the confidentiality of a client is fundamental to an agency relationship. A brokerage and salesperson must maintain confidentiality regarding all matters that could adversely impact or undermine the client’s position during negotiations. Common examples include the client’s personal information, any motivation for buying or selling, and the amount willing to be paid or accepted during negotiations. The duty of confidentiality survives termination of the representation agreement and the closing of the transaction. Example: The listing salesperson has obtained an offer on the seller’s property, which is lower than what the seller had anticipated receiving. The seller indicates they are willing to accept the offer but would like to first counter the buyer’s offer with a higher price. The salesperson submits the revised offer to the buyer’s salesperson and does not disclose any information related to the seller’s willingness to accept a lower price. The buyer agrees to the seller’s offer and a sale is successfully negotiated between the parties.

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Disclose information A brokerage and salesperson have a duty to fully disclose any information that is relevant to the relationship as principal and agent, or matters relating to the transaction, which could impact the decisions being made. Information about the relationship includes any actual or potential conflicts of interest, such as the salesperson being a party to the trade, either directly or indirectly. Matters related to the transaction can include events involving the property, the offer, or third parties. The obligation to disclose information requires a salesperson to ensure full disclosure of any actual or potential issues or matters before the client makes a decision or takes any action. Additional information related to disclosure of information about the relationship is detailed later in this lesson under Fiduciary Obligations. Example: A salesperson is showing a property to a young couple, who are very interested in purchasing it. The salesperson knows the buyers have limited funds set aside, if the property purchased needs any immediate repairs. The salesperson identifies a section of the home that contains older wiring and explains these deficiencies might need to be addressed right away. Based on the information provided by the salesperson, the buyers obtain a quote to complete the necessary upgrades from an electrician prior to placing an offer on the property. Exam Study Guide

Act in person A brokerage as an agent must perform duties personally, unless instructed otherwise. In a representation agreement, the brokerage is allowed to extend the authority to represent the client to their employed salespersons. Further, a seller may agree to the brokerage co-operating with other brokerages in the showing of the property to prospective buyers. Example: A listing salesperson has scheduled an open house for this Saturday but is not able to attend as an out-of-town buyer is arriving and has only two days to view properties. The listing salesperson contacts the seller and advises them of this and suggests that another salesperson from the brokerage conduct the open house. The seller agrees as it is understood the brokerage can delegate duties to their employed salespersons.

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Obey instructions A brokerage is obligated to obey all lawful instructions from the client. However, this obligation only extends to lawful instructions. Example, the brokerage would not have to follow an instruction from the seller to provide false and misleading information about the property to a buyer, such as identifying there has been no water seepage in the basement when in fact, there has been. Example: A seller indicates specific instructions for any showings when listing his $1,500,000 penthouse condominium. The seller requires all salespersons to leave a business card at the property when showing buyers through the home and also requires the listing salesperson to be present for all showings. Any feedback from prospective buyers during such showings is to be provided in an email. The listing salesperson agrees to these instructions as they are all lawful.

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Perform mandate A brokerage must perform the mandate as set out in the representation agreement between the parties and act within specific authorities granted. The brokerage should seek clarification when doubt exists regarding such authorities. A brokerage, including all employed salespersons, is not legally obliged to complete specific acts, unless these terms are explicitly set out in the agreement. However, a brokerage that does not perform those acts usual to the listing and showing of properties may give rise to successful legal action for negligence. Example: A seller signs a representation agreement that authorizes the brokerage to undertake marketing activities it deems effective to sell the property. In accordance with this instruction, the brokerage markets the home by placing the listing on the brokerage’s website, promoting the listing using social media, and showing the property to prospective buyers during reasonable hours. However, the seller has specifically removed any authorization in the agreement for any signage at the property. As such, the brokerage must act within the specific authority granted and should not place a “for sale” sign on the property.

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Lesson 3 | Page 9 of 25

Jason, a salesperson with XYZ Realty Ltd, recently listed a property located in an older neighbourhood. He is showing the property for a second time to a buyer customer named Sylvia. When arriving, Jason notices a municipal vehicle on the street and two individuals installing a new sign on the property across the street. The sign is alerting the public to an application for rezoning. Sylvia is concerned the rezoning will change the neighbourhood appeal and is now hesitant about viewing the property again. Question #10: What should Jason say to Sylvia to comply with his obligations to exercise care and skill, and ensure honesty? There are four options. There are multiple correct answers.

1

“The sign is new so I will need to contact the municipality to confirm the proposed change to the zoning. As this is an older neighbourhood and property sizes are spacious, there is a possibility for a change in use.”

2

“Rezoning a property can sometimes impact property values and changing the use can lead to construction noise and disturbances for the neighbourhood. There is always the chance this rezoning won’t be approved, but details are needed before you make any decision.”

3

“I understand that you may have concerns, however, I have never seen a rezoning have a negative impact on a neighbourhood. I would encourage you to continue with the viewing and consider making an offer.”

4

“A change to the zoning means this older neighbourhood is undergoing a transition. This always results in property values increasing. Purchasing this property before values increase is a wise decision.”

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Lesson 3 | Page 10 of 25

A salesperson is showing a property to a buyer client and overhears the seller customer discussing with a neighbour the water problems they had this past summer during the drought. The water problems relate to both the water quality and adequate supply, and the seller indicates they did not disclose this to the listing brokerage. After leaving the property, the buyer’s salesperson informs the buyer there are potential water problems with the property and details what was overheard. Question #11: This scenario is best described by which of the given general obligations being complied with by the buyer’s salesperson? There are four options. There is only one correct answer. 1

Obey instruction

2

Act in person

3

Maintain confidentiality

4

Disclose information

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Lesson 3 | Page 11 of 25

Under the common law of agency, a brokerage and all employed salespersons owe general obligations to clients and customers. Question #12: Identify the statements that are correct for the given scenarios. There are five options. There are multiple correct answers.

1

2

A salesperson researches recent sales to assist a seller in an appropriate listing price. The general obligation owed in this scenario is ‘exercise care and skill’. A buyer notices water stains on the foundation. The salesperson recommends a professional inspection as this could be a serious problem. The general obligation owed in this scenario is ‘exercise care and skill’.

3

A salesperson overhears a seller misrepresenting the square footage of their home to a prospective buyer and corrects the information. The general obligation owed in this scenario is ‘ensure honesty’.

4

A buyer attending an open house says their children could walk to school from here. The salesperson corrects the buyer’s statement as the school is closing. The general obligation owed in this scenario is ‘ensure honesty’.

5

A seller, when listing her multi-million dollar mansion, requires the listing salesperson to be present for all showings. The general obligation owed in this scenario is ‘perform mandate’.

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Lesson 3 | Page 12 of 25

Under the common law of agency, a brokerage and all employed salespersons owe general obligations to clients and customers. Question #13: Identify the statements that are correct for the given scenarios. There are five options. There are multiple correct answers.

1

A salesperson advises all brokerages and salespersons that the seller requires them to leave a business card after showing the property. The general obligation owed in this scenario is ‘obey instructions’.

2

A buyer indicates that they only want to view properties in a specific area. The salesperson reviews several listings and selects five to show to the buyer. The general obligation owed in this scenario is ‘act in person’.

3

A salesperson places a “For Sale” sign on the property just listed for sale and includes the information on the brokerage’s web site. The general obligation owed in this scenario is ‘perform mandate’.

4

A seller agrees that other brokerages can co-operate in the sale of their property. The salesperson promotes the listing to other salespersons. The general obligation owed in this scenario is ‘perform mandate’.

5

A salesperson is not able to show properties to a buyer on Saturday, but another salesperson from the brokerage is available. The general obligation owed in this scenario is ‘act in person’.

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Lesson 3 | Page 13 of 25

Fiduciary Obligations Owed to a Client

An agency relationship is one based on trust and confidence and involves the legal or ethical responsibility requiring the agent to act in the principal’s best interests at all times. The obligations inherent in an agency relationship are known as fiduciary obligations and are owed only to a client. Fiduciary obligations are not owed to a customer. Under the common law of agency, a brokerage’s relationship with a client is thus considered fiduciary in nature. As a fiduciary, a brokerage and all salespersons must act at all times in the principal’s best interests. This means avoiding conflicts of interest, disclosing conflicts, not making secret profits, and not misusing confidential information. Although the basis of fiduciary obligations is part of agency law, the Code also provides for this. A salesperson must at all times work in a client’s best interests. The next few screens explain the fiduciary obligations in detail.

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Lesson 3 | Page 14 of 25

Creating a Fiduciary Relationship

As you have learned, an agency relationship—also known as a fiduciary relationship—is consensual in nature and is created when an agent accepts the authorities granted by a principal to act on the principal’s behalf in business transactions with a third party. In other words, an agency or fiduciary relationship is created by mutual consent and not necessarily from a contractual relationship. While the most common method of creating an agency relationship is by written agreement, it can also be established by words and actions. An agency/fiduciary relationship can be created when a salesperson receives confidential information from a seller or a buyer and, by their words or actions, leads the seller or buyer to believe that they will act in the seller’s or the buyer’s best interests.

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The relationship can also be created when the salesperson takes no action to correct the seller’s/buyer’s mistaken belief that their interests will be protected. Therefore, a fiduciary relationship can exist even when a brokerage has not entered into a written representation agreement with sellers or buyers. It can exist when the brokerage is acting gratuitously for their clients or is engaged in joint ventures with their clients. Although an agency/fiduciary relationship can be created by words or actions, the Code requires a verbal representation agreement with a seller or a buyer to be in writing as soon as possible, and must be before an offer is made. It must be signed on behalf of the brokerage and submitted to that seller or buyer for signature. Although common practice, the seller or buyer is not obligated to sign the document.

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Lesson 3 | Page 15 of 25

Fiduciary Obligations Owed to a Client

Case law has established that various elements must be present to create a fiduciary relationship. Fiduciary obligations are based on three fundamental premises: • Loyalty: Loyalty is focal to any fiduciary relationship and, in fact, encompasses all other obligations within its scope. At all times, the client’s best interests are serviced, and these interests will always take priority over personal and third-party interests.

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• Best interests: A brokerage must at all times act in the client’s best interests. A brokerage and salesperson must never permit their own interests, or those of a third party, to override this duty. The client’s informed consent must be obtained if such interests come into conflict, either directly or indirectly, with the client’s interests. • Trust and confidence: A client places trust and confidence in the brokerage and relies on the advice given. As such, a client becomes dependent on and vulnerable to the brokerage. The three elements of a fiduciary relationship flow to five fiduciary obligations. The next few screens explain each of the fiduciary obligations in detail.

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Lesson 3 | Page 16 of 25

Specific Fiduciary Obligations The fiduciary obligations owed to a client will be the basis for how a salesperson interacts with seller and buyer clients. The following five sections contain information on different fiduciary obligations including an example of how each obligation would be complied with by a salesperson.

Maintain utmost loyalty

This obligation effectively encompasses all other fiduciary duties. The client’s interests take precedence over those of the brokerage, any salesperson, and that of any other party. Maintaining loyalty is best achieved by representing the interests of only one party to a transaction (single representation). Difficulties in maintaining loyalty arise when a brokerage attempts to act in the best interests for competing parties in a transaction in multiple representation, such as a seller and buyer or two competing buyers. A breach of any brokerage obligation owed to a client constitutes a breach of loyalty, as the brokerage is not acting in the client’s best interests. Seller Example: A seller and their salesperson are discussing two offers they have received. Both offers are from co-operating brokerages, but one offer is through a salesperson who is also a personal friend of the seller’s salesperson. Although the offer price is similar for both, the friend’s offer lacks some of the terms in the other offer, which are better for the seller. The salesperson fully details these disadvantages to the seller without regard for personal interests in advancing the friend’s offer. The seller agrees and accepts the other buyer’s offer. Buyer Example: A salesperson is showing properties to a buyer and when viewing one of the listings, realizes the property would be ideal for their own purchase. The buyer is also very interested in the property and asks for the salesperson’s advice on placing an offer. The salesperson puts aside their own interests and successfully negotiates an offer on behalf of the buyer. Exam Study Guide

Avoid conflicts of interest

Many forms of conflict of interest can arise, both within a brokerage and individually for a salesperson. A conflict of interest can involve: • A brokerage representing two clients at the same time in the same transaction (multiple representation) • A salesperson purchasing their client’s property • A client purchasing their salesperson’s property • A salesperson or brokerage being either directly or indirectly involved in the transaction (for example, the seller is a relative of the listing salesperson) • A brokerage having some other association that creates a potential or actual conflict of interest, such as a brokerage with a salesperson who is also an appraiser) Seller Example: A seller has accepted an offer on their property, conditional upon the buyer obtaining financing. The listing brokerage also has an appraisal division and two of the salespersons are qualified to complete residential appraisals for lenders. One of these salespersons is asked to complete an appraisal for a buyer, but when discovered the request is for a listing within the salesperson’s brokerage, the appraisal request is denied. Buyer Example: A salesperson is approached by a buyer during an open house who indicates they are interested in purchasing the property and want to be represented by the salesperson. The salesperson explains that the brokerage represents the seller and describes the conflict of interest that inherently arises if the brokerage were to also represent them. Based on this, the buyer chooses to receive customer services instead.

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Disclose conflicts

The brokerage must disclose any personal or third-party interests that conflict (or may conflict) with the interests of the client. The client must have full knowledge of the exact nature and extent of the conflict if the brokerage is to avoid potential liability for breach of any fiduciary obligations. While common law does not mandate a disclosure be in writing, practical considerations would result in a signed document attesting to the client’s awareness of, and consent to, the specified conflict. Failure to openly disclose conflicts can give rise to liability for a brokerage and a salesperson. In addition to the practical considerations, a salesperson must comply with the requirements under REBBA relating to disclosures of an interest, either directly or indirectly, by a salesperson. These disclosure requirements apply to both clients and customers of a brokerage. You will learn more about obligations owed under REBBA later in this module. Seller Example: A salesperson wants to buy a property listed with their brokerage. When arranging for an appointment to view, they verbally disclose their status as a salesperson. When drafting their offer, they prepare a written disclosure containing specific information as required. Buyer Example: A salesperson’s parents are interested in purchasing a condominium as they are downsizing from the large family home. The salesperson advises the listing brokerage of this relationship prior to showing the condominium and then provides a written disclosure to the seller prior to an offer.

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Do not make a secret profit

This obligation prohibits an agent from profiting unlawfully at the expense of the principal. This obligation can involve a brokerage and salesperson profiting from various activities. These activities can include: • Improper advice or breach of loyalty: Any profit from the principal’s trust and reliance on advice provided to further the personal interests to the detriment of the client is prohibited. This would include instances such as a salesperson advising a seller to accept an offer below market value because the property has been difficult to sell, and the listing is soon to expire. • Payment from another party: A brokerage may not accept remuneration from both parties to a transaction unless full disclosure is made to all parties. The amount being received must be disclosed and consent by the client to retain the payment is required. • Payment by third party: A brokerage may not receive a secret profit from someone who is providing services relating to the transaction. This would include a referral fee being paid by a property inspector, appraiser, or lender. Also included would be any third party who is providing services that are incidental to the transaction, such as a moving company, contractor, or stager. Any payment by a third party must be disclosed to the client.

In addition to this fiduciary obligation, a salesperson also has disclosure requirements under REBBA relating to any direct or indirect financial benefit. You will learn more about obligations owed under REBBA later in this module. Seller Example: A listing salesperson, in addition to receiving a remuneration from the seller client, is offered an additional fee from the home staging company for referring the seller. The salesperson discloses this fee in writing to the seller who consents to the brokerage receiving and retaining the fee. Buyer Example: A salesperson representing a buyer will receive a remuneration from that client for locating and negotiating an accepted offer on a property. The property located for the buyer is being sold privately by a seller. The seller offers a bonus to the salesperson if the buyer purchases the property. The salesperson Exam Study Guide

makes a full disclosure of the bonus to the buyer prior to submitting an offer.

Do not misuse confidential information

A brokerage and salesperson will acquire confidential information by the very nature of the client relationship. As this relationship is established based on trust and loyalty, any confidential information obtained must not be divulged or used to promote the interests of the brokerage or salesperson. Providing confidential information to another party to the transaction can have significant detrimental impact on the client. This requirement excludes any information about the client, the property, or the transaction that, by law, the brokerage is required to disclose. Suspicious transactions, money laundering, and terrorist financing involving a client (or customer) must be disclosed to the Financial Transactions and Reports Analysis Centre of Canada (FINTRAC). Seller Example: A salesperson is working with a client to sell their house; the client is in a hurry due to a job change and very eager to sell. A buyer customer is looking at the seller’s property and is considering making an offer, but first wants to know why the seller is selling. The salesperson does not engage in any casual conversation regarding the property nor do they disclose their client’s personal information. Buyer Example: A buyer informs the salesperson in confidence they are willing to pay the full asking price of a property because they are quite anxious to purchase it. The buyer wants to submit an offer that is less than this amount but states if the seller makes a counter-offer at a higher price, they will accept the offer. The salesperson does not disclose this information, as this would impair the buyer’s negotiating position.

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Lesson 3 | Page 17 of 25

Reggie, a potential buyer, walks into an open house conducted by the listing salesperson, Nia. Nia identifies herself as representing the sellers and asks Reggie if he is working with any salesperson. Reggie’s answer takes Nia by surprise, as he suddenly begins to share some personal financial details. Nia interrupts Reggie and explains he should not be sharing these details with her as she represents the seller, and any disclosures would only complicate the situation, as there are fiduciary obligations she must comply with. Reggie asks Nia to explain further. Question #14: Which of the given explanations should Nia provide to Reggie when explaining fiduciary obligations? There are four options. There is only one correct answer.

1

“Brokerages must avoid any conflicts of interest whenever possible. For example, I could avoid a conflict of interest by not representing you as a client, if you decided to purchase this property.”

2

“Brokerages must keep all information confidential. This particular obligation is owed whether you are a client or a customer.”

3

“Brokerages must disclose any conflicts of interest. For example, if the seller was my mother, I would tell you this, but there would be no reason to put it in writing.”

4

“Brokerages must be loyal to their clients. So, for you to become my client, I need you to sign a representation agreement before we speak about any details.”

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Lesson 3 | Page 18 of 25

Fiduciary obligations are owed to all clients as the agency/fiduciary relationship is based on loyalty to the principal. Question #15: Identify the correct statements regarding Fiduciary obligations. There are five options. There are multiple correct answers.

1

A salesperson advises a seller to accept an offer from another brokerage rather than their own offer, as the terms are better for the seller. The fiduciary obligation owed in this scenario is ‘maintain utmost loyalty’.

2

A brokerage employs a salesperson who is also an appraiser. The salesperson completes an appraisal on a sale, where another brokerage represents the seller and buyer. The fiduciary obligation owed in this scenario is ‘avoid conflicts of interest’.

3

A salesperson sees a new listing. It is perfect for both her and a buyer she has been working with; the salesperson shows the property to the buyer who purchases it. The fiduciary obligation owed in this scenario is ‘avoid conflicts of interest’.

4

A buyer attending an open house states they want to place an offer after viewing the property; the listing salesperson and buyer agree to a customer relationship. The fiduciary obligation owed in this scenario is ‘maintain utmost loyalty’.

5

A salesperson is representing their son and daughter-in-law in the purchase of their first home. A written document is provided to the seller, which identifies this relationship. The fiduciary obligation owed in this scenario is ‘disclose conflicts’.

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Lesson 3 | Page 19 of 25

Fiduciary obligations are owed to all clients as the agency/fiduciary relationship is based on loyalty to the principal. Question #16: Identify the correct statements regarding Fiduciary obligations. There are five options. There are multiple correct answers.

1

A salesperson is purchasing a property through a corporation in which they are a shareholder. The salesperson includes this as a written disclosure to the seller. The fiduciary obligation owed in this scenario is ‘disclose conflicts’.

2

A salesperson receives a fee from a mortgage broker for referring a buyer client. This is disclosed to the buyer. The fiduciary obligation owed in this scenario is ‘do not make a secret profit’.

3

A salesperson representing a buyer in the purchase discloses the brokerage will receive a remuneration from both the seller and the buyer. The fiduciary obligation owed in this scenario is ‘do not make a secret profit’.

4

A seller counters a buyer’s offer at a higher price but tells the salesperson they would accept a lower price. This is not disclosed to the buyer. The fiduciary obligation owed in this scenario is ‘do not misuse confidential information’.

5

A buyer is motivated to purchase a property due to its proximity to family. When presenting an offer, the buyer’s salesperson does not disclose this information. The fiduciary obligation owed in this scenario is ‘disclose conflicts’.

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Lesson 3 | Page 20 of 25

Regulatory Obligations Owed to Clients and Customers

A brokerage and salesperson must comply with regulatory obligations under REBBA in addition to the general and fiduciary obligations imposed under the common law of agency. As a salesperson, to fulfill your obligations, you will need a thorough understanding of how the regulatory obligations impact any activities. Under REBBA, obligations are owed to both a client and your customer, although, these obligations can differ substantially based on the relationship a brokerage has with a seller or a buyer. The given screens detail some of the regulatory obligations owed including how any responsibilities differ when representing a client or providing services to a customer.

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Lesson 3 | Page 21 of 25

Specific Regulatory Obligations Owed to Clients and Customers In many ways, the requirements under REBBA mirror the requirements under the common law of agency. The following six sections contain information on the regulatory obligations owed to both a client and a customer under REBBA.

Account

Under REBBA, the brokerage has a regulatory responsibility to account for, safeguard, and keep proper records pertaining to money, documents, and property entrusted to that brokerage. As part of safeguarding a buyer’s deposit, a brokerage must place it in the brokerage’s real estate trust account. In addition, all registrants, which include brokerages, brokers, and salespersons, must be insured under the RECO Insurance Program to maintain registration with RECO. This provides protection for a buyer’s deposit held in the brokerage’s real estate trust account. REBBA also requires a brokerage to maintain a written record of all monies received and held in trust for other persons in connection with the brokerage’s business and to every transaction relating to that money. Such transactions would include any disbursement of the funds and interest earned on the money. Specific information must be documented by the brokerage in accordance with the trust requirements of the specific trade. A brokerage could retain this information in what is often referred to as the real estate trust ledger. As a salesperson, understanding the brokerage’s requirements will ensure you do not place the brokerage in a position of non-compliance with REBBA. Example: A salesperson receives the deposit from a buyer relating to an accepted offer. The offer indicates the deposit is being held by the listing brokerage.

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The buyer’s salesperson ensures the deposit is immediately provided to the listing brokerage who will place the deposit into their real estate trust account within the specified regulatory time limit (no later than five business days from receipt). The listing brokerage completes the required documentation to show the deposit being placed into the account. When the transaction is completed, the brokerage will disburse the deposit from the statutory trust account according to the terms of the trust. At all times, the buyer’s deposit is safeguarded, as the brokerage has complied with the requirement to maintain insurance.

Establish remuneration provisions

REBBA identifies the allowable ways remuneration payable to a brokerage can be calculated. Remuneration can be established based on an agreed-upon amount (a flat fee) or a percentage of the sale price/rental price, or a combination of both. The percentage does not have to be fixed but may be expressed as a series of percentages that decrease at specified amounts as the sale or rental price increases. The percentage cannot increase as the sale or rental price increases. Remuneration also cannot be calculated based on the difference between the price the property was listed for sale or rent, and the actual sale or rental price. The given are also requirements under the Code relating to remuneration: • A salesperson must disclose in writing at the earliest practical opportunity any direct or indirect financial benefit that a salesperson or person related to the salesperson may receive from another person in connection with the trade in real estate. This obligation would require the salesperson to disclose any finder’s fee being paid to the salesperson, such as a fee paid by a lender who is providing financing for a buyer. • When a brokerage has entered into an agreement with a seller and buyer and then also enters into an agreement with another person in respect of

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the same trade, the brokerage must disclose the terms of each agreement in writing to each of the parties. REBBA further provides that no legal action can be taken to collect commission unless the person who brings such action is either registered or exempt from registration at the time of providing the services. Example: The remuneration rate in the seller representation agreement was agreed upon as 4.5% on the first $250,000 of the selling price and 2.5% on the balance. Example: A brokerage has entered into a representation agreement that requires the seller to pay 5% of the sale price as remuneration to the brokerage. A buyer purchasing the property through the same brokerage has agreed to pay an additional $1,000 as remuneration. The disclosure for both remuneration being paid is disclosed in writing to the seller and buyer.

Do not induce, breach, or make certain promises

REBBA prohibits a brokerage or salesperson from inducing a party to cancel an agreement for the purpose of entering into another agreement. This would apply to any agreement relating to a trade, including a representation or customer service agreements, as well as an agreement of purchase and sale. Further, a brokerage or salesperson cannot make certain promises to a seller or buyer (for example, to resell the property if the buyer purchases it) unless the promise is put in writing, signed by the person making the promise, and delivered to the party to whom the promise is made. Example: A salesperson representing a buyer has successfully negotiated an agreement of purchase and sale. Several weeks after acceptance, a new listing is discovered by the buyer who contacts their salesperson with a request to

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terminate the accepted offer in order to purchase the new listing. The salesperson informs the buyer that such advice cannot be provided. Example: A salesperson promises a buyer that they will guarantee the sale of the buyer’s current property in order for the buyer to purchase another property. The promise is a personal promise of the salesperson and does not oblige the brokerage. The salesperson provides a document identifying the details of the promise, signs the document, and provides this to the buyer prior to the buyer purchasing a new property.

Deliver copies of agreements, offers, and statements

Various requirements under the Code apply to a brokerage and salesperson relating to any documents or deposits in connection with a trade in real estate. These include: • A copy of the agreement for the purpose of trading in real estate must be given to the client or customer immediately upon signing. This would include a representation or customer service agreement. Each party signing the agreement must receive a copy when the document has been signed. This requirement prohibits a salesperson returning the following day to provide a copy to a seller or buyer. • A signed copy of any written agreement relating to the conveyance of an interest in real estate is to be delivered to each of the parties at the earliest possible opportunity. This would include an agreement of purchase and sale. For example, this requirement allows a salesperson to provide each seller or each buyer a copy of an accepted offer on the day after the other party had accepted the offer, rather than providing a copy immediately. • Any deliverable within the agreement of purchase and sale, such as a deposit or documents pertaining to the transaction, must be delivered in accordance with the time and dates specified in the agreement. This would require a salesperson to provide a buyer’s deposit as identified within the agreement, as well as any notices, amendments, or other documents related to the trade. • When a seller has completed a written statement that is intended to provide information to buyers about the real property, the salesperson representing the seller must advise any buyer that expresses an interest in the property that Exam Study Guide

this document exists. The salesperson must also provide potential buyers with a copy of this document, if requested, unless the seller provides the salesperson with written instruction to the contrary. This can be complied with by indicating on a listing that the disclosure statement is available. When a salesperson is working with a buyer, this information would become known and the buyer’s salesperson could request a copy from the seller or listing brokerage.

Document relationships and requirements for any agreement

When documenting a relationship with a seller or buyer, there are several different compliance requirements under the Code for a brokerage and salesperson: • The requirements relating to the minimum content to be included in any written representation or customer service agreement include the start date and expiry date, remuneration obligations, a description of the services options available, and the services to be provided by the brokerage under the agreement. • The obligations relating to seller and buyer representation agreements or customer service agreements must be in writing, signed on behalf of the brokerage, and submitted to the respective seller or buyer for signature. This must be done prior to any offer being made. • Disclosure requirements relating to multiple representation extend past obtaining a representation agreement. At the point when a brokerage wants to represent more than one client in a transaction, additional disclosures are required including an explanation of how the services will differ as a result of multiple representation. The salesperson must obtain consent from the parties at this time. Whether working under multiple representation or not, additional requirements prior to entering into an agreement of purchase and sale include informing all sellers and buyers involved the nature of the brokerage’s relationship to each seller and buyer. • To assist in ensuring the brokerage and salesperson are providing the services agreed to in a representation agreement, all significant steps taken on behalf of the client shall be communicated to the client throughout the Exam Study Guide

course of the relationship. You will learn more about representation and customer service agreements later.

Provide disclosure of service options before an agreement

The Code requires that a brokerage discloses the brokerage’s role and the service options available as early as is practically possible and before entering into a representation or customer service agreement. This disclosure requirement also addresses the possibility of multiple representation and the consequent implications for seller and/or buyer clients. The brokerage and salesperson must use their best efforts to obtain a written acknowledgment from the consumer that such information has been received and understood. Example: A brokerage has prepared an information sheet, which explains the types of service alternatives available and other information a seller or buyer is required to receive prior to entering into a representation or customer service agreement. The salesperson explains this information, confirms the buyer understands it, and then obtains a signature from the buyer. The salesperson and buyer then determine the type of relationship the brokerage and buyer will establish.

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Lesson 3 | Page 22 of 25

Henry has contacted Monique, a salesperson with ABC Real Estate Ltd. Monique will be meeting with Henry to discuss listing his property for sale. Question #17: Which of the given explanations comply with Monique’s requirements under REBBA related to listing Henry’s property for sale or obtaining an offer? There are five options. There are multiple correct answers.

1

“We will discuss providing a written disclosure about the property. I can let other salespersons and potential buyers know about this so a buyer can receive a copy. Do you feel comfortable making those disclosures available?”

2

“We will discuss the remuneration that will be paid to my brokerage. It can be calculated in a few different ways, so let’s look at the options.”

3

“We will discuss situations where my brokerage could be representing more than one client when an offer is received on your property. As this is important to understand, we will discuss this now as well as before an offer is presented to you.”

4

“There is always a lot of paperwork with a real estate transaction. I am obligated to leave this representation agreement with you once you have signed it."

5

“A buyer’s deposit will likely be placed in our brokerage’s general bank account for safe keeping. Our brokerage has insurance to protect the buyer’s deposit, but not all brokerages do.”

Exam Study Guide

Lesson 3 | Page 23 of 25

A salesperson is representing a seller and is holding an open house. A prospective buyer visits the property and approaches the salesperson as they are very interested in placing an offer on the property. The buyer asks for advice as they purchased a property one month ago but would like to terminate that agreement to purchase this property instead. The buyer asks if this is possible because the transaction is not scheduled to close for another two months. Question #18: What should the salesperson do? There are four options. There are multiple correct answers. 1

The salesperson should review the buyer’s agreement of purchase and sale to see if there is any potential to terminate the agreement.

2

The salesperson should advise the buyer that they cannot provide advice to the buyer on how to terminate the contract.

3

The salesperson should refer the buyer to obtain independent legal advice on the matter.

4

The salesperson should advise the buyer to speak with their own salesperson to terminate the contract and then contact them to purchase this property.

Exam Study Guide

Lesson 3 | Page 24 of 25

Question #19: Identify which of the given scenarios are in compliance with REBBA. There are three options. There are multiple correct answers.

1

A brokerage has promised a buyer that they will guarantee the sale of their current property if they purchase a specific property listed by their brokerage. The brokerage provides a written contract detailing this promise.

2

A brokerage is involved in a transaction in which the buyer has agreed to pay remuneration. The salesperson locates a property being sold privately by the seller who has also agreed to pay a remuneration to the brokerage. The salesperson discloses the remuneration arrangements to the buyer, but not the seller as the seller is not a client.

3

A buyer views a property during an open house and expresses an interest in the property. Prior to any specific details about a possible purchase, the salesperson discusses the service options and they agree that the brokerage will provide customer service to the buyer. The salesperson and buyer formalize the relationship by signing a customer service agreement prior to discussing any specifics about purchasing the property.

Exam Study Guide

Lesson 3 | Page 25 of 25

Congratulations, you have completed the lesson! There are four sections on this page with a summary of the key topics that were covered in this lesson.

Duty of care

The phrase duty of care refers to the standard of care and skill provided by a salesperson to a client or a customer. A salesperson, whether new to the profession or not, must act within a standard expected of a knowledgeable, competent salesperson. Duty of care owed to a client involves everything done for that client. Duty of care owed to a customer involves ensuring that honesty, fairness, and integrity are exercised throughout the relationship. Information provided and services performed by a salesperson must be carried out in a conscientious and competent manner.

General obligations

Under agency law, the given are two general obligations owed to both a client and a customer: • Exercise care and skill: A salesperson must exercise care by being conscientious in answering questions and exercise skill by performing all obligations competently. • Ensure honesty: A salesperson must ensure honesty by providing accurate information. The given are six additional general obligations owed to clients: • Negotiate favourable terms: A brokerage must diligently advance the client’s interests by assisting in negotiations, discussing their options, and drafting favourable terms and conditions in agreements arising from these negotiations. • Maintain confidentiality: A brokerage and salesperson must maintain confidentiality regarding all matters that could adversely impact or undermine the client’s position during negotiations. Exam Study Guide

• Disclose information: A brokerage and salesperson have a duty to fully disclose any information that is relevant to the relationship as principal and agent, or matters relating to the transaction which could impact the decisions being made. • Act in person: A brokerage, as an agent, must perform duties personally unless instructed otherwise. • Obey instructions: A brokerage is obligated to obey all lawful instructions of the client; however, this obligation only extends to lawful instructions. • Perform mandate: A brokerage must perform the mandate as set out in the representation agreement between the parties and act within specific authorities granted.

Fiduciary obligations

The obligations inherent in an agency relationship are known as fiduciary obligations and are owed only to a client. Fiduciary obligations are not owed to a customer. The given are five fiduciary obligations owed to clients: • Maintain utmost loyalty: The client’s interests take precedence over those of the brokerage, any salesperson, and that of any other party. • Avoid conflicts of interest: The salesperson must avoid the many forms of conflict that can arise both within a brokerage and individually for a salesperson. • Disclose conflicts: The brokerage must disclose any personal or third-party interests which conflict (or may conflict) with the interests of the client. • Do not make a secret profit: This obligation prohibits a brokerage or salesperson from profiting unlawfully at the expense of the client. • Do not misuse confidential information: Any confidential information obtained must not be divulged or used to promote the interests of the brokerage or salesperson.

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Regulatory obligations

Under REBBA, the given are six regulatory obligations owed to both a client and a customer: • Account – OTH Sections 11 and 12 of O. Reg. 579/05 • Establish remuneration provisions – Sections 9 and 36(1) of the Act; Sections 18(4) and 18(5) of the Code • Do not induce, breach, or make certain promises – Section 33(1) of the Act; GEN Sections 25(2) 25(5) of O. Reg. 567/05 • Deliver agreements, offers, and statements – Sections 12, 20, 28, and 29 of the Code • Establish brokerage relationships and agreements – Sections 11 to 16 and 23 of the Code • Provide disclosure of service options before an agreement – Section 10 of the Code

Exam Study Guide

Lesson 4 | Page 1 of 14

Lesson 4: Representation

This lesson explains representation and details the obligations owed to a seller or buyer when representing one and when representing more than one party to the trade.

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Lesson 4 | Page 2 of 14

Under REBBA, an agency relationship is described as representation. Single representation is equivalent to single agency and multiple representation is equivalent to dual agency. It is essential to understand that when a representation is established, parties involved in that relationship have committed to certain obligations, and as a salesperson, it will be your responsibility to communicate what these are to clients. This lesson details the obligations of a brokerage and a salesperson to a client and explains the limitations to those obligations when a brokerage is representing more than one party for the same trade (multiple representation). Upon completion of this lesson, you will be able to: • Describe the obligations owed to a seller or a buyer under single representation. • Describe how multiple representation alters the obligations owed by a brokerage to a seller or a buyer. 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

Two Categories of Representation

As you have learned, the agency relationship between principal and agent within a real estate context are known as representation. Representation can be grouped in two categories: • Single representation: In real estate, single agency is referred to as single representation. Single agency occurs when there is one agent (brokerage) representing one principal (seller or buyer) within a transaction with a third party. • Multiple representation: In real estate, dual agency is referred to as multiple representation. Dual agency occurs when there is one agent (brokerage) representing two or more principals (seller/buyer) within the same transaction. As the agency relationship is established between the principal and the agent, the relationship established applies to all salespersons employed by the brokerage. For example, when a brokerage lists a seller’s property for sale, the salesperson who is working directly with the seller is known as the listing salesperson. However, all obligations owed to the seller by this salesperson are also owed by all other salespersons employed by the brokerage. This is known as single representation. When a brokerage represents both the seller and the buyer, or two competing buyers offering on the same property, this is known as multiple representation, even if different salespersons within the brokerage are representing the seller and the buyer.

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Lesson 4 | Page 4 of 14

Seller Single Representation Under seller single representation, the brokerage represents the seller as a client. The listing brokerage promotes the listed property, seeks out qualified buyers, and uses their professional negotiation skills to advance the seller’s interests. General, fiduciary, and regulatory obligations are owed to the seller. In single representation involving the seller, the buyer is often represented by another brokerage (the co-operating brokerage). In other instances, the buyer could be a customer of the seller’s brokerage, which also results in single representation. The given table outlines the basic obligations under a seller single representation: Obligation

Description

Market the Property and Promote the Seller’s Best Interests

Use the best efforts to market the property and to promote the interests of the seller.

Advise the Buyer that the Brokerage is the Representative of the Seller

At the earliest reasonable opportunity, advise any buyer interested in the property that the brokerage is the seller’s representative.

Act as the Seller’s Representative

Subject to the provisions of the agreement related to a change in representative capacity, act as only the seller’s representative.

Obey Lawful Instructions

Obey all lawful instructions of the seller.

Fulfill Fiduciary Obligations

Fulfill fiduciary obligations of loyalty, confidentiality, and full disclosure of all conflicts of interest that may arise between the seller’s interests and those of the brokerage, salesperson, or buyers.

Exercise Reasonable Care and Skill

Exercise reasonable care and skill in the performance of any services provided under the agreement. Exam Study Guide

Negotiate Favourable Terms

Assist the seller in negotiating favourable terms and conditions with a buyer and in preparing and complying with a legally binding agreement of purchase and sale for the property.

Disclose Material Facts to Buyers

Disclose to buyers all material facts affecting the property known to the brokerage.

Timely Present Offers and Counter Offers

Present, in a timely manner, all offers and counter offers to and from the seller.

Discover and Disclose all Relevant and Material Facts to Seller

Discover and disclose all relevant and material facts affecting the transaction—that are known, or ought to be known, to the brokerage or salesperson—to the seller in a timely manner.

Keep Seller Fully Informed

Keep the seller fully informed regarding the progress of the transaction.

Obtain Expert Advice

Advise the seller to obtain expert advice on matters of importance to the seller.

Comply with Regulatory Requirements

Comply with all provisions of REBBA including its regulations, any federal and provincial laws, and the rules and bylaws of the applicable municipality.

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Lesson 4 | Page 5 of 14

Buyer Single Representation Under buyer single representation, the brokerage represents the buyer as a client. The buyer’s brokerage (often referred to as the co-operating brokerage when the seller is also represented by a brokerage) must promote the buyer’s best interests, locate suitable properties for the buyer to view, and use their professional negotiation skills to advance the buyer’s interests. General, fiduciary, and regulatory obligations are owed to the buyer client. The given table outlines the basic obligations under a buyer single representation: Obligation

Description

Locate Property and Promote the Buyer’s Best Interests Use the best efforts in locating a property in the specified market area(s) that meets the material requirements identified by the buyer and to promote the interests of the buyer. Advise Seller that the Brokerage is the Representative of the Buyer

At the earliest reasonable opportunity, advise any seller in whose property the buyer is interested that the brokerage is the representative of the buyer.

Act as the Buyer’s Representative

Subject to the provisions of the agreement related to a change in representative capacity, act as only the buyer’s representative.

Obey Lawful Instructions

Obey all lawful instructions of the buyer.

Fulfill Fiduciary Obligations

Fulfill fiduciary obligations of loyalty, confidentiality, and full disclosure of all conflicts of interest that may arise between the buyer’s interests and those of the brokerage, salespersons, sellers, or competing buyers.

Exercise Reasonable Care and Skill

Exercise reasonable care and skill in the performance of any services provided under the agreement.

Exam Study Guide

Seek Out Available Properties

Seek out and advise the buyer in a timely manner of all available properties in the market area that may meet the buyer’s requirements. This includes those listed with other brokerages, those that are for sale by the owner (FSBO), and other available properties known to the brokerage—without regard to the amount of remuneration being offered.

Discover Relevant and Material Facts

Use the best efforts to discover any relevant or material facts pertaining to any property for which the buyer is considering making an offer.

Disclose Relevant and Material Facts

Disclose in a timely manner to the buyer all relevant or material facts known to the brokerage or salesperson affecting a property or transaction. Any change to the information on properties of interest, such as a reduction in the listing price, should be disclosed to the buyer as this could impact any decisions made. This requirement also includes disclosing the existence of any written statement made by the seller of a property intended to provide information about the property to prospective buyers.

Obtain Expert Advice

Advise the buyer to obtain expert advice on matters of importance to the buyer.

Timely Presentation of Offers and Counter Offers

Present all offers and counter offers to and from the buyer in a timely manner. This is required no matter the contents of the offer. This includes presenting an offer where a seller has already accepted an offer that is conditional because the buyer’s offer could contain terms which would place it in a position of being accepted conditional on the previous offer becoming null and void.

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Keep Buyer Informed

Keep the buyer fully informed regarding the progress of the transaction.

Disclose Competing Offers

Disclose to the buyer the existence of any competing offers known to the brokerage or salesperson for a property in which the buyer has signed an offer.

Negotiate Favourable Terms

Assist the buyer in negotiating favourable terms and conditions, and in preparing a legally binding agreement of purchase and sale.

Comply with Regulatory Requirements

Comply with all provisions of REBBA, including its Regulations, and all other federal and provincial laws.

Exam Study Guide

Lesson 4 | Page 6 of 14

Jason has listed Marta’s home for sale for $399,500. At the time, Jason stated the property should sell for about $390,000. Jason has now received an offer from a buyer who is represented by another brokerage for $389,000. Prior to meeting with Marta to review the offer, Jason notes two new listings and one sale which occurred yesterday. The information on these properties indicates property values are starting to increase and Marta’s property should sell for closer to the listing price. Question #20: What actions should Jason take to fulfill his obligations owed to Marta under single representation regarding the offer received? There are four options. There are multiple correct answers.

1

Provide Marta the new information on the listings and sale and discuss how market conditions may indicate a higher price for her property than the offer received.

2

Explain to Marta she does not have to accept the offer and they can consider other options such as countering the offer at a higher price or rejecting the offer.

3

Present the offer to Marta as soon as possible but also contact other salespersons who have expressed an interest in showing the property to see if any other offers can be obtained for Marta to review at the same time as this offer.

4

Encourage Marta to accept the offer without reviewing any new information because it is close to his original estimate of value and it would mean her property is sold.

Exam Study Guide

Lesson 4 | Page 7 of 14

Marlon and Jean have called Juan from XYZ Realty Ltd., as they have decided to begin looking for their first home. They have been renting an apartment for years and have saved enough for a down payment. Jean found a property on the internet, and it appears to meet their criteria, but they are unsure of the neighbourhood. Before booking an appointment to show them through this or any other property, Juan wants to discuss how he can help them in their search for a property. They indicate a school district is very important and that although they are not in a hurry to buy, they would not want to miss out on the perfect property. Question #21: What should Juan say to Marlon and Jean to demonstrate the benefits of representing them in their purchase? There are eight options. There are multiple correct answers.

1

As your salesperson, I am committed to asking the sellers for more information about the property, its surroundings, or any other information that matters to you.

2

As your salesperson, I am committed to discovering material facts about the property, its surroundings, or any other information that matters to you.

3

It’s also good that you’ve identified a property that you like; with this information I can negotiate a good price to show you so that you can make an informed decision.

4

It’s also good that you’ve identified a property that you like; with this information I can seek similar available properties to show you so that you can make an informed decision.

5

Right now, the market is very active, so if you find a property that you like, before we prepare an offer, I’ll contact the listing salesperson to see if there are any competing offers already received. Exam Study Guide

6

Right now, the market is very active, so if you find a property that you like, before we prepare an offer, I’ll contact the listing salesperson to see if there are any surveys available.

7

Things can happen quickly, and there will be times when we are very busy, but I’m obligated to present any offer in a timely fashion, so I will be in touch quite often with the other salesperson.

8

Things can happen quickly, and there will be times when we are very busy, but I’m obligated to tell the listing salesperson your offer price, so I will be in touch quite often with the other salesperson.

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Lesson 4 | Page 8 of 14

Multiple Representation

Multiple representation is when there is one brokerage representing more than one client (seller or buyer). Most commonly, multiple representation arises when two different salespersons within a brokerage represent the seller and buyer respectively in the same transaction or when the same salesperson represents both seller and buyer in the transaction. A brokerage may operate from more than one location, so different salespersons working at different locations for the brokerage would still constitute multiple representation. Additionally, multiple representation occurs when the same brokerage represents two or more buyers who are making an offer to purchase the same property at the same time. In the case of multiple buyers, it may not be clear that a single brokerage is representing multiple buyers until multiple buyers have expressed interest in the same property. In such situations, consent to the multiple representation would be required when the brokerage becomes aware that it is operating in a multiple representation Exam Study Guide

situation. Given that an inherent conflict of interest exists between the interests of the seller and the buyer, or competing buyers, multiple representation presents many challenges for a brokerage and salesperson. REBBA has specific requirements for a brokerage when representing more than one client in a transaction. In a multiple representation situation, all parties must be fully informed and provide written consent for the transaction to proceed. If consent is not granted, the brokerage is required to release one of the clients from their agreement so they can seek representation elsewhere.

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Lesson 4 | Page 9 of 14

Limitations to Obligations Owed Under Multiple Representation

Multiple representation limits the obligations you, as a salesperson, will owe to your clients. Under single representation, full disclosure exists because salespersons have one priority: the best interests of their client. Under multiple representation, a salesperson cannot look after the best interests of two clients. The disclosure becomes modified; the salesperson may not reveal all of the information known about one client to the other client, nor inform them of everything they might have in a single representation situation because their obligations are to multiple parties with competing interests. A brokerage must ensure that all parties are treated equally, and neither should feel disadvantaged. When working under multiple representation, the obligations owed are limited to retaining confidential information and providing advice on the price of the property. For clarity, a brokerage and salesperson may not advise a seller on the price they should accept, nor advise a buyer on the price they should offer. A salesperson can, however, provide Exam Study Guide

information on comparable properties so the seller or the buyer can make their own informed decisions in this regard. The given information may not be disclosed, unless instructed in writing by the client to do so, or unless the nondisclosure would result in unethical, illegal, or fraudulent activity: • The amount the seller might accept, for example, an amount other than the price the property is listed at • The amount the buyer might pay, for example, an amount other than the price being offered for the property • The motivation behind the seller’s listing of the property or the buyer’s purchase of the property • The personal information of the seller or the buyer, for example, the individual names of all shareholders when a property is being bought or sold by a corporation • Any information related to previous negotiations of the property, for example, the terms of an offer received by the seller may not be disclosed to the buyer

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Lesson 4 | Page 10 of 14

Disclosure Requirements

Due to the limitations to the services a brokerage and salesperson may provide to a client under multiple representation, REBBA requires specific disclosures to be made to a client or potential client. Disclosure for multiple representation is best undertaken in two chronological steps: 1. Disclosure before a representation agreement 2. Disclosure before an offer The following two sections contain information about the benefits of working with a real estate professional.

Exam Study Guide

Disclosure before a representation agreement

Before asking a seller or a buyer to sign a representation agreement, a salesperson is required to discuss various aspects of multiple representation including how this could occur and how the services provided would change. Ideally, this discussion should happen at the first available opportunity when meeting with a seller or a buyer to ensure the limitations are understood before entering into a representation agreement. It is important to remember that representation can be created by the words and actions of a salesperson. Documenting the relationship does not establish the relationship, it merely confirms what the parties have agreed to. Requirements under the Code relating to multiple representation for a salesperson to discuss with a potential client include: • The fact that circumstances could arise in which the brokerage could represent more than one client in respect of the same trade in real estate but that the brokerage could not do this unless all the clients represented by the brokerage in respect of that trade consented in writing • The nature of the services that the brokerage would provide to each client if the brokerage represents more than one client in respect of the same trade in real estate

Disclosure before an offer

REBBA states a brokerage cannot represent more than one party to a trade without the written consent of all parties being represented. Therefore, at the point where a brokerage wants to represent more than one client in a trade, the Code requires disclosure of the given matters at the earliest practicable opportunity: • The fact that the brokerage proposes to represent more than one client in respect of the same trade • The differences between the obligations the brokerage would have if it represented only one client in respect of the trade and the obligations the brokerage would have if it represented more than one client in respect of the trade, including any differences relating to the disclosure of information or the services that the brokerage would provide Only once all parties have provided written consent can a brokerage represent Exam Study Guide

more than one client in the transaction. In situations where a client or clients refuse to consent to operating under multiple representation, the brokerage must release one or more of its clients to seek alternate representation with respect to the transaction.

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Lesson 4 | Page 11 of 14

If a brokerage represents both the seller and the buyer in respect of the same trade, the salesperson must have a detailed understanding of the limitations that arise to ensure compliance while still providing competent services. Question #22: Which descriptions show how multiple representation alters the obligations owed by a brokerage to a seller? There are three options. There are multiple correct answers.

1

A salesperson’s obligation for full disclosure is limited, such as not sharing the motivation of one party with the other party, even when this is known.

2

A listing brokerage operating under multiple representation with a seller and a buyer owes its ultimate allegiance and loyalty to the seller, as the seller is typically paying the remuneration.

3

At all times, the salesperson must refrain from providing advice to the buyer on the price to offer or to the seller on the price to accept.

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Lesson 4 | Page 12 of 14

Question #23: Which descriptions show how multiple representation alters the obligations owed by a brokerage to a buyer? There are three options. There are multiple correct answers.

1

Under multiple representation with a seller and a buyer, the buyer’s salesperson may not indicate that the buyer will pay more than the offered price, unless instructed otherwise by the buyer.

2

Under multiple representation where both buyers are being represented by a brokerage and the seller is represented by another brokerage, the brokerage is permitted to disclose the motivations, if known, of the competing buyer.

3

Under multiple representation with both the seller and the buyer, the salesperson cannot disclose the amount of any offer previously received by the seller.

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Lesson 4 | Page 13 of 14

Multiple representation is a difficult situation to navigate. Understanding when a relationship is single representation and when it is multiple representation is important as a salesperson must understand when any limitations to their obligations are required. Question #24: Identify which of the given statements constitute multiple representation. There are four options. There are multiple correct answers.

1

A buyer is represented by ABC Real Estate Ltd. and is placing an offer on a property through one salesperson. Another buyer who is represented by a different salesperson in ABC Real Estate’s branch office places an offer to purchase the same property.

2

A salesperson from ABC Real Estate Inc. represents two buyers at the same time, in separate transactions involving two different condominium units located in the same building.

3

A seller is represented by one salesperson with XYZ Realty Ltd., and the buyer who wishes to purchase the property is also represented by the same salesperson with XYZ Realty Ltd.

4

A salesperson with ABC Real Estate Inc. is representing a seller in the listing of their property. A buyer is interested in purchasing the property and places an offer through another salesperson at ABC Real Estate Inc. as a customer.

Exam Study Guide

Lesson 4 | Page 14 of 14

Congratulations, you have completed the lesson! There are five sections on this page with a summary of the key topics that were covered in this lesson.

Single representation

Single representation occurs when there is one brokerage representing one client (seller or buyer) within a transaction. Under agency law, this is called single agency.

Obligations under seller single representation

Basic obligations under seller single representation include: • Marketing the property and promoting the seller’s best interests • Advising the buyer that the brokerage is representing the seller • Acting as the seller’s representative • Obeying lawful instructions • Fulfilling fiduciary obligations • Exercising reasonable care and skill • Negotiating favourable terms • Disclosing latent defects to buyers • Providing timely presentation of offers and counter offers • Discovering and disclosing relevant and material facts • Keeping the seller fully informed • Obtaining expert advice • Complying with regulatory requirements

Exam Study Guide

Obligations under buyer single representation

Basic obligations under buyer single representation include: • Locating property and promoting the buyer’s best interests • Advising a seller that the brokerage is representing the buyer • Acting as the buyer’s representative • Obeying lawful instructions • Fulfilling fiduciary obligations • Exercising reasonable care and skill • Seeking out available properties • Negotiating favourable terms • Disclosing competing offers • Providing timely presentation of offers and counter offers • Discovering and disclosing relevant and material facts • Keeping a buyer fully informed • Obtaining expert advice • Complying with regulatory requirements

Multiple representation

Multiple representation occurs when there is one brokerage representing two or more clients (seller and/or buyer(s)) within a transaction. For a brokerage to operate under multiple representation, the given disclosures are required: 1) Disclosure before a representation agreement (per CODE, Sec. 10) 2) Disclosure before an offer (per CODE, Sec. 16 and O. Reg. 567/05, Sec. 22) If either client does not consent to multiple representation, a brokerage must release one or more of the clients so that they can seek alternate representation. In situations where a brokerage is representing two or more buyers at the same time for the same property, it may not be evident prior to an offer that the brokerage is operating under multiple representation. A brokerage should obtain Exam Study Guide

written consent from each buyer as soon as the brokerage becomes aware that it is operating in a multiple representation situation.

Limitations under multiple representation

Multiple representation limits the obligations a salesperson will owe to all clients. Under multiple representation, a salesperson may not reveal all of the information known about one client to their other client, nor inform them of everything they might have done in a single representation situation, because their obligations are to multiple parties with competing interests. A brokerage must ensure that all parties are treated equally, and neither party should feel disadvantaged. When working under multiple representation, the limitations related to discussing certain topics centre around retaining confidential information, such as the motivation of either party and providing advice on the price of the property.

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Lesson 5 | Page 1 of 15

Lesson 5: Service Options Available to Sellers and Buyers

This lesson introduces the types of agreements used to document a brokerage’s relationship with a seller, buyer, landlord, or tenant. It details the obligations of a salesperson to provide information to a seller or buyer before entering into an agreement with the brokerage, and the importance of defining and documenting services as soon as possible in the relationship.

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Lesson 5 | Page 2 of 15

In this lesson, you will be introduced to the types of agreements used to document a brokerage’s relationship with a seller and a buyer. The lesson also details the information a brokerage must provide to a client or customer before entering an agreement and the importance of defining and documenting the services being provided under an agreement as soon as possible when establishing a relationship with a seller or a buyer. Upon completion of this lesson, you will be able to: • Identify the benefits of working with a salesperson registered with RECO. • Identify the types of agreements used to document a brokerage’s relationship with a seller and a buyer. • Identify the obligations to provide information before an agreement. • Identify the importance of defining and documenting services as soon as possible in the relationship. 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 15

Benefits of Working with a Registered Salesperson

All brokers and salespersons in Ontario are regulated under REBBA, and registered with RECO. As such, working with a registered real estate professional provides sellers and buyers with knowledge, professional standards, and insurance. A real estate transaction is complex, so knowledge about the profession and the regulations impacting the activities of a salesperson results in better services being provided on behalf of a brokerage.

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Lesson 5 | Page 4 of 15

Advantages of Working with a Brokerage There are three inherent advantages for a seller or a buyer when working with a brokerage. The following three sections contain information about the benefits of working with a real estate professional.

Knowledge Since all brokers and salespersons registered with RECO complete extensive education requirements prior to entering the profession, they will have the knowledge to provide the services and guidance that a seller and a buyer need throughout a real estate transaction. In addition, by completing RECO’s Mandatory Continuing Education course every two years, brokers and salespersons ensure they have current knowledge and remain up-to-date with changes to legislation. A salesperson should also remain up-to-date on current trends and the impact of various factors on the housing market. A change in interest rates, or changes in qualifying for a mortgage can impact a buyer’s ability to purchase a property. A salesperson can also provide information not readily available to sellers and buyers such as the number of days on market a property is listed before it is sold and the average selling price of properties in the area.

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Professional standards All registrants must follow the rules and regulations that are in place to protect consumers. The Code governs the actions of all registrants. Brokers and salespersons are required to uphold these obligations and professional standards that emphasize treating everyone involved in a transaction with fairness, honesty, and integrity. If a consumer wishes to file a complaint, RECO will investigate the complaint and if warranted, take steps to hold the brokerage, broker, and/or salesperson accountable for their actions.

Insurance Deposit insurance provides a buyer with peace of mind, knowing that their deposit will be held in trust and insured against loss, insolvency, or misappropriation by a brokerage. Errors and Omissions insurance, depending on the circumstances of a situation, may provide coverage for a salesperson in the event that they are negligent in performing their duties.

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Lesson 5 | Page 5 of 15

Chris is considering selling his house and has an appointment with Marcel at XYZ Realty Ltd. to discuss the details of listing his property for sale. Chris’s neighbour asks him what services the brokerage will provide that Chris could not or would not do himself. Question #25: Identify which of the given activities should be performed by Marcel. There are four options. There are multiple correct answers. 1

An analysis of the current market to help ensure the property is listed and sold at the appropriate price.

2

Preparation of the home for buyers to view by decluttering, organizing, and ensuring valuables are safeguarded.

3

Not interacting with other professionals during the course of a trade, such as the buyer’s salesperson or a third-party professional retained by the buyer.

4

Obtaining the buyer’s deposit on an offer to be held pending completion of the transaction.

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Lesson 5 | Page 6 of 15

Representation and Customer Service Agreements

The relationship between a brokerage and a seller or a buyer should be documented to ensure the parties understand their obligations. A written agreement allows for clarity in terms of the expectations of a salesperson and brokerage. Depending on the type of relationship established, a salesperson will use a document that is specific to that relationship. REBBA requires a salesperson to explain to a seller or a buyer, the service options available. At the earliest opportunity, a salesperson is to outline the relationship in a written document, sign it on behalf of the brokerage, and submit it to the seller or the buyer for signing. All agreements that document a brokerage relationship must comply with the Code, which specifies the minimum required content of any written agreement.

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This section of the lesson introduces the types of agreements used to document distinct types of brokerage relationships including: • Representation agreement with a seller • Customer service agreement with a seller • Representation agreement with a buyer • Customer service agreement with a buyer • Representation agreement with a landlord or a tenant This lesson also touches on customer service agreements with landlords and tenants.

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Lesson 5 | Page 7 of 15

Types of Agreement Documents Various agreements can be used when working with a seller or a buyer. The following five sections contain information about the types of agreements used to document a brokerage’s relationship with a seller, a buyer, a landlord, or a tenant.

Representation agreement with a seller

This is an agreement that sets out the relationship between a brokerage and a seller in which the brokerage represents the seller, who is the client. It is commonly referred to as a “listing agreement”. The salesperson representing the brokerage is known as the listing salesperson. The listing agreement is used to identify key terms such as the duration of the agreement and remuneration payable. There are further terms, such as permission to place a “For Sale” sign on the property and to specify whether the listing is exclusive to the brokerage or will appear on a local listing service, which allows other brokerages to co-operate in the sale of the property. As you learned earlier in this module, a representation agreement will define the authority granted to a brokerage, as well as any limits on the brokerage’s authority. Prior to any offer, a brokerage would ensure a seller representation agreement is signed, presented to the seller for signature, and once signed by the seller, ensure the seller receives a copy immediately.

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Customer service agreement with a seller

In situations where the seller is not being represented by a brokerage, a non-exclusive agreement that establishes a contract between a brokerage and a seller for customer service only can be used. This agreement is used when a seller is selling their property privately and the brokerage is enquiring about the property to show it to a buyer. These sellers are referred to as for sale by owner (FSBO). The agreement is used to: • Confirm the brokerage is not the representative of the seller. • Provide the brokerage with the authority to obtain additional information about the property. • Detail the remuneration to be paid by the seller. • Obtain authorization to apply the deposit to reduce the remuneration payable. Prior to any offer, a brokerage would ensure a seller customer agreement is signed, presented to the seller for signature, and once signed by the seller, ensure the seller receives a copy immediately. In instances where the seller is privately offering their property for sale, this agreement is typically negotiated with the seller prior to showing the property to a buyer.

Representation agreement with a buyer

An agreement is used to set out the terms of the relationship when a brokerage is representing a buyer seeking to purchase a property. A buyer representation agreement is an authority granted by a buyer to a brokerage to act on their behalf in locating a suitable property for that buyer on terms and conditions set forth in the representation agreement. This agreement is used to identify key terms, such as the duration of the agreement, the desired property location and property type, and how remuneration is paid under certain circumstances. Prior to any offer, a brokerage would ensure a buyer representation agreement is signed, presented to the buyer for signature, and once signed by the buyer, ensure the buyer receives a copy immediately.

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Customer service agreement with a buyer

This is a non-exclusive agreement that establishes a contract between the brokerage and the buyer for customer services only. Typically, this agreement is used when the brokerage is representing the seller and providing customer services only to the buyer. A customer service agreement can also be used when a buyer selects to receive services only rather than being represented by a brokerage. Experienced buyers may select this option regardless of whether the seller is being represented by the same brokerage or another brokerage. The agreement is used to confirm that no remuneration is paid for any customer service provided by the brokerage, unless otherwise agreed to, and confirms that the brokerage is not the representative of the buyer. This requires the buyer to complete more due diligence and investigations into the property and its condition as the brokerage is providing services only and will not be providing any advice. Prior to any offer, a brokerage would ensure a buyer customer service agreement is signed, presented to the buyer for signature, and once signed by the buyer, ensure the buyer receives a copy immediately.

Representation agreement with a landlord or a tenant

An agreement is used to set out the terms of the relationship when a brokerage is representing a landlord or a tenant. These agreements are used when a landlord is being represented in a listing for lease or when a tenant is being represented to find suitable premises to enter into a lease agreement. The agreements are used to identify key terms such as the duration of the agreement and remuneration payable, if applicable.

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Lesson 5 | Page 8 of 15

A salesperson is required to be familiar with the types of agreements available to sellers and buyers and be able to use each agreement when appropriate. Question #26: Identify which of the given statements are true. There are four options. There are multiple correct answers.

1

A seller who is out of town is not available to confirm showings on his listed property. The brokerage should document this relationship using the ‘Representation agreement with a seller’.

2

A seller is approached by a brokerage enquiring if the seller will pay remuneration to the brokerage as they have a buyer who is interested in the property. The brokerage should document this relationship using the ‘Customer service agreement with a seller’.

3

A first-time home buyer seeks out the advice and guidance of a brokerage when looking at properties for sale and submitting an offer. The brokerage should document this relationship using the ‘Customer service agreement with a buyer’.

4

A buyer views a property during an open house and is interested in purchasing the property through the listing brokerage. The brokerage should document this relationship using the ‘Representation agreement with a buyer’.

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Lesson 5 | Page 9 of 15

Providing Information Before an Agreement

A salesperson is obligated to provide information to a seller or a buyer before entering into a representation or customer service agreement. Failing to do so may cause confusion regarding the service options available resulting in the selection of the wrong type of relationship with the brokerage. The Code describes the requirements regarding which specific information is to be provided prior to entering into any agreement with a seller or a buyer.

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Lesson 5 | Page 10 of 15

Minimum Required Information Before an Agreement

The Code identifies information a salesperson is required to provide to a seller or a buyer prior to entering into a representation or customer service agreement. The following seven sections contain information on the specific information to be provided to a seller or a buyer.

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Service alternatives

The types of service alternatives that are available to the seller or the buyer include a representation or customer service agreement. Sellers and buyers must understand there are service alternatives rather than misunderstanding they have no options except for the relationship with a brokerage.

Services being provided

The services that the brokerage would provide under the agreement can be tailored specifically to each seller or buyer. The agreement would detail the specific services the salesperson is agreeing to perform for the party. Documenting these services prevents misunderstandings between the party and the brokerage.

Multiple representation

The seller and buyer must be advised that circumstances could arise in which the brokerage could represent more than one client in respect of the same trade in real estate, but that the brokerage could not do this unless all the clients represented by the brokerage in respect of that trade consented in writing.

Representation and obligations

Representation and obligations are the nature of the services that the brokerage would provide to each client in the possible event that the brokerage represents more than one client in the same transaction. This identifies the limitations to the services when operating under multiple representation.

Representation and customer service

Representation and customer service identifies that circumstances could arise in which the brokerage could, in respect of the same trade in real estate, represent clients as well as provide services to customers.

Service limitations

Service limitations arise from the restricted nature of the services that the brokerage would provide to a customer in respect of a trade in real estate if the brokerage also represents a client in respect of that trade.

Obtaining written acknowledgement

The brokerage must, at the earliest possible opportunity and before an offer is made, use its best efforts to obtain a written acknowledgment that information regarding the required disclosures has been received.

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Lesson 5 | Page 11 of 15

Rohit wants to purchase a property and has contacted a salesperson, Tamara. Rohit has not purchased a property before, so Tamara is meeting with him for the first time and wants to discuss the service options available to Rohit when working with her brokerage. Question #27: Which of the given choices include information Tamara is required to discuss with Rohit before Rohit signs a representation or customer service agreement? There are four options. There are multiple correct answers. 1

The restricted nature of the services that Tamara, on behalf of the brokerage, would provide to Rohit if Rohit wanted to make an offer on a property where the brokerage is representing the seller.

2

The specific services that Tamara, as Rohit’s salesperson, will provide to him, including any customized requests from Rohit and confirmation that these services will be documented in writing in the agreement.

3

The relationship options available for Rohit, including a client or a customer.

4

A statement identifying that the brokerage will not enter into an agreement with another party that might cause risks or conflicts of interest within their agency relationship with Rohit.

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Lesson 5 | Page 12 of 15

Defining and Documenting Services as Soon as Possible

Whether a representation relationship is formed, or a brokerage is providing services to a customer, an understanding by all parties of the obligations, authority, and limitations to any authority being granted is important. Defining this as soon as possible will contribute to the parties fully understanding and complying with their obligations. In the course of any relationship, salespersons and their clients or customers can communicate in various ways about what the terms of the relationship will be, from face-to-face interactions to phone calls to emails. Ultimately, in order for there to be a clear consensus of the terms and conditions of the relationship, and to fully understand the services the salesperson will provide, there needs to be explicit or written documentation concerning all matters. As a salesperson, you may agree to various levels of service with each seller or buyer. As you are obligated to provide conscientious and competent service, you must define and document services in a timely manner and provide explicit and efficient communication with each seller and buyer. By doing so, you reduce any risk of providing less than expected services for your clients and customers. Exam Study Guide

Lesson 5 | Page 13 of 15

Benefits of Defining and Documenting Services as Soon as Possible The following two sections contain information about why it is important to define and document services as soon as possible in the relationship.

To avoid situations where an implied agreement is unintentionally created based on the words and actions of a salesperson An implied agreement can be unintentionally created based on the words and actions of the salesperson, which can lead the seller or the buyer to believe there is an express agreement when there is not. Once that relationship is created, there are many obligations and duties owed to a client. To avoid this situation, it is important to explain the services being provided so there are no misunderstandings by the seller or buyer. Documenting the relationship in writing will provide a clear record of the expectations and requirements of all parties. Cautionary Example: Roger has listed his property with Seema’s brokerage and Seema has fully explained her duties to Roger as a client. Seema hosts an open house at Roger’s property where she engages Bruno, a prospective buyer, in conversation. Bruno appears very interested in purchasing a property, and Seema is hopeful he will want to purchase this one. As presently there are no other visitors at the open house, Seema begins to have a general discussion on Exam Study Guide

market conditions, house prices, and details how much a typical mortgage payment might be on this listing. Bruno responds by suddenly providing information about his financial situation and how much he would be willing to pay for Roger’s property. Despite Seema’s attempts to redirect the conversation, Bruno tells Seema she appears very knowledgeable and, whether he purchases this property or another one, he would like her to be his salesperson. Even though Seema tried to stop Bruno from telling her these things, she is now possibly in a position of unintended multiple representation. It appears Bruno may believe he is working with Seema, even though they have not discussed and decided on the scope of their relationship. Bruno may logically assume that what he has shared with Seema will be kept confidential. Seema must now decide how to address this situation. She will need to consider: • If Bruno purchases the property, can she treat him as a customer? If so, Seema would not owe him confidentiality and in fact would be obligated to share what she has learned with her client, the seller. • If the information provided by Bruno is not considered confidential, then Seema can ensure no additional information is shared and have a discussion with Bruno about representation. •

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If Seema’s words or actions led Bruno to believe he was being represented by Seema and thus shared some confidential information, Seema may need to work under a client relationship, which results in multiple representation.

This situation could have been avoided had Seema initially identified she is representing the seller and enquired if Bruno is working with any other salesperson. This would have provided Seema an opportunity to discuss relationship options and ensure Bruno understood where her loyalties are. This may have stopped Bruno from sharing confidential information until they could come to an agreement on whether he would be a client or a customer.

To reduce the risks inherent in a seller or a buyer misunderstanding the services to be provided Documenting the brokerage relationships is an important aspect of reducing the potential for any misunderstanding between the brokerage and the seller or the buyer. Cautionary Examples: • The brokerage could be placed in a position where the courts will need to determine whether an agency relationship has been established under a particular set of circumstances. This could expose the brokerage to litigation and can result in the loss of any remuneration payable to the brokerage. • The reputation of the salesperson and the brokerage have potential to be harmed from a misunderstanding around services to be provided. • To reduce risks to the brokerage, a salesperson should ensure the services being provided and the obligations owed by all parties under the agreement are explained and documented as soon as possible when entering into a relationship with a seller or a buyer. Exam Study Guide

Lesson 5 | Page 14 of 15

Mickey is a salesperson who is holding an open house at Carlos’ property he has listed for sale. Kris is a visitor to the open house and Mickey spends time discussing the property and answering many questions for Kris. Kris is not working with another brokerage, so Mickey leaves his business card with Kris and offers to talk further if Kris has any additional questions. Question #28: If Kris calls Mickey to discuss this property further, what should Mickey’s next steps be? There are four options. There are multiple correct answers.

1

If Kris wants to proceed with an offer on Carlos’ house, Mickey can let Kris know about the different service options available in his brokerage.

2

Mickey should remind Kris that his brokerage represents the seller and caution Kris not to share any confidential information.

3

Mickey can provide information and answer Kris’ questions but should not provide any advice until it has been agreed that the brokerage will represent Kris.

4

Mickey should wait until Kris is ready to place an offer and then complete all of the required documentation to confirm the relationship between the brokerage and Kris.

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Lesson 5 | Page 15 of 15

Congratulations, you have completed the lesson! There are four sections on this page with a summary of the key topics that were covered in this lesson.

Benefits of working with a registered salesperson

Any client or customer with whom registered salespersons interact can benefit from: • Knowledge to address the complexities of a real estate transaction • Professional standards to ensure all parties are treated with fairness, honesty, and integrity • Insurance protection for buyer’s deposits and for errors and omissions Salespersons can and should share these benefits with clients and customers in order to reassure them that their skills will help them successfully buy or sell properties.

Types of agreements used to document a brokerage’s relationship

There are several different types of agreements with sellers, buyers, and landlords or tenants. These agreements document the terms of the relationship established between the brokerage and other parties, allowing the salesperson—on behalf of the brokerage—to fulfill their responsibilities. Agreements with sellers: • A representation agreement with a seller provides details regarding the agency relationship. A customer service agreement with a seller identifies a non-agency relationship and is typically used when a seller is privately selling their property. Agreements with buyers: • A representation agreement with a buyer provides details regarding the agency relationship. A customer service agreement with a buyer is a non-exclusive agreement with a buyer. Agreements with landlords or tenants: • A representation agreement with a landlord or tenant provides details regarding the agency relationship.

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Obligations regarding providing information before a brokerage relationship agreement

The Code requires a brokerage to disclose the following information before entering into an agreement with a seller or buyer and to use their best efforts to obtain a written acknowledgment that these disclosures have been made at the earliest opportunity and before an offer is made: • Available service alternatives • Brokerage services provided under the agreement • Potential for multiple representation and the obligation to obtain consent in writing • Nature of the services when representing more than one client • Potential to provide services to more than one customer • Potential to represent a client and provide services to a customer • Restricted nature of the services provided to a customer

Importance of defining and documenting services in a timely fashion

For a salesperson to provide competent service to consumers in their daily activities, they must understand the importance of defining and documenting services as early as possible in the relationship. Client relationships can begin based on the words and actions of a salesperson, which may result in the unintentional creation of a multiple representation situation. Documenting the brokerage relationships is an important aspect of reducing the potential for any misunderstanding between the brokerage and the seller or the buyer. Misunderstandings can impact a brokerage and salesperson’s reputation.

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Lesson 6 | Page 1 of 20

Lesson 6: Providing Services to a Seller

This lesson identifies the benefits of working with a real estate professional registered with the Real Estate Council of Ontario (RECO). It outlines the services a brokerage and salesperson could provide when representing a seller or when providing services to a seller under a customer service agreement.

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Lesson 6 | Page 2 of 20

Once a seller decides to become a client or a customer, they continue to make choices that will involve the salesperson. A client may select from a range of services when they enter a relationship with the brokerage. While services provided to a customer are more limited than those provided to a client, a customer seller can still benefit from working with a registered salesperson. No matter what, a salesperson is required to provide knowledge, expertise, skill, and professionalism throughout all aspects of a real estate transaction. Upon completion of this lesson, you will be able to: • Outline the services a salesperson can provide when representing a seller. • Outline the services a salesperson can provide to a seller under a customer service agreement. 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 20

Outlining Services for a Seller Client

As part of establishing an agency relationship, a salesperson must explain the available services the brokerage can provide under an agreement. In your role as a salesperson, the services you will offer to the seller can vary depending on the needs of each seller. There are options available to a seller client for full services or a la carte service, the latter being an option where there is a fee attached to each specific service being requested by and provided to a client. Explanations of these service options should aim to demonstrate the value of the service. These can be summarized in a brochure used by the brokerage, but it is not appropriate to provide reading material only. You will need to explain the options available and answer any questions the seller may have so they understand specifically how these services will be provided to them.

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The process of listing, marketing, and negotiating an offer has many steps and can often be daunting. Setting expectations for the extent of the services being provided not only helps to avoid any misunderstanding about the role you will play in supporting the seller, but can also help to ease any anxiety they may have about selling their property. Sellers may wish to select from the available service options, or the seller may select full services from the brokerage. Whatever the choice, documenting the services is a necessary first step. Next, we’ll review some key services a brokerage can offer a seller client.

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Lesson 6 | Page 4 of 20

Due Diligence

A salesperson is relied upon to provide thorough and professional services when representing a seller throughout a transaction. This can be done by understanding the seller’s objectives and ensuring the advice, guidance, and all activities promote their best interests. Completing the due diligence required by a salesperson includes: • Confirming the seller has made all necessary disclosures, as required by law • Discovering all relevant information and material facts regarding the transaction • Making appropriate disclosures to other parties, as required • Demonstrating competence, skill, and judgement when providing opinions, advice, or information • Referring a seller to third-party professionals when the advice or opinion is beyond the education or experience of a salesperson Exam Study Guide

Due diligence obligations begin before any relationship with a seller has been established and continue throughout and after a seller has accepted an offer on their property. As a salesperson, you will be expected to be conscious of the duties and obligations owed to a seller and ensure these have been complied with, when providing services before and after any representation agreement has been signed.

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Lesson 6 | Page 5 of 20

Services for a Seller Client

Whether this is the first time you have worked with the seller, or you have represented the seller in a previous transaction, as a salesperson, you will need to review the service options available from the brokerage. The services you will provide and the obligations you will be required to meet are interrelated and help ensure the seller’s goal of selling their property is satisfactorily completed. There are many variations of services available for a seller. The given table identifies some of the typical services a salesperson could provide. Details about these activities are presented on the given screens.

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Pre-Listing

During Listing

Offer Transaction Management

• Conduct a visual walkthrough

• Accurately list the property

• Confirm offer process

• Gather and verify key information related to the property

• Explain the process for showings

• Analyze, advise on, and negotiate offers

• Implement the marketing plan

• Coordinate buyer’s inspections or viewings

• Explain marketing options

• Qualify buyers based on seller’s directions

• Follow up on conditional dates and closing

• Estimate the value of the property to arrive at an accurate listing price

• Ensure all required disclosures are made by the seller

• Manage post-transaction relationship

• Explain selling costs

• Coordinate showings

• Advise on property preparation

• Explain offer process

• Identify and disclose any material facts

• Be aware of competing listings and recent sales • Update on market conditions

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Lesson 6 | Page 6 of 20

Pre-listing Pre-listing activities occur prior to the actual listing of the property. The following seven sections contain information on the common pre-listing services a salesperson could provide to a seller. While there is a suggested flow of services outlined in the page, they do not need to necessarily take place in this order.

Conduct visual walkthrough A salesperson should complete a thorough visual tour by walking through the home as well as the entire property with the seller. A working knowledge of the property is essential, and attention to detail when viewing the property will help to build rapport with the seller. If asked to list the property for sale, there will be information identified on the day of the walkthrough that will be required to market the property. This is the start of your due diligence as this visual walkthrough can help to identify material facts or identify any other aspects of the property that would require disclosure to a buyer, assess any issues that will need to be addressed prior to listing the property, and familiarize yourself with the property so that any opinion of value or an appropriate listing price is based on accurate information. Detailed notes should be taken so these can be referred back to at a later time. Some of the property features that should be noted include: • Lot (size, shape, landscaping, and quality of any improvements such as a fence or deck) • Structure (age, condition, and overall appeal) Exam Study Guide

• Features and benefits (upgrades, renovations, and unique aspects which would be highlighted in the listing) • Concerns (defects, safety hazards, and repairs needed to enhance the property’s marketability) Having a candid and open conversation with the seller is important. Acknowledge the selling features of the property, but also ensure any defects or safety hazards are discussed, and detail what action should be taken to address these. If additional inspections or advice is required, refer the seller to third-party professionals with expertise in the specific field. A thorough and detailed viewing of the property with a seller provides an opportunity to build a relationship, gain their trust and confidence in your abilities, and ensure their insights into the property and the neighbourhood are used to promote their best interests.

Gather and verify key information about the property When listing the property, a salesperson will need to gather key information, which is used for the marketing of the property and any offer made. A seller may provide information as they should have the documentation from the purchase of the property. However, additional information will be needed, and the information must be accurate and complete. This will require a salesperson to do additional research to verify and supplement the property information provided by the seller. For example, if a seller has not provided a deed or survey, a salesperson can review registry, tax, Exam Study Guide

assessment records to verify various aspects of the property including ownership, legal description of the property, and the lot size. By verifying information that is gathered about the property, a salesperson can reduce the risk of error, misrepresentation, and fraud.

Identify and disclose any material facts Disclosing material facts is an integral part of providing conscientious and competent service. A salesperson has specific obligations related to material facts. From a seller’s perspective, a material fact would include anything related to selling the property and the price received. A salesperson should compare what they learn through research with what they would have observed during the walkthrough and the information provided by the seller to be sure they are able to identify and disclose all of the material facts required.

Explain marketing options Sellers will want to know what efforts will be taken to increase the exposure to the marketplace of their property, so you as a salesperson, will need to explain their marketing strategy. Brokerages may offer specific marketing for all properties with additional marketing provided by way of a flat rate marketing package or feefor-service options. In addition to placing the property on the local listing service (if applicable), marketing options can include: • Promoting via the website Exam Study Guide

• Conducting an open house • Providing a virtual tour • Making use of professional photography, flyers, and signs Some sellers may have inputs or certain requests, which the salesperson should try and incorporate into their marketing plan.

Provide opinion on property value A salesperson can assist the seller in arriving at an appropriate listing price by providing an estimate of the property’s market value or by preparing a comparative market analysis. The overall goal is to provide the seller with information on comparable properties and—based on this research, the salesperson’s education, and their professional knowledge— provide the seller with an opinion of value and ideas about the appropriate listing price. Although the seller is relying on a salesperson’s knowledge and expertise, ultimately it is the seller who selects the listing price.

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Explain selling costs This service helps the seller understand that there will be expenses and costs associated with paying out any existing mortgage, or other adjustments to be deducted from the sale price to arrive at the proceeds from the sale. A salesperson should explain the nature of these additional costs and expenses when selling the property, so the seller can budget for such costs as moving fees, legal fees, and remuneration to brokerage. As a note, sellers should be made aware that any remuneration paid is subject to HST. Salespersons will need to reinforce to the seller that this is an estimate only, and the seller needs to be certain that they have enough financial resources to close the sale.

Advise on property preparation When viewing the property, there may be specific ways the property can be prepared for the sale, which will help improve the marketability. This can be part of the services a brokerage offers, or it could include a professional to stage the property. A seller may require guidance to properly prepare for the property to be shown. The seller should understand that a buyer’s request to view the home could happen immediately after the property has been listed. It is better to delay the listing by a few days than to market the property before it is ready. Make any recommendations diplomatically and provide a to-do list with suggestions to enhance the property’s marketability.

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Lesson 6 | Page 7 of 20

Abigail, a property owner, is considering selling her house and a friend recommended she contact Frank, a salesperson employed by ABC Real Estate Inc. Abigail contacts Frank to arrange an appointment to meet later in the week. During the conversation, Frank describes several services he can initially provide which will help Abigail to prepare for the listing of the property. Question #29: What services and information can Frank obtain in advance to provide Abigail during their meeting? There are five options. There are multiple correct answers.

1

Ask Abigail a series of questions about her property and provide an opinion on the listing price based on this information before viewing the property. Ensure the listing price is high enough so that Abigail is not discouraged about meeting with Frank.

2

Conduct additional research to supplement information provided by Abigail about the property. The research can then be discussed and verified during his first visit.

3

Rely on his colleagues at the brokerage to validate the information provided by Abigail based on their sales experience.

4

Explain to Abigail that she must ensure all repairs, painting, or other updates need to be done prior to his visit so that his estimate of value is more accurate and any photos taken will be reflective of the property condition.

5

Let Abigail know he will need to do a visual walkthrough of the property to gain information before providing his opinion of value for Abigail’s property.

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Lesson 6 | Page 8 of 20

During Listing There are several services available to a seller client during the listing process. The following five sections contain information on the services a salesperson will provide during the listing.

Accurately list the property Review the seller representation agreement with a seller before it is signed, and ensure the seller fully understands its contents. Salespersons are responsible for explaining all clauses in their entirety in plain language to each seller. Confirm the obligations of both parties, and that the services being provided by the brokerage are complete. Any information related to the property specifics that will be used in the marketing of the property and for obtaining an offer must be accurate and complete. The listing price should be finalized based on the input from the salesperson and a final decision by the seller.

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Explain the process for showings A seller may have never offered a property for sale, so an understanding of how this can occur will help the seller to maintain the property. A buyer could request a showing with little notice, so discuss the importance of the home always being ready to show by keeping it bright, clean, and uncluttered. Explain how the showings will occur so the seller is confident that showings will be handled professionally. Identify options for providing access to the property, including the safeguards put in place if a lock box will be used. A seller may want confirmation the showing did occur, so a request to have all salespersons leave a business card following the showing might be included in a listing.

Implement the marketing plan Marketing plans can be tailored to each property, so ensure the seller understands what will be done, and document this in the seller representation agreement. Keep the seller informed during the various stages of implementing the marketing plan and keep track of the results throughout the process so the seller is aware of the progress and initiative the salesperson is taking on their behalf.

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Qualify buyers based on seller’s directions Some properties may result in a seller requesting only qualified buyers are to view. This could occur when a property is well above the average price for an area, and the seller is concerned about privacy. Buyers may choose to view the property out of curiosity, so a salesperson listing the home may need to ensure that prospective buyers have the financial means to purchase it. The salesperson can do that by asking the buyers or their representatives qualifying questions.

Ensure all required disclosures are made by the seller A seller is required to disclose certain defects that are known to the seller. These are described as latent defects and a salesperson is required to ensure the seller understands their legal obligations. A discussion about non-required disclosures should also be held with the seller. There may be other aspects of the property the seller would like the buyer to be made aware of. Any disclosures being made by the seller should be in writing and provided to any interested buyer prior to an offer.

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Lesson 6 | Page 9 of 20

During Listing There are several services available to a seller client during the listing process. The following four sections contain information on the services a salesperson will provide during the listing.

Coordinate showings with seller A salesperson should explain how any requests to show the property will be handled. The processes should be agreed to by the seller, including how notification of any showing will be handled (namely, if the salesperson will be booking the appointments personally or if this will be done through the brokerage office). A salesperson should also consult with the seller on their ability to accommodate scheduled showings or if there are specific times when they would like to restrict viewing. The seller should understand that access to the property can occur with little notice, and it is important to provide buyers with as much convenience in scheduling appointments as possible. A delay in showing the property to a buyer could result in the buyer purchasing a property before viewing the seller’s home.

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Explain offer process Prior to any offer presentation, a salesperson should explain how the process could occur. There are various ways for offers to be presented, such as in person or electronically. When the offer is being presented in person, the seller should be asked if they have any preference for who is in attendance, such as if the buyer’s salesperson is permitted. Understanding this process in advance will help the seller prepare for the actual receipt of an offer.

Be aware of competing listings and recent sales Market activity is an important factor that must continually be monitored during the listing period. A salesperson must look for specific signs which could result in a change to the terms of a seller’s listing. Review the seller’s listing based on the given criteria: • What properties have been listed and at what price? • What sales have occurred, what was the selling price, and how did they compare to this property? • How many properties are on the market in competition with this listing? • Are there more or fewer properties available today? • Have the competing listings reduced their listing price? • Have the average number of days required to market a property extended or shortened? Exam Study Guide

Being fully informed and capable of providing an analysis on this important information is an integral part of the services a brokerage can provide.

Update on market conditions A seller will expect to be kept informed on any changes in the market that could affect the sale of their property. For example, a change in interest rates can impact a buyer’s ability to afford a home. Other legislative changes could impact the market activity as well. Different seasons in the year can see an increase or decrease in market activity. Keeping the seller informed will result in less stress for a seller when there are discussions about the listing price or the offered price from a buyer.

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Lesson 6 | Page 10 of 20

Frank met with Abigail in his office and after completing the pre-listing process, Abigail decided to list her property with Frank and ABC Realty Real Estate Inc. Question #30: What does Frank need to communicate to Abigail in order to formalize the listing? There are six options. There are multiple correct answers. 1

Review the services the brokerage will provide under the agreement before it is signed.

2

Explain all clauses in the agreement and ensure Abigail understands the authority granted to the brokerage.

3

Abigail must agree to the listing price suggested by Frank, even if it is lower than Abigail had wanted.

4

Ensure Abigail understands the agreement and her obligations to the brokerage related to remuneration and indemnification.

5

Discuss the listing options and whether other brokerages will be permitted to show the property to buyers and obtain an offer.

6

Ensure Abigail obtains a property inspection prior to listing the property which will be used to verify the condition of the property.

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Lesson 6 | Page 11 of 20

Hannah is discussing the listing of her property with Gael, a salesperson with XYZ Realty Ltd. Hannah is downsizing and indicates she is really hoping there are sufficient proceeds from the sale of her property so she can pay some expenses and have a down payment for another purchase. She is not just eager to obtain the highest price that she can on her property, but also needs to sell her property within a reasonable time. Question #31: What do you recommend Gael do to help Hannah establish an appropriate listing price and successfully market the property? There are five options. There are multiple correct answers. 1

Advise Hannah to list the property substantially higher than the value to allow for negotiations with a buyer.

2

Prepare a comparative market analysis.

3

Advise Hannah to keep the property clean and uncluttered.

4

Advise Hannah to check for a salesperson’s business card after each showing as the listing will indicate this requirement.

5

Advise Hannah that any disclosures regarding property defects will be disclosed only once an offer has been received.

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Lesson 6 | Page 12 of 20

Offer Transaction Management The offer process and what comes after, the post-transaction period, include many services a salesperson will provide to seller clients. The following five sections contain information on these services.

Confirm offer process

When the brokerage has been notified there is an offer to be presented to the seller, arrangements will be made based on any previous instructions received from the seller. The salesperson will confirm how the offer will be presented, and if it is to be personally presented with the buyer’s salesperson in attendance, arrive early, and ensure the seller is prepared. A salesperson is required to ensure any offer is presented to the seller in a timely manner and according to the seller’s instructions. Each offer will include a time and date which identifies the length of time the party has to accept an offer. Once that time expires, the offer can no longer be accepted. This time is referred to as the irrevocable time period. Based on market conditions, the irrevocable time period can change, but should be at a minimum several hours and can extend up to several days.

Analyze, advise on, and negotiate offers

Negotiations can become complex and emotional. A salesperson’s role is to review the offer, ensure the terms of the offer are fully understood, and then discuss the seller’s options. At all times, the salesperson should guide the seller through the negotiation process and ensure the seller’s best interests are being protected when analyzing and advising on offers.

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Although some offers are less complex and appear straightforward, others may contain complex clauses, which could require the seller to do something, guarantee or warrant something, or pay for something. All offers and clauses need to be reviewed and explained to ensure the seller understands their obligations if the offer were to be accepted. A seller may not agree with the terms of a buyer’s offer, and this will require a salesperson to provide the appropriate advice when making any changes. A seller must understand that if they do not accept the buyer’s offer and make changes to it, the buyer is under no obligation to accept those changes. Negotiations can include several rounds of offers between the parties, before the terms are mutually agreed upon. There can be times when the parties cannot agree to the terms and an offer that has been sent back and forth between the parties results in no sale. Before making any decision on addressing an offer, ensure the seller is aware of any relevant details that may affect their decisions. This would include contacting any other salespersons with prospective buyers who may be considering making an offer, and providing the seller with an updated report on recent listings and sales of comparable properties.

Coordinate any required inspections/viewings

If the accepted offer includes any terms or conditions that require access to the property to complete any due diligence on behalf of the buyer, a salesperson will ensure that any additional appointments necessary are made and access is provided by the seller. Access could be for third-party professionals such as a home inspector or for any buyer follow-up visits agreed to in the offer.

Follow up on conditional dates and closing

A salesperson will be the point of contact to arrange appointments and to monitor the completion of any terms or conditions within the scheduled time frame. There could be circumstances prior to completion where either party may request an amendment to a term or condition of the offer. In such circumstances, the listing salesperson will assist not only in further negotiations but in documenting the agreedupon revisions. Changing the completion date is something that might be amended.

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Otherwise, a salesperson will act as a resource as needed once an offer is accepted, answering questions that may come up prior to completion. Although some questions will be easily handled by a salesperson, others may need to be addressed by the seller’s lawyer and a salesperson should be mindful to provide competent service without overextending themselves beyond their knowledge and experience.

Manage the posttransaction relationship

The services provided by a salesperson will not end at completion of the transaction. To maintain the relationship, they will want to follow up with the seller to ensure there are no additional services needed. A follow-up will not only demonstrate your professionalism but also helps to maintain a salesperson’s relationship for future business.

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Lesson 6 | Page 13 of 20

Negotiations

An important aspect of a salesperson’s services is negotiating offers. From a high-level point of view, there are four potential outcomes in a negotiation scenario: • Win-Win: Everyone’s objectives are met in a positive manner. The seller obtains market value; the buyer receives the sought-after property. • Win-Lose (or Lose-Win): The seller wins by successfully selling his home at or close to asking price. The buyer, disregarding certain problems with the property, must make significant repairs after taking possession. • Lose-Lose: Both seller and buyer fail to achieve a meeting of the minds and everyone loses. The seller misses the opportunity to sell to the best buyer; the buyer fails to get the desired property. • No outcome: Some negotiations become stalemated and have no result; the seller decides not to sell, and the buyer exits having second thoughts about the financial commitment. Both parties may re-negotiate at a later time or advance to other win-wins. The challenge for a new salesperson is readily identifying the no outcome. Exam Study Guide

At all times, a salesperson must provide conscientious and competent service to the seller. Any advice must only be provided when a salesperson has the education or experience required to provide the advice. Negotiations can become emotional, and decisions can be made that are not based on sound reasoning. A salesperson’s role is to guide the seller through the process and ensure the seller has all the information required to make fully informed decisions.

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Lesson 6 | Page 14 of 20

Frank has received a phone call from a salesperson who showed Abigail’s property earlier in the week. The salesperson has an offer which they will email to Frank for him to present to Abigail that evening. Frank is also expecting another offer from a buyer who viewed the property today, so Frank contacts that salesperson but has to leave a message. When Frank meets with Abigail to present the offer, she is unsure about the offer price and some of the terms. Question #32: Which of the given services should Frank provide to help Abigail make her decision? There are four options. There are multiple correct answers.

1

Explain to Abigail that if she changes the offer, the buyer may not agree to these terms, resulting in her not selling the property to this buyer.

2

Discuss with Abigail the option of submitting a counter offer back to the buyer through the buyer’s salesperson with a higher purchase price and revised terms.

3

Encourage Abigail to accept the offer despite not having heard back from the other salesperson because this would mean her property is sold.

4

Advise Abigail on the pros and cons of the offer and depending on the irrevocable time period in the offer, ensure she does not make a hasty decision.

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Lesson 6 | Page 15 of 20

Sub-agency

Agency is the relationship between a principal and an agent. The brokerage, as an agent, allows employed salespersons to perform activities related to the principal as the salespersons are an extension of the brokerage. As such, all salespersons within the brokerage represent the principal under the same agency relationship as the brokerage. Although seldom used in today’s real estate environment, extending the ability to represent the principal to another brokerage can occur. The other brokerage would then be deemed a sub-agent of the brokerage who has established the relationship with the principal. In practice, sub-agency occurs when the seller is a client of the listing brokerage and a co-operating brokerage has a buyer who is a customer; the co-operating brokerage in a sub-agency relationship owes fiduciary duties to the seller and will represent the interests of the seller rather than the buyer. The co-operating brokerage would treat the buyer as a customer and provide ethical and competent service but owe no fiduciary duties such as confidentiality. Prior to the existence of buyer representation, a buyer’s brokerage always worked under sub-agency. The sub-agent owes all of the same general, fiduciary, and regulatory obligations to the principal, as does the agent.

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Lesson 6 | Page 16 of 20

Seller Customers

As the previous screens have demonstrated, there are many benefits for a seller to be represented by a brokerage. An experienced and knowledgeable salesperson can guide a seller through every step of the selling process, lending their expertise and helping the seller make critical decisions with their valuable input. However, there are times when a seller may not need the extent of services that a salesperson can offer a client. In fact, some sellers choose to limit their relationship with a brokerage to customer services for various reasons. The next few screens explore these reasons and the specifics of available seller customer services.

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Lesson 6 | Page 17 of 20

Becoming a Seller Customer

There are several reasons why a seller may select customer service rather than representation including: • The seller has previous experience in selling a property and feels they can negotiate the terms successfully without a brokerage. • The seller does not want to formally list their property for sale, although they do want buyers to know it is available. This would be called a For Sale by Owner. • The seller is looking for any cost savings associated with reduced services. Often, a customer service agreement with a seller occurs when the seller is privately selling their property and a brokerage is representing a buyer who is interested in purchasing the property. When approaching a private seller, a salesperson would identify their brokerage has an interested buyer. The salesperson is not attempting to list the seller’s property for sale but rather negotiate an offer on the buyer’s behalf with the seller. The brokerage would ensure the seller clearly understands the brokerage is not representing them but rather providing customer services. The next few screens detail the types of services a brokerage can provide to a seller customer. Exam Study Guide

Lesson 6 | Page 18 of 20

Seller Customer Services

A seller must understand the impact of the limited services provided under a seller customer service agreement. A brokerage and salesperson are not obligated to act in the best interests of the seller customer but must still treat them fairly, honestly, and with integrity. In other respects, the same obligations under REBBA apply to the salesperson when providing customer services as when representing a seller. The typical activities a salesperson would perform when providing services to a seller customer include: • Explaining relationship and service options to the seller • Documenting the customer service agreement • Showing their property to the brokerage’s buyer • Presenting offers to the seller customer that have been prepared on behalf of the buyer • Delivering counter offers to the buyer on behalf of the seller customer Exam Study Guide

Lesson 6 | Page 19 of 20

Question #33: Identify which of the given obligations are owed to both a client and a customer. There are four options. There are multiple correct answers. 1

Explain service options and document the relationship.

2

Present a buyer’s offer.

3

Disclose any material facts to the seller.

4

Advise the seller on a listing price or offer price.

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Lesson 6 | Page 20 of 20

Congratulations, you have completed the lesson! There are four sections on this page with a summary of the key topics that were covered in this lesson.

Services available to seller clients

Working with a registered salesperson can have many benefits for a seller client. The property selling process has many steps and can often be daunting, especially for first-time sellers. Therefore, it is important for salespersons to help sellers understand that they can assist with the transaction during the pre-listing, listing, and offer transaction management process. Services may include, but are not limited to: • Setting their expectations about all available services • Advising on property preparation • Identifying and disclosing any material facts • Estimating the value of the property to arrive at an accurate listing price • Coordinating showings • Analyzing, advising on, and negotiating offers • Following up on conditional dates and closing • Managing post-transaction relationship

Negotiations for seller clients

A salesperson’s role is to guide the seller through the process and ensure the seller has all the information required to make fully informed decisions. At all times, a salesperson must provide conscientious and competent service to the seller. Any advice must only be provided when a salesperson has the education or experience required to provide the advice. Negotiations have four potential outcomes: • Win-Win Exam Study Guide

• Win-Lose or Lose-Win • Lose-Lose • No outcomes A salesperson should be aware of these outcomes and ensure the seller understands the potential outcome based on the negotiation stance they take.

Sub-agency

In practice, sub-agency occurs when the seller is a client of the listing brokerage and a co-operating brokerage has a buyer who is a customer; the co-operating brokerage in a sub-agency relationship owes fiduciary duties to the seller and will represent the interests of the seller rather than the buyer. The co-operating brokerage would treat the buyer as a customer and provide ethical and competent service but owe no fiduciary duties such as confidentiality.

Services available to seller customers

There are times when a seller may not need the extent of services that a salesperson can offer a client. In fact, some sellers choose to limit their relationship with a brokerage to customer services for various reasons. Services available to seller customers include: • Explaining relationship options to the seller • Documenting the customer service agreement • Showing their property to the brokerage’s buyer • Presenting offers to the seller customer that have been prepared on behalf of the buyer • Delivering counter offers to the buyer on behalf of the seller customer

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Lesson 7 | Page 1 of 12

Lesson 7: Providing Services to a Buyer

This lesson illustrates the services a brokerage and salesperson could provide when representing a buyer or when providing services to a buyer under a customer service agreement.

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Lesson 7 | Page 2 of 12

Buyers can greatly benefit from working with a salesperson registered with RECO. While the scope of services will differ significantly between a client and a customer, buyers will benefit from working with a registered salesperson who can provide knowledge, expertise, skill, and professionalism throughout every aspect of a transaction. A salesperson must ensure a buyer understands the extent of their relationship with the brokerage, including all available service options. The next few screens explore the available services throughout the buying process. Many of these are similar to those available to seller, while others are specific to buyers. In addition, when representing a buyer, all services should be in their best interests. Upon completion of this lesson, you will be able to: • Outline the services you as a salesperson can provide when representing a buyer. • Outline the services you as a salesperson can provide to a buyer under a customer service agreement. 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 12

Providing Services to a Buyer Client

A salesperson can provide many services when representing a buyer throughout the stages of searching for and purchasing a property.

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Pre-Showing • Discuss and identify the buyer’s needs and wants

Showing Properties • Show properties

• Outline all costs the buyer may incur

• Obtain information about the neighbourhood, schools, transit, etc.

• Pre-qualify the buyer

• Discover and disclose all

• Seek out appropriate properties • Inspect properties in advance • Verify all information

material facts • Provide update on market conditions • Follow up on a property that was of interest

Managing the Transaction • Provide information on comparable properties • Draft, present, and negotiate offers • Assist in the buyer’s due diligence • Accompany the buyer on preclosing visits • Provide assistance before and after closing • Provide post-transaction management and follow-up

While carrying out all these services, the Code dictates that salespersons will provide conscientious and competent service to their clients while providing opinions backed by reasonable knowledge, skill, judgement, and competence.

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Lesson 7 | Page 4 of 12

Buyer Qualification, Suitable Properties, and Conducting Viewings

A salesperson has the same obligations under the Code when representing a buyer that they have when representing a seller. However, the application of these requirements will differ as the activities associated with a buyer can be unique from those for a seller. A salesperson must continue to work in a buyer’s best interests, provide conscientious and competent service, and ensure all properties meeting their criteria are shown, regardless of the remuneration offered. The following six sections contain information on salesperson’s obligations to the buyer.

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Discuss and identify the buyer’s needs and wants

A salesperson should gather information about a buyer’s preferences for their new home including their desired location, type and style of home, and any particular features they are looking for. Through effective questioning and listening, a salesperson can help a buyer establish priorities and differentiate between what they need and what they want, all of which can be documented in a profile.

Outline all costs the buyer may incur

A salesperson should inform a buyer—especially a first-time home buyer—of the range of costs they will likely incur when purchasing their new home. Buyers may not be aware of costs such as legal fees, land transfer tax, and various adjustments made on the closing costs that are apportioned between the seller and the buyer. Providing this information upfront can help a buyer avoid any unexpected surprises and ensure sufficient funds are available to complete a transaction.

Pre-qualify the buyer

A salesperson should encourage the buyer to speak with a lender who can discuss financing options, gather financial information from the buyer, and provide parameters for a purchase price based on the amount of financing available. The buyer could obtain a pre-approval for financing, given their income and current and future debt repayment schedule. The lender will also discuss the buyer’s down payment requirements, which is monies the buyer must have available to them to make a purchase. Based on this information, a salesperson can look for properties in a price range that is aligned with the buyer’s preferences and financial capacity.

Seek out appropriate properties

A salesperson can use a variety of methods to search for properties that meet a buyer’s criteria. These methods can include searching the local listing services, driving through the desired neighbourhoods to see if there are any listings available, reviewing advertisements, checking with the brokerage for any exclusive listings, and putting out flyers. As per the Code, a salesperson is obligated to inform a buyer of all properties that meet their criteria regardless of the amount of remuneration being offered. This requirement is only for a buyer who has a client relationship with the brokerage and not when a buyer is a customer. As one of the obligations owed to a brokerage Exam Study Guide

by a client is remuneration, the brokerage is required to show all properties of interest to the buyer client. As a salesperson, you would ensure the buyer is made aware of any remuneration obligations they would have, should the property be purchased prior to showing the property to the buyer.

Inspect properties in advance

If feasible, a salesperson should inspect properties prior to showing them to the buyer to assess suitability, familiarize themselves with the layout and features, and take note of anything that might warrant additional investigations or discussion with the buyer prior to arranging to show the property.

Verify all information

A salesperson must verify that any information they rely on is verified. This would include information from other brokerages as well as information provided by a seller. This is particularly important in the case of a property being offered for sale privately by the owner (FSBO). In these situations, another brokerage has not validated the information presented by the seller, so additional due diligence is important to ensure the buyer’s interests are being protected. Any disclosures provided by the seller, such as a disclosure regarding the condition of the property, should be obtained and reviewed with the buyer to ensure the information is understood and assessed. This could impact the buyer’s decision to pursue making an offer on the property or obtaining third-party professional advice to address the disclosure being made.

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Lesson 7 | Page 5 of 12

Showing Properties

Once a buyer has identified the property specifics and a salesperson has found suitable properties to show, booking appointments to view these properties will occur. Scheduling these appointments must take several things into consideration, such as their location, travel time, and time to view the property. When scheduling several properties in a row, it is important to factor these considerations in. A seller will have the property set aside for the viewing; keeping the appointment and arriving on time is important. The following five sections contain information about services to a buyer client related to showing properties.

Show properties

Once a salesperson has located suitable properties for a buyer, they accompany and assist them during the showings, which may also include showing a property to a buyer during a brokerage’s open house. Obtain information about the property and provide a copy for the buyer to review. As a salesperson, making notes while showing the property to the buyer will assist in recalling the property’s features at a later date. After viewing several properties, the Exam Study Guide

features of one home may become mixed with the features of another.

Obtain information about the neighbourhood, schools, transit, etc.

When discussing a buyer’s needs and wants, part of that discussion could include the important aspects of a neighbourhood or property location to the buyer. A salesperson should then gather information about the buyer’s desired neighbourhood(s) and be able to point out how this property also provides these desired amenities. For example, a salesperson could point out the location of schools, shopping, medical facilities, proximity of public transit, and any other features. This will help the buyer to prioritize which neighbourhoods best meet their needs.

Discover and disclose all material facts

A salesperson needs to first discuss what the buyer considers to be a material fact. This includes asking the buyer to provide examples of facts which would impact their decision to purchase a specific property or the price paid. As a salesperson, it is your role to ensure any material fact for a buyer has been discovered and disclosed to them to ensure the buyer can make informed decisions.

Provide update on market conditions

A salesperson should keep a buyer aware of any updates to market conditions as well as how active the market is. An active market can mean properties are listed and sold in a very short time period. If a buyer is not ready to act, they may lose out on a property. Other changes can include changes in interest rates, or any changes in legislation.

Follow up on a property that was of interest to a buyer

If a buyer was interested in a property but has decided to continue looking, it is helpful for a salesperson to continue to follow up on that property. For example, a property may have been previously viewed, but the buyer felt the listing price was too high. When the listing price is reduced, the salesperson should be contacting the buyer to see if there is any renewed interest in the property.

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Lesson 7 | Page 6 of 12

Managing the Transaction

Working with a buyer to find a suitable property can be a lot of work and can take weeks or even months. Once the buyer has found a property they would like to purchase, a salesperson will provide additional services throughout the transaction. A buyer will rely on the salesperson’s skillset to help negotiate an offer on favourable terms. The following six sections contain information about services to a buyer client related to managing the transaction.

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Provide information on comparable properties

A salesperson can provide the buyer with information on sales of comparable properties and draw comparisons to the buyer’s chosen property to establish an accurate assessment of market value. In addition, a comparison of the chosen property to those properties also viewed will assist the buyer with their decision on the appropriate offer price. The buyer has viewed these other properties and can easily make the comparison rather than only relying on information only and no visual perspective.

Draft, present and negotiate offers

In compliance with the Code, when the buyer is at the offer stage, a salesperson can offer these services: • Preparing offers and advising on conditions, clauses, warranties, and other terms • Attending the offer presentation whenever possible to promote the buyer’s best interests (as opposed to sending the offer to the listing salesperson by email or fax) • Negotiating the offer on behalf of the buyer

Assist in completing the buyer’s due diligence

These services can include: • Keeping track of time limits of any conditions in an offer • Attending a home inspection with a buyer • Arranging for an appointment for an appraiser to view the property if an appraisal is required for mortgage purposes • Preparing the necessary documentation for a buyer based on the results of any condition in the offer • Assisting the buyer in obtaining home insurance by providing information about the property

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Accompany buyer on pre-closing visits

A buyer’s offer may contain terms allowing the buyer to attend the property for various reasons prior to the transaction closing. The buyer may want to bring in a contractor to obtain quotes, or the buyer may simply want to view the property prior to closing to ensure it has been appropriately maintained. Any visit to the property would need to be arranged with the seller/seller’s salesperson, and at all times, the buyer needs to be accompanied by the salesperson.

Assistance before and after closing

A buyer could require assistance throughout the time period leading up to the transaction closing, as well as assistance once they have taken possession of the property. Any legal queries should always be referred to the buyer’s lawyer. However, some questions can—and should—be addressed by the salesperson. Ensuring the salesperson is available to assist the buyer both before and after closing is important in establishing and maintaining a relationship with the buyer.

Provide posttransaction management and follow-up

These services can include: • Making a follow-up call or visit to ensure that the buyer is fully satisfied with the outcome of the services • Assisting with follow-up issues such as missing garage door openers, utility connections, or other small incidental issues that can arise

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Lesson 7 | Page 7 of 12

Salesperson Poppy has been working with her buyer client, Brian, to find a new home. They find a property and Poppy prepares an offer. The seller is dissatisfied with the offer and proposes a counter-offer. Poppy reviews the counter-offer with Brian and she advises him that the seller’s offer is in line with the price of comparable properties recently sold. Brian is not sure. Question #34: Which actions are appropriate for Poppy to take in order to provide conscientious and competent service to Brian? There are four options. There are multiple correct answers.

1

Discuss the terms that Brian is unsure of and then continue to negotiate the offer towards terms that are better suited for Brian.

2

Review the other properties that Brian viewed to make a comparison between those and this property in terms of price, features, and desirability.

3

Complete or update a comparative market analysis to give Brian more context to understanding market conditions and property values when assessing the seller’s counter-offer.

4

Recommend that Brian meet directly with the seller to discuss the terms of the offer and better understand the seller’s rationale.

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Lesson 7 | Page 8 of 12

Buyer Customers

Buyers do not always become clients of a brokerage; they can be customers with limited services available to them. This commonly happens when a brokerage is the listing brokerage for a seller client and a potential buyer approaches them about the listing. When this happens, the buyer in question often becomes a customer of the brokerage and receives limited services from the brokerage. A customer relationship might arise in other circumstances too; a buyer with real estate experience might only want to work with a brokerage as a customer as they do not require many of the other services or advice a brokerage could provide. As with any relationship the brokerage engages in, the Code dictates a level of fairness and honesty that the brokerage must maintain. The given points describe the limited services owed to a buyer customer: • Treating the party fairly, ethically, and with integrity • Exercising due care when answering questions and providing information • Avoiding misrepresentation

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Lesson 7 | Page 9 of 12

Buyer Customer Services and Limitations

Understanding the limitations to the services provided to a buyer customer is important. Providing advice or overstepping these limitations can unintentionally turn a customer relationship into one of a client.

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Services Available to Buyer Customers

Limitations to Buyer Customers

A salesperson should disclose information regarding material facts that they know or ought to know, which can affect the buyer's decision to purchase the property.

A salesperson is not obligated to research or verify property defects.

A salesperson should prepare and present offers from the buyer customer to the seller.

A salesperson cannot provide advice to the buyer, including what price to offer or what terms to include in an offer.

A salesperson should facilitate general communication between the buyer customer and the seller.

A salesperson is not obligated to act in the best interests of the buyer but is required to treat the buyer fairly, honestly, and with integrity and take due care when answering questions. This would include ensuring any information about the property is accurate.

A salesperson should maintain contract management throughout the transaction.

A salesperson is not obligated to keep the buyer’s information confidential. In fact, if the salesperson is representing the seller, any information about the buyer must be disclosed to the seller. However, the buyer must be told this in advance before any information about the buyer is shared by the salesperson.

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Lesson 7 | Page 10 of 12

A salesperson is showing an older house to a buyer customer. The basement is unfinished and appears to have water damage, among other issues. Question #35: Which of the following should the salesperson do for the buyer customer? There are four options. There is only one correct answer. 1

Disclose the possible water damage issue to the buyer.

2

Verify the information about the basement provided by the property seller through inquiring about the damage.

3

Conduct additional research about the condition of the basement.

4

Advise the buyer customer on an appropriate way to negotiate with the seller.

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Lesson 7 | Page 11 of 12

Question #36: Identify which of the given obligations are owed to a client only. There are four options. There are multiple correct answers. 1

Ensure information regarding any material facts are determined and disclosed to the buyer.

2

Show all properties that meet the buyer’s criteria, regardless of any commission being offered.

3

When conditions warrant, recommend a property inspection be completed by a professional.

4

Advise the buyer on whether they should accept, reject, or counter a seller’s counter offer.

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Lesson 7 | Page 12 of 12

Congratulations, you have completed the lesson! There are two sections on this page with a summary of the key topics that were covered in this lesson.

Available services for buyer clients

Working with a registered professional can have many benefits for a buyer client. The property buying process has many steps and can often be daunting, especially for first-time buyers. Therefore, it is important for you as a salesperson to help clients understand that you can assist with the transaction in the given ways: • Set their expectations about all available services • Help the buyer find properties within their price range and attend open houses with them • Provide due diligence when it comes to discovering and disclosing material facts about a property • Provide information on comparable properties to assist in arriving at an offer price • Draft, present, and negotiate the agreement of purchase and sale in favour of the buyer • Guide clients through satisfying terms and conditions, leading to the transfer of ownership upon completion date • Follow up with clients after transactions to ensure that the process was satisfactory

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Buyer clients versus buyer customers

Services available to buyer customers are much more limited than those available to buyer clients. Even so, some buyers enter into this type of relationship with a salesperson for the given reasons: • The buyer is interested in a property for which the salesperson is already representing the seller • The buyer wants to avoid commitment to the brokerage • The buyer is experienced in real estate purchases As a salesperson, you are required to treat all parties with integrity and carry out all interactions with honesty. It is important for you to understand the limitations of a customer relationship so as not to mislead customers about your services.

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Lesson 8 | Page 1 of 5

Lesson 8: Obligations when Dealing with Others

This lesson details the brokerage’s obligations when dealing with other brokerages and their clients.

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Lesson 8 | Page 2 of 5

A significant aspect of acting ethically and professionally as a salesperson is knowing the requirements regarding dealings with other brokerages and salespersons. Compliance with this aspect of REBBA guides how a salesperson goes about their day-to-day interpersonal activities and communications. The reputation of a brokerage depends on each salesperson upholding a high standard in their everyday dealings. 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 5

Ensuring Compliance When Interacting with Sellers and Buyers A salesperson must follow guidelines set by the Code when communicating with sellers and buyers when a brokerage has established a relationship with them, or they are a party to an agreement of purchase and sale. The following four sections contain information on regulations in place to guide how to communicate with sellers and buyers working with other brokerages.

Communicating with a client of another brokerage The Code establishes that if a salesperson from a brokerage other than the listing brokerage wants to convey information to the seller or ask a question of the seller, that salesperson must only communicate with the seller through the listing brokerage. The exception to this rule is if the listing brokerage has given written permission for a salesperson to communicate directly with the seller. The same is true if a salesperson has a buyer client and another salesperson from a different brokerage wishes to communicate with the buyer; this must be done through the buyer’s brokerage unless written permission has been given to communicate directly with the buyer. Though not a requirement under the Code, it is a generally accepted practice that other salespersons in a listing brokerage’s office would only communicate with a seller through the listing salesperson. The same is true of a buyer client. An offer is usually submitted to the listing Exam Study Guide

salesperson/brokerage by the buyer’s salesperson. It is important that all information is communicated, and all documents are delivered from one brokerage to the other brokerage, never from a brokerage directly to another brokerage’s client. The Code states: “A registrant who knows or ought to know that a person is a client of another registrant shall communicate information to the person for the purpose of a trade in real estate only through the other registrant, unless the other registrant has consented in writing.”

Inducing a party to break an existing contract One provision makes it a violation in any way to induce a seller or buyer to break an existing contract they have with another brokerage. The Code states: “If a broker or salesperson knows or ought to know that a seller or buyer is a party to an agreement in connection with a trade in real estate with a brokerage other than the brokerage that employs the broker or salesperson, the broker or salesperson shall not induce the seller or buyer to break the agreement.” Example: A salesperson is approached during an open house by an individual who states they have their property listed for sale with a different brokerage. The individual states they are unhappy with the services being provided and would like to cancel the listing and have the salesperson discuss a new listing. Exam Study Guide

The salesperson advises the individual to speak directly with the listing brokerage and hopefully resolve any problems. The salesperson ensures there is no indication the individual should cancel the listing.

Breaking agreements of purchase and sale The provision that states a salesperson must not interfere by inducing a seller or a buyer to break an agreement includes not only representation or customer service agreements, but also agreements of purchase and sale. The Code states: “No registrant shall induce any party to an agreement for purchase and sale or an agreement for rental of real estate to break the agreement for the purpose of entering into another such agreement.” Example: A salesperson is conducting an open house and an interested buyer is viewing the property. The buyer states they have an accepted offer on a property already, but this property is more appealing, and they would like to know how to cancel their existing agreement of purchase and sale. The salesperson tells the buyer they cannot provide any advice related to this and to contact their salesperson.

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Fairness, honesty, and integrity Remember that fairness, honesty, and integrity should be at the core of every relationship a salesperson has with all other parties. It is just as important to incorporate this into interactions with salespersons from other brokerages, all clients and customers of other brokerages, and all third-party professionals a salesperson interacts with throughout a trade. The Code states: “A registrant shall treat every person the registrant deals with in the course of a trade in real estate fairly, honestly, and with integrity.”

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Lesson 8 | Page 4 of 5

Henri, a salesperson, attends a friend’s dinner party. During the social time leading up to the meal, Henri is approached by Danielle, who currently has her property listed for sale with another brokerage. During the conversation, Danielle is discussing market conditions in the neighbourhood and mentions that she is not having the property shown very often and it has been on the market for a long time. Danielle tells Henri that she is not happy with the services being provided by her brokerage and wants to cancel the listing agreement because it is not expiring for another two months. Question #37: How should Henri respond to Danielle’s statement? There are three options. There is only one correct answer.

1

Henri should ask questions about Danielle’s property to learn more about the listing and whether it is overpriced. If Henri feels that the price is appropriate, then it must mean the listing brokerage is not performing adequately, and Henri should advise Danielle to cancel the listing.

2

Henri should tell Danielle that he cannot get involved with this situation, given that it involves a client relationship with another brokerage. Henri should advise Danielle to speak directly with the listing brokerage and hopefully resolve any problems.

3

Henri should give Danielle his business card and recommend that she discuss her dissatisfaction with the listing brokerage and insists on changing the expiry date to one week later. This would allow Henri time to gather information, search for a buyer, and then list the property with his brokerage.

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Lesson 8 | Page 5 of 5

Congratulations, you have completed the lesson! There are four sections on this page with a summary of the key topics that were covered in this lesson.

Communicating with a client of another brokerage

A salesperson from a co-operating brokerage must convey information to the seller or ask a question of the seller through the listing brokerage, and not directly with the seller. The exception to this rule is if the listing brokerage has given written permission for a salesperson to communicate directly with the seller. The same is true if a salesperson has a buyer client and a salesperson from a different brokerage wants to communicate with this buyer. Any offer should be submitted to the salesperson working with the seller or the buyer, and never directly to the party themselves.

Interfering with client relationships of other

It is a violation for a salesperson, in any way, to induce a seller or a buyer to break an existing representation agreement they have with another brokerage.

brokerages Breaking agreements of purchase and sale

Salespersons must not interfere by inducing a seller or a buyer to break an existing agreement of purchase and sale. This might occur if the party thought the salesperson could negotiate a better offer on a different property.

Fairness, honesty, and integrity

Fairness, honesty, and integrity should be at the core of every relationship a salesperson has with all other parties. This would include a salesperson’s interactions with sellers, buyers, salespersons from other brokerages, as well as other brokerage’s clients and customers, and any other person in the course of a trade.

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Lesson 9 | Page 1 of 9

Lesson 9: Summary Practice Activities

These practice activities summarize concepts from throughout the module.

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Lesson 9 | Page 2 of 9

This lesson will ask you to practice applying many of the concepts you have learned so far in this module. It is your responsibility as a salesperson to employ these skills during your interactions with sellers and buyers. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

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Lesson 9 | Page 3 of 9

Question #38: Identify which of the given statements are true for the given scenarios. There are three options. There is only one correct answer.

1

A salesperson has advertised they are experienced in selling cottage properties. The salesperson is approached by a buyer who asks if the salesperson could show them a waterfront property listed for sale with another brokerage. The salesperson agrees, shows the buyer the property, and provides advice about the listing price and any conditions to be included in an offer. In this scenario, an agency relationship is created by implied agreement.

2

A salesperson and a potential buyer are discussing the new changes that are being made to obtain financing as lenders are tightening the criteria for approval. The salesperson is given confidential financial information from the potential buyer as they are concerned they would not qualify for a mortgage. The salesperson reviews this information and suggests the buyer should proceed with looking at properties, but might consider approaching a lender first. In this scenario, an agency relationship is created by express agreement.

3

Jarod and Arnie are both salespersons and they are speaking about a buyer that Jarod is working with. Jarod describes a specific type of property and states there are none listed that match the criteria. Arnie says he knows of a property that is ideal and will arrange for the property to be shown. Arnie approaches the seller who agrees to allow the property to be shown. An offer is then made and Arnie presents it to the seller, who accepts the offer. In this scenario, an agency relationship is created by ratification.

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Lesson 9 | Page 4 of 9

Mac, a salesperson with XYZ Realty Ltd., is working with Sam, who is looking to buy a house. Before the representation agreement is signed, Mac explains the actual and implied authorities associated with their relationship by providing examples of what activities he would complete on Sam’s behalf. Question #39: Identify which of Mac’s actions is likely undertaken by actual authority. There are four options. There is only one correct answer.

1

Mac explains he will review many of the property listings from a local listing service and then select the most appropriate five properties for Sam to initially view.

2

Mac explains he will gather and provide information regarding different school districts to Sam to help him when considering which properties could be suitable for him to purchase.

3

Mac explains the representation agreement is between himself and his brokerage, and he will be the individual assisting Sam in his search for a property.

4

Mac explains Sam is retaining the brokerage for the next 60 days to locate properties meeting his criteria.

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Lesson 9 | Page 5 of 9

Question #40: Which of the given scenarios exceeds the limits of authority granted to a brokerage who is listing a property and placing it on the local listing service? There are three options. There is only one correct answer.

1

A seller client has a luxury property. Their salesperson decides to advertise the property in an expensive and exclusive magazine. The salesperson tells the seller that they need to be reimbursed for the cost of advertising.

2

A salesperson lists a property for their seller client. They advertise the property on social media without informing the seller.

3

The listing salesperson allows a salesperson from a cooperating brokerage to submit an offer from their buyer on the seller client’s property.

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Lesson 9 | Page 6 of 9

Chet is the listing salesperson with XYZ Realty Ltd. and Asma, who is looking to buy a house, visits an open house Chet is holding. Chet informs Asma that he represents the sellers and asks Asma if she is working with a salesperson. Asma surprises Chet by saying that she isn’t and starts to explain her situation, including some personal financial details. Chet interrupts her and warns her that she should not be sharing these details with him, and any disclosures of pertinent information could create a conflict of interest for him, including a potential violation of his fiduciary obligations to his seller client. Asma asks Chet to explain what he means by that. Question #41: How should Chet handle this situation to comply with his fiduciary obligations? There are three options. There is only one correct answer.

1

Inform Asma that since he is representing the seller, she would be treated as a customer if there is no written documentation, or he can represent her as a client, but only if it is documented in writing.

2

Tell Asma that if he treats her as a customer, he will be able to continue advising her about the purchase of the property.

3

Explain that brokerages should avoid any conflicts of interest whenever possible. For example, he could avoid a conflict of interest by not representing Asma as a client if she decided to purchase this property.

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Lesson 9 | Page 7 of 9

Question #42: Identify which of the given circumstances are examples of duty of care in a real estate transaction. There are three options. There are multiple correct answers.

1

2

3

A salesperson, when listing a property, obtains the lot dimensions verbally from the seller as no survey is available. A buyer customer, while viewing a property with a salesperson, asks the salesperson if they know the age of the property or if there are any local improvements. The salesperson reviews the listing and confirms the information with the listing salesperson. The salesperson provides the information to the buyer and also recommends they complete their own additional due diligence if the crack in the basement is a serious problem. The salesperson recommends that the buyer should obtain the advice of an expert. A buyer client informs the salesperson that he would like to purchase a property but would like to be assured he can obtain financing before being committed to the purchase. The salesperson drafts an offer and inserts a condition into the agreement allowing the buyer time to confirm they can obtain financing.

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Lesson 9 | Page 8 of 9

Miguel is the listing salesperson for Vivien’s property, which is listed for sale with ABC Real Estate Inc. Miguel is showing the property to Irma, a buyer customer interested in the property. The house is newly renovated with the exception of the finished bedroom in the attic, which suffered water damage from a leak in the roof last year. The damage is not easily seen, but the seller has disclosed this to Miguel. Question #43: Which of the following should Miguel do for Irma? There are four options. There are multiple correct answers. 1

Disclose the possible water damage issue to Irma and recommend further inspection of the area to determine the extent of the damage.

2

Verify the information about the attic provided by Vivien and make sufficient inquiries to be able to provide accurate information about the damage.

3

Conduct additional research about the condition of the attic and advise Irma on next steps.

4

Advise Irma on an appropriate way to negotiate with Vivien to seek compensation for the water damage in the form of a price reduction.

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Lesson 9 | Page 9 of 9

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 the module!

This lesson will present a summary of Learning Objectives.

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Module Summary | Page 3 of 3

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

Identify the fundamentals of agency

The terms used in REBBA can differ from the terms used under the common law of agency and within the marketplace. A salesperson should understand how these terms are used and ensure sellers and buyers understand the terms as they can have a significant impact on their relationship with the brokerage. An agency relationship can be created by express agreement, which is either written or verbal. It can also be created through words and actions of the parties, which is an implied agency relationship. A salesperson must understand how an agency relationship can be created so that they do not unintentionally establish a client relationship with a customer where it was not intended. This would result in unintended multiple representation. There are many ways in which an agency relationship with a brokerage can be terminated. At times, the termination will automatically occur. Other times, specific actions by the parties must occur for the relationship to be terminated. Completion of this lesson has enabled you to: • Define terms related to agency law. • Describe how an agency relationship can be created. • Describe how an agency relationship can be terminated.

Identify the authority granted to a brokerage

When entering into a representation agreement with a seller or a buyer, there are actual authorities granted to the brokerage. Stemming from these actual authorities are implied authorities. The implied authorities are those undertaken by the brokerage to be able to fulfill the actual authorities granted. There are also limitations to a brokerage’s authority, which a salesperson should understand so the authority granted is not over-stepped. A seller or a buyer, as a principal (client), owe the duty of indemnification, remuneration, and any other obligations agreed to in the representation Exam Study Guide

agreement. Completion of this lesson has enabled you to: • Describe the authority granted to a brokerage by a principal. • Describe the limitations to the authority granted to a brokerage by a principal. • Describe the principal’s duties to the agent.

Identify the duties and obligations of a salesperson to a client or customer

A salesperson owes both clients and customers duty of care, which means they must treat all individuals with fairness, honesty, and integrity. They also must exercise care and skill for both clients and customers. A salesperson must understand that fairness, honesty, and integrity apply to all their actions when trading in real estate, and they must conduct themselves in a professional manner. It is important for a salesperson to understand their obligations to sellers and buyers, and be able to explain the differences in their obligations to clients and customers. Specifically, the limitations to services available to customers need to be understood. There are general obligations owed to both a client and a customer. However, the extent of these obligations owed to a customer are limited to exercising care and skill, and ensuring honesty. All remaining general obligations are owed to a client. Fiduciary obligations are owed only to a client and many of these are based on ensuring the client is the priority and focus in all activities undertaken by the brokerage. A fiduciary relationship is based on trust and confidence, best interests, and loyalty. A brokerage must always obey the instructions of a client, however this applies only to instructions that are legal. Regulatory obligations are those under the common law of agency and REBBA. Many of the regulatory obligations will apply equally to a client and a customer, however, some obligations will have significant differences. Completion of this lesson has enabled you to: • Describe a salesperson’s duty of care owed to a client and a customer. • Describe the obligations owed to a client and a customer under agency law. Exam Study Guide

• Describe the fiduciary obligations owed to a client. • Describe the obligations owed to a client and a customer under REBBA.

Understand single representation and multiple representation

As the agency relationship is established between the principal and the agent, the relationship established applies to all salespersons employed by the brokerage. For example, when a brokerage lists a seller’s property for sale, the salesperson who is working directly with the seller is known as the listing salesperson. However, any obligation owed to the seller by this salesperson is also owed by all other salespersons employed by the brokerage. This is known as single representation. When a brokerage represents both the seller and a buyer, or two competing buyers offering on the same property, this is considered multiple representation, even though different salespersons within the brokerage are representing the seller and buyer. For a brokerage to operate under multiple representation, the brokerage must disclose the potential for this, and then obtain written consent to work under these conditions. If one or more of the clients do not consent to operating under multiple representation, the brokerage must release one or more clients to allow them to seek representation with another brokerage. Under multiple representation, the obligations owed, and the disclosures made, will be limited. These limitations centre around the non-disclosure of personal information or the motivation of the other party, retaining all confidential information. In addition, the brokerage may not provide any advice regarding the price to offer or the price to accept. The brokerage must treat both parties fairly and equally. Completion of this lesson has enabled you to: • Describe obligations owed to a seller or buyer under single representation. • Describe how multiple representation alters the obligations owed by a brokerage to a seller or buyer.

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Identify the service options available to a seller or buyer

A seller and a buyer receive many benefits when working with a salesperson registered with RECO. The regulatory requirements for education helps a salesperson to expand and retain the knowledge required in the profession, while the Code provides a uniform standard of professional conduct for all registrants to uphold. A brokerage can offer service alternatives to a seller and a buyer. These include representation as a client, or being provided services as a customer. A salesperson can offer a variety of services to sellers and buyers as clients and can tailor these services to meet the specific needs of each individual. Documenting these services will assist the seller or the buyer in understanding the obligations of the brokerage. There are many benefits to documenting these services as soon as possible in the relationship. In addition to guiding clients through the listing and selling process step-by-step, the greatest benefit of having a client relationship with a salesperson is the salesperson’s utmost loyalty. Unlike a customer relationship, in a client relationship, a salesperson is obligated to act in the client’s best interests at all times. Completion of this lesson has enabled you to: • Identify the benefits of working with a salesperson registered with RECO. • Identify the types of agreements used to document a brokerage’s relationship with a seller, buyer, landlord, or tenant. • Identify the obligations to provide information before an agreement. • Identify the importance of defining and documenting services as soon as possible in the relationship.

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Describe a salesperson’s services to a seller

A salesperson’s services when representing a seller as a client will apply to all steps in the marketing and sale of the property. Examples of services include: • Marketing their property • Explaining the terms and conditions of offers received • Negotiating the agreement of purchase and sale for the benefit of the seller • Guiding sellers through the due diligence period of an offer when a party will be completing conditions as a requirement for the agreement The services available to seller customers are more limited. However, the salesperson is still required to act with a duty of care and treat the seller with fairness and honesty. In many instances, a brokerage has a customer relationship with a seller who is privately offering their property for sale and the brokerage is representing a buyer in the transaction. Understanding the distinction between services available to seller clients and seller customers is important for a salesperson to properly fulfill their duties. Completion of this lesson has enabled you to: • Outline the services a salesperson could provide when representing a seller. • Outline the services a salesperson could provide to a seller under a customer service agreement.

Describe a salesperson’s services to a buyer client

A salesperson’s services when representing a buyer will involve all aspects of identifying appropriate properties to view, showing properties, negotiating offers, ensuring any due diligence is completed, and assisting in the closing of the transaction. Examples of services include: • Qualifying buyers (and/or referring the buyers to a financing expert) to determine what price home they can afford • Locating homes that meet the buyer’s financial needs and preferences • Making appointments and showing homes to the buyer

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• Drafting an agreement of purchase and sale with terms beneficial to the buyer including any conditions to protect the buyer, (for example, home inspection or financing for the benefit of the buyer) • Presenting the offer in person (if possible) and negotiating on behalf of the buyer • Guiding buyers through satisfying conditions, leading to the transfer of ownership upon completion date The services available to buyer customers are more limited. However, the salesperson is still required to act with a duty of care and treat them with fairness and honesty. Understanding the distinction between services available to buyer clients and buyer customers is important for a salesperson to properly fulfill their duties. Completion of this lesson has enabled you to: • Outline the services a salesperson could provide when representing a buyer. • Outline the services a salesperson could provide to a buyer under a customer service agreement.

Fulfill obligations of a salesperson regarding not interfering with agreements that exist between clients and other brokerages

Salespersons must respect and refrain from interfering in the relationships sellers and buyers have established with other brokerages. This includes following ethical modes of communication when conveying information or responding to questions. A salesperson may not induce a seller or a buyer to break their representation agreements to enter into one with the brokerage. A salesperson may not encourage or recommend a seller or a buyer from breaking an agreement of purchase and sale already entered into. Completion of this lesson has enabled you to: • Identify the requirements under REBBA regarding dealings with other registrants.

Exam Study Guide

Appendix | Page 1 of 2

Appendix Answer Key Question #1: 1, 2 Question #2: 3, 4, 5 Question #3: 4 Question #4: 1, 2, 5 Question #5: 2, 3 Question #6: 1, 2, 3 Question #7: 3, 4 Question #8: 1, 3 Question #9: 2, 3 Question #10: 1, 2 Question #11: 4 Question #12: 1, 2, 3, 4 Question #13: 1, 3, 5 Question #14: 1 Question #15: 1, 2, 5 Question #16: 1, 2, 3, 4 Question #17: 1, 2, 3, 4 Question #18: 2, 3 Question #19: 1, 3 Question #20: 1, 2, 3 Question #21: 2, 4, 5, 7 Question #22: 1, 3 Question #23: 1, 3

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Appendix | Page 2 of 2 Question #24: 1, 3 Question #25: 1, 3, 4 Question #26: 1, 2 Question #27: 1, 2, 3 Question #28: 1, 2 Question #29: 2, 5 Question #30: 1, 2, 4, 5 Question #31: 2, 3, 4 Question #32: 1, 2, 4 Question #33: 1, 2, 3 Question #34: 1, 2, 3 Question #35: 1 Question #36: 1, 2, 4 Question #37: 2 Question #38: 3 Question #39: 4 Question #40: 1 Question #41: 3 Question #42: 2, 3 Question #43: 1, 2

Exam Study Guide

Module: Factors Impacting Residential Real Estate Negotiations This is a study guide to help you prepare for the qualifying exam. There are multiple study guides that are provided for preparation. Each study guide contains several decision points to test your knowledge. The answer key to these decision points is present in the “Appendix” section at the end of the guide. Please use Adobe Acrobat Reader (Recommended version 9 or above) to navigate through this PDF. Real Estate Pre-Registration 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 Pre-Registration Program learner.

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Module: Factors Impacting Residential Real Estate Negotiations

As a salesperson, you will have to accurately assess the needs of sellers and buyers to match your services to their requirements. In this module, you will learn about your obligations relating to the disclosure of material facts and how your obligations differ based on a client or customer relationship. You will review information on how to identify a patent defect and a latent defect, and which should be disclosed. You will also learn to identify how different market conditions can require various negotiation skills and strategies. This module gives focus to understanding: • How to identify requirements and best interests of a seller client • How to identify material facts for a seller • How to identify requirements and best interests of a buyer client • How to identify material facts for a buyer • How to identify strategies for sellers and buyers under different market conditions In this module, you will have opportunities to review different examples that demonstrate how these topics are integrated as factors that affect real estate negotiations. This module also describes your duties and obligations during the listing and selling process.

Exam Study Guide

Menu: Factors Impacting Residential Real Estate Negotiations

Number of Lessons Lesson Number

5 Lessons Lesson Name

Lesson 1

Needs, Material Facts, and Best Interests of a Seller

Lesson 2

Needs, Material Facts, and Best Interests of a Buyer

Lesson 3

Impact of Market Conditions on Negotiation Strategies

Lesson 4

Summary Practice Activities Module Summary Appendix

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Lesson 1 | Page 1 of 32

Lesson 1: Needs, Material Facts, and Best Interests of a Seller

This lesson describes the importance of assessing a seller’s needs during the listing and selling process. It also outlines how the salesperson can leverage tools like demographics and technology to meet those needs when providing services. It also describes a salesperson’s obligations regarding material facts, distinguishing between those owed to customers and those to clients, as well as the legal obligation to act in the client’s best interest. This unit introduces two types of defects and the seller’s legal obligations related to disclosing known latent defects.

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Lesson 1 | Page 2 of 32

To build your career in real estate, you will need to get to know your sellers and understand the different levels of obligations you will owe to them. In this lesson, you will explore how to identify a seller’s requirements when listing their property for sale, review your obligations relating to material facts, to deal fairly and honestly with all parties, and to promote and protect the best interests of a seller client. You will need to make every effort to acquire complete and accurate information regarding the property to be listed, and depending on the relationship established, be ready to provide support and advice that is relevant to the seller’s needs. In all situations, you will need to ensure you fulfill all your obligations under the Code of Ethics. Leading practices include documenting all decisions and directions provided by a seller during the course of the trade. Upon completion of this lesson, you will be able to: • Recognize the importance of assessing a seller’s needs • Describe the regulatory requirements of a salesperson regarding facts material to a seller • Describe the regulatory requirements of a salesperson regarding the promotion and protection of the seller client’s best interests • Identify a seller's legal obligation for disclosure of known latent defects 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 32

Residential transactions involve extensive work with clients and customers, and their potentially evolving needs and wants. A typical seller may be listing their family home because of changes in employment, to their finances, or within the family. You will need to keep in mind that selling a home can be an emotional time for sellers as they have likely created many memories there. As a salesperson, you will need to show sensitivity and understanding when first meeting with the seller and asking questions about their reasons to list the property. Spending time with the seller is one of the best ways to understand and assess their needs.

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Lesson 1 | Page 4 of 32

Understanding Seller Needs: Asking Appropriate Questions

Asking a seller the right questions at the right time will help you to understand their needs and motivations, and to obtain accurate and complete information on the property. If you do not ask questions to identify their requirements and document the answers, you could misunderstand what is important to the seller, waste their time, and frustrate them. Typically, a salesperson asks questions like this while visiting a seller at their property. It is most effective when the questions flow naturally into the conversation. You will need to listen to what the seller is telling you and recognize opportunities to follow up with additional questions. Be sure that you are equipped to take notes that you can refer to after the meeting is over. Keeping detailed notes throughout the transaction will help you track the seller’s needs and avoid adding inaccurate or incomplete information in listing and advertising materials.

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Lesson 1 | Page 5 of 32

Understanding Seller Needs: Sample Questions When you begin working at a brokerage, it is likely that they will provide you with a custom list of questions as part of their in-house training. Some questions a salesperson may ask are designed to explore a seller’s needs and motivations. The given questions are not a comprehensive list of possible questions, your questions may vary. You may also choose to create your own questionnaire by customizing questions. • Why do you want to sell the property? • What are your plans once you sell? • When do you hope to have the home on the market? What is your ideal closing date? • Do you have a list price in mind for the property for sale? • Is there a minimum selling price or net amount you are expecting in the sale of the property? • Is there a definite time period in which the property must be sold, and the transaction closed? • Have you already purchased another property? • What improvements have you made to the property? When were the improvements made? • How long have you owned the property? • Are there any current issues with the property? • Who will be making decisions on the sale of this property?

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Lesson 1 | Page 6 of 32

Demographics and the Seller

Demographics is the study of statistical information about a particular population using measurable data, such as average age, income, educational background, ethnic origin, and language. It can be a useful tool in helping to analyze a seller needs and motivations. Some sources of demographical information that a salesperson may access include: real estate boards, subscription-based databases (e.g., Geowarehouse®), and Canada Mortgage and Housing Corporation (CMHC). Combining demographics with current knowledge of local news and events affecting the housing market in the neighbourhoods of your trading area can help you create marketing and advertising strategies that show the value of your services by attracting likely buyers to your seller’s property.

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Lesson 1 | Page 7 of 32

Evolution of the Neighbourhood

The value of doing research (including reviews of demographical data and keeping up-to-date with current events in the neighbourhoods of your trading area) cannot be overstated. You will want to ensure you are aware of economic, political, and cultural trends that can influence the decision to sell and buy property in your area. As a salesperson, you should be aware of businesses that are opening and closing, legislation or disbursement of funds to support housing development, or a new wave of immigrants moving into the area. For example, if a large company opens a new office in your area, it could mean existing employees will be moving there as well. This could mean a major influx of buyers. Similarly, if the company employees fit a specific demographic, you may find demand for certain types of properties is higher than for others. This may influence the community’s development and culture. The reverse may also be true; if a well-established business in the area goes out of business or decides to move offices elsewhere, the loss of jobs may mean that there is more inventory in the area than usual. This could

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create challenges in selling a property or attracting prospective buyers who will offer a price that the seller feels will reflect fair-market value. You will need to be aware of how changes in the community can change the market. Then you can inform your sellers about possible outcomes and plan to address such trends in your recommendations for marketing and negotiation strategies. Being knowledgeable and prepared will demonstrate your expertise and value to the seller. Developing sound foundational knowledge and remaining current will not only put you in the best position to provide quality service to sellers (by increasing the likelihood of attracting the right buyer to their property), it will also provide you with the opportunity to promote your reputation and grow your personal professional brand, and reflect well on your brokerage.

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Lesson 1 | Page 8 of 32

Community Development

As a salesperson, you will also want to be aware of the Official Plan in your trading area since government longrange planning must be in place to ensure that adequate serviced land is available for development. You should also be familiar with any future plans by local development groups that can affect selling and buying property trends. Development of a new school, church, or other amenity can influence or alter a community because of the buyers they attract, as can the influx of new residents that could be attracted to a neighbourhood by a major development, such as a new subdivision. Tracking progress of new housing developments and when they will be available to the market may help you to better counsel an individual seller on when they should put their property up for sale. For example, a development with 100 new homes could create unplanned-for competition in the market for a seller if they become available at the same time; conversely, a major development of this kind could spark interest in the area, bringing more buyers

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to the community who may not have considered it before, and may prefer, in the end, to buy a resale property from one of your sellers. A delay in a planned development could also put an individual seller with a property on the market at an advantage if a buyer who has been waiting for units to be released decides they do not want to wait. Housing developers do research in their project planning stages so that when they commit to a project, it has every chance of being successful. They may consider demographics in an effort to ensure they will reach the right buyers. The type of the development can also give an indication of the demographic that they are trying to attract. If they are building high-rise condominiums for example, they are likely targeting the first-time buyer market; if they are developing bungalows, they may have planned to sell homes to those looking to retire or downsize. You will want to share your research with sellers, to help inform their decisions during the listing and selling process, reminding them that though demographics and trends are good indicators, they should not be considered definitive.

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Lesson 1 | Page 9 of 32

Demographics and the Seller: Spotlight on Downsizing

Statistics that illustrate the weighting of different age groups or income levels within an area can signal changes in community lifecycle. For example, many neighbourhoods are experiencing an emerging trend toward downsizing. For example, if statistics indicate: • An increase in the proportion of seniors • An increase in the proportion of people in the later stages of their careers • A decrease in average income levels If a salesperson considers this data, they can anticipate that many of these people may be ready to sell their existing homes to downsize to a smaller home. Their motivations for downsizing could include: • Reducing monthly expenses and carrying costs as their income has decreased from pre-retirement levels • Reducing their monthly expenses to fund different lifestyle choices, such as extensive travel

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• Reducing the amount of maintenance and upkeep required at their property or shifting the responsibility to someone else • Addressing mobility issues by finding a home with ramps, elevators, or fewer stairs Researching demographic information applicable to local trends and your seller’s situation will help you gain a deeper understanding of the composition of the neighbourhood to identify prospective buyers. You will also be better equipped to create appropriate listing and marketing materials, and provide support and referrals to relevant third-party services.

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Lesson 1 | Page 10 of 32

Understanding Seller Communication Preferences With the shift toward new communication technologies, people across all demographics are using email and texting more than ever. As a society, we are leaving behind traditional mail and telephone services. Though some people are still more comfortable using a fax machine, others are not quite sure what a fax machine is or how it would be used. The preferred method(s) of interaction between a salesperson and sellers will vary. Some sellers may prefer telephone or in-person contact, while others may prefer to rely on email or text. Sellers with limited English skills may need family members, friends, or translation services to facilitate a transaction. Those who have limited experience with newer technologies may still wish to use them and may require additional support (e.g., when providing electronic signatures). In fact, every aspect of the real estate transaction can now be completed electronically, but it is not mandatory to do so. Both parties must agree to using electronic signatures during the offer process and for communications regarding the offer. As a salesperson, you will need to ask sellers for their preferences when creating a communication strategy, and you will have to respect those preferences. You will also need to comply with privacy requirements and other legislation for use of their contact information.

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Lesson 1 | Page 11 of 32

A salesperson meets with a young couple who want to list their home. Their property has two bedrooms and one bathroom on the second floor, and an open concept kitchen, a living room, a dining room, and a family room on the main floor. The salesperson notices the family room seems to be an addition to the original floor plan. When the salesperson asks why the couple wants to sell, they mention that they need a bigger house as they just found out they are expecting their third child. However, they can’t afford larger mortgage payments as they’re already finding it difficult to make ends meet. Question #1: Which of the given questions are appropriate for the salesperson to build into discussion with the couple to understand their needs and motivations? There are four options. There are multiple correct answers.

1

Do you have a list price in mind?

2

What do you think has caused your financial challenges?

3

When do you think you’ll be ready to put your home on the market?

4

Are there any current problems with the property?

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Lesson 1 | Page 12 of 32

Material Facts and the Seller

The answers that a seller provides to your questions about their needs and wants may also prompt them to provide insight into what they might consider to be a material fact. You will need to discuss material facts with the seller before they offer their home for sale. The Code of Ethics, Subsection 1(1) defines a material fact as “a fact that would affect a reasonable person’s decision to acquire or dispose of” an interest in real estate. Generally speaking, a material fact could be something that happened in the home, something that is about to, or has happened in the area, the intended use of the property, or anything that may: • Affect the decision to sell or purchase the property • Influence the listing price • Influence what conditions are included in an offer

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When working with sellers, as a salesperson, you will consider material facts for disclosure from two perspectives: 1) Those you must disclose that may impact a seller’s decision-making process with respect to the bullet points on the previous screen. 2) Those which are known latent defects that a seller must disclose that may affect a potential buyer’s decisionmaking process. As a salesperson, you will need to explain the concept of material facts at the outset of your relationship. The seller will need to understand what material facts are, and why they may need to make disclosures. Starting this conversation right from the beginning may provide you with early insight into the types of information the seller may consider to be material to their decision-making process.

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Lesson 1 | Page 13 of 32

Material Facts: Specific and Personal

Regardless of whether the seller has prior knowledge of facts material to the sale of their property, your obligation to disclose them to your client or customer still exists. When working with a seller client, you will take additional steps to confirm any material facts. For virtually all material facts, the “reasonable steps” required for determining those facts will go beyond simply accepting the seller’s verbal representations. Some research and obtaining supporting documentation will be necessary. Since the definition of a material fact only requires that the fact itself influences a reasonable person’s decision to acquire or dispose of an interest in real estate, it can have broad application. Material facts are subjective and personal to the parties involved in a real estate transaction. One seller may deem a fact to be of material importance so that they change their listing price or their decision to sell their property while another seller or buyer who is presented with that same fact might not consider it material, and it will not alter their decision-making process. Through your conversations with the seller you will learn what is material to them.

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Lesson 1 | Page 14 of 32

Material Facts for a Seller: Examples Since material facts can be personal, examples are provided only to demonstrate how material facts may impact a transaction and illustrate how disclosures might be made. The following seven sections contain examples of how some material facts might impact individual sellers and their decision to sell.

Credit report Example: A seller is presented with an offer, and one of the terms requires the seller to hold a second mortgage. The salesperson representing the buyer provides a copy of the buyer’s recent credit report that indicates a high credit score. The credit report is a material fact that would help the seller in deciding whether to accept the offer.

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Zoning designation Example 1: A salesperson learns that a change in zoning bylaws has been approved in their seller’s neighbourhood. This will allow high-density buildings to be built in the area. The salesperson anticipates this may potentially negatively affect the market value of single-family residences in the neighbourhood. The salesperson discloses the change in bylaws to the seller since this information might alter their decision to sell. Example 2: A seller is basing their listing price on a private property sale that occurred in the recent past. The salesperson is aware that the property had a different zoning designation on it, which allowed for the property to be redeveloped for another use. As such, the selling price was higher than the market value of the seller’s property. The salesperson discloses this information to the seller to help them arrive at a suitable listing price.

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Proximity to schools or other public activities Example: A salesperson learns that a new school is opening in the seller’s neighbourhood. It will be an educationally progressive French immersion school with strong academics and a Spanish-language program. The salesperson anticipates the school will attract buyers to the neighbourhood and increase demand for single family homes. The salesperson advises the seller of the news and potential implications. The seller decides to delay the sale of their home as they believe they will be able to fetch a higher sale price once the school is established.

Dwelling measurements Example: Before taking a listing, the salesperson asks if the seller can provide a copy of plans for the irregularly-shaped deck that was an addition to the property. The deck is elaborate and has several special design features, including a fire pit, pergola, and privacy screens. The seller shares the plans provided by their contractor from when the deck was built. The salesperson thinks that the area on the plans does not align with the finished deck and advises that the seller may want to hire a measurement specialist to confirm its size.

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The measurement specialist confirms that the measurements are inaccurate and that the deck is smaller than the seller thought. The salesperson revises the draft listing based on the corrected area measurement and explains to the seller that they may want to reduce their price. Despite the measurement discrepancy, the seller resolves to stay with the price originally discussed because they feel sure the deck’s features will attract buyers.

Recent neighbourhood property sales Example: A seller receives an offer that is slightly below their list price. The salesperson learns that another home has just come on the market in the seller’s neighbourhood that is very similar to their home, but the price is significantly higher. The salesperson informs their seller client of the new listing while advising them about their options. The seller decides to counter offer at list price rather than accept the original offer.

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Right-of-way easement Example: A seller who recently inherited a vacation home tells their salesperson that it is a family tradition to allow the neighbours to use their path by the lake. The salesperson’s verification of what is registered on title for the property reveals there is an easement that was put in place by the current owner’s grandmother that allows seven neighbouring properties to enjoy a rightof-way. The salesperson informs the seller that it is not just a family tradition but a limitation that has been attached to the property. They also explain to the seller they will have to disclose the easement in the listing and that it could influence both the decision to buy and the quality of the offers. The seller decides to follow the salesperson’s recommendation and reduce the listing price.

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New developments Example: A salesperson who is about to list a rural home goes to the local municipal office to find out if there are any new developments scheduled near the property. The salesperson discovers that permits have been approved for the installation of wind turbines on a neighbouring property in the upcoming year. As this plan will affect the value of properties near the wind turbines, and the number of offers, the salesperson discloses it to the seller right away. The salesperson explains that with this new information, they recommend a revised listing price to the seller. The seller chooses to change the price as recommended.

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Lesson 1 | Page 15 of 32

The Salesperson’s Obligation to Discover and Disclose Material Facts to Seller Clients

As a salesperson, you will need to disclose material facts to all sellers, but there is a higher level of obligation to the seller client. You must first make an effort to determine what material facts are for the seller client, per Subsection 21(1) of the Code. To fulfill your obligations, you will need to take reasonable steps on their behalf to research and discover any material facts prior to making disclosures. You will need to make certain that you promptly disclose those facts so that your client is in possession of all relevant information that might influence their decisions in the listing and selling process as soon as is practical. Depending on the type of material fact, you may advise your client to speak to a third-party professional to learn more about the possible impact that material fact could have on the value of their property, their listing price, or on determining conditions they will accept or use to counter an offer. You may also suggest speaking with a lawyer if they need advice about making a disclosure.

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Lesson 1 | Page 16 of 32

The Salesperson’s Obligation to Disclose Material Facts to Seller Customers

To fulfill your obligation to customers regarding material facts as described in Subsection 21(2) of the Code, you will be required to disclose material facts that are known or ought to be known by a salesperson. This means you will disclose material facts to customers based on your existing knowledge or based on information that could be considered material learned through the course of your day-to-day activities. This means you are not obligated to conduct any research to discover material facts for the customer seller that you would for a seller client. Customers are required to make their own inquiries to determine if there are any facts affecting a property that would be material to them. As a salesperson, your obligation to disclose material facts will supersede any direction otherwise given by a seller client or customer. Making appropriate disclosures will protect you from disciplinary action and may also protect both you and your sellers from potential litigation.

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Lesson 1 | Page 17 of 32

The Salesperson’s Obligations to a Seller Client versus Seller Customer Regarding Material Facts

These two examples are related to the same material fact and illustrate the differences in the salesperson’s obligations regarding material facts to seller clients and seller customers. Discovery and Disclosure: Seller Client While doing a visual walkthrough of their seller clients’ property prior to listing, a salesperson notices what looks like the beginnings of a termite mud trail. After doing some further research on potential infestations and how to remediate them, the salesperson points it out to the sellers and advises them to consult an exterminator to provide an opinion on the severity of the infestation. They may also recommend that it would be better for the sellers to address the issue prior to putting the property on the market. If it is a termite trail, it could impact the marketability or the value of the property. The sellers ask for a referral, and the salesperson provides the names of three pest control companies.

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Disclosure: Seller Customer A property is being sold privately. The sellers have signed a customer service agreement with a salesperson’s brokerage that states that if they accept an offer from a buyer the salesperson introduces to the property, they will pay the salesperson’s brokerage remuneration. While doing a visual walkthrough of the property before bringing any buyers to see it, the salesperson notices what looks like the beginnings of a termite mud trail. The salesperson points it out to the sellers and suggests they may want to hire an exterminator to investigate.

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Lesson 1 | Page 18 of 32

Common Material Facts for a Seller As a salesperson, you will need to familiarize yourself with a seller’s property so that you will be able to disclose any material facts to them, and to ensure you provide accurate information when preparing their listing. You will need to ask the seller questions to help discover material facts. They may have not revealed these facts when you inquired about their needs and wants, or even realize they could be a potential issue. They may also have known about the issue at one time but have since forgotten. It is advisable to document the seller’s answers for your records. Here are some examples of common material facts that you may need to disclose to the seller: • Structural conditions and results (e.g., age, maintenance issues like roof leaks, foundation damage, mechanical or electrical deficiencies, basement water seepage, mould, or insect infestations) • Outdated materials that can be personally or environmentally hazardous (e.g., asbestos insulation, knob-andtube wiring, lead or Kitec plumbing, or underground storage tanks) • Building and/or dwelling measurements or lot size (e.g., discrepancies in measurements cited in listings or specific measurements of a balcony) • Previous use of a property (e.g., former illicit activity such as a grow-op, meth lab, or murder) • Zoning (e.g., bylaws, land use, or fence height requirements) • Government limitations (e.g., HST, property taxes, or any expropriation plans) • Private limitations (e.g., easements or restrictive covenants) • Alterations (e.g., renovations completed without permits or inspections, or demolitions) • Existence of nearby businesses or facilities that may impact quality of life (such as an upcoming development, or nearby industrial facility, airport, or railway line) • Recent sales in the neighbourhood • Proximity to schools, churches, or other public amenities

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Lesson 1 | Page 19 of 32

Due Diligence in Determining Seller Material Facts As a salesperson, you will need to make a reasonable attempt to determine all material facts and ensure they are disclosed to your seller client as soon as possible. When working with a seller customer, you must ensure you disclose any material facts that are known or ought to be known by a seller to potential buyers. These facts may be material to their decision to sell or affect the price they wish to set for their property. When interviewing a seller for the first time, you may supplement your questionnaire about the seller’s needs and wants with questions designed to help uncover any material facts they may not have remembered or considered. These questions could include: • Has there been any water damage? • Has the drinking water from the well been tested regularly? • Are there any problems with the septic system? • Have there been circumstances that may have resulted in soil contamination? • Has there ever been an oil-heating system on the property? Are you aware of any buried oil tanks? • Has there been any illegal activity on the property, such as a grow-op? • Have there been any deaths on the property other than by natural causes? Remember that some of these questions may not be relevant to the seller’s property; for example, not all properties have wells or septic tanks. It is advisable to customize your questions based on information you already have about the property.

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Lesson 1 | Page 20 of 32

Due Diligence in Determining Seller Material Facts

Engaging your seller clients by completing questionnaires with them is a good starting point to help you better understand them and their property. The questionnaire should lead to open conversations with the seller about material facts. When representing a seller, you will want to have frank conversations to aid them in identifying any facts about their property that could be considered material. This will enable you as a salesperson, to provide the best service and support possible while at the same time helping ensure you have completed your due diligence. You should be prepared to answer any questions they have. You must help them understand there are different types of material facts (physical and non-physical issues that may sway a buyer’s decision to purchase property and require seller disclosure) and also that material facts are personal: not only to them but to prospective buyers of their property.

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The last two questions on the previous slide, which ask about illegal activity or deaths on the property, are examples of some concerns commonly referred to as stigmatizing issues. A stigma may elicit a psychological or emotional response that could negatively influence a prospective buyer’s interest in a property. In terms of disclosures, you will also inform sellers that while it may be best for them to do so, they are not required by law to disclose a potential stigma on their property. Regardless, you will want to direct clients to seek legal advice if you believe that a stigmatizing issue may become a factor in selling the property. You will learn more about types of stigmatizing issues and their significance, disclosure issues, and how your obligations regarding the disclosure of stigmas will change in cases of multiple representation.

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Lesson 1 | Page 21 of 32

Salesperson’s Due Diligence in Verifying Material Facts of a Seller Client

In addition to asking appropriate questions, there will be other ways you will verify material facts. For virtually all material facts, the reasonable steps required for determining those facts will go beyond simply accepting the seller’s verbal representations. These steps can include: verifying what is registered on title for the property (such as confirming whether there are any easements) by looking at the survey, deed, tax bill, or a subscription-based database, verifying seller-provided information or documentation of permits, renovations, or water tests, conducting a web search for newsworthy events on or near the property, determining if any contamination has been reported, and verifying zoning and permitted uses at the local municipal office. As always, you will want to keep records of all documentation and share anything you find with the seller that has not already been provided by them.

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Lesson 1 | Page 22 of 32

A salesperson recommends a seller client list their property at $650,000, based on three comparable sales over the past six months. They are quite disappointed by this suggestion because they feel their property is worth much more. After several discussions, the seller reluctantly agrees to list at $650,000. Within two weeks of listing the home, two comparable properties sell for $610,000 and $595,000. Question #2: Which of the given actions should the salesperson take in this situation? There are three options. There is only one correct answer. 1

Inform the seller about the recent sales and recommend they decrease their list price.

2

Delay sharing the information with the seller until the downward trend in pricing can be confirmed with one or two more sales.

3

Don’t share the information with the seller as it will just further upset them and they’re not likely to take any action anyway.

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Lesson 1 | Page 23 of 32

Seller Client’s Best Interests

As we have seen, you will owe different levels of service to clients and customers when fulfilling your obligations regarding material facts. When you are working as a salesperson, Section 4 of the Code of Ethics underscores an additional obligation to the client. It states that salespersons shall promote and protect the best interests of their clients. As a salesperson, you will begin to demonstrate your intention to promote and protect the seller’s best interests when you make inquiries into the full scope of the seller’s needs. You will continue to do so throughout the listing and selling process until the transaction has closed. You will need to ensure that your personal interests never take precedence over the client’s interests. Example: A salesperson is advising a seller client about two competing offers. One was obtained by the salesperson while the other was obtained by the co-operating brokerage. The seller needs advice on which is the best offer. While the Exam Study Guide

offer prices are similar, the terms in the offer from the co-operating brokerage have distinct advantages for the client. The salesperson reviews both offers with the seller without regard for personal interest, such as a lesser remuneration if the co-operating brokerage’s offer is accepted.

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Lesson 1 | Page 24 of 32

Due Diligence to Protect Seller’s Best Interests When preparing to list a property for sale, you have an obligation to carry out due diligence in investigating the property and the circumstances of the sale. To protect and promote the best interests of a seller client, you will need to take several steps including: • Inspecting the property and asking the seller questions that would reveal defects and material facts that should be disclosed • Documenting information shared with and by the seller with back-up copies stored in a second location • Protecting the seller’s personal information and motivations for selling unless you have written consent to share specific information • Verifying that the information included in the listing or any advertising/promotional materials is accurate • Excluding any detail about a home that you cannot verify from the listing or adding a qualifying statement or disclaimer to the unverified information • Ensuring that you fully explain the content of all documents that you ask the seller to sign, and making sure that they have received copies in a timely fashion If you are not able to provide the required level of advice and support, you will need to refer the client to someone who can provide this necessary support, such as a lawyer or a tradesperson. At all times, you will need to protect and promote the client’s best interests, but also be mindful of your obligations to treat every party to the transaction fairly, honestly, and with integrity.

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Lesson 1 | Page 25 of 32

Factors that Require Due Diligence

In learning more about a seller’s needs and wants, and keeping in mind your obligations to act in the seller client’s best interests, you may identify other topics or factors which could require some discussion, such as HST, capital gains, and tax considerations for non-resident sellers. As a salesperson, you will want to refer sellers to outside professionals, such as accountants or lawyers, for expert advice. HST may be applicable in certain situations beyond HST levied on remuneration, such as a property that is used wholly or in part for commercial purposes, or new construction. HST can be included in addition to the purchase price or can be treated as a separate item per the clauses in an offer. You will need to ensure that clients are aware of HST charges relating to remuneration. For HST and all taxation matters, you will need to advise your client to consult with an accountant or other tax professional for advice and guidance regarding the applicability of a particular type of tax. Most of the time, HST does not apply to a residential resale property, but there can be exceptions. Sellers will need to be referred for Exam Study Guide

expert advice in those areas. The same would apply for capital gains tax and special circumstances of a non-resident seller. Example 1: The salesperson determines during their due diligence investigation that a portion of the residential property has been used for a commercial purpose, namely a private day-care centre. Since HST may be applicable to the sale as a result of this commercial activity, the salesperson recommends to the homeowner that they speak with an accountant for clarification. Example 2: A couple spends half the year at their recreational cottage and the other half in their urban home, which they are considering selling. If the home is not their principal residence, then capital gains tax may apply to the proceeds of the sale. The salesperson advises that they should consult with their accountant for advice on the matter.

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Lesson 1 | Page 26 of 32

The seller clients want to sell their home for $850,000. They confide in the salesperson, explaining that they really need to sell the house because they are in a tight financial position. They would therefore accept less than the asking price. At an open house, potential buyers approach the salesperson and indicate that they love the house but ask if the sellers would accept less. Question #3: What should the salesperson do to act in the best interests of the seller? There are three options. There is only one correct answer. 1

Tell the buyers that the sellers would accept less to increase the likelihood that they will make an offer.

2

Tell the buyers that the sellers will not accept less to increase the chances of a higher offer.

3

Tell the buyers that the only way to find out is to submit an offer for the sellers’ consideration.

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Lesson 1 | Page 27 of 32

When discussing the seller’s property, you will want to ask the seller about any damages, repairs, or issues the property currently has or previously had, if they have not already shared this information with you. We will learn about the two types of defects: patent and latent defects, and the most severe type of latent defect, described as a material latent defect. As a salesperson, you will also need to advise the seller about their legal obligation to disclose known latent defects, and you will also need to be mindful of your own obligations.

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Lesson 1 | Page 28 of 32

Types of Defects As a salesperson, you will need to be able to identify the two types of property defects, patent and latent, the differences between them, and if they require seller disclosures. You will continue to learn more detail about defects. The following three sections contain information on the types of defects and illustrated examples.

Patent defect A patent defect is readily visible upon reasonable inspection. Since these are visible, seller disclosure is not required. For patent defects, the principle of caveat emptor (“buyer beware”) applies. Examples of patent defects include: • A missing railing • Visible cracks in a foundation wall • Broken stairs on a staircase • A slanted floor or staircase • Evidence of mould • Water stains on the ceiling • Shingles missing from the roof • A broken window pane

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Latent defect A latent defect is not readily observable by the untrained eye during the reasonable inspection of a property. This includes any hidden flaw, weakness, or imperfection that a salesperson or buyer would not be able to see when viewing the property. Some latent defects may require the assistance of third-party experts to be identified. The seller has an obligation to disclose any known latent defects. Examples of latent defects include: • Hidden water damage behind shower or bathtub surround • Fence encroachment onto a neighbouring property • Vermiculite insulation • Minor seasonal flooding in the basement

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Material latent defect The most severe type of latent defect is a material latent defect. This defect poses a serious risk, which can render the home unsafe, unhealthy, or otherwise uninhabitable. Like other latent defects, if the seller is aware of a material latent defect, they are obligated to disclose it to a buyer. This type of defect is judged material to enjoyment of a property and would include defects that cause the property to become: • Dangerous or potentially dangerous for the buyers (e.g., high indoor concentration of radon gas which has reached hazardous levels • Potentially unsafe (e.g., a substantial crack found in the basement behind the drywall that can affect the structural integrity of the house) • Unfit for habitation (e.g., a property with a mould infestation found during renovations that results in seller disclosure of the building being condemned) • A concern to municipal authorities (e.g., a property that has been identified as a grow house that requires remediation)

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Lesson 1 | Page 29 of 32

Salesperson’s Role in Identifying Defects To satisfy due diligence requirements, you will need to ask the seller questions to determine whether they are aware of any latent defects. As discussed, known latent defects must be disclosed by the seller. When walking through the property with the seller, you will have to look for any signs of potential defects and ask follow-up questions about these indicators to determine if they are indicators of a latent defect that must be disclosed by the seller. In addition to conducting a visual inspection, when verifying information about the property, you will also consider information you gather from the seller and involve expert third-party professionals, if necessary, to address matters that are beyond the scope of the salesperson’s role. Third-party professionals can include home inspectors, surveyors, tradespeople, lawyers, and insurance professionals. As a salesperson, while inspecting the subject property in preparation for creating a listing agreement you will need to: • Watch for alterations, additions, or works-in-progress that may indicate defects that require disclosure by the seller. Ask questions about when the work was done, if a building permit was issued, and if there are any additional changes that are not readily observable. • Look for general deterioration, water stains, moisture, mould, sagging, and other signs of neglect and damage. Query the seller accordingly, making recommendations for further investigation, repairs, and their disclosure of mandatory items to prospective buyers. • Seek information on and watch for any indications that the property may have been used as a grow house. • Look for out-of-date systems, particularly involving wiring (e.g., knob-and-tube and aluminum wiring, 60-amp service, or oil-burning appliances with tanks more than 10 years old). • Watch for significant problem areas that warrant further analysis, and do not hesitate to seek appropriate help and expertise as the need arises. • Pay particular attention to environmental considerations including flood plains, flooding potential, any environmental problems or soil contamination, and underground fuel tanks.

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• When in doubt regarding any uncertain issues concerning a property, seek expert advice. (e.g., mould resulting from flooding could require a professional to confirm the extent of any potential problems, or an electrician may be employed to confirm the type of wiring and identify any potential problems). You will learn more on the topics of visual inspections and defects.

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Lesson 1 | Page 30 of 32

Seller’s Obligation to Disclose Defects

The seller is only obligated to disclose known latent defects. To avoid any kind of misunderstanding, you will want to clearly explain the differences in the types of defects. As a salesperson, you should explain both the obligations of the salesperson and brokerage, as well as the seller’s obligations regarding disclosures. This will need to be done when initially reviewing services and the terms of the types of agreements prior to signing so this is clearly outlined for the seller. You will also want to explain that if known latent defects are not disclosed to prospective buyers there could be legal ramifications for the seller, and for you and your brokerage. Example: A seller knows about a problem with the well on their property. However, the seller does not want anyone to know, maintaining the belief that the problem is seasonal and due to spring water runoff. During the summer, there is no problem. The salesperson explains to the seller that a problem with the well is a material latent defect (a dangerous or potentially dangerous situation) that must be disclosed to the buyer. If they do not disclose this defect and the buyer’s family becomes ill because of the well water, the buyer may be entitled to take legal action against the seller.

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Lesson 1 | Page 31 of 32

A salesperson is meeting a new seller client at their home to have a look at the property and notices a few things to be repaired. The salesperson asks if they have completed any renovations and the seller does not admit to any. The salesperson recommends a home inspection. The home inspection reveals a few defects. Question #4: Which of the given should be disclosed by the seller to potential buyers? There are three options. There is only one correct answer. 1

The home inspector sees signs that the property may have been used as a grow-op.

2

The home inspector sees water stains on the ceiling which has a bathroom overhead.

3

The home inspector sees that there is hardwood under the wall-to-wall carpet but could not verify the condition of the hardwood.

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Lesson 1 | Page 32 of 32

Congratulations, you have completed the lesson! There are five sections on this page with a summary of the key topics that were covered in this lesson.

Assessing seller needs

• Ask appropriate questions to accurately assess a seller’s needs. • Consider the demographic factors that may influence seller needs and motivations. • Respect the wishes of the seller regarding the mode of interaction they prefer for regular communication.

Disclosure of material facts

• Disclose known material facts to both clients and customers, per Section 21 of the Code of Ethics. • For clients, take reasonable steps to determine and disclose material facts. • For customers, the obligation is to disclose only those material facts that are known or ought to be known by a salesperson.

Stigmatizing issues

• Stigma can be created by events on the property, such as a death or illegal activities. • Advise the seller to seek legal advice regarding their rights and obligations related to the issue. • Explain that your obligations regarding the disclosure of stigmas will change in cases of multiple representation.

Best interest of a seller

• Always work in the best interests of the client and actively protect and promote that interest, per Section 4 of the Code. • Ensure that your personal interests never take precedence over the client’s interests.

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Disclosure of known latent defects

• The given are two types of defects: patent and latent; the most severe form of a latent defect is known as a material latent defect. • A material latent defect is considered to be a subcategory of a latent defect. • Identifying defects is a due diligence obligation of a salesperson. • A seller must disclose known latent defects to the salesperson, and you will need to exercise due diligence to disclose these defects while listing the property.

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Lesson 2 | Page 1 of 21

Lesson 2: Needs, Material Facts, and Best Interests of a Buyer

This lesson describes the importance of assessing a buyer’s needs during the buying process. It also outlines how the salesperson can leverage tools like demographics and technology to meet those needs when providing services. It also describes a salesperson’s obligations regarding material facts. Distinguishes between those owed to customers and those to client. The lesson also explains a salesperson’s legal obligation to protect a buyer client’s best interests and indicates when they should recommend third-party services be obtained.

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Lesson 2 | Page 2 of 21

You have learned about working with sellers and the importance of building your relationships with them by asking questions, doing research, and considering demographics when providing services while meeting your obligations under the Code of Ethics. In this lesson, the focus will be on learning how to develop relationships with buyers. You will need to ask appropriate questions to help you understand buyer needs and wants, their financing capability and document their answers. You need to fulfill obligations under the same sections of the Code of Ethics as you do for sellers, but there will be slight differences in your approach to working with buyers. You will need to take appropriate actions to disclose material facts to both clients and customers. You will need to do research and verify material facts for and act in the best interests of a buyer client. Failing to do so can result in a number of consequences, the least of which is damaging a relationship that you are trying to build. If concerns are directed to RECO, these could lead to possible investigation of complaints and penalties imposed by RECO’s Disciplinary committee, or to civil liabilities. Upon completion of this lesson, you will be able to: • Recognize the importance of assessing a buyer’s needs • Describe the regulatory requirements of a salesperson regarding material facts of a buyer • Describe the regulatory requirements of a salesperson regarding the best interests of a buyer client Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented. Exam Study Guide

Lesson 2 | Page 3 of 21

As a salesperson, when working with potential buyers, you will need to ask them appropriate questions to understand their needs and motivations in their search for a property, and the type of property that will best suit them. You will want to be patient and take time to discover the interests and sensitivities of the buyer. By asking the right questions that clearly identify the buyer’s needs and wants, you will be better prepared to provide services and target your property search effectively. This will reduce the risk of recommending properties that are not of interest or completely not to their taste, which can frustrate the buyer.

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Lesson 2 | Page 4 of 21

Assessing Buyer Needs: Asking Appropriate Questions

When you begin working at a brokerage, they may provide you with a custom list of questions as part of their inhouse training. No matter where you get your list of questions, you will want to document your buyer’s answers. The given questions are not a comprehensive list of possible questions; your questions may vary. You may also choose to customize your questions and create your own questionnaire. • Why are you interested in purchasing a property? (e.g., job change, marriage, upgrading to a bigger house, and so on) • What is your timeline for purchasing a property? • Do you own a property already? • Do you need to market/sell your existing property first before purchasing the new property? • How are you planning to finance the purchase? Exam Study Guide

• How much money are you planning for the down payment and the closing cost? • Have you been pre-qualified for financing? • Are you open to looking at different types of properties (such as a house or a condo)? o How many bedrooms do you need? o Do you want an eat-in kitchen? o Do you want a main floor family room? o Would you like a dining room? o Do you need a garage? If so, for one car or two? o Do you have any specific requirements (such as no stairs, ramps, or accessibility requirements)? o Is there a specific area that you prefer? o

Do you need proximity to schools, medical services, public transportation, or any other location-specific public amenity?

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Lesson 2 | Page 5 of 21

Qualifying a Buyer

Asking questions like the ones you have just reviewed will help you as a salesperson, determine a buyer’s needs and wants but will also help you assess their financial readiness. This process is commonly known as qualification. Confirming a buyer’s financial qualifications to buy a property and comparing what you learn about their requirements against the financial details they will share with you are key parts of this process. This includes information about any pre-approved financing from mortgage brokers or banks, the amount they have budgeted for the purchase, and what they want to spend. The scope of activities involved in the qualifying process depends on whether the brokerage is representing the buyer (working in the best interests of the client) or providing limited services to the buyer as a customer (not representing that individual but providing information in an honest manner while exercising care and skill). You will need to fully disclose the level of services to both types of buyers to ensure that they understand what will or will not be done during the process of qualifying and showing property, as well as in subsequent negotiations. Qualifying the buyer will also help you select properties that meet their needs and their budget. This process can also aid buyers by affirming their existing plan, or helping them to recognize the need to re-prioritize their criteria or revise their budget and/or savings plan based on their financial readiness.

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Lesson 2 | Page 6 of 21

Requalifying a Buyer

After the qualifying process, you will select a limited number of properties for the buyer to consider. You will need to show the properties and provide accurate and complete information about them to the buyer. If you show a buyer several properties based on their stated needs and they are not able to find one that suits them, you will probably want to suggest revisiting and refining their criteria. You will periodically requalify buyers to confirm whether you have understood their priorities correctly, or whether the buyer’s needs have evolved since you initially discussed their criteria. Requalifying a buyer several times during this phase of the buying process will be a common practice when you are working as a salesperson. You will have to be understanding and supportive with buyers as they refine their criteria since, for many, this will be one of the biggest purchase of their lives. A buyer may rethink their needs after viewing properties and realize that they had forgotten something that is a real priority to them. They may also decide, after seeing properties in their price range, that they need to reassess or

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scale down their expectations and requirements. Your goal will be to clearly understand and refine the criteria to narrow your search to properties that will be more appealing to them. Example 1: A young couple is attempting to locate a suitable home for their growing family. They signed a buyer representation agreement and specified that the brokerage should seek out properties in the range of $450,000 to $550,000 within an area close to their extended family. The salesperson identifies two properties that meet the buyers’ criteria. The salesperson shows both properties to the buyers, but they are not to their liking. The buyers reassess their needs and ask the salesperson to widen the geographic location they originally requested. Example 2: A salesperson is unable to find an accessible single-family home in the buyer’s price range and preferred location. They decide to pursue another alternative: looking at bungalows with an entry at grade levels that they could renovate to meet their requirements after closing the transaction. In subsequent discussions, the buyer indicates that they are now willing to look at more modern condominium apartment properties with ramps and elevators in that same neighbourhood. They decide against continuing to pursue properties that they could renovate to meet their requirements.

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Lesson 2 | Page 7 of 21

Buyers and Technology

New property technology (popularly known as “proptech”) is regularly introduced to the marketplace. When engaging with buyers during the qualification process, you may hear a buyer enthusiastically announce that they found amazing houses by searching property listings on the web. This is one way that technology has significantly changed real estate because web research has become a common way to search property listings. There are many public and private websites that feature a variety of real estate listings and information. Realtor.ca® is one such public website, but there are many others that a buyer may use to research properties, such as non-broker aggregator sites like Zillow®. Some of these sites may have virtual tours posted in addition to photographs. Buyers may also be interested in using your brokerage’s website or your own personalized website, if you commit to developing and maintaining one. The listings buyers view online may influence their list of requirements. Buyers may also bring properties they discovered in their online research to you as potential homes they wish to view. You may also consider leveraging content on your own personal website or creating social media profiles on popular

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platforms. You will want to take steps to ensure you comply with your requirements under REBBA and that you consult the RECO’s Guide to Social Media and Advertising Guidelines found on the RECO website, so that you will be confident you are conducting your business in compliance with the Act. Technology is also changing the way a salesperson engages with the public. Some salespersons add bar codes (QR codes) to “For Sale” signs so buyers can access information about the property on their cell phone. Salespersons also add code numbers to their signs that prospective buyers can text to connect to auto-responders that provide more information on the property and give salespersons access to the individual who made the inquiry. Buyers are now exposed to more information about market conditions and the availability of properties than ever before. As a salesperson, you will still play an integral role in separating fact from fiction by providing real insight into information that the buyer has gathered from the internet, which might not be accurate (or relevant to this province), and of course, in representing the buyer in a transaction to ensure that the buyer’s best interests are protected.

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Lesson 2 | Page 8 of 21

Demographics and the Buyer A buyer’s needs and motivations may be impacted by changing demographics, such as growth, size, distribution, and composition of population. The following five sections contain information on demographics and its impact on a buyer’s needs and motivations.

Demographics impact You will encounter individuals of diverse age ranges, and socio-economic and cultural backgrounds (with widely different income levels, abilities, lifestyles, and needs) when engaging with clients and customers in the process of looking for a suitable property. It is important to ask the buyer about their lifestyle so you can identify an area that suits them. Example: A young, single buyer may wish to live in a neighbourhood that is close to a bus route for an easy commute to work and shopping. After viewing several properties in the area, they realize that the demographics are predominantly retired families who have lived there since the area was first developed. Based on this observation, the buyer may wish to look in a different location, which appeals to a younger generation.

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Aging population Interestingly, the aging population is not focused entirely on traditional retirement living configurations. Downtown condominium markets have proven attractive as empty nesters and retirees seek the convenience of urban centres. Retirement for many is much more than scaling down house size. Seniors may choose to buy into destination communities that are self-contained complexes complete with recreational and social amenities, as well as support services. All kinds of real estate may be of interest (e.g., bungalows, retirement homes, assisted living complexes, or apartment units). Housing developments, now and in the future, must look at innovative structures, such as stairless entryways and homes, structural provisions for elevators, flexible configurations (to accommodate multigeneration families and in-law suites), wider hallways, walk-in bath enclosures, or tracking for lift mechanisms. Example: One senior may be looking for a senior’s complex with lots of recreational activities, so they can meet new friends. Another senior may want to move into an inlaw suite in their favourite nephew’s home.

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Lifestyle choices and locations There is no right or wrong location for a buyer based on demographics. For example, you can’t be certain that a young buyer would like to live in a downtown condominium simply because it offers many amenities. Location or proximity to places of importance may be their primary focus. Some places that might be drivers for lifestyle requirements include: • • • • • • • • •

Places of worship Parks Cultural centres Club facilities Fitness centres Golf courses Grocery stores Entertainment centres Sports facilities

Example 1: A married couple wants to move to a downtown condominium near the concert hall and theatre district. Example 2: A young couple planning a family wants a bigger house with a yard that is located near a Catholic school.

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Culture and ethnicity Ethnic and cultural origins, as well as settlement patterns, can also influence real estate decisions. Some consumers may want to be located close to cultural connections, in close proximity to ethnic food stores, or near family and friends from a particular background. Consider aspects such as ethnicity, language, and shifting settlement patterns, as appropriate. Example: A family who has recently immigrated to Canada with limited English may want to purchase a property in an area where their language is widely used in the community.

Social trends Social trends are another important component of demographics. Some are the natural result of the passing of time, such as the changing needs of an aging population. Others are a response to economic conditions or housing preferences. Example: A single person decides they want to buy a house in an older, less affluent neighbourhood near their workplace. They hope that recent trends of redevelopment in the area means that if they purchase a property there, it will eventually increase in value.

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Lesson 2 | Page 9 of 21

During the qualifying process, a salesperson takes notes on the price range, financing, and features the buyer describes, to search for properties that match their criteria. The buyer also indicates a preference for a home located on a quiet street. The salesperson finds five homes that meet most of the needs discussed. Two of them are on a street that is quiet during the day but can get busy at rush hour. The pricing on all properties is comparable. Question #5: What should the salesperson do in this situation? There are three options. There is only one correct answer.

1

The salesperson should inform the buyer about all the properties and allow the buyer to make the selections as to which ones they want to see.

2

Avoid telling the buyer about the two homes located on busier streets and show only the three other homes.

3

Schedule appointments for all the homes that the salesperson selected and let the buyer decide.

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Lesson 2 | Page 10 of 21

Material Facts and the Buyer Client

As you learned earlier in this module, the obligations differ between client and customer. If the buyer is a client, they are entitled to a higher level of service because you will have obligations to them that are greater than those you are required to provide to a buyer customer. The Code specifies that you will have to make disclosures for the client promptly, but first, you will be required “to make a reasonable attempt to determine all material facts” that might affect a buyer’s decision to purchase a property. This involves following up with listing salespersons, reviewing brokerage resources, and doing research to discover material facts on properties you intend to show the buyer. You will need to verify information you have researched before you disclose it and only share information from a reliable source, like the ones listed in the page. Other reliable sources could include a subscription-based database; or municipal, provincial, and federal government websites. Research into material facts can also result in recommending services, such as those of a home inspector or another third-party professional (e.g., licensed TSSA technician, surveyor, lawyer, or accountant) where expert advice is necessary.

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Lesson 2 | Page 11 of 21

Material Facts and the Buyer Customer

If the buyer is a customer, under Subsection 21(2) of the Code, you are required to disclose information to them that is “known or ought to be known by the broker or salesperson” as soon as is possible to fulfill your obligation. You will need to suggest a buyer customer obtain advice from a third-party service professional if you think they need expert advice. Customers will need to do their own research to determine if any material fact affects a property. Remember that if you are aware of something that could be considered a material fact to any buyer, either a client or a customer, you will have to disclose it. Failure to do so can have significant consequences under REBBA.

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Lesson 2 | Page 12 of 21

Material Facts and the Buyer

Example: Buyer as a client A salesperson representing a buyer is showing a property. The buyer asks about the vacant land across the street from the property. The salesperson tells the buyer that they will find out more about it and report back. After the showing, the salesperson obtains the contact number from the sign posted on the vacant property. The salesperson contacts the building department at the local municipality and determines that permits have been obtained to build a high-rise condominium. There are plans to construct two buildings in the near future on the property. The salesperson discloses this information to the buyer who decides that this is not the right property for them as the new development will bring a lot more people, traffic, and noise to an already busy area. The buyer decides to look for properties in a quieter, older neighbourhood. Example: Buyer as a customer A salesperson is working with a buyer customer couple. They ask the salesperson to show them a property in an older neighbourhood just north of the city. The couple has two young children. They are looking at this area as it is

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close to the wife’s parents’ home and the local public school. Prior to the showing, the salesperson tells the couple that they heard rumours that the local public school may be closing due to lack of registration and funding. The salesperson also suggests that the couple contact the school or school board directly for further information regarding the status of the school.

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Lesson 2 | Page 13 of 21

Common Material Facts for Buyers There are many issues that can be considered to be material facts for a buyer. When you are working at a brokerage, they may provide their own list for you to use. Some of the most common are: • Structural conditions and results (e.g., age or maintenance issues like roof leaks, foundation damage, mechanical or electrical deficiencies, basement water seepage and mould or insect infestation) • Outdated materials (e.g., knob-and-tube and aluminum wiring or Kitec plumbing), some of which may also be personally or environmentally hazardous (e.g., asbestos insulation, lead or galvanized plumbing, or underground storage tanks) • Building and/or dwelling measurements or lot size (e.g., discrepancies in measurements cited in listings or specific measurements of a balcony) • Previous use of a property (e.g., former illicit activity such as a grow-op, meth lab, or murder) • Zoning (e.g., bylaws, land use, or fence height requirements) • Government limitations (e.g., HST, property taxes, or expropriation) • Private limitations (e.g., easements or restrictive covenants) • Alterations (e.g., renovations completed without permits or inspections, or demolitions) • Existence of nearby businesses or facilities that may impact quality of life (e.g., an upcoming development or industrial facility, airport, or railway line) • Proximity to schools, churches, or other locations of interest

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Lesson 2 | Page 14 of 21

A salesperson shows a property to a buyer client that has an underground oil tank. The listing states that the buyer is responsible for the maintenance, repair, or removal of the tank. Question #6: Which of the given texts are viable options for the salesperson to recommend to the buyer? There are four options. There are multiple correct answers.

1

Do an internet search to find the cost of removing the tank and advise the buyer accordingly.

2

Advise the buyer they should just leave the tank on the property.

3

Suggest that the buyer consult with a licensed TSSA technician about the removal of the tank.

4

Suggest that a clause be inserted in the offer asking that the seller remove the tank and remediate any contamination.

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Lesson 2 | Page 15 of 21

Buyer Client’s Best Interests

As a salesperson, in addition to discovering and disclosing material facts for buyer clients, you will have other obligations under the Code, such as the requirement to always protect the best interests of your clients and to actively promote that interest. This is a fiduciary duty of a salesperson and has been outlined in Section 4 of the Code of Ethics. You will need to ensure that your personal interests never take precedence over the client’s interests. You will also need to treat customers and all other parties to a transaction fairly, honestly, and with integrity. Remember that your buyer client will be putting their trust and confidence in you and your brokerage.

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Lesson 2 | Page 16 of 21

Buyer Client’s Best Interests: Examples There are many situations in which you will be required to actively promote and protect the interests of buyer clients. The following three sections contain examples of how a salesperson might protect the best interests of their clients.

Example 1 The buyer client informs the salesperson in confidence that they will offer $365,000 for a resale condominium unit (which was listed through another brokerage for $385,000) but admits that it is simply a starting point. The buyer is quite prepared to pay the full listing price if necessary and shares this with the salesperson as they have trust and confidence in their relationship with the salesperson. The listing salesperson, when presented with the offer, asks if the buyer will pay more as the seller is not ready to accept the offer as presented. The salesperson does not disclose that the buyer is anxious to buy and will probably pay full list price. By doing so, the salesperson protects the buyer client’s best interest and complies with Section 4 of the Code of Ethics.

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Example 2 The buyer makes an offer of $462,000 on a property listed at $488,900. The seller makes a counter offer for $475,000. The buyer, in considering the counter offer, wants to know if the amount countered is realistic. The salesperson provides the buyer client details about comparable properties that are for sale, have been sold, or have expired (unsold) over the past two months in that particular area. The salesperson also updates the buyer on recent market trends and generally ensures that the buyer client is well informed prior to deciding about the seller’s counter offer.

Example 3 The buyer client asks the salesperson to prepare an offer for a rural home. Once completed, the buyer immediately takes the agreement and asks for a pen to sign. The salesperson ensures that the buyer client understands the nature of the document they are about to sign. The salesperson summarizes and explains the content of the offer before asking the client to sign.

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Lesson 2 | Page 17 of 21

Due Diligence to Protect Buyer Client’s Best Interests When representing the buyer, due diligence is required throughout the buying process to ensure you are fulfilling your obligations and acting in their best interests. The following five sections contain information on requirements and strategies that help ensure you are protecting the best interests of your buyer client.

Show properties that meet the buyer’s criteria As you learned earlier in this module, it is important to qualify your buyer’s needs and wants in order to show the buyer properties that meet their requirements. It is also important to take reasonable steps to determine and disclose to the buyer any material facts that may affect their decision to view a specific property. According to Section 19 of the Code, you are required to inform a buyer client about any property meeting the client’s criteria regardless of the amount of remuneration being offered to the brokerage. This is to ensure the salesperson and brokerage are promoting the best interest of the client.

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Accurately prepare offers As a salesperson, you will be accountable for the accuracy of the terms of any document you prepare on behalf of a consumer and for the content of any agreements you advise on. You must act to protect your client’s interests. If a buyer’s offer is prepared without attention to accuracy, it could put the buyer client in the undesirable position of being bound to terms and obligations that they did not originally want or ever intend to accept.

Assist in negotiations As a salesperson, you will need to assist with buyer negotiations, developing strategies or options to advance the client’s interests. In addition, you will be required to negotiate for the buyer client to obtain the lowest price and best possible terms. You will need to negotiate effectively, otherwise a buyer might pay too much for the property.

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Assist with third-party professionals As a salesperson, you will need to recommend that the buyer seek expert advice from mortgage lenders, home inspectors, and other third-party professionals as required. If you do not refer the buyer to third-party professionals when needed, you will be in violation of Section 8 of the Code of Ethics. You will also put your buyer at risk of incurring unplanned expenses.

Assist with documentation As a salesperson, you will need to review or assist the buyer (as appropriate) with reviewing reports received and other documentation involved in the property buying process. You will need to ensure that the buyer thoroughly understand the contents of all documents during the buying process, and if you cannot properly explain the contents, you will need to refer them to someone who can, such as a lawyer.

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Lesson 2 | Page 18 of 21

Salesperson’s Due Diligence: Other Factors There are other factors that may require due diligence, such as HST and foreign buyers’ tax. As a salesperson, you will perform your due diligence by outlining HST and foreign buyers’ tax, in situations where they could impact a buyer, prior to submitting an offer. You would also ensure you advise the buyer to consult their lawyer, accountant, or another qualified professional for definitive advice on taxation matters, as these are beyond your area of expertise. The following three sections contain information on the HST and tax liabilities a buyer may face.

HST A buyer could face HST obligations if the property was being used for a commercial purpose, or for a fully renovated home. In addition, HST could be applicable on the purchase of a new home and all services associated with the transaction, such as legal fees and moving costs. HST liability would also be dependent on how an offer is constructed. As a salesperson, you will need to ensure the buyer clearly understands if the HST is included in the purchase price or if it is in addition to the purchase price.

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Tax liabilities of non-residents A buyer needs to be concerned about the capital gains tax incurred by a non-resident seller. Section 113 of the Income Tax Act gives the buyer an opportunity to protect themselves from tax liability if the non-resident seller leaves the country without paying the tax. The buyer will need to see evidence that the nonresident seller has paid the tax, or the buyer will have to withhold a portion of the purchase price to satisfy the non-resident seller’s tax obligation. A clause can be added to the offer to provide for this stipulation. If the buyer is a non-resident of Canada and is purchasing a property in the Greater Golden Horseshoe area of southern Ontario, the foreign buyers’ tax would apply.

Other applicable taxes As a salesperson, for all taxation matters, you will advise the buyer to consult with an accountant or other tax professional for advice and guidance regarding the applicability of a particular type of tax.

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Lesson 2 | Page 19 of 21

Obtaining Services from Third-Party Professionals

As a salesperson, another obligation you will need to meet under the Code of Ethics requires that you demonstrate your education and growing experience as a salesperson. However, you will not be expected to know everything there is to know about related fields like construction, appraisal, or real estate law simply because you trade in real estate. As a salesperson, to fulfill your obligations under Section 8 of the Code. You will need to advise clients and customers to seek services from others whenever they require expert advice beyond the scope of your knowledge. Section 8 of the Code requires that you advise a client or customer to obtain services from other better qualified professionals, and under no circumstances, discourage clients or customers from seeking such services. It is always a good idea to recommend that the buyer gets an opinion from a qualified service professional, such as a home inspector, experienced general contractor, or a structural engineer as needed. These professionals can give the buyer an accurate assessment of a home’s key components, including roofing, floors and walls, doors and windows, foundation, plumbing, electrical, heating, ventilation, and air conditioning. They can tell the buyer if the wiring is upto-date or if a crack in the wall is anything to worry about. A leading practice in making referrals when requested is to always provide three names of third-party professionals.

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Example 1: A buyer has looked at several properties and thinks they want to put in an offer on an older home needing some repairs. The buyer feels confident that financing will be readily available at an attractive rate of interest. The salesperson explains that the amount of mortgage and interest rate charged might be affected given the age, location, and general condition of the property. After discussion and the buyer’s approval, the salesperson inserts an appropriate condition in the offer and then refers the buyer to three mortgage brokers they can contact to secure acceptable financing. Example 2: A buyer hires a home inspector who is also a friend. The home inspector observes that the furnace in the house is about 15 years old and appears to be in good condition. But when asked about the interior of the furnace, the inspector reveals they are not a licensed TSSA technician and cannot inspect the interior of the furnace. The client asks the salesperson if the furnace needs to be replaced in the near future. The salesperson recommends the buyer get the furnace fully inspected by a licensed TSSA technician and offers to make a referral, if needed.

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Lesson 2 | Page 20 of 21

A buyer client is seriously considering an older duplex with out-dated wiring and a deteriorating chimney but is concerned about insurance coverage. They ask their salesperson if an insurance company would be willing to insure the home in its present condition, and if so, at what cost. Question #7: What should the salesperson do to act in the buyer’s best interest? There are four options. There are multiple correct answers.

1

Explain that the insurance coverage is easily available, and the buyer has no reason to be concerned.

2

Suggest the names of two or three insurance companies who specialize in these types of properties.

3

Add a condition in the offer allowing the buyer to complete a home inspection.

4

Add a condition in the offer allowing the buyer to confirm that insurance can be obtained at a price acceptable to the buyer.

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Lesson 2 | Page 21 of 21

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were covered in this lesson.

Assessing buyer needs

• Ask appropriate questions to accurately assess a buyer’s needs. • Asses the buyer’s financial readiness and qualify them to select properties that meet their needs and their budget. • If needed, revisit and refine the buyer’s criteria and requalify them to confirm their needs and priorities. This will help in identifying the best suited properties for them. • Consider the demographic factors that may influence the buyer’s needs and motivations to select or buy a property.

Disclosure of material facts

• Disclose material facts to both clients and customers, per Section 21 of the Code of Ethics. • For buyer clients, take reasonable steps to determine and disclose material facts. • With customers, disclose only those material facts that are known or ought to be known by a salesperson.

Best interest of a buyer

• Always work in the best interest of the client and actively promote that interest, per Section 4 of the Code. • Be careful not to overstep your abilities when providing services and advise clients or customers to seek advice from third-party professionals when needed, per Section 8 of the Code. • Show properties that meet buyer’s criteria without regard for remuneration, per Section 19 of the Code.

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• Accurately and professionally prepare and convey offers on behalf of the buyers. • Negotiate for the buyer client to obtain best price for the property. • Assist the buyer client with documentation.

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Lesson 3 | Page 1 of 15

Lesson 3: Impact of Market Conditions on Negotiation Strategies

This lesson describes the characteristics of a seller’s market, a buyer’s market, and a balanced market. It describes different market conditions and highlights how these influence negotiations and strategies used during the offer process.

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Lesson 3 | Page 2 of 15

This lesson outlines the various market conditions that a salesperson can encounter. You will be introduced to market types known as a “seller’s market”, a “buyer’s market”, and a “balanced market”. Different market conditions, demographics, consumer vulnerabilities, and other factors can impact the strategies a salesperson will suggest to sellers and buyers during a real estate transaction. Upon completion of this lesson, the learner will be able to: • •

Describe the characteristics of a seller's market, buyer's market, and balanced market Identify the strategies for addressing consumer vulnerabilities under different market conditions

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 15

Seller’s Market

In a seller’s market, the number of buyers wanting properties exceeds the supply. This type of market is characterized by properties that sell quickly, rising prices, and a minimal inventory available for sale. Often, sellers have the luxury of considering several offers and counter offers for higher prices. These characteristics have implications for buyers. They do not have the liberty of looking around at various properties for any considerable amount of time and have to make decisions quickly. In addition, the buyer may have to offer more than list price, be ready with financing, and may want to consider submitting an unconditional offer even if they are uncomfortable with the risks that may entail. Conditional offers are frequently rejected by sellers in a seller’s market as the seller can often demand a firm offer for their property. How will you advise clients when drafting an offer in a seller’s market? Should they submit the best offer or hold back hoping for give and take with the seller? While there is no single strategy, you will need to consider these factors:

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• If you inform the seller that the offer is your buyer client’s best offer, then it should be. However, if the right house is slipping away, the buyer might change their mind. The only thing at stake when making such statements is your credibility. • The “best-offer-first” strategy is associated with strong seller markets where demand for housing is high. Going in with the best offer may be the only opportunity to catch the seller’s attention amidst competing offers. But you must prepare the buyer as their best may not be good enough. • Buyers are often tempted to delete conditions in order to make their offers more competitive in a seller’s market. For example, buyers may remove a home inspection and assume the associated risk. You will need to advise caution in such cases. You should obtain the buyer’s acknowledgement in writing that you advised the buyer to get a home inspection, and the buyer has decided to forgo it. You can provide advice to a buyer client, but you must not make decisions for them, regardless of market conditions. Sellers and buyers must decide on the price that they should accept or offer.

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Lesson 3 | Page 4 of 15

Buyer’s Market

In a buyer’s market, the supply of properties on the market exceeds the demand. Characteristics of this market include longer selling periods for properties on the market, fewer buyers compared to properties available, higher inventory, and stabilized or declining prices. The implications for buyers in this type of market are more favourable. They have the negotiating leverage, more choice, and the luxury of additional time in searching for the right property. How will you advise clients when drafting an offer in a buyer’s market? As with the seller’s market, there is no single strategy, but there are a few factors you will need to consider. Since sellers are anxiously looking for willing buyers in a strong buyer’s market, buyers may state, “this is my only offer” as a tactic. Positioning an offer as an ultimatum is a powerful negotiating tool. Remember, the individual having the least motivation has the most negotiating power. Conversely, the seller may be insulted by the offer and elect not to consider it further. Re-establishing negotiations after a rejection can be challenging.

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Lesson 3 | Page 5 of 15

Balanced Market

In a balanced market, the number of properties on the market equals the demand. The characteristics of this market include properties selling within a reasonable period of time, sellers accepting reasonable offers, and prices generally stabilized. The atmosphere is usually more relaxed. In a balanced market, the strategy would be a less pressured approach to negotiations as neither the seller or buyer is in a superior position. Sellers and buyers compromise and negotiate to reach an agreement. Balanced markets rarely exist, and if they do, they are usually short lived.

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Lesson 3 | Page 6 of 15

Factors Affecting Market Conditions As a salesperson, you will need to understand that the real estate market is sensitive to changes in the balance of economic, political, and social forces within our society, which in turn influence the supply and demand for real estate, and otherwise contribute to changes in market conditions. The following four sections contain information on some additional factors that affect market conditions.

Demographic changes As you learned earlier in this module, demographic changes include immigration, migration from one part of the country to another, increase or decrease in family size, and unemployment rates. Of all these factors, an increase or decrease in family size is one of the most significant. Families are the primary consumers of housing. The family unit, which may comprise two adults, who may or may not have children, or one adult caring for at least one child, will often want to establish an independent household. This is known as the family formation rate. As more families are created there may be a corresponding increase in demand for housing. A high family formation rate may predict a seller’s market in the short term in a strong economy. If the demand remains constant or increases, the

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marketplace subsequently will need to make more housing units available for the market to equalize.

Employment conditions With increases in employment and economic prosperity, the demand for housing also increases. Earning good wages, a buyer will be better able to afford a starter home; current homeowners and those with growing families may also begin looking for a larger home. Stable employment rates across the labour force can sometimes predict a balanced market. In periods of economic hardship and higher than normal unemployment rates, demand for real estate drops. Some properties will be put up for sale because the owners cannot afford to keep the property due to personal financial hardship. Leasing property may be considered an appealing, less risky alternative to home ownership at such times. Pensions and other social security programs, coupled with an increase in life expectancy, may allow seniors to continue as homeowners after retirement, although they may buy a smaller home or apartment. Regardless, economic downturns have typically indicated a weakening real estate market.

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Interest rates and mortgage availability Interest rates are a key motivator in determining demand for housing. When rates are high, the real estate market tends to take a downturn as potential consumers remain in their current housing rather than taking on the risk of a greater debt. If interest rates are low, mortgages become more affordable and consumers are more likely to consider buying real estate. As lenders react to market conditions, they may loosen or tighten up lending criteria, which impacts the availability of financing.

Building activity Substantial building activity normally indicates a strong real estate market. However, overbuilding can increase supply resulting in reduced real estate values. Unless the increase in supply is coupled with a corresponding increase in consumer demand, real estate prices can experience a downward trend and create a buyer’s market. Conversely, a sudden increase in demand can indicate an upward trend in real estate prices given the time it takes to build additional inventory.

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Lesson 3 | Page 7 of 15

Consider the following scenario, “Buyers are searching for a home to purchase. However, it seems that every property they express interest in is promptly snatched up by someone else for much more than the asking price.” Question #8: The above scenario describes a seller’s market. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 3 | Page 8 of 15

Consider the following scenario, “A young couple is expecting a baby in the fall. They’re excited to look for their first home together at the same time as their friends. As the two couples attend a series of open houses, they notice many homes are up for sale and are glad they have many options to choose from.” Question #9: The above scenario describes a buyer’s market. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 3 | Page 9 of 15

Consider the following scenario, “A buyer is in negotiations with a seller to purchase a home. The buyer is confident that given the asking price and their generous offer, both parties can eventually come to an agreement where they’re both happy. If not, the buyer knows they have seen a few other homes in their price range.” Question #10: The above scenario describes a balanced market. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 3 | Page 10 of 15

A salesperson is meeting with a seller who has accepted a company transfer that requires them to relocate across the country. They want to ensure that the transaction closes on time so that their children can enrol in their new school in time for the beginning of the school year. The salesperson explains to the seller that they are currently in a buyer’s market. The property is listed for sale and as the weeks pass, the seller becomes nervous due to the limited number of showings being requested. They notice that several homes in their neighbourhood are also up for sale. After several weeks, the seller gets an offer, but the price is lower than what they were expecting. Question #11: What should the salesperson suggest to the seller regarding the offer? There are three options. There is only one correct answer.

1

Suggest that the seller accept the offer.

2

Suggest that they discuss the advantages and disadvantages of the seller accepting the offer.

3

Suggest that the seller make a counter offer at the list price to show that they are serious.

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Lesson 3 | Page 11 of 15

Best Advice Under Varying Market Conditions The market type influences the recommendations you will make to sellers and buyers during the offer process. The following six sections contain information on how a salesperson may best advise sellers and buyers under varying market conditions.

Seller’s market: Advising the seller In a seller’s market, you will need to be prepared to offer advice to your seller client. You may recommend that the seller: • Seek a large deposit as a sign of the buyer’s commitment • Hold out for an unconditional offer and/or a counter offer for terms in their favour • Negotiate for a higher selling price, particularly when multiple offers are received. The strategy to delay offer presentations to attract multiple offers may be commonplace in some areas but carries its own risks. If this strategy is discussed, you will want to make sure that the seller understands the pros and cons of delaying offers

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Seller’s market: Advising the buyer In a seller’s market, you will need to be prepared to offer advice to your buyer client. You may recommend that the buyer consider: • Offering the highest price within the buyer’s means and/or accompanying their offer by a larger deposit than expected in current market conditions, preferably in the form of a bank draft or certified cheque on offer presentation so they are taken more seriously by sellers • Weighing the benefits and risks of submitting an offer without conditions There is also a higher risk that conditional offers will be rejected since the sellers may have multiple offers that do not include conditions. However, a buyer needs to understand the risks if they do not include conditions (such as those for home inspection and financing) in their offer. If they buy a property with undetermined defects, the appraised value may fall below the purchase price requiring a larger down payment. They may also have to later make costly repairs that they did not budget for. You will also have to remember that advising a buyer to convey any offer without conditions could be a risk and could be seen as a failure to protect their best interests. The salesperson should ensure that the buyer understands the risks and obtains written acknowledgment from the buyer that they were given

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the opportunity to include various due diligence conditions in their offer.

Buyer’s market: Advising the seller In a buyer’s market, you will need to be prepared to offer advice to your seller client. You may recommend that the seller: • Keep their home in good condition so that the property’s potential is apparent • Make the property available for as many viewings as possible • Expect to receive conditional offers, and be aware of the risks of making counter offers when there is a surplus of properties on the market • Expect that they may receive offers at a lower price point than desired with less interest in negotiations

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Buyer’s market: Advising the buyer In a buyer’s market, you will need to be prepared to offer advice to your buyer client. You may recommend that the buyer: • Make informed choices that focus on their priorities, and consider making offers on properties that satisfy most (if not all) their wants and needs • Take their time in viewing properties and putting together an offer • Submit a conditional offer to protect their best interests by including conditions (e.g., requiring a home inspection or repairs be done) • Make an offer that allows room for negotiation rather than one that is based on their maximum budget • Consider adding a clause making the purchase conditional upon the sale of their own property, as applicable

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Balanced market: Advising sellers and buyers In a balanced market, you will need to be prepared to offer advice to both your seller and buyer clients. You will usually recommend that the client: • Be prepared to make conditional and/or counter offers since these are commonplace in a balanced market; neither party is at a distinct advantage or disadvantage • Be prepared to negotiate the selling price and terms (e.g., closing dates and other matters important to both parties)

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Conditions and clauses: Protecting interests of sellers and buyers You will need to be prepared to advise on conditions and clauses that can be added to protect and promote the interests of your seller or buyer clients. You will consider including conditions regarding: The buyer arranging financing Having a home inspection done Arranging insurance The seller making certain guarantees regarding the condition of the property, chattels, and fixtures, or major improvements (e.g., swimming pools or garages) • The seller agreeing to repair damages (e.g., fixing a crack in a wall and repainting it) • • • •

Clauses could also be inserted that acknowledge certain actions to be done or permissions being granted to the parties (such as visits by the buyer to the property prior to closing).

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Lesson 3 | Page 12 of 15

Competing Offers

In addition to bringing an understanding of market conditions to your relationship with your seller and buyer clients, as a salesperson, you will need to identify strategies for addressing consumer vulnerabilities under the different market conditions. In a competing offer situation, for example, you will need to provide certain pieces of information to potential buyers when you are working for a seller. These are: • • • •

The number of competing offers If a competing offer has been made by the listing salesperson If a competing offer has been made by a buyer representative within their brokerage If two buyer representatives from the same co-operating brokerage have submitted offers (as this may be a multiple representation situation for the co-operating brokerage and consent needed)

You will not provide information about the amounts of competing offers or any terms included. Typically, the seller chooses to accept a buyer’s offer, reject it, or make a counter offer. Sometimes a seller will give one or more buyers a chance to improve their offer, but they may only get one chance. All offers will need to be in writing and signed, and you will need to work with your brokerage to keep a record of those offers on file for a year. Exam Study Guide

In a housing market where there are more buyers than sellers, it is understandable that buyers can become frustrated—especially if they have submitted unsuccessful offers on several homes. In some cases, buyers may question how many other offers the seller actually received. In a competing offer situation, a buyer may have concerns that the offer process was not conducted fairly. When you are representing the buyer, you might be asked to obtain evidence of how many offers the seller’s brokerage actually received. If the seller’s brokerage cannot supply this information to your client’s satisfaction, you or the buyer may need to inquire with the Real Estate Council of Ontario (RECO). RECO will contact the seller’s brokerage to confirm the offer information. Be aware that RECO will only provide the total number of offers and it may take some time for the request to be processed.

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Lesson 3 | Page 13 of 15

A salesperson is showing a property to a buyer who currently owns a home. The buyer is interested in making an offer but can only afford it if they sell their own home. The buyer expects that their home, once listed, would sell within 30 days. Question #12: What advice should the salesperson give to the buyer if it is a buyer’s market? There are three options. There is only one correct answer.

1

The buyer should submit an offer on the home only after they sell her current property.

2

The buyer should submit an unconditional offer as soon as possible.

3

The buyer should make an offer as soon as possible and include a condition that the purchase is contingent upon the sale of their current property within 30 days.

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Lesson 3 | Page 14 of 15

A salesperson presents an offer on a unit in a condominium to their seller on the first day after it is listed. The offer is lower than the list price and is conditional upon the buyer obtaining financing. Question #13: What advice should the salesperson give to the seller regarding the offer if this is a seller’s market? There are three options. There are multiple correct answers.

1

The seller could counter the offer for terms in their favour.

2

The seller could reject the offer and instruct the salesperson to delay all offer presentations for two days in an effort to encourage multiple offers.

3

The seller could accept the offer and agree to the condition.

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Lesson 3 | Page 15 of 15

Congratulations, you have completed the lesson! There are six sections on this page with a summary of the key topics that were covered in this lesson.

Seller’s market characteristics

In a seller’s market: • The number of buyers wanting properties exceeds the supply. • Properties sell quickly, and prices are high with few or no conditions. • Sellers can demand a firm sale on the property. • Buyers have to make decisions quickly. • Buyers should be ready with financing.

Buyer’s market characteristics

In a buyer’s market: • The supply of properties exceeds the demand. • The selling periods of properties are longer. • The prices are stable and more affordable. • Buyers have negotiating leverage. • Buyers have time to search for the right property.

Balanced market characteristics

In a balanced market: • The number of properties on the market satisfies the demand. • Properties sell within a reasonable period of time. • Prices are stable. • Negotiations are less pressured.

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Seller’s market: Advice to In a seller’s market: sellers and buyers • Sellers can seek high deposits, hold out for unconditional offers, and negotiate for a higher selling price. • Buyers should provide a significant deposit and consider all the risks associated with submitting unconditional offers.

Buyer’s market: Advice to sellers and buyers

In a buyer’s market: • Sellers should keep their homes in good condition, be open for viewings, and expect to receive conditional offers and lower prices. • Buyers can make informed choices, make conditional offers, and negotiate for a better price.

Balanced market: Advice In a balanced market: • Conditional and counter offers are commonplace. to sellers and buyers • Sellers and buyers have room to negotiate a reasonable selling price.

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Lesson 4 | Page 1 of 11

Lesson 4: Summary Practice Activities

This lesson contains several review activities to test your knowledge on the entire module.

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Lesson 4 | Page 2 of 11

This lesson contains summary decision points that will test your knowledge regarding the factors impacting residential real estate negotiations covered in this module. 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 11

A salesperson is inspecting a property prior to listing it. While in the basement, the salesperson notices a number of rusty staples in the wall panelling and some efflorescence on the concrete block wall. The seller states that there was some leakage from a basement window a couple of years ago but assures the salesperson that it was repaired by a contractor and has not leaked since. Question #14: What should the salesperson do in this situation? There are four options. There are multiple correct answers.

1

Recommend that the seller get the problem inspected by a third-party professional before putting the home on the market.

2

Since it was repaired, there is no need to disclose the problem as the seller has assured the salesperson that it no longer leaks.

3

Make the seller aware that the presence of the rusty staples and efflorescence will likely be pointed out by any salespersons who show the property to buyers.

4

Obtain documents from the seller regarding the repairs.

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Lesson 4 | Page 4 of 11

A listing salesperson is presenting two competing offers on their seller’s home which is listed at $250,000. The first offer presented is from a buyer being represented by the salesperson’s brokerage. It is for $240,000 and has a condition for three days on a home inspection. The second offer presented is from a buyer being represented by another brokerage and is for $240,000 with no conditions. Question #15: What should the listing salesperson do to promote and protect the seller’s best interests? There are three options. There is only one correct answer.

1

Suggest that the seller accept the listing brokerage’s offer as it was presented first. The condition is minor and is only for three days.

2

Suggest that the seller accept the offer from the other brokerage as it is unconditional.

3

Suggest that the seller counter offer both offers for $5,000 more and see which one is accepted.

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Lesson 4 | Page 5 of 11

In preparation for creating a listing agreement, a salesperson has the responsibility to identify defects in a property. Question #16: Which of the given are the salesperson’s responsibilities during an inspection? There are four options. There are multiple correct answers.

1

Look for signs of defects that may not be obvious

2

Use their experience to assess the extent of a defect

3

Watch for outdated electrical, plumbing and HVAC systems

4

Note any evidence of alterations and additions

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Lesson 4 | Page 6 of 11

A salesperson is meeting with buyer clients who have explained that they prefer a specific neighbourhood but realize that a suitable property might not be available there. Following the qualification process, the salesperson determines that they are looking for a three-bedroom house with a pool in the $435,000 to $460,000 range. The salesperson finds a property that meets their criteria in the neighbourhood they prefer. However, when making the appointment to show, the listing brokerage tells the salesperson there was a fire on the property two years ago that led to damages amounting to $50,000. The brokerage also discloses that while making the repairs, an ensuite bathroom was added to the master bedroom. Question #17: What actions should the salesperson take to fulfill the obligations to the buyers? There are three options. There are multiple correct answers.

1

Obtain documentation regarding the repairs and additions from the listing salesperson.

2

Avoid this property and instead look for properties in other locations as the buyers are not particular about the area.

3

Add a condition in the offer for a home inspection.

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Lesson 4 | Page 7 of 11

A salesperson, while showing an older cottage property to a buyer client, notices a crack in the exterior wall and advises the buyer that the crack is only minor and they need not be concerned. The salesperson assures them that this sort of thing is common in nonwinterized cottages as the perimeter foundation may move slightly, but things would return to normal in the spring. Question #18: The action that the salesperson demonstrates is in the best interests of the buyer. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 4 | Page 8 of 11

A salesperson, while showing an older cottage property to a buyer client, notices water stains above a window frame in the master bedroom that appears to have been recently patched. The salesperson makes a point of discussing the potential leakage problem with the buyer. Question #19: The action that the salesperson demonstrates is in the best interests of the buyer. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 4 | Page 9 of 11

A salesperson, while showing an older cottage property to a buyer client, notices that the floor in the kitchen slopes significantly towards the back of the home. The salesperson advises the buyer that if they wish to submit an offer they should include a condition permitting a home inspection and possibly an assessment by a structural engineer. Question #20: The action that the salesperson demonstrates is in the best interests of the buyer. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 4 | Page 10 of 11

In a buyer’s market, a buyer asks a salesperson to put in an initial offer of $473,000 on a property listed at $499,900. The salesperson presents the offer and receives a counter offer for $489,000. The buyer has been pre-approved by a lender for a mortgage not exceeding $440,000 and has $50,000 in the bank they can use as a down payment. They ask the salesperson for advice regarding the counter offer. Question #21: What advice should the salesperson give to the buyer? There are three options. There is only one correct answer.

1

The buyer should consider any recent comparable sales which may indicate that the amount of the counter offer is appropriate.

2

The buyer should accept the counter offer as the value is within the range that was approved by the mortgage specialist when they were pre-qualified.

3

The buyer should make a counter offer for $481,000 as that would be halfway between their first offer and the seller’s counter offer.

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Lesson 4 | Page 11 of 11

Congratulations, you have completed this 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 Learning Objectives.

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Module Summary | Page 3 of 3

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

Needs, Material facts, and Best Interests of a Seller

Residential resale transactions involve extensive work with sellers and buyers and their changing needs and wants. To accurately assess a seller’s needs, you will ask them questions that will help you in assessing their needs and motivations to get accurate and complete information on the property. You will need to take reasonable steps to determine and disclose material facts relating to the purchase or sale of the property to seller clients, per Subsection 21(1) of the Code of Ethics. You will always need to take care to work in the best interest of the client and actively promote that interest, per Section 4 of the Code. You will only need to disclose material facts that are known or ought to be known by a salesperson when working with seller customers, per Subsection 21(2) of the Code of Ethics. You will have to perform due diligence to fulfill your obligation to identify defects, which can be patent defects, latent defects, or the most severe type of latent defect, material latent defects. You will also need to verify information the seller provides related to defects. The seller is not obligated to disclose patent defects to potential buyers. However, the seller must disclose known latent defects. Non-disclosure of known latent defects may result in civil liabilities. Completion of this lesson has enabled you to: • Recognize the importance of assessing a seller’s needs • Describe the regulatory requirements of a salesperson regarding material facts of a seller • Describe the regulatory requirements of a salesperson regarding the best interests of a client • Identify a seller's legal obligation for disclosure of known defects

Needs, Material Facts, and Best

To assess a buyer’s needs and determine the property that will best suit them, you will take several steps, including asking appropriate questions of the buyer, qualifying the buyer,

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Interests of a Buyer

revisiting the buyer’s criteria during the sale process, and understanding the impact of demographics on the buyer’s needs and motivations. Subsection 21(1) of the Code will require you to determine and disclose material facts about a property to buyer clients. You will always need to work in the best interests of a buyer client and actively promote and protect that interest. You will only need to disclose material facts that are known or ought to be known by a salesperson when working with buyer customers, per Subsection 21(2) of the Code of Ethics. If situations arise that require knowledge and skills that exceed a salesperson’s area of expertise, you will advise the client or customer to obtain services from third-party professionals. Completion of this module has enabled you to: • Recognize the importance of assessing a buyer’s needs • Describe the regulatory requirements of a salesperson regarding material facts of a buyer • Describe the regulatory requirements of a salesperson regarding the best interests of a buyer client

Impact of Market Conditions on Negotiation Strategies

The market type influences the recommendations you will make to sellers and buyers during the offer process. There can be three market types: the seller’s market, the buyer’s market, or the balanced market. You will need to ensure that seller and buyer clients understand the market conditions, prepare them for negotiations, and give appropriate offer advice. However, you will never make decisions on behalf of the client. Completion of this module has enabled you to: • Describe the characteristics of a seller's market, buyer's market, and balanced market • Identify the strategies for addressing consumer vulnerabilities under different market conditions

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Appendix | Page 1 of 1

Appendix Answer Key Question #1: 1, 3, 4 Question #2: 1 Question #3: 3 Question #4: 1 Question #5: 1 Question #6: 3, 4 Question #7: 2, 3, 4 Question #8: 1 Question #9: 1 Question #10: 1 Question #11: 2 Question #12: 3 Question #13: 1, 2 Question #14: 2, 3, 4 Question #15: 2 Question #16: 1, 3, 4 Question #17: 1, 3 Question #18: 2 Question #19: 1 Question #20: 1 Question #21: 1

Exam Study Guide

Module: Preparing to Market a Residential Real Property This is a study guide to help you prepare for the qualifying exam. There are multiple study guides that are provided for preparation. Each study guide contains several decision points to test your knowledge. The answer key to these decision points is present in the “Appendix” section at the end of the guide. Please use Adobe Acrobat Reader (Recommended version 9 or above) to navigate through this PDF. Real Estate Pre-Registration 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 PreRegistration Program learner.

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Module: Preparing to Market a Residential Real Property

One of the most important activities you will do as a salesperson, once you have obtained a listing, is to discuss obligations – yours and the seller’s – to help ensure the transaction is successful and you are protecting and promoting the seller’s best interests. This module also provides the opportunity to review a series of images depicting what you should look for when conducting a visual inspection of a property.

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Menu: Preparing to Market a Residential Real Property Number of Lessons

7 Lessons

Lesson Number

Lesson Name

Lesson 1

Prepare to Meet with Potential Sellers

Lesson 2

Conduct a Visual Inspection

Lesson 3

Gather Key Information

Lesson 4

Calculate Areas and Related Linear Measurements

Lesson 5

Recommend Improvements Before Listing

Lesson 6

Summary Practice Activities Module Summary Appendix

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Lesson 1 | Page 1 of 13

Lesson 1: Prepare to Meet with Potential Sellers

This lesson presents the reasons why a seller would contact you and your brokerage to list their property. This lesson also details what you should do to demonstrate that you and your brokerage are the right choice to sell the property. These tasks include conducting research and preparing a listing package containing information about you and your brokerage, a description of services you will be providing, and appropriate forms.

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Lesson 1 | Page 2 of 13

As a salesperson, you will be responsible for cultivating the relationship between a potential seller and your brokerage. Typically, a seller will only hire a salesperson when they feel confident that the salesperson and brokerage are able to provide the services that meet their needs, such as obtaining a good offer and selling the property in a timely manner. One way to cultivate this relationship is to be prepared. This lesson will guide you on how you would prepare to meet with potential sellers. Upon completion of this lesson, you will be able to: • Research important information about the property • Prepare a pre-listing presentation • Gather all required paperwork and tools 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 13

Reasons for Contacting You/Your Brokerage Many homeowners realize that selling a property is complicated and seek professional and knowledgeable services from a brokerage. A homeowner will contact a particular salesperson and/or brokerage to list their property for sale for a variety of reasons. As a salesperson, you would need to discover why that homeowner contacted you and/or your brokerage. The homeowner, or potential seller, may have contacted you and/or your brokerage because: • They may have previously worked with you and/or your brokerage • They received a referral from a previous client pleased with the service provided by you and/or brokerage • They received/viewed advertising or other marketing activities by you and/or your brokerage • You/your brokerage may have recently sold a property in their neighbourhood Discovering why a seller contacted you will help you understand the effectiveness of your marketing or how strong your reputation is in the community.

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Lesson 1 | Page 4 of 13

Research Information About the Property Once you have established the reason the potential seller contacted you and/or your brokerage to list their property, you will need to research the property and the surrounding area so you can make an informed presentation that will gain the seller’s trust. The following five sections contain information on what you should do to prepare to meet with a potential seller.

Review property documents Demonstrate to the seller that you have researched the property thoroughly and will be able to market the property successfully. The seller should feel confident that they have selected the right brokerage and the right salesperson to list their property. An excellent resource for conducting property research is GeoWarehouse®, a web-based property information source that provides detailed property reports. Use GeoWarehouse® reports to verify the following: • Property lot measurements • Registered owner(s) of the property • Last sale date of the property, with the sale price • Assessed value of the property • Legal description of the property • Description of the property (for, “single-family detached home”) Exam Study Guide

• Total square footage of the property If available and whenever possible, rely on original source documents, such as surveys, permits, financial statements, and tax statements. Make certain that your information is current and complete. If GeoWarehouse® cannot provide reports to verify and/or confirm the given information, you may need to conduct an online search of the land registry records.

Review previous listing and sale information on the property to be sold Review the listing history of the property to determine the following: • When did the seller buy the property? • How much did the seller pay for the property? • Are there any past disclosures about the property? This information may be found in the archives of the local listing service.

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Be aware of any past misuse Past misuse of a structure or property may also affect marketing and sale. When you are researching the current condition of a seller’s property, you should also research past use—or misuse—of the property. This type of knowledge ensures the listing is current and accurate and may offset any future legal issues. Check with the local police department and do an internet search using the property address to uncover any possible stigma associated with the property, such as a previously illegal grow operation or a murder or suicide on the property. As of October 17, 2018, it is now legal to grow up to four marijuana plants in a residence.

Determine external influences An external influence refers to any situation or condition surrounding the property that may affect the value and marketability of the property. Knowing about external influences that may affect the marketing and sale of the property is another way you can gain the seller’s confidence and trust. For example, is the neighbourhood improving or declining, or is it an area subject to noise, pollution, or traffic from local industry. Consider other issues that may affect the property and surrounding trade area, such as termites, flooding, illegal use of lawn contaminants, and large amounts of salt being applied to paved surfaces, Exam Study Guide

which can break down paved surfaces or contaminate landscaping. Speaking to the broker of record or other salespersons is helpful if you are unfamiliar with the trade area. If the property is near or bordering a stream or lake, consult the appropriate conservation authority and local watershed management agencies that deliver services and programs to protect and manage impact on water and other natural resources. The local, provincial, national, and even the global economy can impact the sale of a property. For example, interest rate changes, which influence mortgage rates, can have a significant impact on real estate prices. Local employment rates, foreign buyers, construction, and government regulations can also influence the economy and the real estate market, resulting in longer or shorter marketing times for a property in a specific neighbourhood.

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Know the surrounding neighbourhood Research the surrounding neighbourhood through GeoWarehouse®, or Google Maps, a web-based mapping service. Knowing the surrounding neighbourhood well also means being informed about area schools and access to public transit, recreation, and health care facilities.

Exam Study Guide

Lesson 1 | Page 5 of 13

Before meeting with sellers at their home to discuss the sale of their property, a salesperson is preparing for the meeting by gathering and reviewing information about the property and the surrounding area. Question #1: Which actions should the salesperson take to ensure a complete understanding of the seller’s property and the surrounding area? There are four options. There are multiple correct answers.

1

Review property tax statements from the last two years

2

Conduct an online search using the property’s address to determine past misuse

3

Use GeoWarehouse® to research the neighbourhood

4

Talk to local residents about the impact of construction of a new nearby mall

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Lesson 1 | Page 6 of 13

Benefits of a Pre-listing Presentation In an increasingly competitive market, making a good first impression is essential, which means being prepared to meet a potential seller. One way to prepare to meet with a potential seller is to create a pre-listing presentation. As a salesperson, you will create this pre-presentation after a potential seller has contacted you/your brokerage and before you meet with them in person. A professional and thorough pre-listing presentation will demonstrate to the seller that you have the knowledge, expertise, and confidence to sell their property. It will also instill confidence in the seller that they will be making the right choice if they sign with your brokerage. However, before you make an appointment with a seller, ask them if they are working with another salesperson or brokerage. If they are party to a representation agreement with another brokerage, you should end any further communication with them. If not, you can ask them why they are selling their property. Exam Study Guide

Lesson 1 | Page 7 of 13

Components of a Pre-listing Presentation A pre-listing presentation is an information package you will provide to a potential seller after your initial contact and before the listing. The information may be in a binder or presentation manual, or on a tablet or laptop. The components of a pre-listing presentation include: • Information about the history and success of the brokerage • Information about yourself • Applicable forms, such as a representation agreement, data sheet, and property disclosure forms • Past and current client testimonials, either written or links to video testimonials (only if the client has provided written consent) • Supporting documentation; for example, other listings, market trend information, and related analysis, to assist in the discussion • Overall strategy for establishing a listing price and marketing their property • Information about current market conditions; for example, whether it is a seller’s market, buyer’s market, or balanced market

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Lesson 1 | Page 8 of 13

Benefits of Working with a Salesperson/Brokerage A homeowner does not need to use a salesperson or a brokerage to sell their property. As a salesperson, you will need to illustrate the benefits of working with a professional salesperson. The following is what you may want to say in your presentation: • You are an expert in your field, having completed an extensive course of study. • You have the knowledge, skills, and experience to market their property. • You will complete all paperwork and ensure it is accurate. • You will negotiate on their behalf and assist with activities until the transaction closes. • As a member of a regulated profession, you must comply with all regulatory obligations, such as a Code of Ethics.

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• Your property is more secure and your privacy is protected. Interested buyers would need to contact a salesperson to view the property. • Through the Real Estate Council of Ontario (RECO), you have insurance that will protect their deposits against loss, bankruptcy, and fraud. You will also need to illustrate the benefits of working with your brokerage, such as: • Marketing/advertising programs that may include print/broadcast media, social media, and a corporate website • Salesperson’s activities that are overseen by the broker of record and other management personnel • Administrative services to ensure all regulatory and contractual obligations are met Listening to Seller Needs To strengthen the rapport and ensure the homeowner chooses you and your brokerage to list their property, you should: • Listen to what the homeowner is saying (and what is not being said) • Ask the homeowner why they are selling their property and how quickly they want to sell • Be prepared to answer all questions • Explain the marketing strategy for the property • Explain the process for determining a competitive listing price Knowing the homeowner’s level of motivation for selling will help you set a realistic listing price for the property. For example, a motivated seller will have a greater understanding of the importance of a realistic price. An unmotivated seller may insist on listing their property higher than what the current market indicates.

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Lesson 1 | Page 9 of 13

The sellers originally intended to work with another salesperson that had been referred to them. When they discovered the salesperson was no longer employed at XYZ Realty, they agreed to have another salesperson make a pre-listing presentation. Before meeting with the sellers, the salesperson prepared a pre-listing information package to present to them. Question #2: What information should the salesperson prepare for his pre-listing presentation? There are four options. There are multiple correct answers.

1

Attractive listing price

2

Client testimonials about the brokerage

3

A print advertisement that says the salesperson sells more homes than any other salesperson

4

Information about market activities

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Lesson 1 | Page 10 of 13

When making the pre-listing presentation to a seller, you will need to explain the types of services your brokerage offers. You must explain the difference between client and customer, and how the services and level of obligation will differ depending on whether the seller is a client or a customer. Typically, if the seller agrees to list the property with your brokerage, they will become clients. If a salesperson has a particular buyer who is interested in their property, the brokerage may offer seller customer service. You will need to explain and then document the relationship being created between the seller and the brokerage (for example, client or customer) and then ask the seller to sign the agreement. For the purposes of this lesson, the seller decides to become a client. Once you have signed the seller as a client, your next step will be to gather the information about the property so you can list it accurately and without misrepresentation.

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Lesson 1 | Page 11 of 13

Completing the Listing Agreement After you have gathered the information about the property, you will need to complete the listing agreement and data sheet accurately. You will also need to prepare a package that contains all documents. Finally, you will need to confirm that the information about the property, specifically interior and exterior measurements, is accurate. The following two sections contain information on how to complete a listing agreement accurately.

Steps required for the listing agreement and data sheet To ensure you gather the required paper work to complete the listing agreement and data sheet correctly, first, you will need to confirm the details needed from the paperwork and clarify, if necessary, with the seller: • What is the date of the most recent survey? • Is the tax bill for the current year or a prior year? • Is the document provided to you an interim tax notice or a final tax notice? • Are there any known tax increases or local improvements pending? • Then you will need to: Review original source documents whenever possible, including a GeoWarehouse® report for lot size description (front/depth) and lot irregularities, surveys, permits (such as parking permits), property tax statements, and contracts for rental (such as furnace, hot water tank or alarm system). When reading any source documents, ensure the information used is accurate; for example, there Exam Study Guide

are no transpositions or missing descriptive words. • Prepare a package for the seller with necessary documentation, including a listing agreement and data sheet completed from your notes and the source documents. • Carefully examine the completed data sheet, checking for transpositions, missing descriptive words, etc. • Ask the seller to provide details of their occupation and a form of photo identification such as a driver’s license or passport, as required by the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, 2000. • Complete the FINTRAC form, kept on file for five years. • FINTRAC is a federal government agency that assists in the detection, prevention, and deterrence of money laundering, and financing of terrorist activities. FINTRAC may review the information provided on the form. In situations where information is not available, you may need to consult with a land registry office or other municipal office to confirm information about the property.

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Tools required for the listing agreement To ensure the information you collect is accurate, you will need to take your own measurements. You should have tools such as: • Measuring tool; for example, laser measuring device, digital measuring wheel, tape measure • Flashlight • Camera • Note pad You will learn about what to measure and what not to measure later in this module.

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Lesson 1 | Page 12 of 13

A salesperson is meeting with the sellers at their home. The salesperson asks the sellers to provide him with documents about the property that can be used for the listing. The sellers give the salesperson a notice of assessment, the property tax statement, a utility bill, the deed, and an old survey. The salesperson reviews these documents and then asks the sellers if he can look around the property. Because the salesperson knows he would need to conduct a visual inspection, he has a measuring tape and a note pad with him. Question #3: What else should the salesperson do at this time to ensure the information about the property is current? There are four options. There are multiple correct answers.

1

Review the description of the property lot size

2

Request information about the sellers’ credit history for FINTRAC

3

Review information relating to rental equipment

4

Tour the interior and exterior of the property and with the tools he has, make visual estimates of measurements

Exam Study Guide

Lesson 1 | Page 13 of 13

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were covered in this lesson.

Research important information about the property

Researching important information about the property starts with why the potential seller contacted the salesperson/brokerage. The initial contact may be a result of a referral, the salesperson’s marketing, or previous experience with the salesperson or brokerage. A salesperson conducts property research to prepare the pre-listing presentation by: • Reviewing previous listing and sales information of the property • Reviewing property documents (preferably originals) • Investigating past use and misuse of a structure or property • Examining external influences and market trends that may affect marketability • Familiarizing themselves with the neighbourhood and surrounding area

Prepare a pre-listing presentation

A pre-listing presentation prepares a salesperson to meet a potential seller and demonstrates their ability to answer the seller’s questions and market the property. The purpose is to sign the potential seller as a client. Components of a pre-listing presentation include: • Information about the salesperson and the brokerage • Applicable forms, such as a representation agreement, data sheet, and property disclosure forms • Testimonials from past clients (with the clients’ written consent) • Supporting documentation; for example, other listings, market trend information, and related analysis, to assist in the discussion • A strategy for establishing a listing price and a proposed marketing plan for the property Exam Study Guide

• Information about current market conditions; for example, whether it is a seller’s market, buyer’s market, or balanced market

Gather required paperwork and tools

The steps to completing a listing agreement and datasheet accurately include: • Consulting original source documents about the property • Accurately recording lot size descriptions • Contacting a land registry office • Seeking appropriate professional assistance, as required • Asking the seller to provide a photo identification and details of their occupation (as required by FINTRAC) • Having the tools on hand to complete the listing data sheet, such as a • measuring device, camera, flashlight, and note pad

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Lesson 2 | Page 1 of 32

Lesson 2: Conduct a Visual Inspection

This lesson explains the obligations of a seller to disclose known latent defects, the leading practices for conducting a visual inspection that include identifying the types of defects that may affect the sale of the property, and situations that require consultation with a third-party professional.

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Lesson 2 | Page 2 of 32

Before signing a potential seller as a client and listing their property, you will need to conduct a visual inspection of the interior and exterior of the property. This means looking at the property carefully and noting any issues that may affect value, desirability, and marketability. You will then need to discuss these issues with the seller. You will learn leading practices for conducting a visual inspection, which will help you discover obvious defects and ensure the information about the condition of the property is current. This lesson defines two types of defects, patent and latent. The most extreme of latent defects are defects that render the home unsafe or uninhabitable. The lesson further explains a seller’s obligation to disclose these types of known latent defects. Upon completion of this lesson, you will be able to: • Explain the obligations of the seller to disclose known latent defects • Identify leading practices for a salesperson when conducting a visual inspection • Describe the types of defects a salesperson should identify when doing a visual inspection • Identify when to consult a third-party professional 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 32

As a salesperson, you will be required to perform due diligence and ask the seller questions about the condition of the property to determine whether the property has any defects. You will need to explain to the seller what would be considered a latent defect and the obligation to disclose certain types of defects known to the seller to all potential buyers.

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Lesson 2 | Page 4 of 32

A patent defect is a defect that is readily observable by the untrained eye. Since these are visible, seller obligation is not required. Examples of patent defects include: • A broken handrail • Cracks in the concrete basement floor • A broken step leading up to the front porch • Hardwood floors that are buckling • A crack in the granite counter top in the kitchen • Dampness on the interior foundation wall • Holes in the drywall • Deteriorating mortar in the brickwork

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A latent defect is not readily observable by the untrained eye during the reasonable inspection of a property. This includes any hidden flaw, weakness, or imperfection that a salesperson or buyer would not be able to see when viewing the property. Examples of latent defects include: • A large crack in the foundation wall behind the drywall in the recreation room • A detached garage encroaching on an adjacent property • Infestation of carpenter ants in the attic • A property with urea formaldehyde foam insulation (UFFI) The most severe type of latent defect is commonly referred to as a material latent defect. This defect poses a serious risk that can render the home unsafe, unhealthy, or otherwise uninhabitable to live in. Examples of material latent defects include: • A property where extensive basement flooding occurs during the spring thaw but cannot be detected in the winter • A property where a load-bearing wall has been removed during renovations and does not comply with the Building Code A seller must disclose all known latent defects to potential buyers. As a salesperson representing a seller, your obligation will be to advise the seller that all known latent defects must be disclosed. You must document this discussion and disclose this information to other brokerages and potential buyers on behalf of the seller.

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Lesson 2 | Page 5 of 32

Seller Disclosure Obligations A seller is obligated to disclose known latent defects to all potential buyers. A buyer may not have entered into the contract had they been aware of the defect. In fact, the non-disclosure of known serious latent defects may invalidate the contract. As a salesperson, to avoid future legal issues and protect both the seller and the brokerage, you would: • Ask the seller questions about the condition of the property • Use a seller property information statement to help identify known latent defects and obtain the seller’s permission to make this statement available to all interested parties • Ensure the seller understands the importance of making accurate statements about the condition of the property, particularly relating to material latent defects • Remind the seller of their legal obligation to disclose known latent defects to all potential buyers Exam Study Guide

• Advise the seller that non-disclosure of a serious latent defect may invalidate the agreement of purchase and sale or lead to legal consequences Timing of the disclosure can be critical. If a latent defect is known to a seller, it must be disclosed to all interested parties as soon as possible. You could note the defect when listing the property or communicate the defect to the buyer’s salesperson when an appointment request is made to show the property. You would advise the seller that any offer should include a clause containing the buyer’s acknowledgement of the defect. Alternatively, the buyer’s salesperson could insert a condition in the agreement of purchase and sale that addresses the latent defect. For example, that the offer is conditional upon the inspection of the property by a third-party professional, such as a home inspector, electrician, or contractor as determined by the nature of the defect. You will learn about conditions later.

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Lesson 2 | Page 6 of 32

A seller tells the salesperson of a known problem that affects water quality. The property, located in a rural area, has a well with unsafe drinking water. Insisting that the problem is seasonal because of spring water runoff, the seller does not want anyone else to know about this. Question #4: What should the salesperson do next? There are four options. There is only one correct answer.

1

Advise the seller the problem is only seasonal and need not be addressed immediately

2

Advise the seller the unsafe well will be discussed when the buyer makes the offer

3

Advise the seller to fix the well before the property is listed

4

Advise the seller that this information must be disclosed

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Lesson 2 | Page 7 of 32

Preparation of Questions to Ask the Seller You will need to prepare and ask the seller questions about the property before you conduct a visual inspection of the property to ensure you list it accurately and without misrepresentation. You should ask questions about the interior and exterior of the property and about any known latent defects. Any known latent defects must be disclosed by the seller. You will then need to compare the responses the seller gives to what you discover when you conduct your visual inspection. If there is a discrepancy, you will need to address this issue with the seller. How to address this issue is explained later in this lesson. In the next screen, you will review examples of questions to ask the seller. A seller is not legally bound to complete a property disclosure form. If they do, the answers must be truthful and potential buyers and their salespersons must be told that the form exists and be given a copy, unless instructed otherwise by the seller.

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Lesson 2 | Page 8 of 32

Questions to Ask Sellers These questions have been adapted from OREA Form 220: Seller Property Information Statement. Whether you use a form or not, these are questions that need to be answered to prepare the listing data sheet accurately and to market the property. The following three sections contain information on examples of questions you would need to ask the seller.

General information questions • How long have you occupied the property? • Who else is on title or has a spousal interest in the property? • How old is the house approximately? • Is there a survey? When was it completed? • Are there any rights-of-way, easements, or encroachments? • Have there been any disputes with neighbours about rights-of-way, easements, encroachments, or other boundary-related issues? • Is the property connected to both municipal water and/or sewage services? • Is there an existing well or septic system? What documentation do you have about the existing well or septic system? • What heat sources do you use? • Is the property subject to any special designation; for example, a heritage designation? Exam Study Guide

• Do you know of any issue about the property not complying with the zoning regulation? • Did you ever receive any notice, claim, work order, or deficiency notice about the property from a government body? • Are the appliances free of defects and in good working order? If not, describe the issue.

Environmental questions • Do you know of any environmental problems or soil contamination? • Is there an underground fuel tank on the property? If so, what type of fuel tank? • Is the property located on a flood plain and subject to flooding? • Are you aware of any existing or proposed waste dumps, disposal sites, or landfills in the surrounding area? • Are you aware of soil problems, such as excessive erosion, settling, slippage, or sliding? • Do you know if the property has been used to manufacture illegal substances?

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Structural questions • Did you make any alterations or additions to the property? • (If yes) When was the work done? Was a building permit issued? • Did you make any other changes that are not readily observable? • Are there any problems with heating, ventilation, and air conditioning? • Are there any problems with the plumbing? • Do any of the plumbing pipes contain lead, galvanized metal, or cast iron? • Do you have Kitec plumbing (the pipes are orange and blue plastic)? • Are there any problems with excessive moisture or mould? • Are there any problems with the roof? Does the roof leak?

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Lesson 2 | Page 9 of 32

As a salesperson, you will need to conduct a thorough visual inspection of the interior and exterior of a property. You should look everywhere – from the attic to the basement, from the front porch to the back porch, from the front yard to the back yard, and from the roof to the exterior walls. If the property has a garage, a shed, or a crawl space, inspect these as well. Complete and current information is necessary to market the property accurately and without misrepresentation. What you discover may be considered a material fact, and material facts must be disclosed to your seller. You should also identify potential issues that should be addressed before the property is listed, and issues that may require the services of a third-party professional.

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Lesson 2 | Page 10 of 32

Importance of Conducting a Thorough Visual Inspection A visual inspection conducted by a salesperson is not the same as one conducted by a home inspector. A home inspector has the training to be able to identify potential issues not readily observable. As a salesperson, the focus of a visual inspection will be to: • Gather complete and current information about the property so it can be listed accurately and without misrepresentation • Determine material facts so these can be communicated to the seller • Identify and note potential issues that will need to be addressed before the property is listed • Identify and note potential issues that may require the services of a third-party professional, such as an electrician A consequence of not conducting a thorough visual inspection is losing the seller’s confidence if the buyer and/or the buyer’s salesperson discover an issue that neither you nor the seller knew about. In addition, you and the seller may be held accountable if the buyer discovers an issue that was not disclosed that should have been.

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Lesson 2 | Page 11 of 32

Interior Property Conditions When inspecting the interior of the property, you will need to look everywhere, from the basement to the attic. You will also need to look at the heating and air conditioning system, and the plumbing in the kitchen and bathrooms. The following six sections contain information on what to look for when conducting an interior visual inspection. Some of these items are necessary to complete the listing data sheet, while others may need to be repaired prior to putting the house on the market.

Attic and basement What to look for: • Finished or unfinished • Cracks • Moisture • Mould • Peeling paint • Water stains

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Floors and staircases What to look for: Floors: • Type of floors (hardwood, laminate, broadloom, ceramic) • Condition of the floors (slanted, warped) Staircase: • Safety rail • Slanted or loose stairs • A large number of stairs that would be a problem for a person with limited mobility

Foundation What to look for: • Cracks • Efflorescence (indicates previous presence of moisture)

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Heating, ventilation, air conditioning (HVAC) What to look for: • Type of heating source – electric, gas, ground source, oil, propane, solar, or wood • Type of air conditioning – packaged or central air

Plumbing and wiring What to look for: Plumbing: • • • • •

Kitec plastic plumbing Pipes – lead, galvanized metal, cast iron Insulated pipes (possible asbestos insulation) Leaks Out-of-date systems

Wiring: • • • •

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Knob-and-tube wiring Aluminum wiring Out-of-date systems Inadequate amperage

Walls and ceiling What to look for: • • • •

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Cracks Moisture Water stains Mould

Lesson 2 | Page 12 of 32

Exterior Property Conditions When conducting a visual inspection of the exterior of the property, you will need to inspect not only the outside of the main building, but also the lawn, patios and other outdoor areas, and any secondary buildings, such as sheds or garages. The following four sections contain information on what to look for when conducting an exterior visual inspection. Some of these items are necessary to complete the listing data sheet, while others may need to be repaired prior to putting the house on the market.

Exterior areas – porch, walls, doors, and windows What to look for: • Exterior wall – cracks, water stains • Doors – type, peeling paint, how easily it opens and closes • Windows – type, age, closure • General wear and tear

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Front yard and back yard What to look for: • Grass/lawn – whether grass is overgrown, presence of weeds • Unusual depressions in the lot grading • Potted plants/garden – whether it appears vibrant, well-kept • Condition of any fencing • Pipes sticking out of the ground – could be an indication of a buried oil tank

Roof What to look for: • Type of roof covering • Age of the shingles • Missing shingles

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Secondary structures What to look for (if there are structures on the property other than the main dwelling): • Detached garage – general wear and tear (for example, peeling paint), or does its roof encroach on another property • Shed – does it encroach upon another property

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Lesson 2 | Page 13 of 32

Strategies for Discussion Once you have conducted the visual inspection of the seller’s property, you will need to discuss the results with the seller. This discussion can be tricky if you discover something that contradicts what the seller has told you. Consider the following strategies to help you navigate through a potentially sensitive situation: • Explain to the seller that their perception of the issue may differ from your perception; a potential buyer may have another perception; for example, peeling paint in the upper level may indicate a leaky roof • Ask for documentation from other third-party professionals to identify the current status of the repair, such as the recent paid invoice for new shingles • Recommend that the seller repair minor items before putting the property on the market, and how they may affect the sale of the property if left in poor condition Exam Study Guide

• Recommend that the seller contact a third-party professional to provide a quote to repair the problem (if the lack of disclosure was due to the seller’s fear that repair would be costly) Remember, what the seller may have told you could have been because they did not know.

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Lesson 2 | Page 14 of 32

Ministry of Natural Resources and Forestry Some areas of the property may not be accessible for inspection. For example, the property may have a central air conditioning system or swimming pool that cannot be inspected at the time of the listing because it is winter.

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Leading practices to document any area of a property that may not be accessible during the visual inspection are as follows: • Note which area of the property could not be accessed during the visual inspection • Ask the seller questions about this area and note what the seller says and keep the notes in the seller’s file • Communicate this information to the buyer’s salesperson, as the buyer may include a condition in the agreement of purchase and sale about having a satisfactory inspection of that item: o Note this information on the listing (in the private salesperson remarks section) o When a buyer’s salesperson makes an appointment to show the property, remind them to review the private salesperson remarks on the listing to ensure they are aware of any issues that may exist Example: A seller and buyer are negotiating an offer on the seller’s home. The property has a swimming pool that cannot be inspected because it is winter. From the perspective of the seller, the seller’s salesperson can include an assurance from their client in the agreement of purchase and sale that the swimming pool and its equipment were winterized by a pool maintenance company the previous year. The salesperson representing the buyer could insert representation and warranty clauses in the offer to address various issues regarding the condition of the pool.

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Lesson 2 | Page 15 of 32

Identification, Discussion, and Disclosure of Property Defects Earlier in the lesson you learned about how a salesperson can familiarize themselves with the property by asking effective questions and conducting a thorough visual inspection. A crucial aspect of a salesperson’s due diligence is their obligation to identify and discuss any property defects with the seller to ensure the required disclosures are made. You have already learned what to look for to discover potential defects. Now let’s focus on how to explore defects with a seller. Exam Study Guide

Ask the seller specifically about defects. For example: • Are you aware of any defect on your property? If the seller answers yes, ask the following: • What type of defect is it? • Have you fixed the defect? • (If yes) Do you have a warranty/receipt to indicate when and how the defect was fixed? Tell the seller the following: • They have a legal obligation to disclose known latent defects • Failure to disclose known latent defects could invalidate an agreement they enter into with a buyer • Withholding information about known latent defects can lead to litigation; for example, the buyer sues the seller for not disclosing a rodent infestation in the attic An accurate and complete listing supported by validating documents is the best defence against future legal problems.

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Lesson 2 | Page 16 of 32

A newly registered salesperson is about to conduct their first visual inspection. The salesperson knows this is an important step because she will need the information to market the property accurately and without any misrepresentation. The broker of record tells the salesperson that the brokerage has a list of questions she can use but tells her to prepare her own list of questions first. Question #5: Which of the following questions should the salesperson ask the seller? There are four options. There are multiple correct answers.

1

How long have you owned the property?

2

What is the source of your water supply?

3

At what price do you want to list the property?

4

Does the creek at the back of the property usually overflow in the spring?

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Lesson 2 | Page 17 of 32

A newly registered salesperson is about to conduct their first visual inspection. The salesperson knows this is an important step because she will need the information to market the property accurately and without any misrepresentation. The broker of record tells the salesperson that the brokerage has a list of questions she can use but tells her to prepare her own list of questions first. Question #6: Which of the following questions should the salesperson ask the seller? There are three options. There are multiple correct answers.

1

Have you ever filed for bankruptcy?

2

Do you know what type of plumbing pipes you have?

3

Did you make any renovations?

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Lesson 2 | Page 18 of 32

As a salesperson, when you are conducting a visual inspection of a property, you will only be able to identify certain types of defects, those that are readily observable by the untrained eye. These types of defects are called patent defects. Most likely, you will not be able to identify any type of latent defects, which are not readily observable by the trained eye. These types of defects, if not known, will only be able to be identified by an appropriate third-party professional. You will need to advise the seller of their obligation to disclose known latent defects. Your obligation will be to document and provide the appropriate disclosures to other brokerages and buyers on behalf of the seller. If your seller is unsure as to what needs to be disclosed, they should be directed to obtain professional legal advice. Exam Study Guide

Lesson 2 | Page 19 of 32

Identification and Disclosure of Defects After you complete your visual inspection of the seller’s property, you will need to advise your seller to disclose all known latent defects to potential buyers. As the law is technical and always changing, if your seller is unsure or uncomfortable with what information must be disclosed, you would advise the seller to speak to their lawyer for professional advice.

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You may use a disclosure statement to document the defects or keep your own notes. If there is a disclosure statement, the salesperson should ensure the information is accurate and provide a copy to all parties in the transaction. If there is no disclosure document, then you should provide instructions to the co-operating brokerage to call the listing brokerage prior to showing and/or drafting an offer so the information can be disclosed at that point. You can provide the instructions in the listing data sheet that is uploaded to the local real estate board for the co-operating brokerage to view. Alternatively, you can upload to the local real estate board a schedule containing the disclosure, which can be viewed and/or downloaded by other brokerages. Example: During the pre-listing inspection, the salesperson notes that there is hardwood flooring throughout the home. However, in the living room, the hardwood is covered by a large area rug. The seller tells the salesperson that the hardwood in the living room was severely damaged by a plumbing leak several months ago. Instead of repairing the damage, the seller covered it over with this area rug. The salesperson advises the seller that this would be considered a latent defect and to be safe, should be disclosed to potential buyers. The salesperson discusses with the seller how this disclosure will be documented. For example, an acknowledgement clause would be included in the agreement of purchase and sale.

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Lesson 2 | Page 20 of 32

Impact of Visual Defects on the Sale Visual defects may affect the value and sale of a property. As you learned earlier in this module, you would need to look everywhere when conducting a visual inspection. Following is a list of defects you should look for that may affect the value and sale of a property: • Crack in the foundation – could lead to water penetration or infestation of insects and vermin Exam Study Guide

• Slanted floor or staircase – the warped materials causing the issue will need to be replaced • Evidence of mould – indication of a high moisture areas with poor ventilation • Water stains on the ceiling – usually indicates there are leakage issues with the roof or plumbing • Shingles missing from the roof – possible indication the roof will need to be replaced • Pipe sticking out of the ground outside the house – possible indication of a buried oil tank • More than one well on the property – possible indication that the previous owners may have had water shortages or other problems with their existing well • Old plumbing pipes with wrapped insulation – possible indication of asbestos insulation Visual defects are obvious to anyone viewing the property; however, the cost to repair them may be costly and could involve consultation with an appropriate third-party professional, such as a contractor or plumber. Not fixing these types of defects before a property is listed may affect the sale. Prospective buyers may not want to assume the costs of fixing the defects, or may assume that the home has not been well maintained. They may wonder what else could be wrong with the property. On the other hand, a prospective buyer may decide that the property is listed at a price within their budget and fixing the defects would not be a financial burden. Or, a prospective buyer may decide to make a lower offer to offset the cost of repairing the defects. Example: A salesperson conducting a visual inspection of the seller’s property notices a long hairline crack that runs along the top of the bedroom wall where it joins the ceiling. Concerned that the crack may be an overall structural problem, the salesperson should advise the sellers to obtain a home inspection or have the crack assessed by an expert in that field. If the crack is due to an overall structural problem, this information would need to be disclosed when listing the property, thereby making the property less appealing to many potential buyers. If a buyer is interested in purchasing the property, they are likely to include a clause making the offer conditional upon being satisfied with a home inspection report or the issue being repaired/remediated.

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Lesson 2 | Page 21 of 32

It is early spring, and some snow is still on the ground. The snow melts a few days before the scheduled home inspection of the property, heated by forced air natural gas. The buyer’s salesperson had recommended a home inspection before proceeding with the purchase. The melting snow reveals pipes sticking out of the ground in the backyard. The inspector discovers a buried oil tank on the property at the back of the house. Question #7: What type of defect did the home inspector discover? There are three options. There is only one correct answer.

1

Patent defect

2

Material latent defect

3

Latent defect

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Lesson 2 | Page 22 of 32

A salesperson is explaining the different types of defects to the seller. The seller tells the salesperson they installed a new balcony on the second floor of the house the previous summer. The salesperson confirms with the seller that they obtained the permits to build the balcony. The salesperson notices gaps at multiple points along the railing. The seller explains that the railing was damaged by falling tree branches during a storm. Question #8: What type of defect did the salesperson notice? There are three options. There is only one correct answer.

1

Latent defect

2

Material latent defect

3

Patent defect

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Lesson 2 | Page 23 of 32

Put the Seller’s Needs First As a salesperson, you will be obligated under the Code of Ethics to provide conscientious and competent service to clients and customers, and demonstrate reasonable knowledge, skill, judgement and competence in providing those services. Meeting this obligation will require that you recognize situations where you are not an expert, and do not have the knowledge or experience to provide the seller with the services they need that will promote and protect their best interests. In these types of situations, you are obligated under the Code to advise the seller to obtain the services from another professional. As you conduct the visual inspection of the seller’s property, you will need to note which potential

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issues can be easily addressed by the seller and which potential issues will require the services of an appropriate thirdparty professional. Examples of issues that may require the services of a third-party professional include: • Electrical, such as faulty wiring or work does not meet the building and/or fire codes • Environmental, such as mould, lead, or hazardous waste disposal • Structural, such as concerns about the roof, basement, or foundation Your next steps would be to: • Advise the seller to hire the professional to fix whatever major issue you detected before you list the property • Provide the seller with the names of three professionals, at minimum, to avoid an actual or perceived conflict of interest • If the seller is not willing to undertake the necessary repairs, advise the seller to price the property accordingly and pass on the repair estimates to an informed buyer

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Lesson 2 | Page 24 of 32

Material Facts About the Property A salesperson is not expected to be an expert in home repairs or construction, but they are obligated under the Code of Ethics to recommend that a seller consult a third-party professional as required. As a salesperson, if advising the seller to consult with a third-party professional, provide the seller with the names of three individuals to avoid any appearance of a conflict of interest.

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Example: A salesperson is representing a seller who wants to sell their home on Maple Street. The seller tells the salesperson that their home was built in the early 1950s and had made several renovations since they bought it. One major renovation was lowering the basement floor to accommodate a rec room. During the visual inspection, the salesperson notices that the carpeting in one corner of the basement is damp, evidence of possible water seepage. The seller tells the salesperson that a home inspection was conducted two years prior and the inspector said the water seepage was structural. The seller adds that they hired a contractor to correct the problem, caused by the lowered basement floor. The salesperson advises the seller that it would be in their best interest to hire a basement and water proofing specialist to determine if the repairs were done properly or if additional repairs are needed, as the problem may have returned since the initial repairs were done.

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Lesson 2 | Page 25 of 32

A salesperson has just completed a visual inspection of the seller’s property. The salesperson notices several issues that need to be addressed. Question #9: The basement when being used as a storage area requires the services of a third-party professional as it will be considered a major repair. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 2 | Page 26 of 32

A salesperson has just completed a visual inspection of the seller’s property. The salesperson notices several issues that need to be addressed. Question #10: The walls are stained and discoloured and one of the bedrooms smells of mildew. This requires the services of a third-party professional as it will be considered a major repair. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 2 | Page 27 of 32

A salesperson has just completed a visual inspection of the seller’s property. The salesperson notices several issues that need to be addressed. Question #11: The foundation has a large crack that requires the services of a third-party professional as it would be considered a major repair. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 2 | Page 28 of 32

A salesperson has just completed a visual inspection of the seller’s property. The salesperson notices several issues that need to be addressed. Question #12: The shower head leaking requires the services of a third-party professional as it will be considered a major repair. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 2 | Page 29 of 32

A salesperson has conducted a visual inspection of the seller’s property. The salesperson recognizes that the property needs minor and major repairs before it can be listed. Question #13: While conducting a visual inspection, the salesperson notices pipes sticking out of the ground in the backyard, which leads to the discovery of a buried fuel oil tank. In this case, the salesperson should refer a TSSA technician to the seller to address the defect. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 2 | Page 30 of 32

A salesperson has conducted a visual inspection of the seller’s property. The salesperson recognizes that the property needs minor and major repairs before it can be listed. Question #14: While conducting a visual inspection, the salesperson notices an unusual number of roof vents, evidence of tampering with the electric meter, and brownish stains on the underside of some beams and arches. In this case, the salesperson should refer a surveyor to the seller to address the defect. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 2 | Page 31 of 32

A salesperson has conducted a visual inspection of the seller’s property. The salesperson recognizes that the property needs minor and major repairs before it can be listed. Question #15: After being questioned by the salesperson, the seller admits the house has vermiculite insulation. In this case, the salesperson should refer asbestos testing service to the seller to address the defect. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 2 | Page 32 of 32

Congratulations, you have completed the lesson! There are four sections on this page with a summary of the key topics that were covered in this lesson.

Seller’s obligations for disclosure

A salesperson should make a reasonable effort to discover latent defects and know how to discuss disclosure requirements with the seller. A buyer who discovers an undisclosed latent defect (that was known by the seller and salesperson) after the transaction closes may file a complaint or a lawsuit, both of which may damage the reputation of the brokerage and the salesperson.

Leading practices for conducting a visual inspection

The salesperson should conduct a thorough visual inspection of the interior and exterior of a property and recognize specific property conditions that may affect the listing and sale. A salesperson should also know how to document defects properly and understand their obligations to obtain information about the property from the seller.

Types of defects to identify

While completing a visual inspection of a property, a salesperson should be able to distinguish between a patent defect, a latent defect, and a material latent defect, and understand their obligation to disclose known latent defects to the potential buyer and their salesperson on behalf of the seller. Patent defect – A defect that is readily observable by the untrained eye. Latent defect – A defect that is not readily observable by the untrained eye during the reasonable inspection of a property. This includes any hidden flaw, weakness, or imperfection that a salesperson or buyer would not be able to see when viewing the property. The most severe type of latent defect is a material latent defect. Material latent defect – The most severe type of latent defect is a material latent defect. This defect poses a serious risk that can render the home unsafe, unhealthy, or otherwise uninhabitable to live in.

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Third-party professionals

The salesperson must understand their obligations to provide conscientious and competent services, and when it is appropriate to contact a third-party professional to address defects on the structure or surrounding property since it is beyond the expertise of the salesperson to make such recommendations. (Code, Sec. 4, 5, and 8). Examples of repairs that require the services of a third-party professional include: • Electrical issues, such as faulty wiring or work does not meet the building and/or fire codes • Environmental issues, such as mould, lead, or hazardous waste disposal • Structural issues, such as concerns about the roof, basement, or foundation

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Lesson 3 | Page 1 of 23

Lesson 3: Gather Key Information

This lesson identifies the information required to list a residential property, explains the importance of verifying this information, and highlights characteristics of the neighbourhood and surrounding properties that may have an impact on property value and marketability.

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Lesson 3 | Page 2 of 23

As a salesperson, you will need to gather key information about the property to list it accurately. You will need to obtain this information and verify its accuracy to complete the data sheet. Gathering key information about the property will help you sell it as quickly as possible and for a price acceptable to the seller. You will also need to consider the location of the property. Identical homes in two different locations can have significantly different market values. Location and neighbourhood characteristics will affect saleability. Upon completion of this lesson, you will be able to: • Identify information required to list a residential property and the importance of verifying the information • Identify the characteristics of a neighbourhood that may impact the appeal of a residential property 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 23

Key Property Information When listing a property, you will need to gather and verify information about the property. Let’s start that discussion with information that can cause confusion for both sellers and buyers: chattels and fixtures. A chattel is personal property that is tangible and moveable, such as furniture. A fixture is a permanent improvement to the house and becomes part of the property, such as a chandelier. Because the chandelier is attached, it is considered a fixture and a potential buyer would assume it will stay with the house and be included in the purchase price. If the chandelier is to be excluded, this information would be stated on the listing and noted in the agreement of purchase and sale. The same principle applies to chattels. Appliances such as a fridge or a stove are considered chattels because the seller can take them when they sell the property. A seller may choose to leave the appliances with the property, and these are included in the purchase price. This information, too, must be clearly noted on the datasheet and the agreement of purchase and sale. The purpose of having a discussion with the seller of what is and is not included with the sale of the property is to avoid any misunderstandings or assumptions.

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Lesson 3 | Page 4 of 23

Key Property Information In addition to discussing chattels and fixtures, you will need to ask the seller for specific information about the property; namely, information relating to registration and land-use restrictions. The following five sections contain information that you will need from the seller to list their property.

Ownership and title Confirm the following with the seller and gather documentation where applicable to support: • Who is registered on the title. • If anyone has a spousal interest in the property. This means the spouse is not on title but has an interest in the property. • If the property is subject to a first right of refusal. The right of first refusal means there is a thirdparty interest or claim on a property, such as a mortgage. • Mortgages, lines of credit, or other debt obligations registered against title.

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Land use restrictions Confirm the following with the seller and gather documentation where applicable to support: • Encroachments, easements, or rights of way indicated on the survey • Disputes with neighbours about the given issues or other boundary-related disputes • Special designations, such as a heritage property

Zoning Confirm the following with the seller and consider follow up with the municipality: • Zoning bylaws and restrictions • Compliance with the zoning • Municipal plans for re-zoning the property or neighbouring properties, if any

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Property taxes and notice of assessment Confirm the following with the seller: • Current property tax bill based on assessment provided by the Municipal Property Assessment Corporation (MPAC). MPAC is a not-for-profit corporation that assesses property values used as a basis for calculating property taxes. • Acknowledgement that the property taxes have been paid. • Special assessments (if the seller is unclear, the salesperson should check with the local municipal office).

Other costs associated with ownership Confirm the following with the seller and obtain copies of: • Utility bills • Other costs/bills for the past 12 months

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Lesson 3 | Page 5 of 23

Key Property Information and Methods for Verification You will need information about the property’s physical aspects, such as lot size and the size of rooms. When you have this information, you will need to verify it to ensure it is accurate before listing the property. You will be held accountable if you: • Fail to discover and disclose material facts at the earliest possible opportunity • List the property and the information is inaccurate The following three sections contain information on what you should do to verify the information relating to the property’s physical aspects.

Lot size To verify the accuracy of the lot size: • Review and retain a copy of the survey from the seller and keep it on file for reference. • Review and compare source documents, such as the tax bill and notice of assessment from MPAC, which contain the lot frontage and depth. • Include the frontage and depth for rectangular lots, full dimensions for irregular lots, and dimensions and/or exact acreage for larger tracts.

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Total living area Although no standardized method of measurement for total living area exists, the total living area still needs to be verified. To verify the accuracy of the total living area: • If your brokerage is a member of organized real estate, check with the local real estate board for measuring guidelines; for example, a range of square feet/square metres. • Purchase a report from GeoWarehouse®. • Obtain the builder’s floor plans from the seller, if it is newer construction. You will learn more about how to measure a residential real property later in this module.

Room sizes To verify the accuracy of room sizes: • Document any irregularly shaped rooms, including how that room was measured (for example, “from the widest point”). If measurements are taken from the widest point, note this information in the remarks section of the data sheet. • Measure rooms yourself; you should not rely solely on previous listing information, which should be used only as a source of comparison.

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Lesson 3 | Page 6 of 23

Key Property Information and Methods for Verification: Physical Aspects You will also need information relating to the heating, ventilation, and air conditioning systems; the well and septic system; wiring; and plumbing. The following six sections contain information on what you should do to verify the information relating to the property’s physical aspects.

Heating, ventilation, and air conditioning (HVAC) To verify the accuracy of the information about the HVAC system, review source documents (e.g., utility bills, statements, receipts, reports, etc.) to: • Determine the age of the HVAC system, and whether the components are owned, leased, or rent-to-own. • Determine whether the heating fuel source is gas, electric, wood, or propane. • Determine the age of the hot water tank and a water softener, and whether they are rented, leased, or owned.

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Well/septic system To verify the accuracy of the information about well and/or septic system: • Ask the seller if the property is connected to municipal water/sewer services; if the seller does not know, contact the local municipality. • Obtain available documentation regarding any existing well or septic system. • Ask the seller if they ever had their municipal water tested; if yes, ask why and request a copy of the test report, if available. • Ask if the seller is a party to a community, or shared, well (if yes, review the agreement and obtain a copy for your files) and whether the well is dug or drilled. • Ask if there is a cistern (a tank for storing water). • Ask whether the water is pumped from a lake or river (if there is no municipal water supply or existing well). • Ask when the septic tank was last pumped and any services/repairs that may have been completed; ask for a copy of these reports.

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Wiring To verify the accuracy of the information about wiring: • Determine the type of electrical system in a newer house—60-amp, 100-amp, or 200-amp service. In older homes the panel may have been upgraded to accommodate 100 amps, but the actual wiring is only 60 amps. If in doubt, rely on an electrician to make the determination. • Verify and note if there are any sub-panels in the house, the garage, and other buildings on the property. • Ask the seller if they know whether the wiring is copper or aluminum and if there is any knoband-tube wiring. • If the wiring is visible in an unfinished part of the basement, words stamped on the insulation, such as Alcan, alum, or aluminum, will indicate aluminum wiring. Some aluminum wiring found on a property does not necessarily mean all the wiring is aluminum. Do not take the cover off an electrical panel or junction box to inspect the wiring, which can be dangerous. A professional electrician should verify this information. • Consult with a third-party professional, as necessary, to verify the information or if you do not have the knowledge, experience, or skills to provide a qualified opinion or advice.

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Plumbing To verify the accuracy of the information about plumbing: • Visually inspect the plumbing to determine whether it is copper, PVC, Kitec, lead, or galvanized. • If Kitec exists, recommend that an inspection and written report be completed by a licensed plumber regarding the current condition of the plumbing.

Rental contracts Rental contracts may exist on items such as the alarm/security system, thermostat, hot water tank, water softener, water filtration system, and furnace. If any item is rented, confirm the following with the seller, by asking to see the contract: • Can a potential buyer assume the rental contract? • Is the item a conditional sales contract disguised as rent-to-own? Ensure all rental appliances, contracts and terms are noted in the listing agreement and the agreement of purchase and sale.

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Rent-to-own If any item is included in a rent-to-own program: • Advise the seller that the outstanding balance of the contract may have to be discharged on or before the completion date of sale and cannot be assumed by the new owner. • Advise the seller to contact the service provider to verify any costs associated with a transfer of the contract to a new owner or if the contract can be cancelled, if necessary. • At the offer stage, provide a copy of the original contract to the potential buyer for their review.

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Lesson 3 | Page 7 of 23

Importance of Verifying Listing Information As a salesperson, you will have a regulatory obligation to verify that the information about the seller’s property is current, accurate, and complete. According to the Code of Ethics, a salesperson must take reasonable steps to determine material facts about the property. If you cannot resolve unknown issues about the property and questions persist, you should consider not accepting the listing. You may inadvertently misrepresent the property to prospective buyers, thereby creating liability for the owners, the brokerage, and yourself. A thorough and accurate accumulation of information with verified sources is the best protection for the client and for the salesperson. To recap, the methods to verify information include: • Talk to the seller and ask specific questions • Consult original source documents whenever possible Exam Study Guide

• Prepare a list of action items that includes the following (this is not an exhaustive list): o Review support documents, such as receipts, warranties, and permits o Confirm the property’s legal description with source documents o Obtain land records from a land registry office or online service o Confirm the age of reports, supporting documents, and property tax statements o Obtain and review a copy of the survey and note the date of completion o Determine whether the tax bill is an interim tax notice or a final tax notice o Confirm that the date on the tax bill is for the current year o Review the deed/transfer of land document and legal description and check that they align with the information provided by the seller o Check land registry records online to confirm property information o Pay close attention to accuracy when describing lot size and lot irregularities o Note significant problem areas that may warrant further analysis o Consult with third-party professionals, as needed o Determine what improvements were made during the current ownership period

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Lesson 3 | Page 8 of 23

A salesperson is about to list a property on the local listing service. To ensure the property is listed accurately, the salesperson asks the sellers specific questions and verifies the information by consulting source documents and municipal records. The salesperson checks dates to make sure that the information is not outdated. Question #16: From the following, what information is the salesperson required to collect and verify? There are five options. There are multiple correct answers.

1

Property's physical characteristics

2

Previous owners’ tax notices and property tax statements

3

Title to the property

4

Information about missing shingles on the neighbouring property’s roof and its poorly maintained front yard

5

Heating and air conditioning system (HVAC) of the property to be listed

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Lesson 3 | Page 9 of 23

A particular neighbourhood can have a significant impact on the value and marketability of a property. As a salesperson, you will need to be aware of factors outside the property itself that can influence its value. You will need to conduct research to identify aspects of the neighbourhood that may attract potential buyers and features of the surrounding properties that may be problematic, so you can anticipate how to address these problems proactively. Consider how these features and characteristics may affect marketability and value, and how they can help you estimate at an appropriate listing price. In terms of objective value, you will need to know the four principles that explain how the condition and appeal of the neighbourhood and surrounding properties can impact the marketability and value of a property—conformity, progression, regression, and external factors. Further, overall economic conditions within the immediate area, the region, or the country can impact the value of real estate.

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Lesson 3 | Page 10 of 23

In addition to gathering information about a seller’s property, you will need to be aware of other factors, other than the property itself, that may influence the property’s value. These factors include the environment or the neighbourhood in which the property is located. You will need to identify aspects of the neighbourhood that may attract potential buyers or that may be a detriment to marketing the seller’s property. These considerations will factor into your discussions with the seller when estimating the value of the property to arrive at an appropriate listing price and will influence your marketing strategies.

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When conducting your research, focus on identifying what amenities and municipal services are in close proximity to the seller’s property, how they are likely to be perceived by potential buyers, and what impact they may have on property values. Look for any features of the neighbourhood that may be problematic for potential buyers so you can anticipate how to address these problems proactively. Also look at the surrounding properties and consider how their features and characteristics may affect the marketability and value of the property. Let’s start with exploring how a neighbourhood features can impact property value. Example: A salesperson is representing a seller who is about to retire and wants to sell her 1,200-square-foot, three-bedroom bungalow with an oversized swimming pool in the back yard. The seller, a former athlete, believes the pool adds value to the property in terms of personal health and fitness, and wants a higher price for the property than the one recommended by her salesperson. From the perspective of an average buyer, the size of the pool may add little or no particular value and may discourage them from making an offer.

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Lesson 3 | Page 11 of 23

Impact of the Neighbourhood and Surrounding Properties on Value In terms of objective value, four principles explain how the condition and appeal of the neighbourhood and surrounding properties can impact the marketability and value of a property. The following four sections contain information on the four principles of value.

Conformity To maintain maximum value, land is used to reasonably conform with the existing standards in the area. The word ‘reasonably’ refers to the degree of conformity. Too much conformity where all the houses look exactly the same can have a negative impact on value. For example, in a residential area, a variety of building styles of the same quality is more visually appealing than a row of identical houses.

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Progression In a neighbourhood where properties are not similar, the presence of a superior property will have a positive impact on the value of an inferior property (i.e., a superior property will increase the value of an inferior property).

Regression In a neighbourhood where properties are not similar, the presence of an inferior property will have a negative impact on the value of a superior property (i.e., the inferior property will decrease the value of the superior property).

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External factors External factors refer to a variety of situations or circumstances that can affect the value of a property. For example, the value may increase or decrease depending on the property’s proximity to services, amenities, environmental conditions, etc. You will learn about specific external factors later in this module.

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Lesson 3 | Page 12 of 23

External Factors: Neighbourhood and Area Characteristics To market a property effectively, you will need to conduct the necessary research to determine market value and, with the seller, arrive at a listing price that is appropriate for the market. Value is affected by what is located on the property and what is adjacent to the property. Anything beyond the control of the property owner can impact value, whether it is the type of property next door or the services available in a specific neighbourhood. The following seven sections contain information on external factors that may affect the value or appeal of a property.

Area schools A property located close to a school can be both positive or negative, depending on the buyer. A family with younger children would consider a nearby school to be positive. An individual or a couple without children may view the location of a school as unwelcome noise or traffic. The quality or reputation of the school can also be a factor.

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Public transit Access to public transit can be positive or negative, depending on the buyer. A buyer who uses public transit regularly will consider such access as positive because of convenience. A buyer who does not use public transit may consider a well-travelled bus route as unwelcome noise or traffic.

Municipal water and sewers versus private systems If a property has well water, the seller is responsible for maintaining safe drinking water. Water coming from the city is treated before it reaches the property. If the property is not serviced by municipal sanitary sewers, the seller will require a private sewage system. Some buyers may prefer not to maintain a private well and septic system.

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Proximity to environmental hazards and stigmatized land uses How land is used may create stigmas in the minds of buyers. For example, land use that may create stigma includes: • Toxic waste sites • Landfills • Petrochemical refineries • Nuclear power plants • Certain manufacturing facilities • Animal feeding operations • Airports • Prisons • Cemeteries Other environmental factors that may be seen as stigmas include hydro transmission towers, phone/radio/television towers, railway lines and wind turbines.

Amenities Proximity to local stores, shopping centres, recreation facilities, and restaurants can be viewed as both positive and negative. They are positive for individuals who enjoy having access to these types of amenities. They are negative for individuals who do not like traffic or noise. The smells from restaurants, fast-food drivethroughs, and their garbage bins can cause annoyance. Light encroachment from nearby plazas and fast food restaurants could also cause annoyance.

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Municipal plans Municipal plans for the neighbourhood and surrounding areas, such as highway construction or rezoning, may have an impact on property value. For example, a potential buyer who wants to purchase a property and build an addition to the house may decide not to purchase the property when they discover that it is too close to the rear lot line and violates the existing zoning bylaw.

Economic/market conditions Overall economic conditions within the immediate area, the region, or the country will affect the value of a property. In a seller’s market, the number of buyers who want to purchase a property exceeds the supply, resulting in: • Properties that sell quickly • Rising prices due to competition from multiple offers • Buyers having to make hurried decisions • Buyers having offers with conditions rejected by sellers because of multiple offers • Buyers making firm offers without the protection of typical conditions; for example, home inspection and financing In a buyer’s market, the number of properties listed exceeds demand, resulting in: • More inventory is available Exam Study Guide

• Lower prices due to the increased number of available competing listings • Fewer buyers are actively searching for properties • Properties being on the market for longer periods • Buyers taking a longer time to purchase a property • Buyers viewing more properties • Sellers willing to accept offers with more conditions; for example, conditional upon the sale of a buyer’s property

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Lesson 3 | Page 13 of 23

A salesperson is representing a buyer whose company just transferred him to another city. Being new to the city, the buyer, an avid jogger and environmentalist who drives a hybrid car, is looking for an affordable property in a vibrant neighbourhood. The company’s satellite office is located about 35 kilometres from the city core. The salesperson has begun searching for properties that meet the buyer’s needs. Question #17: The salesperson would consider a property with easy access to a highway as ideal for this buyer. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 3 | Page 14 of 23

A salesperson is representing a buyer whose company just transferred him to another city. Being new to the city, the buyer, an avid jogger and environmentalist who drives a hybrid car, is looking for an affordable property in a vibrant neighbourhood. The company’s satellite office is located about 35 kilometres from the city core. The salesperson has begun searching for properties that meet the buyer’s needs. Question #18: The salesperson would consider a property near a park that the municipality is proposing to transform into a landfill as ideal for this buyer. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 3 | Page 15 of 23

A salesperson is representing a buyer whose company just transferred him to another city. Being new to the city, the buyer, an avid jogger and environmentalist who drives a hybrid car, is looking for an affordable property in a vibrant neighbourhood. The company’s satellite office is located about 35 kilometres from the city core. The salesperson has begun searching for properties that meet the buyer’s needs. Question #19: The salesperson would consider a property within walking distance of several restaurants as ideal for this buyer. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 3 | Page 16 of 23

A salesperson is representing a buyer whose company just transferred him to another city. Being new to the city, the buyer, an avid jogger and environmentalist who drives a hybrid car, is looking for an affordable property in a vibrant neighbourhood. The company’s satellite office is located about 35 kilometres from the city core. The salesperson has begun searching for properties that meet the buyer’s needs. Question #20: The salesperson would consider a property in a municipality offering tax incentives for green vehicles and energy-saving home improvements as ideal for this buyer. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 3 | Page 17 of 23

A salesperson is representing a buyer whose company just transferred him to another city. Being new to the city, the buyer, an avid jogger and environmentalist who drives a hybrid car, is looking for an affordable property in a vibrant neighbourhood. The company’s satellite office is located about 35 kilometres from the city core. The salesperson has begun searching for properties that meet the buyer’s needs. Question #21: The salesperson would consider a property within two kilometres of a telecommunications tower as ideal for this buyer. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 3 | Page 18 of 23

A salesperson is representing a couple looking for their first home. The buyers informed the salesperson that they plan to have children in the near future and the wife's mother, who enjoys taking long walks with her dog, will be living with them. The salesperson has begun searching for properties that meet the couple's needs. Question #22: The salesperson would consider a property whose backyard slopes down into a ravine as ideal for this buyer. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 3 | Page 19 of 23

A salesperson is representing a couple looking for their first home. The buyers informed the salesperson that they plan to have children in the near future and the wife's mother, who enjoys taking long walks with her dog, will be living with them. The salesperson has begun searching for properties that meet the couple's needs. Question #23: The salesperson would consider a property adjacent to a highway as ideal for this buyer. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 3 | Page 20 of 23

A salesperson is representing a couple looking for their first home. The buyers informed the salesperson that they plan to have children in the near future and the wife's mother, who enjoys taking long walks with her dog, will be living with them. The salesperson has begun searching for properties that meet the couple's needs. Question #24: The salesperson would consider a property near an elementary school as ideal for this buyer. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 3 | Page 21 of 23

A salesperson is representing a couple looking for their first home. The buyers informed the salesperson that they plan to have children in the near future and the wife's mother, who enjoys taking long walks with her dog, will be living with them. The salesperson has begun searching for properties that meet the couple's needs. Question #25: The salesperson would consider a property next to a park as ideal for this buyer. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 3 | Page 22 of 23

A salesperson is representing a couple looking for their first home. The buyers informed the salesperson that they plan to have children in the near future and the wife's mother, who enjoys taking long walks with her dog, will be living with them. The salesperson has begun searching for properties that meet the couple's needs. Question #26: The salesperson would consider a property near an airport as ideal for this buyer. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 3 | Page 23 of 23

Congratulations, you have completed the lesson! There are two sections on this page with a summary of the key topics that were covered in this lesson.

Information required to list a residential property and the importance of verifying the information

When preparing to list a residential property, a salesperson should collect and review key information about the property and ask the seller to provide original documents they received when they first purchased the property. Key information includes: • Who is registered on title, and anyone with a spousal interest in the property or first right of refusal • Mortgages, lines of credit, or other debt obligations registered against title • Land use restrictions (such as encroachments, easements, and rights of way) • Neighbour disputes • Property taxes and notice of assessment • Zoning The salesperson can verify the accuracy of information relating to the property’s physical attributes, such as lot size, area of the home, and room sizes by: • Reviewing source documents • Purchasing a report from GeoWarehouse® (through the brokerage) • Obtaining floor plans from the builder, if available • Taking their own measurements of the house and any outbuildings and comparing these to measurements in the source document and other reports The salesperson can verify the accuracy of the information by asking the seller and obtaining source documents, if available, about the age and condition of the: • HVAC system • Well/septic system Exam Study Guide

• Electrical system • Plumbing system • Roof shingles

Characteristics of a neighbourhood that may impact the appeal of a residential property

Neighbourhood characteristics can have both a positive and negative effect on the appeal, value, and marketability of a property. Whether a characteristic is positive or negative will depend on the buyer. Examples of characteristics that affect value and appeal include proximity to: • Area schools • Public transit • Environmental hazards and/or stigmatized land uses, such as waste sites, nuclear power plants, prisons, cell phone towers, and television transmission towers • Amenities, such as restaurants, shopping centres, and recreational facilities

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Lesson 4 | Page 1 of 25

Lesson 4: Calculate Areas and Related Linear Measurement

This lesson describes guidelines for calculating the area of a residential structure, identifies the areas of a residential property that should and should not be measured, reviews math skills required to describe residential measurements, and identifies leading practices regarding area and linear measurements. This lesson also provides the learner with the opportunity to calculate area and linear measurement using Appraisal Institute of Canada (AIC) guidelines.

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Lesson 4 | Page 2 of 25

As a salesperson, you will need to know how to calculate the total living area (also referred to as square footage) of a residential property. Total living area is calculated using exterior measurements. Knowing how to calculate interior and exterior measurements of a residential property will help you estimate a price for the property and meet your obligation to provide competent and conscientious services to the seller. It will also ensure the information about the property you list on the local listing service is accurate and complete. This lesson presents the guidelines of the Appraisal Institute of Canada (AIC) for measuring a residential property. No universal measuring standards for residential properties exist. AIC standards are being used in this lesson because these guidelines are widely used across Canada. Upon completion of this lesson, you will be able to: • Describe guidelines that can be used when calculating the area of a residential structure • Identify leading practices of a salesperson regarding area and linear measurements • Review basic math skills used when describing residential measurements • Identify what measurements should be taken when listing a residential property • Calculate areas and linear measurements using industry guidelines Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented. Exam Study Guide

Lesson 4 | Page 3 of 25

Appraisal Institute of Canada (AIC) The AIC is a national society of professional real estate appraisers dedicated to serving the public interest by advancing high standards for members of the appraisal profession by granting professional designations. AIC publishes the Building Measurement Guideline, a handbook of residential and commercial guidelines. In this lesson, the focus will be on how to calculate the total living area in different residential structures. These guidelines are not only used by appraisers. As a salesperson, you will need to have a good understanding of these guidelines and know how to calculate total living area of a variety of residential housing styles. You will need this information when you list the property. You will also need to know the measurement practice of the jurisdiction in which the property you are selling is located. This information can be obtained through your brokerage.

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Lesson 4 | Page 4 of 25

Guidelines for Calculating Areas and Linear Measurements According to the AIC guideline, you would calculate the total living area of livable area above grade that provides heated year-round use. How livable area is calculated should be defined and applied consistently. The following five sections contain information on how to measure the livable area of five common types of residential structures using the AIC guideline.

One-storey To measure a one-storey residential structure: • Multiply the exterior length times the width of the base of the dwelling • Multiply the exterior length times the width of projections and cantilevered areas A cantilever is an overhang where one floor extends beyond and over a foundation wall. Above-grade (ground) area is considered the livable floor area. Basement area (below-grade), whether developed or undeveloped, is not considered livable floor area and is not considered in the calculation.

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One and one-half-storey without dormers To measure a one-and-one-half-storey residential structure without dormers: • Ground level is calculated the same way as a onestorey dwelling • Note that for upper-or second-level measurement, livable floor area is the interior length times the width to knee wall (angle where the wall meets the ceiling) • Note that an additional 15 to 20 centimetres (approximately 6 to 8 inches per side) may be included to account for the exterior walls A dormer is an opening in a sloping roof, the framing of which projects out to form a vertical wall suitable for windows or other opening.

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Basic two-storey To measure a basic two-storey residential structure, multiply exterior length times width, then multiply the result by two

Two-storey with built-in garage To measure a two-storey residential structure with built-in garage: • Multiply the exterior length times width, excluding garage • For the second level, multiply the exterior length times width

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Split-levels To measure a split-level residential structure (generally the most difficult structure to measure, according to AIC): • Multiply the exterior length times width of the livable area that is above the sill plate (the bottom horizontal part of a wall) • Note that basement and crawlspace areas are not considered to be livable floor area • Note that living space beside the garage that does not have a crawl space area or a basement beneath is considered livable floor area because it is above-grade

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Lesson 4 | Page 5 of 25

Total Living Area Not Included in Overall Area Calculation To calculate total living area of a residential structure, you would only calculate the livable floor area that provides heated, year-round use and above grade, which means “above the ground.” For example, “two bedrooms above grade” means two bedrooms that are not in a basement (not located below grade level). You would not include areas such as

Exam Study Guide

three-season sunrooms, walk-up attics, porches, verandas, garages/heated garages. These areas would be itemized separately, but still described in the listing. Below-grade means any portion of the house that is “below the ground,” or space on any level that generally has earth adjacent to any exterior wall. Basements, for example, are considered below-grade, even if they are heated and livable, because they are below the ground. A room must be completely above-grade to be included in the measurement of the total living area. If earth is adjacent to a portion of a given wall, the entire level is generally considered below-grade. Occasionally, exceptions may apply, especially with dwellings built into slopes or hills. To determine if an area of the house is included in the livable floor area calculation, you would need to determine the following: • Finished with walls, floors and ceilings of materials accepted for interior construction • Heated by a conventional heating system or systems, which are permanently installed in the dwelling • Directly accessible from the other living areas through a door or a heated hallway or stairway

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Lesson 4 | Page 6 of 25

A salesperson calculates the total living area of the seller’s house using AIC guidelines. Measurements are needed to list the property. Question #27: Three-season sun room should be included when calculating the total living area of a residential structure using AIC guidelines. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 4 | Page 7 of 25

A salesperson calculates the total living area of the seller’s house using AIC guidelines. Measurements are needed to list the property. Question #28: Garage should be included when calculating the total living area of a residential structure using AIC guidelines. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 4 | Page 8 of 25

A salesperson calculates the total living area of the seller’s house using AIC guidelines. Measurements are needed to list the property. Question #29: Heated basement should not be included when calculating the total living area of a residential structure using AIC guidelines. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 4 | Page 9 of 25

A salesperson calculates the total living area of the seller’s house using AIC guidelines. Measurements are needed to list the property. Question #30: Second-floor hallway should be included when calculating the total living area of a residential structure using AIC guidelines. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 4 | Page 10 of 25

Standard Measuring Tools A leading practice for a salesperson is to know what resources are available to them regarding calculating the total area of a house. Consider the measuring devices and how they can be used in different situations. As a salesperson, you have the option of using a variety of devices to measure the interior rooms of a property. Each device will have its respective uses, benefits, and drawbacks. The following three sections contain information on the different types of measuring devices and their benefits and drawbacks.

Laser measuring device Benefits: • Accurate within three millimetres • Measures a range up to 325 metres and more • Lightweight and compact • Has an extended battery life • Efficient; it is precise and does not need two people to operate it • Certain versions have cameras, capabilities for area and volume calculations, and metric and imperial conversions Drawbacks: • Most models are only suitable for interior measurements and not ideal for exterior measurements • Errors can occur due to user misuse and not following proper guidelines; accuracy and care are required Exam Study Guide

• Brightness levels can vary, sometimes affecting daytime visibility • Shorter range compared to other measuring tools • Rough or angled surfaces can provide challenges for obtaining a correct reading • Transparent materials, such as windows, can provide challenges for obtaining a correct reading

Digital measuring wheel Benefits: • Effective for calculating exterior measurements • Current models are lightweight • Current models provide accurate readings • Suitable for large areas or linear measurements because of greater range Drawbacks: • Not useful for measuring uneven surfaces, which can prevent the wheel from running in a consistent, straight line

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Tape measure Benefits: • Available in a variety of lengths and materials suitable for most applications • 30-foot retractable tape measures can help for hardto-reach interior spaces • 50- to 100-foot retractable tape measures indicate linear footage in tenths of a foot Drawbacks: • Inaccurate measurements can result from running the tape around obstacles, such as trees, landscaping, chimneys, and downspouts • Possibility of misreading the measurement due to human error

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Lesson 4 | Page 11 of 25

Use of Source Documents Next, consider the source documents. As a salesperson, you will want to review documents such as building plans, surveys, and real property reports available through GeoWarehouse® and the Municipal Property Assessment Corporation (MPAC). Inaccurate information is always a possibility, regardless of the source. You should also take your own measurements of the building(s) and compare them to the source documents. If the totals match, then you can feel confident about the results. If the totals do not match, take a second – or third – measurement. If you are confident your measurement is accurate, then use yours for the listing. If you recall, the salesperson has an obligation to ensure all measurements are accurate before listing the property.

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Lesson 4 | Page 12 of 25

Measurement Requirements based on Local Practices and Policies In addition to acquiring the proper measuring devices and source documents, you will also need to consider the policies and practices of the area. The AIC guidelines to calculate the total living area are widely used across Canada. However, as a salesperson, you should also consider the practices and policies of your brokerage and the area in which the property is located. For example, depending on the location, differences may exist regarding what is included in area calculations. These differences typically affect below grade rooms and other unique features.

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Lesson 4 | Page 13 of 25

A salesperson tells the sellers that their enclosed front porch should not be included in the total living area when calculated according to the AIC Building Measurement Guideline. The sellers accept the explanation and agree with the calculation of approximately 1,500 square feet. However, when the salesperson consults a property assessment from MPAC, there seems to be a discrepancy on an exterior measurement between his measurement and the assessment. Question #31: What should the salesperson’s next steps be now that the discrepancy has been identified? There are three options. There is only one correct answer.

1

Use the information from the MPAC report

2

Re-measure and compare measurements to source documents

3

Use the information from the original building plan

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Lesson 4 | Page 14 of 25

Basic Math Calculations As a salesperson, you will mostly use three measurements to determine the total floor area of all above-grade floors – feet/metres, square feet/square metres, acres/hectares. You will also need to know how to convert metric to imperial measurements and imperial to metric measurements. The listing agreement includes lot size dimensions, room size dimensions, and total living area. The agreement of purchase and sale includes lot size dimensions only. The following three sections contain information on these three measurements and how to convert them.

Metres/Feet Metres and feet are commonly used to measure rooms and lots. One metre equals 3.281 feet. To convert metres to feet, multiply the metre measurement by 3.281. 5 m x 3.281 = 16.41 ft 5.5 m x 3.281 = 18.05 ft To convert feet to metres, multiply the feet measurement by 0.3048. 20.65 ft x 0.3048= 6.29 m 30.60 ft x 0.3048 = 9.33 m

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Square metres/Square feet Square metres and square feet are commonly used to measure the area of a house or condominium. One square metre equals 10.7639 square feet. To convert square metres to square feet, multiply the square metre measurement by 10.7639. 70 sq. m x 10.7639 = 753.47 sq. ft 85.5 sq. m x 10.7639 = 920.31 sq. ft To convert square feet to square metres, multiply the square feet by 0.0929. 700 sq. ft x 0.0929 = 65.03 sq. m 950 sq. ft x 0.0929 = 88.255 sq. m

Hectares/Acres Hectares and acres are commonly used to measure the total and workable farm area and rural/recreational vacant land and building lots. One hectare equals 2.471 acres. To convert hectares to acres, multiply the hectare by 2.471. 8 ha x 2.471 = 19.77 ac 8.5 ha x 2.471 = 21 ac To convert acres to hectares, multiply the acre by 0.4047. 20 ac x 0.4047 = 8.09 ha 40 ac x 0.4047 = 16.17 ha Exam Study Guide

Lesson 4 | Page 15 of 25

Describing Room Measurements The area of a room is determined by multiplying the length times the width of each rectangular livable floor area. Area measurement may involve a single rectangular shape or a combination forming an irregular pattern. For irregular rectangular shapes, you will need to calculate the total area as if a rectangle and subtract the non-livable floor area. The following five sections contain information on measuring rectangular and non-rectangular shapes.

Rectangular Metric Measure Area #1 as if a regular rectangle Area #1: 12.19m x 10.06m = 122.63 sq. m Area #2: 3.05m x 2.13m = 6.50 sq. m Area #3: 7.62m x 2.44m = 18.59 sq. m Total Area: A1 − (A2 + A3) 122.63 − (6.50 + 18.59) = 97.54 sq. m Imperial Measure Area #1 as if a regular rectangle Area #1: (15’ + 25’) x 33’ = 1,320 sq. ft Area #2: 10’ x 7’ = 70 sq. ft Area #3: 25’ x 8’ = 200 sq. ft Total Area: A1 − (A2 + A3) 1,320 − (70 + 200) = 1,050 sq. ft Note: The minor variance in total area between metric and imperial is due to rounding.

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Non-rectangular: Right angle triangle One of the angles is 90 degrees. Where the two perpendicular lines meet, one is considered the base and the other the height. Total Area: ½ x (Base x Height) ½ x 50 ft x 110 ft = 2,750 sq. ft

Irregular Draw an imaginary line to create two areas. Calculate Area #1 as a triangle (½ x (base x height)) and Area #2 as a rectangle. Area #1: ½ x (40 ft x 100 ft) = 2,000 sq. ft Area #2: 60 ft x 100 ft = 6,000 sq. ft Total Area: Area #1 + Area #2 2,000 + 6,000 = 8,000 sq. ft

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Parallelogram Four-sided figure with parallel opposite sides Total Area: Length x Perpendicular Height 50 ft x 40 ft = 2,000 sq. ft

Trapezoid Four-sided figure with two sides parallel Total Area: Sum of Parallel Sides x (½ x Perpendicular Height) (45 ft + 65 ft) x (½ x 24 ft) = 1,320 sq. ft

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Lesson 4 | Page 16 of 25

A salesperson is re-measuring a room in the sellers’ home after discovering a discrepancy between the original measurements and a source document. The salesperson had originally measured the room at 21 square metres, and now needs to convert that value from metric to imperial. Question #32: What is the measurement of the room in square feet? There are three options. There is only one correct answer.

1

226.04

2

224.87

3

226.89

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Lesson 4 | Page 17 of 25

The salesperson re-measures another area in the sellers’ home after discovering a discrepancy between the original measurements and a source document. One of the initial calculations said 1,500 square feet; he now needs to convert this value to metric. Question #33: What should the salesperson’s new measurement be in square metres? There are three options. There is only one correct answer.

1

139.35

2

138.56

3

136.67

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Lesson 4 | Page 18 of 25

Exterior Measurements The total living area of a house is based on exterior measurements. To measure the exterior, you would do the following: • Make a sketch of the house before you start measuring • Start at one corner of the house and measure each exterior wall • Round off the measurement to the nearest centimetre or inch • As you measure each wall, record the measurement on the sketch • Measure other areas not considered “livable” according to the AIC guidelines and record these measurements separately Exam Study Guide

If you recall, livable floor area means an area that is: • Finished with walls, floors, and ceilings of materials accepted for interior construction • Heated by a conventional heating system or systems, which are permanently installed in the dwelling • Directly accessible from the other living areas through a door or a heated hallway or stairway If you are unable to measure one of the exterior surfaces, you should measure the interior perimeter wall and add an allowance for each exterior wall using the thickness of the windows to determine the thickness of the exterior wall. You would also inspect the house to identify spaces that should be included in the living area: • Consider offsets, such as portions of a wall that jut out • Adjust the measurements for an overlap of the exterior walls or overhangs in the upper levels of the dwelling

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Lesson 4 | Page 19 of 25

Exterior Measurements Now that you have learned how to take exterior measurements, you will learn about the structures you will need to measure and include in the listing. The following three sections contain information on the exterior structures you will need to measure.

Significant structures Significant structures are above-grade portions of the main dwelling on the property, including the house itself, garage (attached or detached), covered porches, and patios

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Accessory buildings Accessory buildings are outdoor structures on the property such as a pool house, sauna, or shed.

Other exterior improvements Other exterior improvements that should be measured include renovations or additions to the structure that are above grade, weatherproofed, suitable for yearround use, and have the necessary permits. For example, an enclosed patio with a fire pit.

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Lesson 4 | Page 20 of 25

Interior Measurements Total living area in a residence is based on exterior measurements. To calculate the total living area of a residential structure, you would calculate: • Areas that are above grade (above the ground) • Areas that are heated year-round • Habitable rooms that are directly accessible from another living area, whether through a doorway, heated hallway, or stairway (for example, kitchen, living room/den, bedrooms, bathrooms, hallways) Rooms located in a finished basement would not be included in the livable floor area measurement because they are below grade. These rooms would still be measured for marketing and listing purposes. Additional finished rooms below grade add value to the property. Examples of areas that should not be measured include an unfinished basement or attic. If an attic is finished, it would be measured and noted on the listing as a finished walk-up attic.

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Lesson 4 | Page 21 of 25

A salesperson is explaining to the sellers that he used a laser measuring device to measure the rooms in their house. The totals are calculated and the sellers are told their home is 1,500 square feet. The sellers believe it’s 1,600 square feet. Question #34: What areas of the total living area of a residential property does the salesperson need to inform the sellers are excluded in the calculation? There are four options. There are multiple correct answers.

1

A room on the main floor that was converted into a secondary office space with filing cabinets storing work-related documents

2

An enclosed, covered, heated porch with a fireplace that the sellers added, which is suitable for yearround use and for which the sellers have a permit

3

An unattached, heated shop in the backyard

4

First-floor hallway and bathroom

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Lesson 4 | Page 22 of 25

Calculation of Areas and Linear Measurements As you learned earlier in this module, as a salesperson, you will need to know how to calculate the total floor area of all above-grade floors. To do this, you will need to know some basic math. We have provided some additional information and examples of how to calculate above-grade floors in different types of residential properties. The following five sections contain information on how to measure five types of residential structures using the AIC guideline.

One-storey The floor area of a one-storey home is measured by multiplying the exterior length times width of the base of the dwelling, and exterior length times width of projections and cantilevered areas. The area above grade (noted as Area A and Area B in the diagram) is considered livable floor area. Do not include below grade areas, such as a basement, as livable floor area. METRIC Area A: 2.74 m x 5.33 m = 14.60 m2 Area B: 8.43 m x 10.66 m = 89.86 m2 Total floor area is 14.60 + 89.86 = 104.46 m2 IMPERIAL Area A: 8.99 ft x 17.49 ft = 157.24 ft2 Area B: 27.66 ft x 34.97 ft = 967.27 ft2 Total floor area is 157.24 + 967.27 = 1,124.51 ft2

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One-and-one-half storey with dormers The floor area of the first storey in this example (Area A) is calculated as exterior length times width of base of dwelling, and exterior length times width of projections and cantilevered areas. For the measurement of the second storey (Area B), consider liveable floor area as interior length times width to knee wall (angle where wall meets ceiling), plus length times width of dormers (Areas C and D). An additional 15 to 20 centimeters (approximately 6 to 8 inches) may be included to account for the exterior wall. METRIC Area A: 10.12 m x 9.58 m = 96.95 m2 Area B: 10.12 m x 5.28 m = 53.43 m2 Area C & D: 2 x (2.83 m x 2.15 m) = 12.17 m2 Total floor area is 96.95 + 53.42 + 12.17 = 162.55 m2 IMPERIAL Area A: 33.20 ft x 31.43 ft = 1,043.48 ft2 Area B: 33.20 ft x 17.32 ft = 575.02 ft2 Area C & D: 2 x (9.28 ft x 7.05 ft) = 130.84 ft2 Total floor area is 1,043.38 + 575.02 + 130.84 = 1,749.34 ft2

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Basic two-storey To determine the floor area for a basic two-storey in which the layout is the same for the first and second storeys (both represented by Areas A and B respectively), multiply the exterior length times width, then multiply the result by two. METRIC Area A: 7.75 m x 7.05 m = 54.64 m2 Area B: 2.08 m x 4.46 m = 9.28 m2 Total floor area is (54.64 m2 + 9.28 m2) x 2 = 127.84 m2 IMPERIAL Area A: 25.43 ft x 23.13 ft = 588.20 ft2 Area B: 6.82 ft x 14.63 ft = 99.78 ft2 Total floor area is (588.20 ft2 + 99.78 ft2) x 2 = 1,375.96 ft2

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Two-storey with built-in garage To determine the floor area for a two-storey with a built-in garage, add the exterior length times width of the first storey (Area A) excluding the garage, and the exterior length times width of the second storey (Areas B and C). METRIC Area A: 8.13 m x 7.61 m = 61.87 m2 Area B: 8.13 m x 7.61 m = 61.87 m2 Area C: 3.45 m x 3.95 m = 13.63 m2 Total floor area is 61.87 + (61.87 + 13.63) = 137.37 m2 IMPERIAL Area A: 26.67 ft x 24.97 ft = 665.95 ft2 Area B: 26.67 ft x 24.97 ft = 665.95 ft2 Area C: 11.32 ft x 12.96 ft = 146.71 ft2 Total floor area is 665.95 + (665.95+ 146.71) = 1,478.61 ft2

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Three-level split with built-in garage While there is no crawlspace or basement beneath it, the lower level excluding the garage (Areas A and B) is above grade and should be included in the overall measurements. It should be added to the measurements for the main and second storeys (Areas C and D) to determine the total liveable floor area. METRIC Area A: 2.45 m x 6.56 m = 16.07 m2 Area B: 5.25 m x (6.56 m – 4.12 m) = 12.81 m2 Area C: 7.70 m x. 6.89 m = 53.05 m2 Area D: 7.70 m x 6.56 m = 50.51 m2 Total floor area is 16.07 + 12.81 + 53.05 + 50.51 = 132.44 m2 IMPERIAL Area A: 8.04 ft x 21.52 ft = 173.02 ft2 Area B: 17.22 ft x (21.52 ft – 13.52 ft) = 137.76 ft2 Area C: 25.26 ft x. 22.60 ft = 570.88 ft2 Area D: 25.26 ft x 21.52 ft = 543.60 ft2 Total floor area is 173.02 + 137.76 + 570.88 + 543.60 = 1,425.26 ft2

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Lesson 4 | Page 23 of 25

The seller consults the sketches the salesperson has left and re-measures the exterior width and length of the base of the property, which is called area “A”, and measures a small projection off the front of the house, which is called area “B,” and gets: Area A: 13.40 m by 8.66 m Area B: 6.13 m by 5.0 m Question #35: What is the overall area calculation of the first storey in square feet? Calculate the overall living area, and then use a calculator or an online conversion tool to convert from square metres to square feet. NOTE: Do not round-off till you get the final number. There are three options. There is only one correct answer.

1

1579 ft2

2

1576.67 ft2

3

1579.56 ft2

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Lesson 4 | Page 24 of 25

A salesperson is working with a family selling their two-storey home with a basement and built-in garage. The house has a simple rectangular layout, and the basement and second floor each have the same area as the first-floor living area and garage combined. After measuring and re-measuring with the appropriate tools, the salesperson determines the following dimensions: Basement, first floor (including garage), and second floor: 40.85 ft long by 21.18 ft wide each Garage: 10.06 ft long by 21.18 ft wide As part of their measurements, the salesperson also must convert the results to metric. Question #36: What is the total liveable floor area for this property in square metres? Use a calculator or an online conversion tool to convert from square feet to square metres. There are three options. There is only one correct answer.

1

140. 96 m2

2

142.76 m2

3

141.07 m2

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Lesson 4 | Page 25 of 25

Congratulations, you have completed the lesson! There are four sections on this page with a summary of the key topics that were covered in this lesson.

Guidelines that can be used when calculating the area of a residential structure

Although no measuring standards for residential structures exist, this lesson uses the guideline from the Appraisal Institute of Canada, the Building Measurement Guideline. Widely used across Canada, this handbook provides recommendations for how to calculate the total livable area for various residential and commercial structures.

Leading practices of a salesperson regarding area and linear measurements

Three standard measuring devices are available for a salesperson’s use– a laser measuring device, a digital wheel, and a standard tape measure. Each device has its benefits and drawbacks. A salesperson can verify property information, including dwelling/house size, through a variety of resources, such as internet searches, GeoWarehouse®, and MPAC. The salesperson should also conduct their own primary research, such as taking the measurements of the dwelling/house themselves.

AIC distinguishes between above grade and below grade living areas. When Measurements to take when listing a residential calculating total living area of a residential property, only above grade areas (above the ground) should be included. Rooms and spaces located below grade (below the property ground) should not be included in the total living area for the purpose of listing. They can still be measured for marketing purposes provided a distinction is made between above and below grade measurements.

Calculation of areas and Industry guidelines discussed in this lesson are from the AIC. linear measurements using industry guidelines

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Lesson 5 | Page 1 of 14

Lesson 5: Recommend Improvements Before Listing

This lesson discusses the benefits of preparing a property for sale, including advising the seller on changes required before bringing the property to market and interior/exterior home staging techniques.

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Lesson 5 | Page 2 of 14

A homeowner will tend not to look at their home with a critical eye. Many homeowners believe their home is liveable so why spend money on renovations and improvements when they intend to sell the property. One technique designed to increase a property’s appeal is home staging, the process of making a home attractive to potential buyers. A visually appealing property – interior and exterior – will attract more potential buyers. Because a salesperson’s duty is to promote and protect the best interest of the client, they should advise the seller why renovations and improvements are important and recommend which ones to make that will yield a good return on investment. Upon completion of this lesson, you will be able to: • Identify the benefits of preparing a property for sale • Identify how home staging could assist in the marketing of a property 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 14

Certain renovations have proven to be a greater return on investment than others. As a salesperson, you will need to advise a seller about what types of improvements may increase the appeal of the property to potential buyers and those that will not. Information to determine which type of improvements would be beneficial is available. For example, the Appraisal Institute of Canada has conducted research on what type of return on investment a seller can expect from various home improvement projects, such as painting; replacing windows, doors, and fixtures; and renovating the kitchen, bathroom, and/or basement. In some situations, you and the seller would need to discuss if certain improvements or renovations should be done before the property is listed. The objective is to make the home stand out from other listings, increase the property’s appeal to potential buyers, and reduce the likelihood that the property will be overlooked.

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Lesson 5 | Page 4 of 14

Benefits of Making Home Improvements As a salesperson, you should be able to advise a seller about which areas of their house would be beneficial to improve and which areas would not increase the appeal of the property to potential buyers. Certain renovations have proven to be a greater return on investment and may help to sell the property more quickly. In certain cases, you and the seller will have to determine if certain improvements or renovations should be done before the property is listed or if they are nice to have. For example, if a living room has new carpeting that is in good condition, even if there is hardwood beneath it, it may be worth keeping. Although hardwood is generally the more popular option, it is not always necessary to remove carpeting before listing the property. Note that there is hardwood flooring underneath the carpeting in the remarks section of the data sheet. Regardless of which renovations are undertaken, the objective is to make the home stand out from other listings and reduce the likelihood that it will be overlooked when a salesperson is searching for a property for a buyer they are representing.

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Lesson 5 | Page 5 of 14

Renovations and Improvements The Appraisal Institute of Canada has researched what type of return on investment a seller can expect from various home improvement projects. The following six sections contain information on examples of improvements that may bring a higher rate of return.

Windows and doors Windows and doors have an undeniable aesthetic value and they offer a high return on investment because they improve functionality, energy efficiency, and security. Features such as a steel frame and a solid core will increase a door’s security rating. A bow or bay window lets in more light than a double-hung or casement window, makes a great focal point within the room, and provides dimension to the exterior. The fit of a window or door is important for effective operation and energy efficiency; professional installation is recommended.

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Painting Interior and exterior painting can increase the aesthetic appeal of a property and is a relatively lowcost way to deliver a higher return on investment. Fresh paint on exterior entries, such as the front or back doors and garage, are areas that make a lasting impression on a potential buyer. Fresh paint can cover grease stains, minor ceiling cracks, residue from smoking, and general wear and tear. Repairing and painting baseboards can also enhance the overall look of a room. The seller should also consider painting surfaces that have outdated or loud colours.

Fixtures Kitchens and bathrooms often look tired and dated, largely due to old-fashioned fixtures. Replacing or updating cabinet hardware, light fixtures, faucets, and countertops could result in an immediate increase in a property’s value. These relatively small but effective upgrades can revitalize an entire home. Modern fixtures, such as spot lights, are attractive features for open-concept style homes.

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Bathroom Bathrooms are one of the most important rooms in a home in terms of valuation. Making repairs or small renovations to the bathroom, such as painting or updating fixtures and lighting, can increase the home’s appeal. A detail such as installing a glass door in a shower can also make a bathroom feel more spacious.

Kitchen Kitchens are often said to be the single most important room in a home relating to valuation, and can significantly increase the home’s appeal. If the seller cannot afford to modernize the kitchen, they can make less expensive improvements. For example, changing the cabinet hardware or installing new faucets. Modern cabinetry, lighting, and new appliances will increase the value of the home. To save on cost without compromising construction and desirability, the seller can look at options such as replacing or painting the cabinet doors.

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Basement An unfinished basement can translate to a large amount of inefficient use of space. Finishing a basement can be a cost-effective way to increase the usable space of a home and may be appealing to potential buyers. For example, an otherwise dark and dreary space can be transformed into a recreation room or kids’ play area, storage space, or a guest room.

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Lesson 5 | Page 6 of 14

A salesperson and sellers are working together to determine what improvements and/or renovations may need to be done before their property is listed for sale. The salesperson made recommendations, and the sellers need to decide on how to proceed. Everyone has agreed that some painting is required but the sellers have a limited budget. They will need to decide which improvements will be necessary and which will not. The salesperson noticed that the carpet in the basement is worn and stained and even professional cleaning would not suffice. The salesperson knows that new carpet for a basement can be lower grade, which will keep costs down. He also noticed that the paint in the bathroom was peeling, the faucet in the kitchen was beginning to rust, and the kitchen drawers and cabinets were out-of-date. Question #37: What advice should the salesperson give the sellers on which renovations to make? There are three options. There is only one correct answer.

1

Recommend that the sellers paint the bathroom, replace the kitchen faucet, upgrade the kitchen cabinetry, and replace the basement carpet

2

Recommend that the sellers renovate their entire basement

3

Recommend that the sellers replace the basement carpet and paint

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Lesson 5 | Page 7 of 14

A seller may not be willing to make any renovations or improvements to their property, but they can always make the property more appealing—in the form of home staging. The seller may research methods and strategies and do the home staging themselves, use a professional home stager to enhance the visual appeal of their home, or obtain guidance from a professional trained in staging concepts. Home staging can be done to a property’s interior and exterior. Let’s start with interior home staging techniques. As a salesperson, you may provide these tips to the seller who wants to do the home staging themselves.

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Lesson 5 | Page 8 of 14

Home Staging Techniques The main focus of home staging is to make a home more attractive to potential buyers. The goal is to sell a home quickly and get the best possible offer by attracting the highest number of potential buyers. A seller may research methods and strategies and do the home staging themselves, use a professional home stager to enhance the visual appeal of their home, or obtain guidance from a professional trained in staging concepts. Regardless of the method, the key objective is to make the home stand out against the competition by highlighting key features and benefits and conveying a positive visual impression to potential buyers. Staging is about creating an effective living space that is appealing to potential buyers with a range of tastes. It is not about decorating, as this is a personalized activity. In fact, staging seeks to depersonalize the property, removing clutter, cleaning, organizing rooms, maximizing features, and minimizing flaws.

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Lesson 5 | Page 9 of 14

Interior Staging Techniques I A seller may use some home staging that may achieve the desired result of making the home more appealing. As a salesperson, you could provide the seller with tips about interior staging techniques that will increase the appeal of their property. The following six sections contain information on internal home staging tips a seller can easily follow.

Bright and airy is better than dark and dismal Buyers want to see bright and inviting rooms. Windows should be clean and drapes open to let in maximum light. Paint should be fresh and the colour should be neutral. They are buying impressions as much as reality.

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Clean is the only option A good rule to follow is that if it can be seen, it has to be cleaned. Some items, such as carpet cleaning, may require hiring a professional service.

Get rid of clutter Get rid of clutter, regardless of whether it is in the living room, bedroom, closets, or basement. Rent a storage unit to store items you want to keep.

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If it’s broken, fix it Even the smallest things can translate into “they don’t take care of their home.” A burned-out light bulb and a broken screen may convey to potential buyers that the property was not maintained well.

If it’s had better days, replace it The worn carpet may have sentimental value but it will not help the seller’s staging efforts. Replace worn items, provided the seller can afford it.

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It’s about the buyer, not the seller Depersonalizing the home can make a big difference. Allow the buyer to view the property on their own terms, not yours. It’s difficult to visualize living in a home that’s crammed with the seller’s personal mementos. Pack away the photos and memorabilia.

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Lesson 5 | Page 10 of 14

Interior Staging Techniques II The following five sections contain information on additional internal home staging tips a seller can easily follow.

Clear the traffic areas Homes with ample space in which to move around are more appealing. If there is too much furniture, it can be rearranged to improve flow, disposed of, or stored.

Floors are important too Floors should be spotless. Always highlight flooring features such as creative mosaics and hardwood flooring. Make them a focal point to catch the buyer’s attention.

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Don’t ignore empty areas Do not forget the basement when staging. Get rid of all clutter and increase the amount of lighting. Let the buyers see the potential for this large, often underutilized asset.

Smells don’t sell well Eliminate odours of all kinds; they will not be appreciated by any buyer viewing the property. Make certain that all household garbage is removed from the kitchen and other containers. Pets and nurseries can also be a challenge. Use room deodorizers, open windows for ventilation, and run exhaust fans before showings.

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Get the garage in shape Cluttered garages are not appealing to potential buyers. Take the time to clean it out, clean it up, organize the tools and paint the floor (if necessary). The garage can become a focal feature of a well-staged home with a little effort.

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Lesson 5 | Page 11 of 14

Exterior Staging Techniques Staging tends to emphasize improving the look and feel of internal rooms, but complete staging also involves the exterior appearance, including landscaping. Curb appeal should not be underestimated. Often, homes are half sold before the buyer even reaches the frontdoor. A well-manicured lawn, appealing entrance, and a freshly sealed asphalt driveway leave a lasting impression. The following six sections contain information on external home staging tips you can provide to seller when you become a salesperson.

More than a mowed lawn Make certain that planting beds are neat, all edges carefully trimmed, and re-mulch to give a lasting impression.

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Flowers, flowers, flowers Ensure that there are plenty of well-tended flowers.

Painting can be a real plus If the home exterior is dull, colours are not wellmatched or the old paint job is fading, consider repainting the exterior trim, the front door, and the garage door. A freshly painted exterior would most likely increase the home’s curb appeal.

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Clean, clean, clean Pressure wash all exterior surfaces, including driveways and walkways, clean all windows and screens, and take extra time with the entrance way and front door.

Improve your green perspective In some instances, home stagers may involve tree professionals (arborists), but you can make real gains by clearing out overgrowth and raising the tree canopy (removing lower limbs) to make the home more visible.

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New and improved patio Cut back overgrown plants, reset uneven pavers, replace outdated lighting fixtures, conceal wires to 12volt landscaping lighting systems, remove clutter (e.g., old flower pots and planters) and freshen up the decor as budget permits. Anything that ought to be thrown away, should be.

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Lesson 5 | Page 12 of 14

A salesperson and sellers are discussing interior home staging techniques that will increase the appeal of the sellers’ home and attract more buyers. The salesperson understands the sellers are on a budget. The sellers would like to do some home staging but are concerned about the cost. Question #38: What recommendation should the salesperson make to the sellers? There are three options. There is only one correct answer.

1

Recommend that the sellers hire a professional home stager

2

Recommend that the sellers remove family photographs and other personal items from the home

3

Recommend that the sellers renovate the bathroom to a more appealing modern design

Exam Study Guide

Lesson 5 | Page 13 of 14

A salesperson and sellers are discussing exterior home staging techniques that will increase the appeal of the sellers’ home and attract more buyers. The salesperson understands the sellers are on a budget. The sellers would like to do some home staging but are concerned about the cost. The salesperson explains that exterior home staging is equally important because the exterior of the property is the first thing a potential client sees. Question #39: What recommendation should the salesperson make to the sellers? There are three options. There is only one correct answer.

1

Recommend that the sellers hire a professional landscaper for their front yard

2

Recommend that the sellers repaint the exterior of the house

3

Recommend that the sellers wash the windows and the front porch

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Lesson 5 | Page 14 of 14

Congratulations, you have completed the lesson! There are two sections on this page with a summary of the key topics that were covered in this lesson.

Preparing a property for sale

Recommendations for improvements and renovations for a property need to be discussed with the seller before bringing the property to market. A salesperson needs to explain to the seller how improvements and renovations, even minor ones, will increase the appeal of the property and attract more buyers. The salesperson should focus on renovations and improvements that bring a higher return on investment, such as: • Window and door replacements • Interior and exterior painting • Necessary repairs and upgrades in kitchens, bathrooms, and basements

Home staging techniques that can assist in the marketing of a property

The main focus of home staging is to make a home more attractive to potential buyers so it sells quickly and the seller receives a good offer. A salesperson should recommend to the seller home staging techniques designed to increase the appeal of both the interior and exterior of the home. Interior staging techniques include: • De-cluttering the home and making necessary repairs • Cleaning thoroughly • Painting if necessary • De-personalizing the home by removing any personal items and memorabilia Exterior staging techniques include: • Thoroughly cleaning the exterior of the home and windows • Ensuring the lawn, yard, and gardens are all manicured and well-tended • Pressure washing exterior surfaces such as the driveway and decks Exam Study Guide

• Replacing outdated lighting fixtures • Re-painting areas such as doors, exterior trim, and garage doors, as necessary

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Lesson 6 | Page 1 of 17

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 17

This lesson reviews the content from the module. You will answer a series of knowledge-check questions. This will help you to review what you have learned about preparing to market a residential property and complete some additional practice before finishing the module.

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Lesson 6 | Page 3 of 17

XYZ Realty Ltd., Brokerage, was referred to a couple interested in selling their property. The salesperson the sellers wanted to hire no longer works at the brokerage. Another salesperson was on duty when the sellers called the brokerage. The sellers decide to meet with this salesperson at their home to determine if they will want to work with him. Question #40: While preparing to meet with the sellers, it will be appropriate for the salesperson to collect documents required for the listing agreement. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 6 | Page 4 of 17

XYZ Realty Ltd., Brokerage, was referred to a couple interested in selling their property. The salesperson the sellers wanted to hire no longer works at the brokerage. Another salesperson was on duty when the sellers called the brokerage. The sellers decide to meet with this salesperson at their home to determine if they will want to work with him. Question #41: While preparing to meet with the sellers, it will be appropriate for the salesperson to examine market trends and the surrounding neighbourhood. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 6 | Page 5 of 17

XYZ Realty Ltd., Brokerage, was referred to a couple interested in selling their property. The salesperson the sellers wanted to hire no longer works at the brokerage. Another salesperson was on duty when the sellers called the brokerage. The sellers decide to meet with this salesperson at their home to determine if they will want to work with him. Question #42: While preparing to meet with the sellers, it will be appropriate for the salesperson to suggest contacting third-party professionals to address any necessary major repairs. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 6 | Page 6 of 17

XYZ Realty Ltd., Brokerage, was referred to a couple interested in selling their property. The salesperson the sellers wanted to hire no longer works at the brokerage. Another salesperson was on duty when the sellers called the brokerage. The sellers decide to meet with this salesperson at their home to determine if they will want to work with him. Question #43: While preparing to meet with the sellers, it will not be appropriate for the salesperson to review previous listing and sale information about the property. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 6 | Page 7 of 17

A salesperson representing a seller is obligated to determine known material facts of the seller's property and to ensure the information in the listing data form is accurate. The salesperson should prepare a list of general and specific questions to ask the seller. Specific questions would include those relating to the structure of the property, any improvements the seller has done, and if there are any environmental issues or concerns surrounding the property. Question #44: What type of questions could the salesperson prepare to ask the sellers during their meeting?

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Lesson 6 | Page 8 of 17

A seller signs a representation agreement with a brokerage. Before listing the property, the salesperson conducts a visual inspection of the property’s interior and exterior. The salesperson identifies several defects. Question #45: The salesperson and the seller are obligated to disclose a buried oil tank to a potential buyer and their salesperson. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 6 | Page 9 of 17

A seller signs a representation agreement with a brokerage. Before listing the property, the salesperson conducts a visual inspection of the property’s interior and exterior. The salesperson identifies several defects. Question #46: The salesperson and the seller are obligated to disclose a broken window in the basement to a potential buyer and their salesperson. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 6 | Page 10 of 17

A seller signs a representation agreement with a brokerage. Before listing the property, the salesperson conducts a visual inspection of the property’s interior and exterior. The salesperson identifies several defects. Question #47: The salesperson and the seller are not obligated to disclose an uneven surface on the wall near the HVAC system to a potential buyer and their salesperson. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 6 | Page 11 of 17

A seller signs a representation agreement with a brokerage. Before listing the property, the salesperson conducts a visual inspection of the property’s interior and exterior. The salesperson identifies several defects. Question #48: The salesperson and the seller are obligated to disclose an outdated electrical system to a potential buyer and their salesperson. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 6 | Page 12 of 17

Before the salesperson can list the sellers’ property, he needs to calculate the interior and exterior measurements of the property; he wants to verify the property dimensions against source materials he has collected. This will also help him estimate a value for the property, meet his obligation to provide competent and conscientious services to the sellers, and ensure the information he lists on the local listing service is accurate and complete. The sellers’ home is a two-storey with a built-in garage and the salesperson needs to calculate the total living area. The salesperson’s measurements are: 1st Floor: 7.65 m x 10.75 m 2nd Floor: 7.65 m x 15.25 m Garage: 6.25 m x 6.33 m Question #49: What is the overall area calculation in square feet? Calculate the total living area, and then use a calculator or an online conversion tool to convert from square metres to square feet. NOTE: Round-off each answer during calculation to two decimal places. There are three options. There is only one correct answer.

Exam Study Guide

1

1715.12 ft2

2

2240.16 ft2

3

2148.15 ft2

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Lesson 6 | Page 13 of 17

The salesperson wants to prepare the sellers’ property for showing. After conducting a visual inspection, it is recommended that the sellers make improvements intended to increase the visual appeal of the property to the largest number of potential buyers. The sellers tell the salesperson that they have a limited budget. Question #50: The salesperson should recommend the sellers to install granite countertops. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 6 | Page 14 of 17

The salesperson wants to prepare the sellers’ property for showing. After conducting a visual inspection, it is recommended that the sellers make improvements intended to increase the visual appeal of the property to the largest number of potential buyers. The sellers tell the salesperson that they have a limited budget. Question #51: The salesperson should recommend the sellers not to necessarily paint interior and exterior. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 6 | Page 15 of 17

The salesperson wants to prepare the sellers’ property for showing. After conducting a visual inspection, it is recommended that the sellers make improvements intended to increase the visual appeal of the property to the largest number of potential buyers. The sellers tell the salesperson that they have a limited budget. Question #52: The salesperson should recommend the sellers to replace kitchen faucets and hardware. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 6 | Page 16 of 17

The salesperson wants to prepare the sellers’ property for showing. After conducting a visual inspection, it is recommended that the sellers make improvements intended to increase the visual appeal of the property to the largest number of potential buyers. The sellers tell the salesperson that they have a limited budget. Question #53: The salesperson should recommend the sellers not to purchase all new appliances for the kitchen. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 6 | Page 17 of 17

Congratulations, you have completed the lesson!

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Module Summary | Page 1 of 3

Module Summary

This lesson provides a summary of concepts from 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 Learning Objectives.

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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 covered in this module.

Prepare to meet with potential sellers

As a salesperson, you will need to know and understand: • How to document defects properly • Your obligation to obtain information about the property from the seller • Your obligation to advise the seller that they must disclose known latent defects including the most serious defects • Your obligation to document and disclose, on behalf of the seller, any known latent defects to a potential buyer through their salesperson. You are also obligated to counsel your seller to obtain qualified legal advice on what they are required to disclose, when warranted • The importance of conducting a thorough visual inspection of the interior and exterior of a property and recognizing defects and property conditions that may affect the listing and sale Before conducting the visual inspection, prepare specific questions for the seller, document the seller’s answers, and ask the seller to provide all documents related to repairs and warranties. Be aware of situations that may require the assistance of a third-party professional, including: • Electrical issues, such as faulty wiring or work does not meet the building and/or fire codes • Environmental issues, such as mould, lead, or hazardous waste disposal • Structural issues, such as concerns about the roof, basement, or foundation When you conduct a visual inspection of a property, ensure the seller has a clear understanding of patent defects and latent defects. Completion of this lesson has enabled you to: • Explain the requirements regarding the seller’s obligations for disclosure Exam Study Guide

• Identify leading practices for a salesperson when conducting a visual inspection • Describe the types of defects a salesperson should identify when doing an inspection • Identify when to consult a third-party professional

Conduct a visual inspection

A pre-listing presentation prepares a salesperson to meet a potential seller and demonstrates their ability to answer the seller’s questions and market the property. The purpose is to sign the potential seller as a client. Components of a pre-listing presentation include: • Information about the salesperson and the brokerage • Applicable forms, such as a representation agreement, data sheet, and property disclosure forms • Testimonials from past clients (with the clients’ written consent) • Supporting documentation; for example, other listings, market trend information, and related analysis, to assist in the discussion • A strategy for establishing a listing price and a proposed marketing plan for the property • Information about current market conditions; for example, whether it is a seller’s market, buyer’s market, or balanced market

Gather key information

Collect and review key information about the property and ask the seller to provide original documents they received when they first purchased the property. Key information includes: • Names of all people on title or who have an interest in the property • Mortgages, lines of credit, or other debt obligations registered against title • Land use restrictions such as encroachments, easements, and rights of way • Property taxes and notice of assessment • Zoning issues

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Verify the accuracy of information relating to the property’s physical attributes, such as lot size, living area, and room sizes. Verify information by: • Reviewing source documents • Purchasing a report from GeoWarehouse® • Obtaining floor plans from the builder, if applicable • Taking your own measurements of the building(s) and comparing these to measurements in the source document and other reports • Asking the seller about the age of the HVAC system, wells/septic system, wiring, and plumbing Examine neighbourhood characteristics that can have both a positive or negative effect on the appeal, value, and marketability of the property. Examples of characteristics that affect value and appeal include: • Reputation and location of area schools • Public transit • Environmental hazards and/or stigmatized land uses, such as waste sites, nuclear power plants, prisons • Cell phone towers and television transmission towers • Amenities, such as restaurants, recreation facilities, and shopping centres Completion of this lesson has enabled you to: • Identify information required to list a residential property and the importance of verifying the information • Identify the characteristics of a neighbourhood that may impact the appeal of a residential property

Calculate areas and related linear measurements

Although no universal measuring standards of residential buildings exist in Canada, the Appraisal Institute of Canada (AIC) Building Measurement Guideline is widely used across the country and provides recommendations for how to calculate the total living area for a number of residential and commercial structures. Exam Study Guide

Know what resources are available to you regarding calculating the total area of a house. Verify property information, such as dwelling/house size, through source documents, and a variety of other resources; for example, internet search, GeoWarehouse®, and MPAC. Consider local practices and policies for measurements. For example, depending on the location, differences may exist regarding what is included in area calculations. You will use three types of measurements: feet/metres, square feet/square metres, and acres/hectares. Know how to convert metric to imperial measurements and imperial to metric measurements. The area of a room is determined by multiplying the length times the width of each rectangular livable floor area. Area measurement may involve a single rectangular shape or a combination forming an irregular pattern. For irregular rectangular shapes, calculate the total area as if a rectangle and subtract the non-livable floor area. The total living area of a house is based on exterior measurements. You will: • Take exterior measurements on significant structures • Take exterior measurements on accessory buildings • Take measurements of other exterior improvements If you are unable to measure one of the exterior surfaces, measure the interior perimeter wall and add an allowance for each exterior wall using the thickness of the windows to determine the thickness of the exterior wall. Inspect the house to identify spaces that should be included in the total living area. When calculating total living area of a residential structure, the livable area includes only areas that are above grade and heated year-round; for example, habitable rooms that are directly accessible from another living area, whether through a doorway, heated hallway, or stairway. Rooms located in a finished basement would not be included in the livable floor area measurement. However, these rooms would still be

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measured for marketing and listing purposes. Additional finished rooms below grade add value to the property. AIC distinguishes between above grade and below grade areas. When calculating total living space of a residential property, only above grade areas (above the ground) should be used. Rooms and spaces located below grade (below the ground) should not be included in the total living space when listing the property. They can still be measured for marketing purposes. Completion of this lesson has enabled you to: • Describe guidelines that can be used when calculating the area of a residential structure • Identify leading practices of a salesperson regarding area and linear measurements • Review basic math skills used when describing residential measurements • Identify what measurements should be taken when listing a residential property • Calculate areas and linear measurements using industry guidelines You will need to make recommendations to the seller for improvements and Recommend improvements before renovations that could or should be made to a property before bringing it to market, and home staging techniques that will increase the property’s appeal and marketability. listing Convey to the seller the importance of making the property more attractive to potential buyers and, at the same time, be sensitive to the seller’s needs and circumstances. Renovations and improvements that will bring higher return on investment include: • Window and door replacements • Interior and exterior painting • Necessary repairs and upgrades in kitchens, bathrooms, and basements Explain how staging will increase the property’s appeal and attract more buyers. Interior staging techniques include: • De-cluttering • Making repairs Exam Study Guide

• Cleaning thoroughly • Painting • De-personalizing Exterior staging techniques include: • Cleaning the exterior of the home and windows • Ensuring the lawn, yard, and gardens are well-maintained • Pressure washing exterior surfaces such as the driveway and decks • Replacing outdated lighting fixtures • Re-painting areas such as doors, exterior trim, and garage doors as necessary Completion of this lesson has enabled you to: • Identify the benefits of preparing a property for sale • Identify how home staging could assist in the marketing of a property

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Appendix | Page 1 of 3

Appendix Answer Key Question #1: 2, 3 Question #2: 2, 4 Question #3: 1, 3 Question #4: 4 Question #5: 1, 2, 4 Question #6: 2, 3 Question #7: 2 Question #8: 3 Question #9: 2 Question #10: 1 Question #11: 1 Question #12: 2 Question #13: 1 Question #14: 2 Question #15: 1 Question #16: 1, 3, 5 Question #17: 1 Question #18: 2 Question #19: 1 Question #20: 1 Question #21: 2 Question #22: 2 Question #23: 2 Question #24: 1 Exam Study Guide

Appendix | Page 2 of 3 Question #25: 1 Question #26: 2 Question #27: 2 Question #28: 2 Question #29: 1 Question #30: 1 Question #31: 2 Question #32: 1 Question #33: 1 Question #34: 3 Question #35: 1 Question #36: 1 Question #37: 3 Question #38: 2 Question #39: 3 Question #40: 1 Question #41: 1 Question #42: 2 Question #43: 1

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Appendix | Page 3 of 3

Question #44: The following questions are adapted from OREA Form 220: Seller Property Information Statement. This is not a comprehensive list but reflects more common examples. Structural questions the salesperson should ask the sellers about their property: • • • • • • •

Have you made any renovations, additions, or improvements to the property? Did you obtain a permit? Are you aware of any deficiencies or non-compliance with the Ontario Fire Code? Are you aware of any problems with the heating system? Air conditioning system? Plumbing? Electrical system? Are you aware of any moisture and/or water problems? Are you aware of any roof leakage or unrepaired damage? Is there any lead, galvanized metal, cast iron, or Kitec plumbing on the property?

©2019 Ontario Real Estate Association. All rights reserved. Used under license. Question #45: 1 Question #46: 2 Question #47: 1 Question #48: 1 Question #49: 1 Question #50: 2 Question #51: 2 Question #52: 1 Question #53: 1

Exam Study Guide

Module: How Property Conditions Impact Disclosure Requirements This is a study guide to help you prepare for the qualifying exam. There are multiple study guides that are provided for preparation. Each study guide contains several decision points to test your knowledge. The answer key to these decision points is present in the “Appendix” section at the end of the guide. Please use Adobe Acrobat Reader (Recommended version 9 or above) to navigate through this PDF. Real Estate Pre-Registration 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 Pre-Registration Program learner.

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Module: How Property Conditions Impact Disclosure Requirements

As a salesperson, you will need to gather information about a property and conduct a thorough visual inspection before the property is listed. This module provides an in-depth review of potentially detrimental property conditions and the obligations for disclosure—yours and the seller’s. You will learn about the authorities that oversee environmental issues in Ontario, how to identify any potentially detrimental conditions, and your obligation to discuss these conditions with the seller. You will also learn about factors that can cause a property to become stigmatized, how to discuss stigma with a seller or a buyer, and possible disclosure obligations. Finally, you will learn about leading practices in relation to property conditions and minimizing risk concerning environmental issues.

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Menu: How Property Conditions Impact Disclosure Requirements

Number of Lessons Lesson Number

4 Lessons Lesson Name

Lesson 1

Salesperson’s Obligations Regarding Property Conditions and Disclosure

Lesson 2

Salesperson’s Leading Practices Regarding Property Conditions

Lesson 3

Summary Practice Activities Module Summary Appendix

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Lesson 1 | Page 1 of 28

Lesson 1: Salesperson’s Obligations Regarding Property Conditions and Disclosure

This lesson introduces the authorities that oversee environmental issues in Ontario. It explains how to identify any current or previous use of the property that may be considered detrimental and affect the property’s marketability, and provides examples of typical issues that may cause such conditions. The lesson also describes a salesperson’s obligations to acquire information from a seller and discuss their concerns with the seller, including any environmental issues.

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Lesson 1 | Page 2 of 28

Salesperson’s Obligations Regarding Property Conditions and Disclosure

The focus of this lesson is to provide you with a general understanding of environmental issues and potentially detrimental property conditions that may affect the listing, marketing, and sale of a residential property. As a salesperson, you will need to know about the ministries and regulatory authorities that oversee environmental issues in Ontario, how to identify potentially detrimental conditions, and how to discuss these conditions with the seller. Upon completion of this lesson, you will be able to: • Identify the environmental regulatory authorities that oversee environmental issues in Ontario • Identify any potentially detrimental conditions • Describe the salesperson’s obligations to discuss environmental concerns with a seller 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 28

Common Types of Environmental Issues

As a salesperson, you may be involved in the marketing and sale of properties that have been or continue to be affected by environmental issues. Common types of environmental issues you may encounter include potential soil contamination associated with septic systems, wells, or buried oil tanks. You may also encounter situations where a property owner is restricted in what they can do with their property due to environmental regulations. In Ontario, several regulatory authorities oversee environmental issues. You will need to be aware of these authorities and the basic requirements under the applicable legislation, so you can advise the seller you are representing about environmental issues, direct them to the appropriate authorities for more information, and identify issues that need to be brought to their attention and/or disclosed to potential buyers. The regulatory authorities that oversee risks associated with contamination include the Building and Development Branch of the Ministry of Municipal Affairs and Housing, which administers the Ontario Building Code, and the Technical Standards and Safety Authority, which regulates standards regarding buried oil tanks. The regulatory authorities that protect the environment include the Ministry of the Environment, Conservation and Parks, and the Ministry of Natural Resources and Forestry.

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Lesson 1 | Page 4 of 28

The Ontario Building Code

Administered by the Building and Development Branch of the Ministry of Municipal Affairs and Housing, the Ontario Building Code is a regulation under the Building Code Act, 1992. The Building Code sets out qualifications for sewage system inspectors and for those in the construction, installation, repair, servicing, and cleaning or emptying of sewage systems. The Ministry of Municipal Affairs and Housing reviews and amends the Building Code approximately every five years. Amendments reflect changes in technology and emerging public safety issues. Building Code Act, 1992, and Septic Systems As a general guideline, municipalities are responsible for issuing permits, collecting fees, conducting inspections, and storing various documents about septic tank installations. Municipalities must follow detailed requirements as set out in Part 8 of the Building Code concerning design standards and system requirements. However, not all municipalities perform directly all functions regarding on-site sewage systems because the Building Code provides that a municipality may enter into an agreement with other municipalities, the county, or the region to enforce Part 8 of the Building Code. If there is no agreement, a municipality may delegate the authority to a health unit or conservation authority that has jurisdiction in that particular municipality.

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Septic Systems and Salesperson Obligations

As a salesperson representing a seller whose property has a septic system, you will need to gather information about the system and advise the seller that the system will likely need to be inspected before the property is listed. If an inspection uncovers issues with the septic system, you may need to recommend that the seller remedy the issue or explain the possible impact on the selling price and to take the issues into consideration when establishing a listing price. If you are representing a buyer interested in purchasing a property with a septic system, you would need to explain to the buyer the need to include a condition in the agreement of purchase and sale that provides for an inspection of the septic system. This allows the buyer sufficient time to have the septic system inspected by a licensed septic system inspector.

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Lesson 1 | Page 6 of 28

Technical Standards and Safety Authority (TSSA) The Technical Standards and Safety Authority (TSSA) administers and enforces the Technical Standards and Safety Act, 2001, and its regulations on behalf of the provincial government. Administration of the safety standards includes engineering design reviews, licensing and registration, training and certification, and public education. An underground fuel oil tank is a buried or partially buried container, in direct contact with earth or backfill that contains fuel oil used in appliances or property systems such as furnaces or boilers. TSSA regulates the installation, testing, maintenance, repair, removal, upgrading, replacement, inspection, and use of appliances and equipment that use fuel oil. TSSA also regulates above-ground fuel tanks, installed at or above grade level. When the environment is affected by an incident such as a leaking storage tank, TSSA is responsible for ensuring the incident is investigated according to the regulations and managed properly. In cases where ground water or soils are affected, TSSA is responsible for administering the Environment Management Protocol and ensuring that areas affected by spills or leakage will be returned to the established standards.

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Lesson 1 | Page 7 of 28

TSSA and Fuel Tanks

The main concern with all fuel tanks is the risk of contamination of the environment. The existence of an aboveground or underground fuel tank on a property is a material fact that must be disclosed by the salesperson to the seller. An underground fuel oil tank could also be a latent defect and, if known, must be disclosed by the seller. A potential buyer will need to know about the existence of the tank and whether it is secure. The seller would need to provide any potential buyer with information about the tank, such as age and maintenance history. However, the standards for maintaining underground fuel oil tanks is greater than an above ground tank. TSSA requires the given of a homeowner: • Existing underground fuel oil tanks must be registered with TSSA; the homeowner must submit the Underground Fuel Oil Application Form to TSSA.

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• Existing underground fuel oil tanks must be upgraded with specific leak and spill prevention equipment; upgrading will depend on the tank’s age. • Existing underground fuel oil tanks that are not upgraded according to TSSA standards must be removed by a TSSA-registered contractor. • Unused underground fuel oil tanks must be removed by a TSSA-registered contractor. • Unused underground fuel oil tanks may remain abandoned in the ground only if approved by a TSSA variance. (The homeowner submits an application for a variance to TSSA. TSSA reviews the application and provides a written response within approximately 21 business days.) Any contamination must be cleaned by a TSSA-registered contractor; this includes remediation of the contamination site.

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Lesson 1 | Page 8 of 28

TSSA and Salesperson Responsibilities

As a salesperson, if you are representing a seller whose property has a known underground fuel oil tank, you will need to do the given: • Confirm with the seller that the tank is registered with TSSA and ask for a copy of the registration and maintenance records. • If the tank has been taken out of service or unused, confirm with the seller that they have received permission from the TSSA that the tank may be abandoned in the ground. • If TSSA did not issue a variance to allow the underground tank to be abandoned in the ground, advise the seller to arrange for the immediate removal of the tank by a TSSA-registered contractor before the property is listed. • Advise the seller that the existence of an underground fuel oil tank must be disclosed to all potential buyers. A seller may decide that the removal of the abandoned underground fuel oil tank is too costly and ask you to list the property anyway. If such a situation arises, you will need to advise the seller that: • Few buyers, if any, would be willing to purchase a property with an abandoned underground fuel oil tank because of liability and the cost of removal and remediation. • An interested buyer would offer a lower price to cover the cost of removal and remediation. • An interested buyer may make the offer conditional on the seller removing the underground fuel oil tank before closing.

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Lesson 1 | Page 9 of 28

Ministry of the Environment, Conservation and Parks

The Ministry of the Environment, Conservation and Parks administers and enforces the Environmental Protection Act, 1990. It promotes healthier communities and economic prosperity by protecting Ontario’s air, land, and water. Specifically, the Ministry investigates matters concerning pollution, waste management, waste disposal, and litter management and disposal. The Ministry is empowered to issue various licenses, permits, and certificates of approval concerning a range of activities that have an impact on the environment. For example: • Permits relating to private water wells • Approvals concerning herbicide use by cottage owners to control aquatic plant life • Remediation of contaminated lands • Land development and associated sewage works • Haulage of septic waste • Air quality, including the control of emissions Exam Study Guide

Lesson 1 | Page 10 of 28

Environmental Protection Act, 1990

The Environmental Protection Act, 1990, is the primary environmental legislation impacting the ownership and use of real property in Ontario. Since 1971, the Act has gradually expanded both in terms of jurisdictional authority and the degree of control/enforcement over environmental issues. The Act provides for various types of orders that can be invoked by either the minister or the director of the Ministry. The given five orders will affect real estate transactions: 1. Remedial order: The Ministry can require a party (including a corporation) to remedy a situation in which a discharge is involved 2. Preventative order: The Ministry can require a party (including a corporation) to take preventative measures; for example, equipment, personnel, and monitoring apparatus 3. Waste removal order: The Ministry can require a party (including a corporation) to remove hazardous waste from a site Exam Study Guide

4. Control order: The Ministry can require a party (including a corporation) to control or eliminate the source of pollution 5. Stop order: The Ministry can require a party (including a corporation) to stop the discharge of a contaminant that is an immediate threat to human health or life The range of parties (individuals or corporations) subject to orders can vary considerably. If an administrative order is not followed, the Ministry can undertake the work and charge the costs back to the individual or corporation who received the order. Example: While conducting a visual inspection of a potential seller’s property, the salesperson observes that the seller is storing pesticides in the garage and notices stains on the garage’s concrete floor. The salesperson asks the seller what caused the stains, to which the seller replies they do not know. The salesperson recommends further investigation by a third-party professional.

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Lesson 1 | Page 11 of 28

Ministry of Natural Resources and Forestry The Ministry of Natural Resources and Forestry is responsible for protecting and sustainably managing the province’s diverse natural resources to support Ontario’s environmental sustainability, economic prosperity, and quality of life. The Ministry is involved in various aspects of environmental controls within the province. As a salesperson, you will need to understand the role of the Ministry because you may be trading a property that falls under the jurisdiction of the Ministry. For example, the property is located on a lakefront or abuts Crown land. The following three sections contain information about the responsibilities of the Ministry and the regulated areas under the Ministry’s jurisdiction.

Main responsibilities of the Ministry of Natural Resources and Forestry The Ministry of Natural Resources and Forestry: • Manages Ontario’s fish and wildlife resources • Leads the management of Ontario’s Crown lands, water, oil, gas, salt, and aggregate resources (including making Crown land available for renewable energy projects) • Ensures the sustainable management of Ontario Crown forests

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Other responsibilities of the Ministry of Natural Resources and Forestry Other responsibilities of the Ministry of Natural Resources and Forestry include: • Protection of fish habitat, including control of pollutant discharges into watercourses and stream alterations that could adversely affect the fish habitat (Fisheries Act, 1985). This responsibility is performed on behalf of the federal government’s Department of Fisheries and Oceans. • Approvals required for diverting, holding back, or other activities affecting water flow and levels for other users (Lakes and Rivers Improvement Act, 1990.) • Permits required for work or other activity on shore lands adjacent to navigable waters. The bed of these waterways (that is, below the highwater mark) is public land (Public Lands Act, 1990.)

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Wetlands Wetlands are areas covered either seasonally or permanently by shallow water or where the water table is at or near the surface. The five major types of wetlands are swamps, bogs, fens, marshes, and open water less than two metres in depth. The goal of Ministry of Natural Resources and Forestry is to protect and conserve wetland areas wherever possible. As a salesperson, you will need to be aware of any wetlands on or immediately adjacent to properties being marketed as this may affect the properties perceived value.

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Lesson 1 | Page 12 of 28

A salesperson is representing a seller who wants to sell his rural property next to the lake. The property has a septic system, an addition to the main home, and a small dock on the lake. The salesperson explains to the seller what types of third-party inspections a buyer may want to request as a condition to any offer. Question #1: What should the salesperson advise the seller about third-party inspections? There are four options. There are multiple correct answers. 1

A buyer will specify that a third-party inspection of the property’s foundation is legally required.

2

A buyer and their salesperson will want to see any documents related to the recently built addition and will ask if it was built in accordance with the Ontario Building Code. They will ask to see reports from any inspections that have been completed.

3

An employee from the Ministry of Natural Resources and Forestry will perform a soil test for contaminants and take a water sample to look for effluents before the sale.

4

A buyer’s salesperson will ask that the septic system be checked by a third-party inspector as part of the agreement of purchase and sale.

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Lesson 1 | Page 13 of 28

Material Facts About the Property As a salesperson, you will need to gather key information about a property so you can list it accurately and without misrepresentation. If you represent a seller, an important part of the information-gathering process will be to research and discover any material facts about the property, including any potentially detrimental property condition that may reduce a property’s market value or its marketability. Examples of detrimental conditions include cannabis (often also called marijuana) grow operations, hoarding, and deferred maintenance that may contribute to the development of a latent defect. Any property condition may be considered a material fact if the condition could affect a reasonable person’s decision to sell or buy the property, influence the selling price, or influence the conditions attached to the agreement of purchase and sale. If any detrimental property condition is a latent defect that is known to the seller, then the seller will be required to make the disclosure. Based on the seller’s instructions, you should expect to be asked to make the disclosure of known latent defects to potential buyers and other brokerages on behalf of the seller. If you are providing services to a customer, you will be required to disclose what you know or ought to know about material facts to your customer.

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Lesson 1 | Page 14 of 28

Current or Previous Use of the Property: Grow House The Cannabis Act, 2018, legalized recreational cannabis in October 2018. The Act permits an individual to grow up to four plants per residence. A cannabis grow operation (also known as a grow op or marijuana grow op) produces cannabis on a large scale and poses health risks to occupants. For example, a grow op requires significant amounts of water and humidity to bring the plants to harvest. A grow op in a house without adequate ventilation means condensation will produce dampness, which leads to mould. As a salesperson, you may not be able to spot a grow op after it has been dismantled and renovated. A home inspection by a qualified home inspector is the best way to determine if a house is a former grow op. While getting a home inspection is always a good idea, there are potential signs to look for when you conduct a visual inspection that the house may have been used as a grow op. • Mould in corners where the walls and ceilings meet • Unusual number of roof vents or signs of roof vents • Fresh paint on window frames to cover damage caused by high levels of humidity • Painted concrete floors in the basement with circular marks where pots once stood • Evidence of tampering with the electric meter (damaged or broken seals) or the ground around it • Unusual or modified wiring in the interior or on the exterior of the house • Brownish stains on the underside of beams or arches that bleed down a wall • Concrete masonry patches or alterations on the inside of the garage • Patterns of screw holes on the walls • Fireplace alterations

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Lesson 1 | Page 15 of 28

Current or Previous Use of a Property: Other Examples

A property’s previous and current use may contribute to potentially detrimental conditions. In the previous screen, you learned about grow houses and grow operations. Given are other examples of current or previous use of a property that may contribute to a detrimental condition. • Hoarding is a disorder whereby individuals acquire and have trouble discarding items that have little or no value, such as newspapers/magazines, old clothing, food, bags, books, mail, paperwork, and auto parts. Hoarding makes essential maintenance and upkeep difficult. The lack of maintenance can lead to build-ups of grease, dust, dampness, or mould. It can also lead to an infestation of mice, termites, bats, woodworms, or carpenter ants. • Illicit narcotic production lab (not cannabis or marijuana) of drugs (such as synthetic drugs). Such labs use extremely hazardous chemicals that can lead to respiratory complications and other health issues and are highly flammable. In addition to risks associated with air quality and fire, such labs may attract unwanted visitors connected to the previous illicit drug operation.

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• A garage used as an automotive repair shop. Various lubricants, solvents, and engine oil are stored in the garage. A spill can create environmental issues with the property. • Property renovations (such as new wiring or plumbing) without the proper building permits. Renovations must comply with the Ontario Building Code and the Ontario Fire Code. These detrimental conditions may, in turn, contribute to the development of a latent defect or a material latent defect. A latent defect is not readily observable by the untrained eye during the reasonable inspection of a property. The most severe type of latent defect is a material latent defect, which poses a serious risk and can render the home unsafe, unhealthy, or uninhabitable. Certain latent defects may only be identified and remediated by a qualified third-party professional. As a salesperson, if you are involved in the sale of properties whose current or previous use may contribute to any latent defect caused by the detrimental condition, you should advise the seller to consult with an appropriate thirdparty professional to identify and remediate the property before it is listed. In the case of renovations, you will need to confirm with the seller that they obtained the necessary permits. If the seller is unable or unwilling to remedy a known latent defect, you must advise the seller that the defect has to be disclosed to other brokerages and buyers.

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Lesson 1 | Page 16 of 28

Potentially Detrimental Conditions As a salesperson, when you are conducting a visual inspection of a property or discussing property conditions with the seller, you will need to be able to identify potentially detrimental conditions that will affect the property’s marketability. Two potentially detrimental conditions you will need to understand are deferred or lack of routine maintenance and issues typically associated with older properties, such as aluminum wiring, knob and tube wiring, lack of insulation, and galvanized piping/plumbing. The following five sections contain information about potentially detrimental conditions.

Deferred maintenance Deferred maintenance, or lack of routine maintenance, may lead to detrimental property conditions such as rotten walkways, wooden structures in need of repair, leaky roofs, insufficient insulation, the growth of mould, or infestation. As a salesperson conducting a visual inspection, you may be able to identify some conditions caused by deferred maintenance. Other conditions may only be identified by a qualified, third-party professional, such as a home inspector. For example, a home inspection can reveal hidden issues or defects, such as a slow water leak causing dampness or mould, or rodents that have eaten through insulation or the plastic covering on wiring. If discovered, these types of defects would be considered latent, and the recommendation to the seller would be to fix the defect before the property is

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listed or explain their obligation to disclose such latent defects to buyers.

Aluminum wiring Homes in Ontario built in the mid 1960s to late 1970s may have aluminum wiring. The Ontario Electrical Safety Code (the Code) permits the installation of aluminum wiring as long as appropriate aluminum to copper wire connectors are used in accordance with the Code and the manufacturer’s instructions. A salesperson may be able to identify aluminum wiring if the plastic casing around the wiring says “Aluminum” or “Alum.” Other signs of the existence of aluminum wiring include hot or charred outlets or silver-coloured wiring coming out from under terminal screws. As a salesperson representing a seller, if you suspect the wiring is aluminum, you should ask the seller. You may also want to advise the seller to consult with an electrician. If you are representing a buyer, recommend that the buyer consult with an electrician to inspect the wiring. The electrician may recommend replacing the aluminum wiring with copper or aluminum-to-wire connectors. The Electrical Safety Authority would then issue a certificate that the work complies with the Electrical Safety Code.

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Knob and tube wiring Most Ontario homes built in the early 1900s up to the late 1940s had knob and tube wiring, a system where the wires run through porcelain cylinders that look like tubes. Ceramic or porcelain knobs hold the cylinders in place. Knob and tube wiring can pose a few dangers and is a fire risk because it is not grounded, cannot carry a heavy electrical load or be used in outdoor locations, and its rubber insulation breaks down over time. In the late 1940s, this system was abandoned when a newer system that included a ground wire was introduced. The existence of knob and tube wiring on a property is a material fact. Many insurance companies will refuse to insure a property with knob and tube wiring. Instead, they will give a new owner a 60-or 90-day period during which the new owner must replace the knob and tube wiring. To determine if a house has knob and tube wiring, and you are representing a seller, you could: • Ask the seller • Inspect the basement during the visual inspection of the property; (knob and tube wiring is occasionally visible in those areas of the property) • Inspect the attic if it is easily accessible (please note that not all salespersons will inspect the attic)

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If a house has knob and tube wiring, you should advise the seller to hire an electrician to inspect it for signs of deterioration or damage. If there are signs of deterioration or damage, you could recommend that the seller replace the wiring before the property is listed. If you are representing a buyer, you should recommend that the buyer obtain a professional home inspection.

Poor insulation A typical insulated wall consists of framing, batt insulation, a vapour barrier, and a finished interior wall consisting of drywall, plaster or panelling. Insulating limits the movement of air through techniques, including air barriers, vapour barriers, caulking, weather stripping, or various types of batt or similar insulation. Insulation is rated based on its R-value, the capacity of an insulating material to resist heat flow. Different types of insulation have different R-values. The higher the R-value, the greater the insulating power, leading to a more energy-efficient house. A poorly insulated home leads to higher energy bills; heating and cooling costs increase because the home is not warm enough in the winter or cool enough in the summer. Signs of a poorly insulated home include high energy bills, fluctuating room temperatures, and chilly drafts. Questions to ask a seller: • Do you know your attic’s R-value?

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• Have you upgraded the insulation since moving into the house? • Does your house have cold floors and walls in the winter? • Are the heating bills high? • Is there mould growth in the summer?

Galvanized piping/plumbing Widely used in Canada until the 1950s, galvanized pipes are steel pipes that have been dipped in a protective zinc coating to prevent corrosion and rust. Over time, these types of pipes begin to rust or corrode from the inside out, which results in: • Reduced water pressure • Restricted water flow • Increased risk of leaks or ruptures occurring in the pipes • Potential for flood damage • Corrosion to steel when it is connected directly to copper or brass A salesperson would be able to spot galvanized pipes because the coating metals usually have a chalky look and feel. Galvanized pipes that run from a municipal service pipe to a property’s taps have been banned in Ontario. However, they are permitted to run from a property’s drains to external drains. Galvanized or lead pipes may still exist in the form of service pipes to a property and

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are slowly being upgraded in all municipalities across Ontario.

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Lesson 1 | Page 17 of 28

Detrimental Conditions Related to the Environment You will also need to be able to identify environmental concerns such as underground fuel oil tanks, mould, lead, asbestos, Urea Formaldehyde Foam Insulation (UFFI), and radon. Underground fuel oil tanks were discussed in the Technical Standards and Safety Authority section of this lesson. The following five sections contain information about the impact of these environmental conditions on a property.

Mould Mould is the growth of minute fungi, traditionally associated with decaying vegetable or animal matter. It can take hold when a home does not have adequate ventilation and condensation builds up inside. Hairline cracks or a leaky roof can cause mould and, in some instances, it will thrive behind walls and under floorboards. A significant health and environmental problem, mould has been linked to various health problems, including sinus infections, asthma, and certain respiratory infections. If mould is not dealt with quickly, it can cause significant structural problems, such as rotting wood and damaged ceilings. In extreme situations, mould has led to collapsing ceilings and floorboards. Homeowners, or others responsible for building management, should watch for discolouration in building finishes and inspect areas in which dampness

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might collect, such as basement storage areas and kitchen cupboards. Air conditioning units and furnaces (including ducts) should be cleaned regularly and any stagnant water (for example, in drainage pans) should be eliminated.

Lead-based products Lead is a major health risk and is listed as a designated hazardous substance under Ontario’s Occupational Health and Safety Act. Lead-based products were common before 1950 and up until the 1980s. The greycoloured metal was used to join pipes together. In older neighbourhoods, municipal pipes that bring water to the home could include lead as well. As a salesperson representing a seller, you should: • Be aware of possible lead contamination in structures built before 1970, with the highest risk in pre-1950s structures. • Ask the seller if their home contains lead paint. • If the seller does not know, advise the seller to send paint chip samples to a laboratory for analysis. • If the lead paint is not chipped or within the reach of children, advise the seller to seek expert advice. • If the lead paint should be removed, advise the seller to consult with a qualified, third-party professional; Health Canada can also advise on how to remove lead paint.

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Asbestos A popular building material until the 1980s, asbestos was commonly used because of its insulating, strengthening, and fire- and heat-resistant properties. The product is still most frequently encountered in roofing materials, wall and pipe coverings, vermiculite insulation, floor tiles, appliances, ceilings, patching compounds, textured paints, and door gaskets of stoves, furnaces, and ovens. Occupational health and safety legislation at the federal and provincial levels have declared asbestos a carcinogenic health hazard; it poses a health risk when microscopic fibres are released into the air. However, Ontario does not have a law that prohibits selling homes with asbestos. The presence of asbestos may be both a patent defect and a latent defect. It is also a material fact that must be disclosed by the salesperson to the seller because some buyers may not knowingly purchase a house containing asbestos and some mortgage companies will not provide financing unless the asbestos is removed. Asbestos is a patent defect if its presence is readily observable by the untrained eye, such as: • Pipes wrapped in a foil-like, paper-like, or canvastype material. • Flooring or tiles installed between 1920 and 1960 will most likely contain asbestos.

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• Flooring or tiles installed between 1960 and 1980 could contain asbestos. • Floor tiles with a marbled appearance and are sized 6” x 6”, 9” x 9”, or 12” x 12”. Asbestos is a latent defect if its presence is not readily observable by the untrained eye during a reasonable inspection of the property. Many homeowners may not be aware of asbestos in their home because a laboratory analysis is usually required to determine if there is asbestos and the level of asbestos. Asbestos testing and the removal of asbestos-containing material is a specialized area of environmental management and should be conducted by a qualified environmental professional. If asbestos was removed from the home, the homeowner should have a removal certificate. Asbestos is a material latent defect, the most severe type of latent defect, if it is friable, which means it has become crumbled, pulverized, or reduced to powder. Friable asbestos is dangerous because it can release fibres into the air that can remain airborne for a long time. If inhaled, these fibres can permanently lodge themselves in the lungs and other bodily tissues, causing chronic health conditions that include cancer. If known, the seller must disclose the presence of asbestos to all potential buyers.

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Urea Formaldehyde Foam Insulation (UFFI) UFFI is a colourless, chemical compound that was used to insulate properties between 1975 and 1979; approximately 100,000 homes in Canada were insulated with UFFI. The product was banned in 1980 due to health concerns. At the time of installation, UFFI had the appearance and consistency of shaving cream. While normally identified as a white or cream-coloured substance, at least one product contained blue dye. UFFI was injected into a property’s walls and in other areas formaldehyde gas was released. The gas can irritate the eyes, nose, and throat and heighten problems for asthma and allergy sufferers. There is essentially no risk of developing cancer based on average levels of formaldehyde found in Canadian homes. The amount of formaldehyde released from off-gassing decreases over time. As a salesperson, you will need to note that a property has UFFI in the listing and agreement of purchase and sale.

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Radon Radon is an invisible, odourless, and tasteless radioactive gas that occurs naturally in the earth’s crust. If allowed to reach hazardous levels indoors, radon particles can attach themselves to lung tissue when inhaled. Radon levels are often higher in basements or crawl spaces, or in winter when windows and doors tend to be closed for a long time. Outdoors, radon is diluted to the point of being harmless. Radon can enter a home anywhere there is an opening where a property contacts the soil. This includes cracks in basements, foundation walls, floor drains, and service pipes. The only way to determine the radon level in a home is testing. Radon is not normally on a home inspection checklist. The homeowner has two options to test for radon: • Hire a radon measurement professional • Buy a radon test kit If testing shows that the radon level is above Canadian guidelines in the home, the homeowner can potentially reduce the level by: • Increasing mechanical ventilation to allow for more frequent air exchange • Sealing cracks and openings in foundation walls and floors, and around pipes and drains

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• Increasing ventilation in the basement by installing a small pump to draw the radon from below the concrete slab to the outside before radon can enter

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Lesson 1 | Page 18 of 28

A salesperson has done a visual inspection of a seller’s property and has looked at the basement, which is still partly unfinished, as well as all the rooms on the second storey. The salesperson notices some blue wiring in the unfinished part of the basement. Question #2: What does the blue wiring indicate? There are three options. There is only one correct answer.

1

Aluminum wiring

2

Copper wiring

3

Internet cables

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Lesson 1 | Page 19 of 28

A salesperson has done a visual inspection of a seller’s property and has looked at the basement, which is still partly unfinished, as well as all the rooms on the second storey. Question #3: The salesperson notices pipes wrapped in a material. What could it potentially be? There are three options. There is only one correct answer.

1

Asbestos

2

Styrofoam

3

Insulation

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Lesson 1 | Page 20 of 28

A salesperson has done a visual inspection of a seller’s property and has looked at the basement, which is still partly unfinished, as well as all the rooms on the second storey. Question #4: Given that the basement is unfinished, what should the salesperson ask the sellers to test the basement for? There are three options. There is only one correct answer.

1

Methane

2

Radon

3

Nitrous oxide

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Lesson 1 | Page 21 of 28

A salesperson has done a visual inspection of a seller’s property and has looked at the basement, which is still partly unfinished, as well as all the rooms on the second storey. The salesperson notices a patch upstairs in the bathroom during the inspection and recommends it to be removed. Question #5: What does the patch indicate? There are three options. There is only one correct answer.

1

Mould

2

Dampness

3

Inexpensive paint primer

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Lesson 1 | Page 22 of 28

A salesperson has done a visual inspection of a seller’s property and has looked at the basement, which is still partly unfinished, as well as all the rooms on the second storey. Question #6: The salesperson sees small ceramic tubes and hooks in the attic. What does that indicate? There are three options. There is only one correct answer.

1

Copper wiring

2

Aluminum wiring

3

Knob and tube wiring

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Lesson 1 | Page 23 of 28

Potential Hazard or Environmental Issue Surrounding the Property

As a salesperson, one of your main responsibilities will be to comply with all regulations that impact real estate trading, in particular, the Code of Ethics, under the Real Estate and Business Brokers Act. Complying with the regulations means putting the needs of your sellers and buyers first, ahead of your own. The next step after gathering information about the property is the discussion you will need to have with the seller about any potential hazard or environmental issue you have uncovered regarding their property. Your obligation when working with a seller client will differ from your obligation when working with a seller customer. For a seller client, you will need to take reasonable steps to research and discover any material facts about the property, including any potential hazard or environmental issue. You will then need to discuss these facts with the client. Depending on what you discover, you should advise the seller client to consult with a third-party professional. If the seller is a customer, you will not be required to conduct any research. You will only disclose information about the property that you know or ought to know.

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Lesson 1 | Page 24 of 28

Salesperson Obligations to be Aware of and Disclose Environmental Issues Environmental issues and other potential hazards will affect a real estate transaction. They may make the property less appealing and more difficult to sell or delay the closing of a transaction if not discovered prior to an offer being made. As a salesperson, to ensure the transaction is successful, you must be aware of these issues and provide the seller client with the appropriate guidance and advice. You will owe fewer responsibilities to customers. The following four sections contain information about the salesperson’s regulatory obligations to discuss environmental concerns with a seller.

Best interests (Code, Section 4)

You must always protect and promote the best interests of your client. Example: A salesperson is conducting a thorough visual inspection of the seller’s basement. The salesperson notices some pipes wrapped in a foil-like material. The salesperson asks the seller if it is asbestos. The seller says that a friend had advised it was not. The salesperson explains that if it is asbestos, it would need to be disclosed to potential buyers, which may make the property less appealing. The salesperson also explains that if the asbestos is friable, it may need to be removed before the property is listed because friable asbestos is dangerous. The salesperson recommends that the seller obtain the services of a third-party professional specializing in asbestos remediation to determine if the wrapping insulation is asbestos.

Conscientious and competent service, etc. (Code, Section 5)

You must provide your seller clients and customers with conscientious and competent service throughout the course of the transaction. To do so, you must have the requisite knowledge, skill, judgement, and competence. Example: A salesperson is representing a seller whose property is located in a small village within a township not serviced by municipal sewage. A potential buyer would like to

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submit an offer and wants to ensure the septic system meets all requirements and is in good working order. The seller’s salesperson provides the buyer’s salesperson with documents stating that the septic system was inspected by a third-party professional within the last month. The buyer’s salesperson shares this information with the buyer and also recommends including a condition in the agreement of purchase and sale that the purchase of the property is conditional upon the inspection of the septic system by a septic professional at the buyer’s expense.

Material facts (Code, Section 21)

If you are representing a client, you must take reasonable steps to research and discover information about the property and discuss anything you discover with them, including the obligation for disclosure. If you are providing services to a customer, you must disclose what you know or ought to know about the property to the customer. If you are providing services to a seller customer, you will still be required to disclose material facts to the customer relating to the sale of the property that you know or ought to know. Example: A salesperson is meeting with their seller client and they are in the attic. The salesperson notices wiring through ceramic tubes attached to a ceiling joist. The salesperson knows this is knob and tube wiring. The salesperson asks if there is knob and tube wiring in other parts of the house. The salesperson explains to the seller the issues associated with this type of wiring and the difficulty for a buyer, as a new owner, to obtain insurance for the property. The salesperson also explains that any potential buyer would want to obtain a home inspection and make the offer conditional upon obtaining insurance and financing, if applicable.

Services from others (Code, Section 8)

If you are representing a seller client or customer, you will need to advise them to consult with a third-party professional, depending on what is discovered, if you are unable to provide the services with reasonable knowledge, skill, and judgement.

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For a customer, you would only advise them to consult with a third-party professional. For a seller client, a leading practice would be to provide them with the names of three professionals they can contact and might assist them to contact the one they want to use and to meet with the client and the professional. Example: A salesperson has just listed the property of their seller client and is inspecting the exterior of the house and the backyard. While viewing the property, the salesperson notices an area in the backyard where the grass has died, and the ground is stained with a dark material that has an unpleasant odour. The salesperson asks the seller about the stain. The seller says they do not know what it is but thinks there could be an unused, underground fuel oil tank in the yard. The salesperson suspects that the underground tank may be leaking and recommends that the seller contact a thirdparty professional, such as an environmental site assessor or home inspector, to investigate because the salesperson does not have the knowledge, skill, or experience to assess the situation. Upon the completion of an investigation by a third-party professional, the salesperson will use this technical information to share with buyers and their salespersons in any pre-sale communication, thereby avoiding any misrepresentation of the property.

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Lesson 1 | Page 25 of 28

Environmental Site Assessment

Environmental issues, such as land contamination and hazardous waste, are a growing concern. Many people associate these types of issues with commercial properties but these issues also occur in residential properties; for example, leaking fuel tanks, malfunctioning septic systems, or polluted wells. As a salesperson, you will need to discuss environmental concerns with the seller. This discussion would be part of your regulatory obligation to discover and disclose material facts about the property to the seller. You may recommend that the seller obtain an environmental site assessment, especially if the property’s present or past uses may be cause for concern. Performed by a third-party professional, an environmental site assessment is a systematic and comprehensive process involving the identification, analysis, and evaluation of an environmental issue. If you are representing a buyer, you would recommend an environmental site assessment as part of your due diligence. An environmental site assessment will help the buyer understand if any environmental concerns are associated with the site, the scope of these concerns, and the steps needed to remedy the situation. An environmental site assessment that indicates further investigation and possible remediation may affect the transaction. For example, some buyers may decide not to proceed with the purchase if the property requires remediation. Other buyers may use the assessment findings during their negotiations to either reduce their offer price or include a condition in the agreement that the seller will remediate the site.

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Lesson 1 | Page 26 of 28

Overview of the Three Phases of an Environmental Site Assessment Environmental site assessments, performed by environmental site assessors, are broadly grouped under three levels of analysis, or phases. The depth of analysis increases from Phase 1 to Phase 2. Phase 3 involves actual remediation. The following three section contain information about the three phases of an environmental site assessment.

Phase 1

The purpose of a Phase 1 environmental site assessment is to determine if the property has some form of contamination. In a Phase 1 environmental site assessment, the assessor: • Visits the property to obtain visual evidence of actual or potential contamination • Reviews background documents, such as historical aerial photographs and title searches • Reviews requests for information from the Ministry of the Environment. Conservation and Parks and the relevant municipality • Reports the findings and conclusions

Phase 2

A Phase 2 environmental site assessment is triggered by a Phase 1 assessment whereby the assessor discovered the possibility of a contamination. The purpose of a Phase 2 environmental site assessment is to determine the scope of the environmental problem and make recommendations for remedial action. In a Phase 2 environmental site assessment, the assessor: • Collects samples of soil and groundwater by onsite drilling; these samples undergo laboratory testing and analysis to determine the existence and extent of the contamination

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• Confirms if an environmental problem exists • Quantifies the extent of the contamination • Reports the findings and conclusions, which includes a recommended remediation plan to resolve the issue

Phase 3

A Phase 3 environmental site assessment is triggered by a Phase 2 assessment. The purpose of a Phase 3 environmental site assessment is to detail the remedial steps and costs associated with circumstances identified in Phase 2, and to remediate the site by removing the contamination. In a Phase 3 environmental site assessment, the assessor: • Identifies the best available alternatives, costs, strategies, and plan of action for environmental risk management and remediation • Identifies steps required to perform site remediation and follow-up monitoring for residual contamination • Reports the findings and conclusions, including a confirmation that the remediation was successful and met the required guidelines If the site was not remediated, the report may also include a site-specific risk assessment that defines the level of contamination.

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Lesson 1 | Page 27 of 28

After the salesperson has outlined the environmental concerns with the seller’s property, they are concerned about the salability of their property and ask the salesperson to review the process involved in an environmental site assessment. Question #7: Identify the statement that is true regarding the phases of an environmental site assessment. There are three options. There is only one correct answer.

1

Phase 1 is a visual inspection combined with a review of all documents and relevant environmental records

2

Phase 2 is made up of steps to clean up any contamination

3

During phase 3, soil testing will be carried out by a third-party environmental site specialist

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Lesson 1 | Page 28 of 28

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were covered in this lesson.

Environmental regulatory authorities

This lesson detailed the regulatory authorities and legislation regarding property conditions and disclosure. The Ontario Building Code regulates the issue of building permits. Among other things, it sets out qualifications for sewage system inspectors, and for people engaged in the on-site construction, installation, repair, servicing, and cleaning or emptying of sewage systems. The Technical Standards and Safety Authority administers safety standards in a number of areas, including engineering design reviews, inspections, investigations, licensing and registration, training and certification, and public education. TSSA is responsible for ensuring that incidents where the environment is affected are investigated and managed properly. In cases where ground water or soils are affected, TSSA is responsible for administering the Environment Management Protocol and ensuring that areas affected by spills or leakage will be returned to Ontario’s standards. The Ministry of the Environment, Conservation and Parks (MECP) enforces Ontario’s Environmental Protection Act and is empowered to investigate pollution, waste management, waste disposal, and litter management/disposal. The ministry exercises a wide range of powers, including search and seizure provisions to ensure adherence to environmental regulations.

Potentially detrimental conditions

Identifying detrimental conditions is a key part of a salesperson’s work. They can only see visible conditions and cannot identify hidden conditions such as mould in difficult-to-access locations, a leaking underground pipe, or rotten wood. For this reason, a salesperson representing a seller may recommend the seller obtain a professional home inspection. A salesperson representing a buyer should

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always make this recommendation. Key causes of detrimental hazards are deferred maintenance, the age of a property, and environmental issues. New properties may have detrimental conditions, such as radon or mould. Older properties may be prone to mould, UFFI, lead in pipes or service pipes, or asbestos. Some of these detrimental conditions pose environmental concerns and an environmental assessment should be recommended by a salesperson, if they believe it is necessary. Most detrimental conditions qualify as material facts and, if known, should be disclosed to a potential buyer.

Salesperson’s obligation to discuss environmental concerns with a potential seller

When a person qualifies as a salesperson, they commit to following the Code of Ethics. One part of the Code details a salesperson’s obligations to discuss any environmental concerns with a seller. This is important because not doing so may have ramifications on health, structural integrity, and the natural environment. Learning how to identify environmental concerns is the first step, and then a salesperson must know how to recognize when an environmental assessment is required. Each stage of the process must be transparent and discussed openly with a seller client. This way, a client understands the issues, process, and potential costs involved. Their best interests have been protected by the salesperson.

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Lesson 2 | Page 1 of 16

Lesson 2: Salesperson’s Leading Practices Regarding Property Conditions

This lesson identifies factors that may be viewed as stigma and explains a salesperson’s role when listing a stigmatized property. It details the obligation a salesperson to discover and discuss material facts about a property with seller clients, and the types of information that must be provided to a potential buyer. Finally, it explains how to minimize risk regarding environmental concerns about a property.

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Lesson 2 | Page 2 of 16

Salesperson’s Leading Practices Regarding Property Conditions

Purchasing a property where someone has died is not necessarily an issue for many buyers. For others, it can be upsetting, even if the death was natural, to the point of not proceeding with a purchase. This type of situation is known as a stigma, and a stigma attached to a property may affect the number of people interested in the property and in turn its value. Death on a property is one example that may cause a property to become stigmatized. Other examples include a murder or suicide that occurred on the property or a property that was used in the ongoing commission of a crime. This lesson explains how to address stigmas and a salesperson’s obligation for disclosure regarding stigma and other property conditions. Upon completion of this lesson, you will be able to: • Identify disclosure obligations regarding a stigmatized property • Identify leading practices of a salesperson regarding property conditions Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented. Exam Study Guide

Lesson 2 | Page 3 of 16

Stigmas Related to the Property

When you are representing a seller, your first course of action will be to research the property and collect information so you can list it accurately and without misrepresentation. Discovering if a property has been stigmatized can be tricky because what is considered a stigma would depend on the individual. You will need to first explain to the seller what a stigma is and provide examples, and then ask the seller specific questions that will help you determine if a stigma might exist. You should also conduct your own research because the seller may not know the property’s full history. If you are representing a buyer, you would also need to discuss stigma with them. You will need to know about the factors that can cause a property to become stigmatized because stigmas may lower the value of a property and make it more difficult to sell.

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Lesson 2 | Page 4 of 16

Definition of Stigma In real estate, a stigma is a non-physical, intangible attribute of a property that may trigger an emotional or psychological response from a potential buyer. An event or circumstance may have occurred in or near the property that does not affect the property’s appearance or function but may be considered emotionally disquieting for some buyers. Unlike a patent or latent defect, which may exist at a property, there is nothing physically observable or measurable associated with a stigma. A stigma can be real or perceived and is subjective. Some buyers may be more concerned than others about a fact about a property that could be perceived as a stigma. Factors That Can Cause a Property to be Stigmatized REBBA does not provide a definition for stigma. However, examples of factors that may cause a property to be stigmatized include: • Property used for committing an ongoing crime (for example, a clandestine drug lab) • Property used as a former cannabis (marijuana) grow operation (grow op) and remediated according to the local health or building authority • Property previously owned by a known criminal • Property where a murder or suicide has occurred • Property rumoured to be haunted

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Lesson 2 | Page 5 of 16

Questions to Ask Sellers and Buyers

The relevance and impact of a potential stigma or other non-physical occurrence or circumstance will be determined by a buyer’s perceptions, age, personal values, and other individual concerns. A leading practice for a salesperson regarding stigma is early and clear communication with both a seller and a buyer. Early and clear communication starts with asking specific questions about stigma of the seller and buyer. The following two sections contain questions a salesperson should ask a seller and buyer regarding stigma.

Questions to ask a seller

Ask a seller specific questions to determine if the property has possible stigma, such as: • Have there been any deaths on the property, either natural or unnatural? • Has the property ever been used for committing an ongoing crime (for example, a former grow op)? • Has the property ever been owned by a known criminal? • Has the property ever been rumoured to be haunted?

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The seller may not know the full history about the property, so you should also conduct your own online research.

Questions to ask a buyer Ask a buyer specific questions to determine if an event or circumstance that

happened on a property would be considered a stigma and would affect their decision to purchase the property, such as: • Would you still be interested in a property if you learned someone died on the premises? • Would it matter if the death was from natural causes or accidental, versus death by a violent act or suicide? • Would it matter if it was a crib death of an infant? • Would you be as concerned by a death that occurred 20 years ago as you would with a recent death? • Would you still be interested in a property if it was the scene of a crime or was previously owned by a known criminal? • Would you still be interested in a property if it were rumoured to be haunted? • Is there anything that would make you change your mind about the property if you found out about it?

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Lesson 2 | Page 6 of 16

Disclosure Obligations Regarding a Stigmatized Property

There is no legislation or case law in Ontario that suggests a seller, or their salesperson, is required to disclose the existence of stigma to buyers. A seller is not legally obligated to disclose the existence of stigma. A salesperson is also not obligated to disclose the existence of a stigma in a single representation scenario when representing a seller who has given the salesperson instruction not to disclose the stigma. As a salesperson, if you believe that a stigma may be an issue for some buyers and may affect the transaction, you must be prepared to have an in-depth discussion with your seller client. Given are some suggestions of what you can communicate to the seller: • Explain that although there is no legal requirement or case law for the disclosure of stigma to a buyer, the law is evolving. A buyer may initiate a lawsuit if they discover a stigma that was known and not disclosed by the seller. Exam Study Guide

• Explain that if the neighbours know about the stigma, buyers might find out if they or their salesperson ask around the neighbourhood about the property and expect they will find out from the neighbours when they move in. If that is the case, it may be worth avoiding the risk of lawsuits by disclosing it up front. • Recommend that they seek legal advice regarding their rights and obligations related to the issue and get written instructions from the lawyer regarding the disclosure of the stigma to buyers. • Explain that if a buyer’s salesperson specifically asks about a stigma, you will need them to decide whether they want you to answer truthfully (since lying is effectively misrepresentation and a violation of the Code) or decline to answer and suggest to the buyer that they conduct their own research. Even if you are not comfortable with the seller’s disclosure preferences, you will need to respect and follow their direction. Should you find that you cannot abide by the seller’s instructions, you will have to consider whether to discontinue working with them. Under no circumstances should you disclose a stigma without the seller’s knowledge. Please note, brokerages may have their own policy on how their salespersons should discuss and disclose a potential stigma. You will need to consult with your respective brokerage when you become a salesperson.

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Lesson 2 | Page 7 of 16

Salesperson Disclosure Obligation Under Multiple Representation

The obligation to disclose stigma in a multiple representation scenario is more complicated. Before a seller is asked to consent to the brokerage being in multiple representation, as a salesperson, you will need to explain that any information known about the stigma will have to be shared with the buyer as part of the brokerage’s duties to the buyer. If the seller objects to this, advise the seller that they do not have to consent to multiple representation. If consent is not given, inform the buyer and the brokerage will have to release one of the clients to seek alternate representation from another brokerage. Please note, brokerages may have their own policy on how their salespersons should discuss and disclose a potential stigma. You will need to consult with your respective brokerage when you become a salesperson.

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Lesson 2 | Page 8 of 16

Stigma and Potential Buyers

Stigma is subjective. What may be considered an issue for one buyer may not be important to another buyer. As a salesperson representing a buyer, you will need to have an in-depth conversation with the buyer to identify relevant stigmatizing issues. You will also need to conduct additional research if the buyer indicates sensitivity to one or more such issues. To protect the buyer further, you can include a representation or warranty in the offer regarding the status of the property. For example, “The seller represents and warrants that to the best of their knowledge and belief, the property has not been the site of a murder.” The ultimate form of buyer protection lies in the doctrine of caveat emptor (or let the buyer beware). The buyer is responsible for satisfying for themselves that the property they are purchasing is suitable for their purposes and your role as their salesperson is to help them to do that to the best of your abilities. Please note, brokerages may have their own policy on how their salespersons should discuss and disclose a potential stigma. You will need to consult with your respective brokerage when you become a salesperson.

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Lesson 2 | Page 9 of 16

Discover and Disclose all Material Facts

Property conditions, regardless of their cause or whether they are real or perceived, may impact real estate transactions. As a salesperson, you have an obligation under REBBA to discover and disclose all material facts about the property to your client. A material fact is any fact that would affect a reasonable person’s decision to acquire or dispose of an interest in real estate. You can go beyond the minimum standards established by law by engaging in leading practice activities. A leading practice is any action you take while trading in real estate that produces superior results than the minimum standards set by legislation.

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Lesson 2 | Page 10 of 16

Property Conditions and Material Facts

A salesperson representing a client must take reasonable steps to discover the material facts and disclose them to the seller client at the earliest possible opportunity. For a seller customer, the salesperson is only required to disclose material facts that are known or ought to be known by the salesperson, such as the presence of an underground fuel oil tank, Kitec plumbing, or knob and tube wiring. These detrimental conditions, as you learned earlier in this module, may also be viewed as latent defects. Leading practices to comply with the obligation to discover and disclose material facts about the property to a seller client include: • Conducting a thorough visual inspection • Being aware of and identifying any defect or deficiency • Asking the seller specific questions to determine if there are any issues with the property (such as any factor that may contribute to a detrimental condition or stigma) • Advising the seller about material facts Exam Study Guide

• Advising the seller of their obligation to disclose a property condition that may be considered a latent defect that is known by the seller • Conducting an internet search of the property and checking previous listings • Asking the seller to provide documentation of any repairs or improvements made to the property Example: While conducting a visual inspection for a seller client, a salesperson notices mould in the basement. The salesperson explains to the seller why the existence of mould may be a material fact for buyers, the possible cost for remediation and that buyers may not be willing to assume the cost. The salesperson recommends that the seller arrange for the removal of the mould by a mould remediation company. If the seller is unwilling or unable to correct the issue, the salesperson might offer to discuss this material fact with the buyer’s salesperson, as it likely will become a point of negotiation. Depending on the circumstances, the buyer may offer a lower price because they would have to absorb the cost of the remediation.

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Lesson 2 | Page 11 of 16

Salesperson Leading Practices Regarding Property Conditions As a salesperson, you will need to comply with the regulatory obligations when trading properties with potentially detrimental conditions or stigma. There are also several leading practices for discussing and disclosing detrimental property conditions and stigma that extend beyond the minimum compliance requirements. The following six sections contain information about the leading practices regarding property conditions. Leading Practice: Accurate and current property description and • Advise the seller that only accurate, current, and up-to-date information about the property must be included in the listing document not falsifying information • Ensure only accurate and up-to-date information is included in the listing document These leading practices ensure salesperson compliance with Section 34 of the Act. Example: While conducting a visual inspection of the seller’s property prior to listing, the salesperson notices a fill pipe sticking out of the ground in the backyard. When the salesperson asks about the status of the underground fuel oil tank, the seller says it was inspected by a TSSA technician, who indicated the tank did not meet current standards and must be upgraded according to TSSA specifications. Worried that this information may deter any potential buyers, the seller asks the salesperson to note in the listing that the underground fuel oil tank was TSSA approved until the seller has a chance to figure out what to do. The salesperson tells the seller this is a false and inaccurate statement and cannot be included in the listing. The salesperson recommends that seller have the underground fuel oil tank upgraded or removed by a TSSA technician prior to listing the property.

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Fairness and honesty when dealing with others

Leading Practices: • Answer questions honestly about the condition of the property from other salespersons and potential buyers • Disclose the presence of detrimental conditions that may be viewed as known latent defects in keeping with the lawful instructions of the seller These leading practices ensure salesperson compliance with Section 3 of the Code of Ethics. Example: While holding an open house for the seller, the listing salesperson overhears a salesperson from a co-operating brokerage speaking to their buyer while they are viewing the property. The salesperson tells the buyer that because the house is over 60 years old, the original wiring must be replaced. The salesperson also tells the buyer that they saw copper wiring in some unfinished areas of the basement. When the co-operating salesperson approaches the listing salesperson regarding another inquiry about the property, the salesperson also tells them that although most of wiring was replaced 10 years ago, some of the original aluminum wiring still remains in a certain area of the house, something he had discussed disclosing with the seller.

Consultation with a third-party professional

Leading Practices: • Advise a client to consult with a third-party professional after identifying or suspecting the existence of a condition that is beyond the salesperson’s knowledge or skill • Provide the seller client with the names of three third-party professionals These leading practices ensure salesperson compliance with Section 8(1) of the Code of Ethics. Example: While conducting a visual inspection for a seller client, a salesperson notices missing roof shingles and some of the exposed roof sheathing seems to be deteriorating. Exam Study Guide

The salesperson advises that the roof be repaired before listing to increase the property’s appeal. The salesperson recommends that the seller contact a roofer to obtain a quote for repairs and provides the seller with the name of three roofers. If the salesperson were providing services to a seller customer, the salesperson could simply recommend that the seller consult with a third-party professional about the condition of the roof.

Steps taken by a salesperson to address issues relating to property conditions

Leading Practices: • Provide details to the seller regarding the steps the salesperson takes to identify and determine any action required regarding the condition of the property • Advise the seller about the steps taken regarding the seller’s obligation to disclose known latent defects to other brokerages and buyers and agree with the seller what the salesperson may disclose on the seller’s behalf These leading practices ensure salesperson compliance with Section 23 of the Code of Ethics. Example: While conducting research regarding the condition of the property to be listed, the salesperson asks the seller if there are any issues that would not be able to be determined by a visual inspection of the property. The seller tells the salesperson that when the basement was originally finished, vermiculite insulation was installed behind the drywall and that it may contain asbestos. The salesperson advises the seller of their obligation to disclose the condition to other brokerages and buyers because asbestos would be considered a latent defect that the seller would be obligated to disclose. The salesperson details the steps they will take to disclose and document the information before any showings take place or offers are drafted, and how the issue will be addressed in an offer from a buyer.

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Accurate advertising and Leading Practices: other promotional • Verify that the information to be included in any advertising and other promotional material is accurate and up-to-date materials • Include only accurate and up-to-date information about the property in advertising and other promotional materials These leading practices ensure salesperson compliance with Section 37 of the Act. Example: To gain more exposure for a new listing, the salesperson decides to feature the property on their website. Unhappy with the current photograph of the exterior of the property, the salesperson asks the seller if they have any attractive photos of the house and, if yes, to email them to the salesperson. Eager to help promote the property, the seller emails a photograph taken 15 years ago when the house was new. Currently, the house shows obvious signs of wear and tear and deterioration is some areas. The salesperson explains to the seller that the photos are not an accurate reflection of the home and arranges to have photos taken by an experienced photographer.

Conscientious and competent service to promote a client’s best interest

Leading Practices: • Promote and protect the best interests of the seller client by discussing property conditions, including stigma, and making recommendations • Provide only services to the seller client and customer that are within the salesperson’s scope; for example, recommending a home inspection, if required, from a professional home inspector • Include conditions in the agreement of purchase and sale • Ensure the seller understands their obligations regarding disclosure of known latent defects to avoid misrepresentation These leading practices ensure salesperson compliance with Sections 4, 5, and 38 of the Code of Ethics.

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Example: A salesperson lists a property for sale on behalf of a seller client. The seller tells the salesperson that they had installed a new furnace and air conditioning unit and new windows in certain parts of the house. The seller wants the salesperson to mention in all marketing material that the house has a new furnace, air conditioning, and windows. The salesperson asks when the furnace, air conditioning unit, and windows were replaced and asks to see a copy of the receipts. The seller provides a copy of the receipts to the salesperson. The salesperson notes the age of the furnace and air conditioner and the age and location of the windows that were replaced. Based on the details that were verified, the salesperson ensures that all marketing material and the listing contain complete and accurate information about these installations.

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Lesson 2 | Page 12 of 16

Leading Practices to Minimizing a Salesperson's Risk Concerning Disclosure of Environmental Issues

So far you have learned about a salesperson’s obligations regarding the discovery, discussion, and disclosure of different types of property conditions under REBBA. You learned that some of these property conditions are the result of environmental issues. Here are some examples. • Environmental issues that may affect residential properties include waste management, underground fuel tanks, mould, lead, asbestos, and radon gas • Environmental issues that may affect renovated properties include flooding, standing water on a property, compliance with appropriate laws and regulations, hazardous substances, and prior use as waste disposal • Environmental issues regarding previous use of the property include propane/gas tank leak, underground oil tank, and disposal of hazardous waste on the property (for example, motor oil) Leading practices that will guide you on how to minimize risks associated with environmental issues include: 1. Being well informed and updated on environmental matters affecting the local market 2. Ensuring honesty and fairness in negotiations 3. Drafting accurate agreements and contracts 4. Seeking expert advice when necessary Exam Study Guide

Lesson 2 | Page 13 of 16

Leading Practices to Minimizing a Salesperson's Risk Concerning Disclosure of Environmental Issues II

As a salesperson, you will need to discuss environmental issues with the seller. This will prepare them for any remedial or repair work required to resolve the issue before the property is listed or answer questions from a potential buyer. If the issues are serious, your discussion will prepare them for the possibility of an environmental site assessment. As part of your discussion: • Document any information provided by the seller • Advise the seller to obtain services from a third-party professional (Code, Sec. 8) • Ensure all marketing accurately reflects the property • Discuss obligations for disclosure by the brokerage to a buyer • Detail the brokerage’s policies regarding non-required disclosures being provided by the seller • Document steps you have taken in the course of representing the seller (Code, Sec. 23) Exam Study Guide

Lesson 2 | Page 14 of 16

A salesperson is representing a seller who is selling her parents’ home for them because they have moved into a care facility. The expected sale will likely take place while the economy continues to improve. The property has been well-maintained and has a new furnace. There are a few minor issues, including a couple of shingles missing from the roof and asbestos-wrapped pipes in the basement. As always, the salesperson will need to be thorough in his approach and clear with his questions and statements about pricing the property, documents required, expectations, and disclosure information. However, the salesperson’s listing documents contain some errors. Question #8: What should the salesperson communicate to the seller? There are three options. There is only one correct answer.

1

List the property at a higher price than proposed earlier and slightly higher than similar homes in the neighbourhood

2

Recommend replacing the roof shingles and that the office’s handyman can do the work for a low cost

3

Inform the seller that all required documentation must be carefully and factually completed

Exam Study Guide

Lesson 2 | Page 15 of 16

Minimizing Risk of Environmental Issues Scenario: A salesperson is going to conduct a visual inspection of a 45-year-old lakefront property. She needs to gather information for the listing. While speaking on the phone with the seller earlier in the day, the salesperson learns that the property is heated by oil and that some pipes are insulated with asbestos wrap. A salesperson should take the following steps to minimize the risk of environmental issues, both in general and in light of the information the seller shared: 1. Be well informed and updated on environmental matters affecting the local market area: Older neighbourhoods may have lead pipes leading into properties. The salesperson should follow the local news to see if any construction projects have been announced in the seller’s neighbourhood. She should also ask the seller whether the service pipes have been upgraded and if he is aware of any potential environmental issues in the neighbourhood. There may be many oil tanks in the neighbourhood and there may have been issues with others. Generally, to remain updated and informed, the salesperson should read her professional association news and bulletins, listen carefully when she is working with home inspectors, and follow the news. 2. Ensure honesty and fairness in negotiations: The salesperson will enquire in detail about a property’s condition, and any local business or industrial activities that could potentially be classed as environmental issues. For example, she will ask about their plans to build windmills along the waterfront or if the property sits on a former industrial site. Because the salesperson is diligent, she goes above and beyond what is expected of her and will check with the local municipality about the neighbourhood to ask about any issues. After discussions with the seller, she will disclose any findings or issues on the listing and to potential buyers. 3. Draft accurate agreements and contracts: In a situation such as this, where seller has been transparent and agreed that the salesperson disclose environmental issues, it is important that the salesperson include a clause noting that a buyer is aware of the specific issues at the time of purchase. 4. Seek expert advice when necessary: Given the age of the property, the salesperson is performing due diligence and protecting the seller’s best interests by recommending a full property inspection. Regarding issues in the house, the seller may say that the old fuel storage tank is not leaking. If the salesperson notices any stains or unusual smells, she will recommend a third-party inspection by a TSSA-certified technician. She should also recommend that the asbestos wrapping on the pipes be inspected.

Exam Study Guide

Lesson 2 | Page 16 of 16

Congratulations, you have completed the lesson! There are five sections on this page with a summary of the key topics that were covered in this lesson.

Stigmatized property

For real estate purposes, a stigma is a non-physical, intangible attribute of a property that may trigger an emotional or psychological response from a potential buyer. It may reduce the number of buyers interested in the property and the sale price. Examples of stigma include murder, suicide, death, an illegal drug operation, or an alleged ghost. Intangible issues such as stigmas are difficult to quantify.

Seller’s obligation for disclosure

There are a number of elements to consider surrounding a seller’s disclosure obligations. There are latent defects, patent defects, and stigmas. Latent defects that affect a home’s safety or habitability, the seller should seek legal advice around their disclosure obligations. For patent defects and stigma, there is no legal requirement or case law in Ontario for the seller to disclose the existence of a patent defect or stigma to a buyer. However, the law is always evolving. Sellers and their salespersons must be aware of and wary of false representation. An interested buyer’s questions should be answered honestly, considering what is already known by neighbours and what may be publicly available. A salesperson is responsible for acquiring information from a seller and for communicating fully with the buyer’s salesperson. They must represent their clients to the best of their abilities and put clients’ interests first.

Salespersons and disclosure

A salesperson will conduct a visual inspection of a property and ask questions about any visible signs of disrepair or potential problems. If a problem looks serious, such as dampness in a basement, rusty nails, or damp stains on a ceiling, a salesperson may recommend a pre-listing inspection to get an accurate assessment of the property so they can more fully discover and disclose material facts to the seller. An

Exam Study Guide

inspection may identify potential issues regarding the condition of the property and will help the salesperson estimate a realistic listing price and selling price for the property. A salesperson will ask the seller for source documents and research the property by an internet search using the address of the property and checking the previous local listing service of the subject property. This search may provide additional information about the property. The salesperson may discover a material fact about the property and will be prepared to discuss it with a seller, along with the best approach to disclosing them to buyers.

Fairness and honesty

Treating clients and other professionals with fairness and honesty is a key element of succeeding in real estate. By doing so, you will be successful and establish a good reputation, as well as adhering to the REBBA Code of Ethics. A listing salesperson will answer questions from other salespersons and keep them informed about property conditions and any work carried out during negotiations.

Discussion with a seller

After the discussion, the salesperson should document information a seller client provides, advise the seller to seek third-party assistance when necessary, ensure marketing material accurately reflects the property, discuss disclosure obligations with the client, and identify multiple representation situations, if any exist. They must also document their own steps and communicate regularly with the seller.

Exam Study Guide

Lesson 3 | Page 1 of 6

Lesson 3: Summary Practice Activities

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

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Lesson 3 | Page 2 of 6

Summary Practice Activities

This lesson reviews the content from the module. You will answer a series of knowledge check questions. This will help you to review what you have learned about preparing to market a residential property and complete some additional practice before finishing the module.

Exam Study Guide

Lesson 3 | Page 3 of 6

A salesperson is meeting with a seller who owns a waterfront property. The property has a large dock, boat storage building, and an outside underground fuel tank. The waterway is classed as a navigable waterway, and the area next to the property has been deemed an area of natural and scientific interest. Given all these circumstances, the salesperson decides to review the regulatory authorities with the seller. Question #9: Identify which statement is true regarding regulatory authorities that oversee environmental issues in Ontario. There are three options. There is only one correct answer.

1

Technical Standards and Safety Authority includes administration of engineering design reviews, inspections, investigations, and licensing and registration.

2

Ministry of the Environment, Conservation and Parks protects all areas of natural and scientific interest on public and private lands.

3

Ministry of Natural Resources and Forestry pursues polluters by powers vested in the Environmental Protection Act.

Exam Study Guide

Lesson 3 | Page 4 of 6

A salesperson is meeting with a potential seller to gather details about their property and do a visual inspection. The salesperson learns that about five years ago there was a death on the property and, a decade ago, the house was a cannabis grow op. The salesperson also detects a small patch of mould in the attic. The seller mentioned that the previous owner of the property decorated his lawn with ornaments and once had an argument with some children, who broke one of his ornaments. Question #10: Which issues should the salesperson consider a potential stigma? There are four options. There are multiple correct answers.

1

The previous owner’s disagreement with some local children who broke a lawn ornament is a wellknown story in the neighbourhood

2

The property was a cannabis grow op 10 years ago, but property has been fully remediated

3

The death of a relative on the property five years ago

4

The patch of mould in the attic

Exam Study Guide

Lesson 3 | Page 5 of 6

A salesperson must comply with the Code of Ethics and should apply leading practices in every interaction and transaction. Compliance with the Code means protecting and promoting the best interests of sellers and buyers and acting with fairness and honesty. Question #11: Identify which of the given statements are true pertaining to a salesperson’s obligations with the leading practices regarding disclosure. There are four options. There are multiple correct answers.

1

A salesperson will physically inspect a property and ask questions about the condition of the property, particularly questions about visible signs of wear and tear.

2

A listing salesperson will answer questions from other salespeople/brokers and keep them informed with appointment requests and appointment confirmations.

3

A salesperson has knowledge about real estate but may not be a specialist in any aspect of home deficiencies or repairs. When necessary, a salesperson should recommend that the seller contact a tradesperson or a contractor to provide an assessment of a situation and a quote for any kind of work.

4

A salesperson produces a feature sheet for a potential new listing. The feature sheet should only include the photos and address of the property.

Exam Study Guide

Lesson 3 | Page 6 of 6

Congratulations, you have completed this lesson!

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Module Summary | Page 1 of 3

Module Summary

This lesson provides a summary of the concepts in the module.

Exam Study Guide

Module Summary | Page 2 of 3

Congratulations, you have completed this module!

This lesson will present a summary of Learning Objectives.

Exam Study Guide

Module Summary | Page 3 of 3

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

Environmental authorities and legislation

As a salesperson, you will need have a general understanding of the authorities and regulations that regulate environmental issues, such as: • Ontario Building Code and the Building Code Act, 1992 • Technical Standards and Safety Authority (TSSA) • Ministry of the Environment, Conservation and Parts and the Environmental Protection Act • Ministry of Natural Resources and Forestry The Building Code Act, 1992, regulates the construction, renovation, and change of use of a building. You will not be involved with the building, installation, extension, or alteration of buildings. However, you will be indirectly affected by the Ontario Building Code in situations involving new construction and renovations. You will need to have a general understanding of septic system provisions in the Building Code. If you are representing a buyer interested in purchasing a property that contains a septic system, you would need to insert a condition in the agreement of purchase and sale to provide enough time for the buyer to have the septic system assessed. TSSA administers and enforces the Technical Standards and Safety Act. You will need to be familiar with TSSA regulations; in particular, TSSA requirements for underground fuel oil tanks. The Environmental Protection Act is the primary environmental legislation impacting the ownership and use of real property in Ontario. Since 1971, this Act has gradually expanded both in terms of jurisdictional authority and the degree of control/enforcement over environmental issues. The Ministry of Natural Resources and Forestry is responsible for protecting and managing Ontario’s diverse natural resources. You will need to have a general

Exam Study Guide

understanding the Ministry’s mandate because you may trade properties located on a lakefront or abut Crown land. Completion of this module has enabled you to: • Identify the environmental regulatory authorities that oversee environmental issues in Ontario

Salesperson’s obligations regarding property conditions and disclosure

Current or previous use of a property can contribute to a detrimental condition. Previous uses resulting in a detrimental condition may include: • Grow op • A business that uses chemicals, which may still be present in the carpets • A hoarder, whose hoarding makes it difficult to maintain and clean the house • Manufacture and sale of illegal drugs Detrimental conditions may contribute to the development of a latent defect. If known by the seller, the seller must disclose these latent defects to potential buyers and other brokerages. Detrimental conditions may also be material facts. If you represent a seller client, you will need to research and discuss material facts with the seller. Your obligation to a seller customer will be to disclose information about the property based on what you know or ought to know about the property, by doing your own inspection of the property. Some older properties in Ontario receive their water from a municipal service pipe made of lead. Older properties can also have aluminum wiring, poor insulation, or galvanized plumbing. Environmental concerns must be examined and addressed before a buyer submits an agreement of purchase and sale. Key concerns of a buyer will include the age of the plumbing and wiring, UFFI (removed or existing), presence of asbestos, mould, or a disused underground storage tank. Best practices are in place to minimize risks related to environmental issues, such as:

Exam Study Guide

• Being well-informed and updated on environmental matters affecting the local market • Ensuring honesty and fairness in negotiations • Drafting accurate agreements and contracts by: o Asking the seller questions to gather comprehensive information o Documenting the seller’s responses • Seeking expert advice when necessary An environmental site assessment involves identifying, analyzing, and evaluating an environmental issue. You will need to have a general understanding of the three phases of an environmental site assessment. Completion of this module has enabled you to: • Identify any potentially detrimental conditions • Describe the salesperson’s obligation to discuss environmental concerns with a seller

Salesperson’s leading practices regarding property conditions

A stigma is a matter of perception. A stigma to one buyer will not be an issue for another buyer. If you are representing either a seller or buyer, you will need to ask specific questions about and discuss stigmas. Factors that can cause a property to become stigmatized include: • A death, murder, or suicide • Grow op • Illegal drug manufacturing operation • Former crime scene • A property reputed to be haunted Your obligation to disclose a stigma will differ under single and multiple representation. In single representation, you and the seller are not required to disclose a stigma.

Exam Study Guide

In a multiple representation scenario, before a seller is asked to consent to the brokerage being in multiple representation, you will need to explain that any information known about the stigma will have to be shared with the buyer as part of the brokerage’s duties to the buyer. If the seller objects, advise the seller that they do not have to consent to multiple representation. If consent is not given, inform the buyer of this fact and the brokerage will have to release one of the clients from their representation agreement and advise them to seek alternate representation from another brokerage. Many brokerages have established policies on disclosure, including stigmas, that state that the seller must sign a form indicating that they agree any issue or stigma will be disclosed. In this way, the brokerage is protecting and promoting the client’s best interest and protecting itself from future legal issues. Lawyers may become involved in disclosure issues under certain circumstances, such as: • Advising a client to seek legal counsel if a situation or issue could potentially have legal ramifications in the future • Advising a seller client to seek legal counsel to obtain independent advice regarding the legal ramifications of not disclosing a potential stigma or a known latent defect that may be considered a material fact to a buyer As a salesperson, when selling a property with a detrimental defect, you will need to comply with the Act and the Code of Ethics. • Discovering and disclosing all material facts about a property to a seller (Code, Sec. 21) • Not falsifying information (Act, Sec. 34) • Treating everyone with fairness and honesty (Code, Sec. 3) • Recommending that clients and customers obtain the services of other thirdparty professionals (Code, Sec. 8)

Exam Study Guide

• Informing a client of steps taken in the course of representation (Code, Sec. 23) • Complying with all advertising guidelines (Act, Sec. 37) • Compliance with obligations relating to best interests, per Code, Sec. 4; conscientious and competent service, per Code, Sec. 5; prevent error, misrepresentation and fraud, per Code, Sec. 38 • Promoting and protecting the best interest of clients (Code, Sec. 4) • Providing conscientious and competent service to clients and customers (Code, Sec. 5) • Preventing errors, misrepresentation, fraud, or any unethical practice (Code, Sec. 38) To minimize risks concerning environmental issues, you will need to: • Be well-informed and updated on environmental matters affecting the local market • Ensuring honesty and fairness • Complete an agreement of purchase and sale accurately • Seek expert advice from a third-party professional, as necessary Completion of this module has enabled you to: • Identify disclosure obligations regarding a stigmatized property • Identify leading practices of a salesperson regarding property conditions

Exam Study Guide

Appendix | Page 1 of 1

Appendix Answer Key Question #1: 2, 4 Question #2: 1 Question #3: 1 Question #4: 2 Question #5: 1 Question #6: 3 Question #7: 1 Question #8: 3 Question #9: 1 Question #10: 2, 3 Question #11: 1, 2, 3

Exam Study Guide

Module: Showing Residential Properties and Advising on Properties of Interest This is a study guide to help you prepare for the qualifying exam. There are multiple study guides that are provided for preparation. Each study guide contains several decision points to test your knowledge. The answer key to these decision points is present in the “Appendix” section at the end of the guide. Please use Adobe Acrobat Reader (Recommended version 9 or above) to navigate through this PDF. Real Estate Pre-Registration 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 Pre-Registration Program learner.

Exam Study Guide

Module: Showing Residential Properties and Advising on Properties of Interest

During this module, you will learn about a salesperson’s activities to build their business and what is involved in showing properties. Finding potential buyers is a critical part of growing your business. You will learn about your obligations when you have identified buyers and you begin to define whether they are a client or a customer. As you learn to show properties you will understand how qualifying your buyer will help you ensure you are finding the most suitable properties. Lastly, you will learn how to build a network of third-party professionals that will help your buyers get the appropriate information and is important to add value to your services. This module contains information about many aspects of showing residential properties and advising on properties of interest, that are: • Finding potential buyers • Preparing buyer’s packages • Working with buyers and assessing their needs • Preparing and showing properties • Referring third-party service provider

Exam Study Guide

Menu: Showing Residential Properties and Advising on Properties of Interest Number of Lessons

Lesson Number

8 Lessons

Lesson Name

Lesson 1

Prepare to Meet with Potential Buyers

Lesson 2

Salesperson’s Obligations to Buyers

Lesson 3

Selection of Properties to Show

Lesson 4

Showing Properties to the Buyer

Lesson 5

Property Showing when Seller has Limited/No Services Provided

Lesson 6

Due Diligence Requiring a Third-Party Provider

Lesson 7

Summary Practice Activities Module Summary Appendix

Exam Study Guide

Lesson 1 | Page 1 of 43

Lesson 1: Prepare to Meet with Potential Buyers

This lesson identifies activities that you, as a salesperson, will undertake to identify potential sources of buyers. These activities include individual tasks as well as working with others at the brokerage. As real estate is a servicebased profession, it is important for you to be prepared to meet a potential buyer at any time. One tool to help you make a good first impression is a buyer’s package. It gives relevant and important information to a buyer. This lesson will detail what could be included in a buyer’s package along with options to customize it for the various needs and circumstances of a buyer.

Exam Study Guide

Lesson 1 | Page 2 of 43

Identify Potential Sources of Buyers

There are a number of potential sources you can use to find buyers. You must know how to build opportunities by using methods such as, open houses, referrals, networking, and advertising, including putting together buyer’s packages. Upon completion of this lesson, you will be able to: • Identify potential sources of buyers • Prepare a buyer’s package for initial contact • Identify the options for personalizing a buyer’s package Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented. Exam Study Guide

Lesson 1 | Page 3 of 43

Open House as a Potential Source for Finding Buyers

An open house is a public event held by a salesperson with the purpose of marketing the property and exposing it to potential buyers. The sellers see that you are working to sell their home and you also have the added opportunity of meeting prospective buyers, often referred to as prospects. People who walk into an open house are usually potential buyers or know someone who is. They may be from the neighbourhood and are curious to see what their neighbour’s home looks like, and to get an idea of the value of their own home. Some may be people who saw the for sale sign and are actively looking. These are potential sources for buyers or referrals. This is a great opportunity to show how you represent homes and to see you in action. The most successful days to show a home are on Saturday and Sunday. You should meet the viewers at the front door and introduce yourself. Have them sign in with their name, to know who went through the home from a safety perspective. However, there is a possibility that they may not be represented by a brokerage, so you may want to inquire about their current state of representation. To collect this information, some people have a paper form for the individuals to fill out, while others use a tablet or computer. Use what works for you and your viewer demographic.

Exam Study Guide

Lesson 1 | Page 4 of 43

Using Sign-ins for Qualifying Buyers When potential buyers sign in at an open house, have them confirm if they are already working with a salesperson. This is a good time to capture their information. This will give you the opportunity to answer their questions appropriately and allow you to begin to build a good faith relationship with other salespeople. Ask who their sales representative is and reach out to their salesperson for follow up afterwards. You will want to gather general information through questions, such as: • Have you been looking for long? • What brings you to this location? • Are you local? Does this home fit your needs? • Would you like me to send you other properties that are comparable or would fit your needs better? These questions are non-invasive, casual and non-threatening. They show you are interested in helping them as people, not just buyers. It also allows you to ask the question: “May I help you further by sending you more info?” If you are new and have no listings, ask other salespeople in the Brokerage if you can host open houses at their listings as a way to develop your skills to meet and develop relationships with buyers. Busy salespeople will often gladly let you host an open house on their behalf.

Exam Study Guide

Lesson 1 | Page 5 of 43

Gathering Information at Your Open House

The primary reason for gathering contact information is for safety and legal reasons. If anything happens to you or the home, either during the open house or after (for example, a break-in) you have a record of who was there to provide to the authorities. The second reason for gathering contact information is to follow up at a later time. For privacy and legal reasons, have a place to record that it is okay for you to contact the visitors at a later date. If they give you permission to contact them, check yes on the sign in sheet and get their phone number and email address. It is most important to ask if they are currently working with a salesperson. If they tell you they are working with a salesperson, continue to be professional and courteous, but do not do something that induces or could be perceived as trying to induce someone to break their agreement with the other brokerage. Such conduct would be a breach of section 7 of the Code. If they are not working with a salesperson, you may ask them questions about their family, needs, wants, and offer them your business card. If it is not a busy open house, you have an opportunity to go into more detail with them to build the rapport and develop a relationship, if not for this transaction, perhaps another. Exam Study Guide

Lesson 1 | Page 6 of 43

A salesperson is selling a home for a seller who is retired and looking to sell a large home and buy a smaller property that is easier to maintain. The salesperson is holding the first open house on Saturday. Question #1: What are some of the best practices the salesperson can follow to make sure the open house is successful and provides new business sales leads? There are six options. There are multiple correct answers.

1

Greet each visitor at the front door and introduce himself

2

Give a business card to each visitor to the open house

3

Have visitors sign a guest registration form to provide their name, address, contact information, and confirm they are presently under a buyer representation agreement with another salesperson and they consent to be contacted

4

Inform each visitor that prior to viewing the property, it is necessary to provide what prompted their visit and when they plan on purchasing

5

Answer questions in a friendly and honest way

6

Contact each person within a week of the open house

Exam Study Guide

Lesson 1 | Page 7 of 43

Sign Call as a Potential Source for Finding Buyers Sign calls are when buyers drive through the neighbourhood and see a “For Sale” sign, take the information and call the salesperson. The thing to remember is that each buyer is also a potential seller. The key to a high lead-to-appointment conversion rate is the speed you respond to the call. It is helpful to use sign call scripts; most often provided by the brokerage. They can be essential to taking control of the initial conversation in order to provide better service to buyers, limit time being wasted and to reduce the risk of breaching the law. Learning to ask the right questions will allow you to qualify the leads that come in and helps you to collect the important information you need to determine how to proceed. Good examples of questions would be: • Have you just started your search for a property? • Are you looking to make a move sooner rather than later? • Do you have a home to sell first? • Would you prefer to buy first or sell first? • Are there certain locations you prefer over others? • Is there a certain price range you would like to stay in? • Would you like me to send you other properties that are comparable to the one you called about? Remember that it is most important to determine whether they are working with a salesperson. If they are, limit what you tell them and direct them back to their salesperson to contact you for more information. You do not want to be accused of trying to induce a client to break an existing contract, because you did not make efforts to determine any existing relationships.

Exam Study Guide

Lesson 1 | Page 8 of 43

Handling the Incoming Call

If they are not working with a salesperson, the two major objectives in handling a call are to: 1. Create a good first impression 2. Arrange for a face-to-face appointment The more natural and non-aggressive you are the better. Develop good telephone etiquette and speak with prospects, not at them. Be forthcoming with information, involve the prospect, qualify their needs, ask pertinent questions, and above all be helpful. Remember to listen to what the caller is saying to you. Do not be dismissive. Often the caller will say things that will be important to qualifying their needs and help determine whether or not you want to work with them and whether or not they are seriously looking at real estate to purchase now or later in the future. As much as they are looking for the right fit, you also want to assess the fit and your areas of expertise.

Exam Study Guide

Lesson 1 | Page 9 of 43

A salesperson receives a call from someone who spotted their number on a sign in front of a property currently for sale. The most important first qualifying question to ask anyone who calls is: “Are you currently working with a salesperson?” Question #2: Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 1 | Page 10 of 43

Referrals as a Potential Source for Finding Buyers

As a general rule, the majority of a salesperson’s business will come from referrals. Being active in your community and your sphere of influence is important to grow your network of friends and family, professional contacts, and people in your community. The easiest way to get started when you are new to the business is to send out a letter, email or call your contacts and let them know that you are now a salesperson. Let them know you are looking for business and contacts, what services you are offering and if they know someone looking to buy or sell a home. If they do, ask them to send along your information. Existing happy clients are also an easy source of referrals. They know how you work, how you helped them, and are often happy to refer your name to people they know. Give them business cards with your picture or logo on the front and a “referred by” line on the back.

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Lesson 1 | Page 11 of 43

Referrals in Your Community

Being active in your community is important in generating referrals. This creates opportunities to tap into your community contacts and grow your relationships in places such as: • Your children’s schools • Organizations you belong to • The committees you are on • Places where you are volunteering It also gives you a good reference point to learn more about your community and projects that may be up and coming in your neighbourhood; for example, a new park or school construction, a new store or restaurant opening, etc. This information might be a source of new leads if new employees are coming to the area and can be helpful when dealing with your own buyers. The more active and visually seen you are in the community the more referrals you are likely to get, especially if you are well liked. Someone is always paying attention. Exam Study Guide

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Referrals from Other Professionals

Finally, no one refers more people to other businesses than salespersons. So like top salespersons, you can tap into this power by developing real estate referral networks by: • Making friends with listing salespersons and working out a commission for leads that turn into business. • Growing a list of people (for example, handymen, landscapers, painters, home stagers etc.) who can let you know when someone starts to spruce up their house to get ready to sell. • Networking with investors, lawyers, accountants, financial planners, and any other type of professional who works in a real estate related field.

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Lesson 1 | Page 13 of 43

A great source of potential buyers is referrals from others. Question #3: Which of the given choices is/are correct regarding potential sources of referrals? There are three options. There are multiple correct answers.

1

Family and friends

2

Committees and organizations a salesperson belongs to

3

Other real estate related professionals a salesperson knows

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Lesson 1 | Page 14 of 43

Duty Time as a Potential Source for Finding Buyers

Many brokerages divide up the office hours in half-day or three hour increments where a designated salesperson must be on duty in the office. This is often referred to as duty time. Office time may be available to you as a salesperson for servicing phone calls and walk-in people with inquiries. As a new real estate salesperson, especially if you have a small sphere of influence, it is important to do duty time. You get the calls that are not intended for another salesperson or broker and equally important is that it provides opportunities to work on and refine your ability to make a great first impression. The procedure for handling floor duty, assignment of times, and in fact the existence of such times, vary greatly and are completely dependent on brokerage policy and employment contracts between salespeople and the employing brokerage.

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Lesson 1 | Page 15 of 43

Best Practices and Guidelines for Duty Time

If duty time is offered in the brokerage, these tips and guidelines can help: • Be friendly and professional. When on duty, you will be giving potential buyers the first impression of the brokerage. • Be well informed about all listed properties. Have electronic access ready to attain needed information. In particular, keep the most recent print and Internet advertisements within easy reach for fast reference. Have information on good backup or alternative properties to the advertised property. Remember, the caller seldom buys the advertised property. It just caught their interest. It is up to you to find the right property. • Be well organized. Do not shuffle needlessly to get such things as scratch paper, a pen, a calculator, amortization schedules, area maps, and your appointment book. Have the necessary paper and electronic tools ready. Do not frustrate people with, “Hang on, let me find a pen” or “I’ll have to start up my computer. Exam Study Guide

Lesson 1 | Page 16 of 43

Question #4: Brokerages are obligated to offer duty time to their real estate salespersons. Identify whether the given statement is true or false. There are two options. There is only one correct answer. 1

True

2

False

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Lesson 1 | Page 17 of 43

Advertising, and Networking as a Potential Source for Finding Buyers Advertising and networking are critical, especially when you are new and want people to know you are there. There are a variety of activities you can do to get your marketing in motion. The benefits of these activities are that they can elevate your brand, grow web traffic, and bolster lead generation. The following six sections contain information on advertising and networking.

Traditional advertising Traditional advertising can be done through drop mail to a targeted area through postal services, door knocker pieces (printed material hung on a door knocker or door knob of the property), or advertising done on benches and billboards. A printed advertisement can be effective at capturing attention. The brokerage will often do brokerage advertising. Even if you do not have something to list, put your friendly and approachable headshot on your materials to get yourself known.

Web advertising Spending money on online real-estate advertising can bring buyers in for business. There are different types of ads to promote your business or a particular listing, such as text ads, display ads with static or animated banners or video ads with short clips. As a salesperson you can advertise through search engines like Google AdWords or look for opportunities to advertise for free with other providers like Craigslist, Facebook, the DDF (if your Brokerage has allowed for the DDF Access), Exam Study Guide

Kijiji, and Real Estate Portals.

Mobile marketing A popular trend is mobile marketing. First and foremost make sure that any website you have is mobile friendly. If you open your site on your phone, and you have to pinch and zoom, it is not responsive or mobile friendly. Be sure to use a website building platform that features responsive design. You can buy advertising that targets buyers within a geographic location, searching for specific words and have your ad appear on prospective buyers’ mobile phones and devices. Blogs can be a good way to write about your city and neighbourhood. People research prospective homes and locations online first when moving to a new area. Your content can generate leads. Get comfortable with video. People tend to watch videos more often than read when given the choice. Whether you do the videos yourself or hire a real estate specific videographer, ensure it is good quality. Once it is posted it is out there for good, even if you take it down.

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Social networking A growing trend in the field, social networking enables you to build relationships and keep yourself top of mind with potential buyers. Facebook, Twitter, Instagram, and YouTube are just some of the places you can put out content and listings to grow your business. Sites such as Yelp can be a good way to get your name out there and even gather testimonials of happy customers to build your brand. Social channels such as Facebook and Instagram, with Live Feed capabilities, allow you to stream from an open house or out in a neighbourhood. This allows you to generate interest from potential sellers and buyers. The services will notify your followers when you are live and promote the recording after it ends. Use your headshot to build recognition. Post pictures of properties and start conversations to build a following that lead to opportunities. Twitter is used to gather followers, disseminate content to attract buyers, and build credibility. It is important not to be aggressive in these forums, but rather be helpful and provide information that followers will like and share with others. You want to become a trusted source.

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Traditional networking A selling career begins with building relationships in the brokerage. The ultimate test lies in developing meaningful relationships and connections in the marketplace. Your first few weeks are critical in setting up systems that will move your career forward. While networking can be as simple as writing down a list of everyone that you know and contacting them, successful salespeople prefer a more focused plan that challenges them to develop worthwhile personal contacts on a continuing basis. Attend all the events put on by your local real estate board (for example, courses, fundraising events, Christmas parties etc.). These are great ways to develop relationships with other sales representatives in your community. It gives you opportunities to ask questions about the real estate world and how they deal with challenging situations, new technologies, advertising, etc. There are a variety of networking groups, such as Toast Masters, the Chamber of Commerce, or Business Networking International (BNI). These paid groups tend to attract paying customers. If you cannot find one to join, you can go to free events through portals like Meetup or create your own events, such as seminars to generate opportunities. Enter all contacts into your contact management program immediately. Be the first to follow up with your contacts. Just give them a call and get permission to “stay in touch.” That is all you need at first.

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Business cards Business cards are very important to a real estate salesperson in an industry with large amount of networking and serious competition. It is important that you put some thought, time, and effort into the creation of your business card. This will represent you as a brand, a person, and a professional. If you use a headshot on your card, make sure it is friendly and approachable. Ensure your contact information is clear and visible for all ages, and leave room for people to make notes on it. Let them know that you appreciate referrals. Your calling card will represent you once you walk away and leave it behind.

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Lesson 1 | Page 18 of 43

A salesperson plans to use a variety of methods to elevate their brand, grow web traffic, and generate leads. Question #5: Targeting the ads to buyers' mobile phones when in specific geographic location or using a responsive site are some of the tactics a salesperson can use to grow web traffic. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 1 | Page 19 of 43

A salesperson plans to use a variety of methods to elevate their brand, grow web traffic, and generate leads. Question #6: Modern advertisements to generate leads can be done through dropping mails by postal services and door knocker pieces. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 1 | Page 20 of 43

A salesperson plans to use a variety of methods to elevate their brand, grow web traffic, and generate leads. Question #7: Streaming on Facebook or posting on instagram are the social networking methods that can be used by a salesperson to promote the content. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 1 | Page 21 of 43

A salesperson plans to use a variety of methods to elevate their brand, grow web traffic, and generate leads. Question #8: Banner advertisements and Google AdWords are the web advertisements that can be used to grow web traffic. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 1 | Page 22 of 43

A salesperson plans to use a variety of methods to elevate their brand, grow web traffic, and generate leads. Question #9: Joining groups and meeting industry professionals do not contribute in generating contacts in the real estate field. Identify whether the given statement is true or false. There are two options. There is only one correct answer. 1

True

2

False

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Lesson 1 | Page 23 of 43

Farming a Neighbourhood or Community, Including Door-to-Door Canvassing, as a Potential Source for Finding Buyers

A systematic method of prospecting known as “farming”, has been successfully used by many real estate salespeople. Farming involves the selection of a specific territory, geographic or otherwise (for example, social), and the development of that territory by the sales representative. The farm territory does not need to be large. As a salesperson you can develop a rewarding career in residential real estate sales with a base of as few as 200 properties in larger cities or less in rural towns. Decide what type of properties you want to sell and what type of buyers you want, then select a territory you know matches. It is an advantage to be known by some of the persons in the farming area. Regardless, a salesperson must become aware of, and totally familiar with, all the political, social, physical, and economic features of the entire territory. You want to distinguish yourself as the area expert and that takes work. Exam Study Guide

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The Objective of Farming

The overall objective of farming is to become acquainted with everyone who resides within the area and make a good impression; to become established in their minds as the person who offers real estate services in that area. To accomplish this goal you need regular communication through an organized logical system. Mailings and door knocker advertising are tools that can assist, but are only aids in the overall campaign. Fortunately, many customer relationship management (CRM) software programs are available to assist in the process. These programs can help organize your network and produce both electronic and print mailings. However, remember that there is no substitute for personal contact. Make certain that the CRM enhances your face-to-face visits and telephone calls, not replace them.

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Lesson 1 | Page 25 of 43

A Targeted Approach

By farming a neighbourhood you can get to know potential buyers, ask them if they would like monthly updates, and generally make friends with the homeowners. You want to demonstrate that you also care about the neighbourhood. Have something to give them; for example a sheet with a list of local tradespeople, schools, emergency numbers, and your contact information in case they need a great real estate salesperson in the future. If you have sold a property in the area use that to start discussions. Offer them information and request they pass on your name to people they know who want to buy in the area. It is a good practice to target homes that look like they are undergoing some remodeling. There is a good chance that the homeowners are getting ready to put their home on the market or that they just moved into the home. If it is the latter, they may have another home to sell. Always have some quick statistics on recent sales in the neighbourhood. It is important that a salesperson not have any discussions with or leave any material with an owner whose property is currently listed with another brokerage. This is a violation of the Code and could be seen as soliciting clients under contract with another brokerage. A responsible salesperson would always check whether any properties in the farm area are currently listed for sale before delivering any targeted advertising material. To ensure compliance with the Exam Study Guide

Code, all mass mailing advertising will have a disclaimer statement included clarifying that the materials are not intended to solicit clients who are already working with another brokerage.

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Lesson 1 | Page 26 of 43

A salesperson is preparing to farm a neighborhood and asks their broker of record for advice on this method of prospecting. Question #10: What are some of the best practices that the broker of record could share with the salesperson? There are six options. There are multiple correct answers.

1

Become acquainted with as many people as possible who reside within the area

2

Target homes where the landscaping appears to be undergoing improvements

3

Mailing campaigns and door knocker advertising are tools that can assist

4

Leave door hangers on homes with a Brokerage For Sale sign on the front lawn

5

Regular communication through an organized, logical system

6

Post signs advertising yourself on people’s front yards (much like a politician’s sign)

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Lesson 1 | Page 27 of 43

Prepare a Buyer’s Package for Initial Contact with Buyers

Every buyer you meet should receive a buyer’s package in hopes of retaining them as a client or customer. Properly educating your real estate buyers about the process of buying a home can help your transactions go more smoothly. It will ensure that your buyers pass your name along to all of their friends and family in the future. With all the information on the internet, some salespersons just assume their buyers know what they need to know. Setting expectations upfront and educating the home buyer can help avoid challenges later on in the process. You will walk through the process with: 1. Leading practices to prepare a customizable buyer’s package 2. Leading practices for what to include in a buyer’s package 3. Optional tools to include in a buyer’s package Exam Study Guide

Lesson 1 | Page 28 of 43

Leading Practices to Prepare a Personalized Buyer’s Package A buyer’s package is a valuable tool to give buyers in order to build a professional image that positions you as an expert. Have a friendly headshot, ensure your contact information is clearly visible, and ask qualifying questions to help you tailor it to the buyer for a personal experience. To begin assembling a personalized package you need to collect information on: • Family details • The purpose for moving • Wants and needs • Budget and pre-approvals Any property listing you include will need to meet the criteria of these qualifiers.

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Lesson 1 | Page 29 of 43

Providing Valuable Information

Some offices have packages or files that contain standard paperwork when working with sellers or buyers. A salesperson could use those or add to the package by inserting information specific to a particular buyer depending on neighbourhood and level of buyer. Often buyers are not aware of hidden costs associated with purchasing a property. Costs, such as land transfer fees, lawyer’s fees, and third-party expenses, are not top of mind when they make their budgets. Providing a list of these costs, along with referral information in advance, makes the buyer’s package a valuable tool that saves everyone time. Be sure to provide more than one referral name for each referral to give the buyer an ability to make their own choice. The best practice is to provide three different names for any one category. You do not want to appear biased to one third-party professional or another. If you only give them one choice and things go badly you do not want to be the person they blame. Better to let them choose for themselves. Packages can be enhanced with modern presentations on tablets or even links to videos online providing additional information and tips of value. Exam Study Guide

Lesson 1 | Page 30 of 43

Leading Practices for What to Include in a Buyer’s Package Anticipating buyer needs and being proactive will help you cement your expertise with buyers and increase your opportunities for referrals. The documents you could provide for an effective buyer’s package are: • A cover page in colour • Your contact information • A list of what they should expect from you as their salesperson • An overview of what they should expect throughout the process (for example, the home search, writing an offer, negotiations, inspections and appraisals, title work, the closing process) • Brokerage information • Property listings that match their criteria • Lists of third-party referrals (best practice is to provide three for each category) • Information on the mortgage pre-approval process • Common buyer mistakes • A map of the area (if they are moving from out of town) • Testimonials from happy buyers • A glossary of real estate terms

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Lesson 1 | Page 31 of 43

A salesperson’s buyer is ready to start looking at properties. The salesperson has decided to assemble a buyer’s package for them. Question #11: What should the salesperson consider when assembling a buyer’s package for the buyer? There are three options. There is only one correct answer.

1

Personal contact information for the Broker of Record

2

A list of clauses that might be included in a schedule to an agreement of purchase and sale

3

Needs and wants

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Lesson 1 | Page 32 of 43

Optional Tools to Include in a Buyer’s Package

Some of the good additions to the buyer’s package that will help support your content and work to personalize it to your buyers are: • Stats on properties, neighbourhood specific data, schools, frequently asked questions • Links to YouTube videos you have created as an introduction or where you are presenting relevant information and tips • Social media information, links and resource websites of interest. Try and keep them on your content and pages, but linking them to reputable sites, such as RECO for articles and content, will ensure that they are receiving accurate information • Feel free to customize and add any other documents or information you think your buyers would find valuable Exam Study Guide

Lesson 1 | Page 33 of 43

A salesperson is making a list of items to include in the buyer’s package. Question #12: What are some of the items he would want to include? There are six options. There are multiple correct answers.

1

Contact information

2

Municipal property tax calculations

3

Neighborhood specific data

4

Property listings that match their criteria

5

An overview of what buyers should expect throughout the process

6

Referral information for a preferred lawyer, home inspector, etc.

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Lesson 1 | Page 34 of 43

Identify the Options for Personalizing a Buyer’s Package

It is important to understand what your buyers are looking for. A clear picture only comes through by asking qualifying questions and going through a list of features they want and need. As a salesperson, you can save everyone a great deal of time by anticipating needs and providing information guides that complement the search. Moving forward you will learn: • Qualifying questions to identify different buyer needs • Buyer preference list to assess specific priorities • Different types of home buyer’s guides based on needs/preferences

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Lesson 1 | Page 35 of 43

List of Qualifying Questions to Identify Different Buyer Needs Show your professionalism and care by asking qualifying questions to identify different buyer needs. Qualifying questions will help you show the best property matches to the buyer. When a salesperson asks questions it creates an opportunity to provide personalized service, cement their expertise and build their relationship. The following six sections contain information on qualifying questions to identify different buyer needs.

Representation

• Are they working with a salesperson? This is the most important question to ask and the very first that needs to be asked. You are legally obligated to respect a salesperson-buyer relationship and you will be limited in what you can and cannot say in accordance with Section 7 of the Code of Ethics. • How many houses have they looked at? Many buyers now come with research they have done online. This question will help you qualify them as potential clients or if they have already been working with other salespersons.

Timing

• What is their reason for buying and why now? Tailor your services to a buyer’s situation by getting insights into their reasons and motivations. • What if the buyer found the perfect house tomorrow? Gauge a buyer’s readiness to move and get insight into their ideal timeline. Are they looking to move in the next three months? If they are first-time buyers, now is the time to discuss the closing process. • How long does the buyer think they will live in the house they buy? Some buyers may want a house they can enjoy for now, but will be easy to sell later. Some may want a home for their retirement years. Others may want a forever home and have more specific requirements. Exam Study Guide

Financial

• What is their budget or have they been pre-approved for a mortgage? There is no point showing them a home they may fall in love with if they cannot afford it. Open the financial conversation and be prepared to refer lenders if they are not preapproved. • What monthly mortgage payment are they comfortable with? Just because they qualified for a $800,000 mortgage does not mean that it is what they are comfortable with. Work within their comfort zone as much as possible. If they have not thought about what they can afford, it might help ground them and help you both understand what they can or want to afford. • Do they have an understanding of the costs that come along with purchasing a home? Most buyers understand that there is a down payment, but often forget about other added costs such as the lawyers, inspectors, movers, etc.

Wants and needs

• What are their needs (for example, number of bedrooms, bathrooms) versus their wants (for example, hardwood floors, a pool)? It is important to know the difference between what they need and what they want from the beginning to save everyone time and show your professionalism. As you view homes the list may change. Keep your notes updated and adjust your future showings to reflect their growing changes. • What is a deal breaker for them? Roads with a lot of traffic? Apartment complex neighbors? No front yard? Save time by knowing their deal breakers upfront. • How many people are in their household? Do they have guests that stay over often? This will help you better understand their needs for space. Sometimes a family believes they need three bedrooms, but with visitors staying for extended periods of time, there may be a need to expand to more bedrooms.

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Lifestyle

• What are their three favourite neighbourhoods? This is a good way to talk about where they would like to live, how important schools are, and showcase your neighbourhood expertise. • What physical property features will meet their lifestyle needs? Learn more about the lifestyle of your buyers and begin the discussion about features they are looking for. •

How important is an outdoor/garage space? In many areas and price ranges, this question can quickly eliminate a number of options, so it is good to discuss it early. Would they be willing to live in a condo with a parking space or do they require a private back yard?

Contact

•

How does the buyer prefer to be contacted? Personalize your service to them and how they like to be contacted. Offering to communicate via phone, email, text or even Skype shows flexibility and accommodation. This is also the time to set expectations as to when the buyer (and you) are available.

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Lesson 1 | Page 36 of 43

A young couple is looking for a new home. They currently live in a two bedroom apartment with two children and are expecting a third child soon. They have been to a few open houses in a rural town and looked at several homes on Realtor.ca®. Their family is growing, and they want to live in a family-friendly neighbourhood near a school. They spend a lot of time entertaining friends and having dinner parties. Question #13: To identify the best property matches for the buyers, the salesperson would ask them about the number of houses they have looked at. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 1 | Page 37 of 43

A young couple is looking for a new home. They currently live in a two bedroom apartment with two children and are expecting a third child soon. They have been to a few open houses in a rural town and looked at several homes on Realtor.ca®. Their family is growing, and they want to live in a family-friendly neighbourhood near a school. They spend a lot of time entertaining friends and having dinner parties. Question #14: Asking the buyers about why a rural town is important to them and when they would like to move are two of the qualifying questions that a salesperson would ask to identify the best property matches for the buyers. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 1 | Page 38 of 43

A young couple is looking for a new home. They currently live in a two bedroom apartment with two children and are expecting a third child soon. They have been to a few open houses in a rural town and looked at several homes on Realtor.ca®. Their family is growing, and they want to live in a family-friendly neighbourhood near a school. They spend a lot of time entertaining friends and having dinner parties. Question #15: To identify the best property matches for the buyers, the salesperson would ask them about their budget and if they have been pre-approved for a mortgage. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 1 | Page 39 of 43

A young couple is looking for a new home. They currently live in a two bedroom apartment with two children and are expecting a third child soon. They have been to a few open houses in a rural town and looked at several homes on Realtor.ca®. Their family is growing, and they want to live in a family-friendly neighbourhood near a school. They spend a lot of time entertaining friends and having dinner parties. Question #16: To identify the best property matches for the buyers, the salesperson would ask the buyers about their favourite paint colour. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 1 | Page 40 of 43

Buyer Preferences List to Gather Specific Priorities There is a difference between wants and needs. It is best to understand them both as you look for properties. Including a list directly in the buyer’s package will help everyone be on the same page. A small list of priorities you could include would be: • Location • Age of home • Style of home • Stories • Bedrooms • Bathrooms • Types of rooms (for example, library, office area, gym, etc.) • Basement • Kitchen features • Single or multiple car garage (for a car or just for storage) • Home energy • HVAC • Flooring • Fireplace • Front/back yard • Walk-in closets • Deck • Swimming pool • Amenities Exam Study Guide

• Basement apartment

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Lesson 1 | Page 41 of 43

Different Types of Home Buyer’s Guides Based on Needs/Preferences

Buyers looking at houses verses buyers looking at condominiums will have different priorities with specific information needs. Some buyers may need information on their rights, what to look for, or extra expenses that may come up during the purchase of a property. Understanding what your buyers are looking for and tailoring your buyer’s package using trusted outside content will help you put together a comprehensive package with accurate information. A number of associations like RECO, the Canadian Mortgage and Housing Corporation (CMHC), and other groups have their own guides you can use. Some even allow a space to insert your own contact information to help you to demonstrate your helpfulness. Go to their websites, download them, and if you can, customize them. This allows you to look professional, meet buyers’ needs, and save time explaining other processes surrounding home buying.

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Lesson 1 | Page 42 of 43

RECO and CMHC are the only trusted websites that offer brochures and pamphlets for home sellers and buyers. Question #17: Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 1 | Page 43 of 43

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were covered in this lesson.

Potential sources of buyers

The growth of your business is key to being successful, and finding potential sources of buyers is at the heart of it. Open houses, duty time, farming and networking put you physically in the path of potential buyers. Activities, such as putting out signs for calls, encouraging referrals, advertising, and building an online presence create opportunities for potential buyers to reach out to you. Make sure you are doing a variety of activities that will ensure that you are not relying on any one method.

A buyer’s package for initial contact

A buyer’s package is a good tool for a salesperson to use during the sales process. It is another way to show value, to showcase yourself and to show how you are different from other salespersons. Having a friendly headshot and contact information is just the beginning. It is truly the content that helps you shine. Include ways to collect information from your buyer that will help you give them personalized service. Provide valuable information, such as a list of additional costs they should plan for, a variety of information on third-party professionals they may need, and perhaps some geographical information. These are ways to set yourself apart, and position yourself as an expert and professional. A package, no matter what form it takes, must provide value. Think of ways you can help your buyers and tailor the package to reflect it.

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Options for personalizing a buyer’s package

What can set you apart and is critical is understanding what your buyers are looking for and personalizing your services to them. This can only be achieved by asking qualifying questions that will help you put together a picture of what your buyers want and need. Once you have asked the first and most important question: “Are you currently working with a salesperson?” and taken steps to satisfy yourself they are not, it is time to begin the qualifying process. A salesperson can save everyone time and frustration by having a list of qualifying questions to ask the buyers. This enables the buyers to gather their priorities and get a clear picture of what to search for. Information such as their motivations, timing preference, budget, and wants and needs based on lifestyle should all surface for you to know what to look for in the property search. Once you have all the information, you can begin to personalize buyer’s packages to suit different needs, enabling you to stand out from the competition.

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Lesson 2 | Page 1 of 51

Lesson 2: Salesperson’s Obligations to Buyers

This lesson is focused on describing your obligations as a salesperson when working with buyers, whether they are clients or customers. You will discuss the relationship options with a potential buyer and your obligations when showing property to a potential buyer.

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Lesson 2 | Page 2 of 51

Discussing Relationship Options With a Potential Buyer

In this lesson you are revisiting ideas presented earlier, what the differences are between a client versus a customer relationship and how to establish if a seller or buyer is to be a client or a customer. This is important because these differences define the salesperson’s regulatory obligations and actions throughout the real estate transaction. Upon completion of this lesson, you will be able to: • Discuss relationship options with a potential buyer • Describe the salesperson’s obligations when showing property to a potential buyer Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented. Exam Style Guide

Lesson 2 | Page 3 of 51

Reviewing Differences Between Client Versus Customer Relationship Options

The difference between a customer and a client is very important. A salesperson must be careful that they know the difference so they can represent people properly and be able to explain it to sellers and buyers effectively. A customer is typically someone using a salesperson to help oversee the buying or selling of a house. You owe them competent service, honesty and good faith but you do not owe them confidentiality and fiduciary duty. In contrast, a client allows a salesperson to represent them and expects all information known by the salesperson to be used for their benefit. The salesperson is bound by confidentiality and has a fiduciary duty to only act in their client’s best interest. Exam Style Guide

Lesson 2 | Page 4 of 51

Examples of Differences Between Client and Customer

Although there is an obligation under REBBA to document a buyer representation agreement in writing, a buyer could become a client by verbal agreement or by the words and actions of the salesperson. In that case, any information the buyer shared with the salesperson must be kept confidential. When a client shares information with the salesperson, such as the maximum price they are willing to pay on a property, it is sacred and is not to be shared with anyone else unless given specific permission to do so. Alternatively, if a buyer is a customer and your seller client asks if the buyer will go higher and the buyer had previously disclosed their budget to you, you are bound by the duty of disclosure to your seller client to answer truthfully. As a salesperson, you have to be careful how you interact with sellers and buyers and know the difference between the duties and obligations owed to customers and clients. Exam Style Guide

Lesson 2 | Page 5 of 51

Representation Agreement Versus Customer Service Agreement

Sellers and buyers may enter into one of two types of agreements with a brokerage, a representation agreement or a customer service agreement. Both are considered legally binding agreements. When someone enters into a representation agreement, they are considered a client of the brokerage. As a client: • The brokerage has an important obligation to them, called fiduciary duty, and must promote and protect their best interests in the real estate transaction. • If they are looking to purchase a property, under a legislated Code of Ethics, you as the salesperson must take reasonable steps to determine, and then disclose to them, all material facts about the property. When someone enters into a customer service agreement, they are considered a customer. As a customer: • The brokerage does not have the obligation of fiduciary duty, but is obligated to treat them with fairness, honesty and integrity, and to provide them with conscientious and competent service. Exam Style Guide

• You as a salesperson only have to disclose to the customer the material facts that you already know or ought to know.

Exam Style Guide

Lesson 2 | Page 6 of 51

A salesperson is reviewing the differences between a customer and a client relationship with a broker. Question #18: A customer is someone that uses a salesperson to help assist in the selling or buying of a house, but not to act directly on his or her behalf. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Style Guide

Lesson 2 | Page 7 of 51

A salesperson is reviewing the differences between a customer and a client relationship with a broker. Question #19: A client allows a salesperson to represent him or her and expects all information known by the salesperson to be used for his or her benefit. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Style Guide

Lesson 2 | Page 8 of 51

A salesperson is reviewing the differences between a customer and a client relationship with a broker. Question #20: A salesperson is bound by confidentiality and fiduciary duty to only act in a customer's best interest. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Style Guide

Lesson 2 | Page 9 of 51

A salesperson is reviewing the differences between a customer and a client relationship with a broker. Question #21: Clients are owed honesty and good faith, but the salesperson doesn’t owe them confidentiality and fiduciary duty. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Style Guide

Lesson 2 | Page 10 of 51

Complying with Section 10 of the Code: Information Before Agreements

It is important to introduce client and customer agreements to potential buyers as early as possible in the relationship. Every brokerage has a different set of services such as referring properties, setting up viewings and negotiating contracts, etc. You must make sure that your seller or buyer is fully educated on the services available through your brokerage and the difference between customer and client relationships before they sign any written agreement. It is critical that you obtain written acknowledgment from the buyer that they have received and understand the information. Section 10 of the Code, information before agreements, addresses what must be discussed before entering into an agreement with a seller or buyer in respect of trading in real estate. You must inform the seller or buyer of: • Brokerage services and their alternatives provided under the agreement • What circumstances may come up for both customers and clients if the brokerage represents more than one seller or buyer • How services being provided would be altered when dealing with multiple clients along with what consent would be needed in writing Exam Style Guide

Lesson 2 | Page 11 of 51

Complying With Documenting the Relationship Between the Brokerage and the

Many brokerages develop their own policies for working with buyers that go beyond what’s in the regulatory framework. For example, some may have policies that require documenting the relationship with a buyer before the salesperson shows a property or within a specified amount of time after their first meeting. A salesperson needs to familiarize themselves and comply with those policies. They constitute both an ethical and a business obligation for a professional salesperson.

Exam Style Guide

Lesson 2 | Page 12 of 51

Contents of Written Agreements

As per Section 11 of the Code, it is a salesperson’s responsibility to sit down with the buyer and explain the contents of the written agreements before getting a signature. The written agreement must: • Include the date it takes effect and when the agreement expires. If the contract is longer than six months the buyer needs to initial that they understand it is for a period longer than six months • Specify the commission or remuneration payable to the brokerage for the services provided • Describe how any commission or other payments will be made • Outline what services will be provided While there is the ability to send forms electronically and get electronic signatures, it is best practice to meet in person to go over the document to ensure a buyer is clear on and understands what they are signing. Exam Style Guide

Lesson 2 | Page 13 of 51

Complying with Obligations When Providing Copies of Written Agreements

According to Section 12 of the Code, the salesperson must provide a copy of the agreement to every person who is party to the agreement immediately upon signing of the agreement. If the buyers are spouses, make sure that each of them is given a copy, and you must keep a copy for yourself and the brokerage. The copy can be a paper copy or if the party approves, it can be an electronic copy.

Exam Style Guide

Lesson 2 | Page 14 of 51

Buyer Representation Agreements

Section 14 of the Code focuses on buyer representation agreements. It stipulates that before you draw up any offer, you prepare, sign a representation agreement and deliver it to the buyer for signature. If you have been working with buyers for a while without a representation agreement in place and are at the offer stage, you must prepare one and deliver it to the buyer, before the buyer makes an offer. It is important to have a representation agreement signed prior to signing the offer as it confirms your relationship with the buyer. This information is documented on the Confirmation of Cooperation document that is submitted with the Offer. This confirms that the co-operating brokerage is representing the interests of the buyer in the transaction. Exam Style Guide

Lesson 2 | Page 15 of 51

Agreements with Customers

Section 15 of the Code refers to agreements with customers. The Code requires that relationships be documented in writing and signed by the brokerage and given to a customer for their signature at the earliest practical opportunity. Since relationships can be established by implication, providing the buyer with a written agreement will avoid a misunderstanding. The major difference is your duty in regards to confidentiality, fiduciary duty and loyalty with a customer versus a client. While the responsibilities are not the same as with a client, a customer service agreement must be in writing, signed on behalf of the brokerage and submitted to the buyer for signature before making an offer.

Exam Style Guide

Lesson 2 | Page 16 of 51

Importance of Discussing and Documenting the Relationship Early

The importance of documenting the relationship early cannot be stressed enough. Having it documented in an agreement is the absolute best way to ensure that everyone working together is clear on what services are being provided, how the brokerage will be representing the buyer, and what the responsibilities and duties are in either the customer or client relationship; so there is no misunderstanding later. It documents the commitment from the buyer to the brokerage and from the brokerage to the buyer. It covers how and when, or if, the salesperson will be paid a commission or remunerated for their services.

Exam Style Guide

Lesson 2 | Page 17 of 51

All brokerages require a buyer to sign a representation agreement before the salesperson shows them a property. Question #22: Identify whether the given statement is true or false. There are two options. There is only one correct answer. 1

True

2

False

Exam Style Guide

Lesson 2 | Page 18 of 51

It is a salesperson’s responsibility to explain to a potential buyer the contents of a buyer representation agreement or a buyer customer service agreement before asking the buyer to sign the agreement. Question #23: Which of the given information is included in the written agreements? There are three options. There is only one correct answer.

1

The date the agreement takes effect with an open end date

2

The commission or remuneration payable to the salesperson

3

How commissions or other payments will be made

Exam Style Guide

Lesson 2 | Page 19 of 51

Every buyer who is a party to a buyer representation agreement or a buyer customer service agreement must receive a copy of the agreement. Question #24: Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Style Guide

Lesson 2 | Page 20 of 51

The Comparison of a Client and a Customer

The services differ depending upon whether the buyer is a client or a customer. As a salesperson, you should know about them as it helps outline the importance of your fiduciary duty and adherence to Code 4. The key points that should be remembered are: • Both a client and a customer know about the commission or other remuneration that the brokerage may receive as a result of another agreement entered into with another person in respect of the same trade. • Both a client and a customer are provided conscientious service and are demonstrated reasonable knowledge, skill, judgement and competence in providing services. • A salesperson should treat every person they deal with in the course of a trade in real estate fairly, honestly and with integrity. Both a client and a customer are disclosed any material facts known or ought to be known Exam Study Guide

to the salesperson. • If a buyer is in a client relationship with a salesperson, they should take reasonable steps to determine the material facts relating to a property. • If a buyer is in a client relationship with a salesperson, they will promote and protect the best interests of the buyer. • If a buyer is in a client relationship with a salesperson, they have a duty of confidentiality and loyalty to the buyer.

Exam Study Guide

Lesson 2 | Page 21 of 51

Brokerage Policies with Regard to Working with Buyers: Documenting the Relationship Before Showing a Property

More brokerages are refusing to show properties without an agreement first in place and are including this in their policies. It is important to get into the practice of having agreements in place when working with buyers, whether they are a client or a customer. If a buyer is not comfortable signing an agreement, signing a Buyer Representation specific to the property to be shown is one way to gain their trust and not tie them to you beyond what they may be comfortable doing. It only ties them to you for the specific property you have shown them and explains the terms relating to your agreement with them. On the Buyer Representation Agreement there is a section that asks for geographic location. In this section you can write in the property address you are showing them. Exam Study Guide

This protects you and the brokerage from the risk of lost time and revenue due to an undocumented relationship. It also clarifies the relationship and how the brokerage is representing the buyer.

Exam Study Guide

Lesson 2 | Page 22 of 51

A listing salesperson is going to present an offer from a co-operating brokerage this evening. The broker/manager and the salesperson are discussing the various forms that are involved in a transaction, more specifically, a buyer representation agreement and a confirmation of co-operation and representation. Question #25: Which of the given statements about the buyer representation agreement and confirmation of co-operation are correct? There are six options. There are multiple correct answers.

1

The confirmation of co-operation stipulates the fees that will be paid to the salesperson.

2

The buyer representation agreement indicates the buyer is a customer.

3

The confirmation of co-operation document states that the co-operating brokerage represents the interest of the buyer in the transaction.

4

The confirmation of co-operation document states that a buyer representation agreement will be signed in a separate binding agreement.

5

Completing a buyer representation agreement is the salesperson’s legal obligation before a buyer signs an offer.

6

The buyer representation agreement states a salesperson has the authority to act on the buyer’s behalf and the authority to receive the listing commission.

Exam Study Guide

Lesson 2 | Page 23 of 51

A salesperson is meeting with a family to discuss signing an agreement that will best represent their buyer/brokerage relationship. Question #26: If a buyer is in a client relationship with a brokerage, a salesperson promotes and protects the best interests of the buyer. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 2 | Page 24 of 51

A salesperson is meeting with a family to discuss signing an agreement that will best represent their buyer/brokerage relationship. Question #27: A salesperson discloses only to a customer any financial or other benefit the salesperson or brokerage may receive as a result of recommending real estate products or services. Identify whether the given statement is true or false. There are two options. There is only one correct answer. 1

True

2

False

Exam Study Guide

Lesson 2 | Page 25 of 51

A salesperson is meeting with a family to discuss signing an agreement that will best represent their buyer/brokerage relationship. Question #28: If a buyer is in a client relationship with a brokerage, honesty and fairness are owed to the buyer. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 2 | Page 26 of 51

A salesperson is meeting with a family to discuss signing an agreement that will best represent their buyer/brokerage relationship. Question #29: If a buyer is in a client relationship with a brokerage, they have a fiduciary duty of confidentiality and loyalty to the buyer. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 2 | Page 27 of 51

Describe the Salesperson’s Obligations When Showing Property to a Potential Buyer

There are a number of activities a salesperson does that demonstrates compliance with their obligations to both clients and customers when showing properties. These obligations include: • Fairness, honesty, etc. • Conscientious and competent service, etc. • Providing opinions, etc. • Dealings with other salespersons • Services from others • Information before agreements • Seller property information statement • Material facts Exam Study Guide

Next, we will explore how a salesperson can ensure that they include all of these obligations to provide the best service possible.

Exam Study Guide

Lesson 2 | Page 28 of 51

Demonstrate Fairness, Honesty

As per Section 3 of the Code, a salesperson is to treat every person they deal with in the course of a trade in real estate fairly, honestly and with integrity. When people ask you about the property, you have to be honest with them. If there is something you know about the property, tell them. If there is something you can see, tell them. If they ask you for your opinion, be honest. Not all buyers can see past the beautiful paint and the shiny new faucets.

Exam Study Guide

Lesson 2 | Page 29 of 51

Demonstrate Conscientious and Competent Service

Section 5 of the Code, conscientious and competent service, relates to a salesperson’s responsibility to provide conscientious service to clients and customers with reasonable knowledge, skill, judgement, and competence when providing those services. When you see something that could potentially pose a problem or you see something that may not be a right fit with a need or want they have, let them know. Buyers have a legal right to competent service. If a buyer tells you what their budget is, be sure to take all of the costs into account so that your buyer is not surprised on closing. Exam Study Guide

Lesson 2 | Page 30 of 51

Providing Opinions

Adhering to Section 6 of the Code, providing opinions, means that a salesperson must demonstrate reasonable knowledge, skill, judgement and competence in providing opinions, advice or information to any person in respect of a trade in real estate. You have to be very careful when providing opinions. A salesperson is not an expert at everything and should not represent themselves that way. If the buyer asks you what you think of the asking price, and you do not have the experience or expertise, you need to refer to someone who does. Be transparent, fair, and clear in the opinions you express. Exam Study Guide

Lesson 2 | Page 31 of 51

Dealing with Other Salespersons

A salesperson who knows or ought to know that a buyer is a client of another salesperson can only communicate information in any trade through the other salesperson, unless the other salesperson has consented in writing otherwise. This is to adhere to Section 7 of the Code, dealings with other registrants. You will be working with other salespeople for the length of your career. Be fair and forthcoming with them and be as honest as possible without crossing any confidentiality or client privilege lines. Be professional in all of your dealings.

Exam Study Guide

Lesson 2 | Page 32 of 51

Activities in Regards to Services from Others

Section 8 of the Code, which deals with services from others, means that a salesperson will advise a client or customer to obtain service from another person if they are not able to provide the services with reasonable knowledge, skill, judgement, and competence. Nor will a salesperson discourage them from getting a particular kind of service. Make sure that if inspections are done you are there. For example, a home inspection is to be done by a qualified home inspector. The lender will be sending an appraiser to satisfy themselves as to the value of the property they are financing. Sellers and buyers will also need the services of a lawyer to close the transaction. They may have a lawyer or may ask if you could suggest the name of a lawyer. When others need access to the home and you are to be involved in escorting them, you are responsible to supervise them and to look after security of the home. Do not give out lock boxes to anyone other than another brokerage that has an appointment to show the property unless the seller has given express permission to do so. Exam Study Guide

Lesson 2 | Page 33 of 51

Gathering Information Before Agreements

Section 10 of the Code requires that before entering into an agreement with a seller or buyer it is necessary to give the buyer information about real estate representation. This to ensure buyers are fully aware of the services the brokerage is providing and describes the different circumstances that can arise in a real estate transaction with respect to representation. This includes what would happen should the brokerage represent more than one client in the same transaction with written consent. Having a buyer sign a representation agreement is important to define the relationship moving forward. Support tools exist to help brokerages explain and make necessary disclosures. For example, OREA has created a form, Working with a Realtor, which is a one way to highlight what is included in each type of relationship whether it be customer, client or in multiple representation. You must understand these relationships well enough to explain to sellers and buyers. It is important to review what duties each is owed and allow the buyers to make their own educated decision. Also, knowing what is owed to them, and what you are legally responsible to disclose if asked, will affect their conversations with you depending on what they want to disclose. Once the decision is made, their choice will dictate your activities, such as property research using GeoWarehouse® Exam Study Guide

or PropertyLine to see the Municipal Property Assessment Corporation (MPAC) assessment on the property, and any disclosures that may or may not be made on your findings.

Exam Study Guide

Lesson 2 | Page 34 of 51

How to Best Use the Seller Property Information Statement

Section 20 of the Code addresses the seller property information statement (SPIS). The statement is an excellent document to gather information about the property, but sellers should understand the implications if they complete it. It asks detailed questions about the property, such as wiring and electrical box, plumbing and flooding, renovations, etc. Because of the implications of completing the document, some lawyers have been recommending that sellers not complete them. The key issue is that if it has been completed, the salesperson must disclose it to a buyer, unless they are directed otherwise by the seller. The risk is that if it is not filled in properly it opens both the salesperson and the seller to possible liability and lawsuits. Even if the information was left off accidentally or was written with facts that the sellers thought were to be true. Section 20 requires that if it is filled out it must be disclosed, unless the seller directs otherwise. When looking at properties you can ask the listing salesperson if there is a seller property information sheet. Ask questions and put them in your personal notes to ensure you are gathering as many details as possible. Exam Study Guide

Lesson 2 | Page 35 of 51

Obligation to Disclose Material Facts

By definition under the Code of Ethics, material facts means, with respect to the acquisition or disposition of an interest in real estate, a fact that would affect a reasonable person’s decision to acquire or dispose of the interest. Material facts may be identified on the listing data sheet or may be apparent when viewing the property or through other sources. It is factual information about the property that would, in the case of a buyer, affect a reasonable person's decision to purchase the property. For example, how many bedrooms and bathrooms does it have? Does it have a kitchen and how many? Does it have a finished basement? How big is the garage? If you can see it, it is your job to report it. Other material facts may be more technical in nature or not as easily assessed, for example the age of the home, the type of plumbing, or electrical service and panel. Other types of material facts may need some other research, for example is the property in a flood plain or on an airport flight path. These are all facts that are pertinent to the offer or a buyer coming through the house. Anything discovered is something that is to be shared with the buyer. In addition, if your buyers have expressed a concern about living in a home where something horrible has happened such as a violent crime, be sure to make the necessary enquiries. Any disclosure should be documented for the buyer. Transparency is important and necessary. Exam Study Guide

Lesson 2 | Page 36 of 51

An unrepresented buyer comes through an open house and asks the listing salesperson for advice regarding the structural condition. The salesperson informs the buyer that he is representing the seller but that most buyers seek the assistance of a home inspector to evaluate the condition of a property. Question #30: The given scenario matches with Section 3: Fairness and honesty of the Code of Ethics. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 2 | Page 37 of 51

If a buyer has told a salesperson what their budget is, they do not show them properties that are beyond the budget. Question #31: The given scenario matches with Section 4: Conscientious and competent service of the Code of Ethics. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 2 | Page 38 of 51

A salesperson should only make educated statements regarding the condition of a property and advise that a professional property inspection be obtained. Question #32: The given scenario matches with Section 6: Providing opinions of the Code of Ethics. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 2 | Page 39 of 51

When a buyer who is represented by another brokerage calls for information on one of your listings, only communicate information to them through their salesperson. Question #33: The given scenario matches with Section 7: Dealings with other registrants of the Code of Ethics. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 2 | Page 40 of 51

A salesperson is showing a buyer a property that was previously used as a day care centre. The buyer asks the salesperson whether HST would apply to the sale. The salesperson thinks it may but is not sure. Question #34: The given scenario matches with Section 8: Services from others of the Code of Ethics. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 2 | Page 41 of 51

A salesperson meets a buyer for the first time and explains the type of services that are offered by the brokerage. Question #35: The given scenario matches with Section 11: Information before agreements of the Code of Ethics. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 2 | Page 42 of 51

A salesperson is showing a buyer client through a property and refers to a document that was provided by the listing salesperson which contains additional information on the property. Question #36: The given scenario matches with Section 22: Seller property information statement of the Code of Ethics. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 2 | Page 43 of 51

A salesperson is showing a buyer a property that backs onto vacant land. The buyer asks if there are any plans to develop the vacant land but the salesperson is unaware of any. Question #37: The given scenario matches with Section 21: Materials facts of the Code of Ethics. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 2 | Page 44 of 51

Client Services Versus Customer Services

Client A client expects that the salesperson who represents them will use all their knowledge and information for their benefit. This means that the salesperson owes a fiduciary duty to act only in their client’s best interest. In addition, anything the client shares with their salesperson is confidential. Customer A buyer may not wish to be under contract as a client with a brokerage but would rather be treated as a customer. The essential difference between services is you work for a client but you only guide a customer. A salesperson would not advise a customer on how to negotiate or to provide other professional advice as this would indicate a Exam Study Guide

client relationship where one did not exist. A customer may ask you to put their offer in writing and present it to the seller. If the buyer is your client it is your duty to take reasonable steps to determine and confirm the material facts and advise the buyer. It is also your duty to do necessary research by going to GeoWarehouse® or the Municipal Property Assessment Corporation (MPAC) to gather available information. You are there to protect the buyer client’s interests when negotiating on their behalf. With a customer you do not negotiate, you present the offer. However, a salesperson is obligated to treat every person, whether they are a customer or client in a real estate transaction, with fairness and honesty. It is important for a buyer to understand which relationship they are in and what they can and cannot expect from you. Lack of clarity in expectations often lead to disputes and buyers feeling misrepresented. You can reduce this risk by making certain the relationship is clearly understood and documented in writing.

Exam Study Guide

Lesson 2 | Page 45 of 51

A salesperson is discussing options with a family who came to the brokerage during duty time. They discuss their options regarding representation. Question #38: The salesperson when in discussion with the family should say “Our brokerage can represent you as a client, or we can have a customer relationship. There is no rush. You have plenty of time to determine which relationship you would prefer later, as the distinction is not that critical.” Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 2 | Page 46 of 51

A salesperson is discussing options with a family who came to the brokerage during duty time. They discuss their options regarding representation. Question #39: The salesperson when in discussion with the family should say “If you sign a representation agreement, you become our client. In this case, we owe you fiduciary duties, which means we must protect and promote your best interests. If you sign a customer service agreement, our obligation is to provide you with accurate information and treat you fairly, honestly and with integrity.” Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 2 | Page 47 of 51

A salesperson is discussing options with a family who came to the brokerage during duty time. They discuss their options regarding representation. Question #40: The salesperson when in discussion with the family should say “If you already have some kind of a relationship with another brokerage, I would strongly advise you to switch over to us. We can guarantee that you get the best service above and beyond what you would get from our competitors.” Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 2 | Page 48 of 51

A salesperson is discussing options with a family who came to the brokerage during duty time. They discuss their options regarding representation. Question #41: The salesperson when in discussion with the family should say “Whether you opt for a client or a customer relationship, I need to point out that in both cases we are obligated to disclose all known material facts to you about a property in which you are interested.” There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 2 | Page 49 of 51

Obligations to Clients When Showing Properties When showing homes you want to make sure that you are meeting most, if not all of your client’s needs and criteria regardless of the commission being offered. It is your obligation to inform your client before showing them the property that they may be responsible to pay the commission on top of the purchase price. Let them decide whether or not they want to see the property. Best Interests You want to work in your client’s best interests and work within their buying criteria. If they are qualified for a certain amount, only show them properties within budget. Otherwise, it can be interpreted as if you are working in your best interest and not theirs. Properties That Meet Buyer’s Criteria When considering a buyer’s criteria it is important to listen and know as much about your clients as possible. This is essential to meet their criteria and stay within the line of fiduciary duty adhering to Codes 4 and 19. You are expected to inform the buyer of all properties that meet the buyer’s criteria regardless of the amount of commission being offered.

Exam Study Guide

Lesson 2 | Page 50 of 51

Demonstrate Compliance with a Salesperson’s Obligation to Clients When Showing Properties

As a salesperson you are responsible to point out or ask any questions needed to discover material facts about the property and relay the information to your client. A material fact as defined in the Code of Ethics and as it relates to a buyer, is a fact that would affect a reasonable person’s decision to acquire the property. You have an obligation to a buyer client to take reasonable steps to discover and disclose such material facts. As you recall, a latent defect is something that you can not necessarily see. You would need to ask questions or in some cases may require an intrusive inspection to discover it and in some cases it may not be known. For example, mould hidden behind a wall in the basement. The seller may not even know it is present. A patent defect is something you can see by visual inspection. For example, mould that is clearly visible around a window. In this case you would point it out to the buyer. It is your duty to look out for your buyer’s best interest. Keep their criteria in mind, and point out any and all material facts that could influence their decision, whether latent or patent defects or other facts about the property.

Exam Study Guide

Lesson 2 | Page 51 of 51

Congratulations, you have completed the lesson! There are two sections on this page with a summary of the key topics that were covered in this lesson.

Relationship options with a potential buyer

When you have determined that a potential buyer is not a party to a representation agreement with another brokerage, the next step is to qualify the buyer. There is more work necessary when moving forward to qualifying the buyer and establishing a relationship as client or customer. It is important that you know the critical differences between a client and a customer and be able to explain them, because it will shape the conversations you have with them moving forward. While honesty, integrity and competent service are due to all, confidentially and fiduciary duty are owed to clients and you will have to explain that to buyers as they decide on the type of relationship they will enter with your brokerage. It is important to discuss the differences with buyers and have them commit in writing to their choice before business moves too far forward. A growing number of brokerages will not allow their salespeople to book a viewing until they have a signed agreement identifying the type of relationship. So making it a habit to explain and establish the relationship and put it in writing is a best practice and will serve you well in your career.

Obligations when showing property to a potential buyer

We explored a salesperson’s obligations to buyers when showing properties. Keep in mind the difference between a client and a customer. A salesperson must adhere to the Code when conducting business. This part of the lesson was divided into key topics. The Code prohibits you from working with another salesperson’s clients without the other salesperson’s written consent to do so. Fairness, honesty and conscientious service are owed to all, as well as disclosing material facts. When recommending third-party services you want to make sure you are impartial. You Exam Study Guide

want to offer multiple sources and allow the buyer to choose the third party that best suits their needs. There are differences in your duties and obligations regarding best interests, properties and material fact disclosures when dealing with a client versus a customer. These duties are also altered in multiple representation situations.

Exam Study Guide

Lesson 3 | Page 1 of 24

Lesson 3: Selection of Properties to Show

This lesson reviews leading practices in qualifying your buyer, and continually assessing their needs and wants as these may change once a buyer starts looking at properties. In other words creating a property profile sheet. The lesson is also about how to determine which properties are most suitable for the buyer to view.

Exam Study Guide

Lesson 3 | Page 2 of 24

Identify Buyer Needs and Property Requirements to Select Appropriate Properties to Show

Providing conscientious competent service not only helps to minimize risk, but also better ensures that buyers receive the professional help needed to make an informed decision about property. Upon completion of this lesson, you will be able to: • Identify buyer needs and property requirements • Identify properties that meet the buyer’s criteria Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

Exam Study Guide

Lesson 3 | Page 3 of 24

How to Select Properties to Show Buyers Being a buyer can be a very scary, complicated and confusing process. It is your job to help alleviate those fears and make the process as seamless and simple as possible for your buyer, allowing your buyer to make informed decisions. The following material will deal with the most common services typically provided by a salesperson to a buyer before the offer is made or negotiated. The following six sections contain information on each service.

Establish a Buyer Profile Establishing a buyer profile involves conducting a detailed interview with the buyer to understand property specifications and their special needs and/or requirements. Typically, buyers do some research beforehand. So when they come to you it is important to get a good picture of who they are and what they are looking for so you can help them achieve their goals. The most direct method to know what a buyer wants is to ask: • “Why are you looking to buy a home?” • “What is your family’s needs? How big is your family?” • “What is your location/area preference?” • “What is your timeframe?” • “What is your budget? Have you been pre-approved for a mortgage?” Once you know the answers to the questions you can start the search. Understanding the difference between what they need and what they want will be important. For Exam Study Guide

example, if they are an older couple, a two story may not be the best fit for them. A young family or a buyer just starting out would be open to looking at different housing styles, or may insist on having a home with a basement apartment for extra income. Taking the time to help the buyer understand their wants and needs will help you focus your search on the right homes. Otherwise, you risk presenting homes the buyer will see as missing the mark and impact their confidence in your ability to understand what they are looking for.

Providing Area Information Requires providing the buyer with facts. This includes property values and market conditions, and additional information, such as school logistics, neighbourhood details for desired search areas, community profiles, transportation services, etc. GeoWarehouse® is a very good resource for finding neighbourhood values, demographics and where the schools are in a particular area.

Identifying Target Properties This service is focused on searching for and identifying properties that meet buyer preferences related to price range, location, property type, age, and floor plans. All local listing service providers have the capability to search for properties using specific search criteria to speed up the search process. It will also include properties that meet certain requirements, such as the condition of the home, closing Exam Study Guide

date, fixtures/chattels, outbuildings, lot size, services (for example, water, sewer, natural gas), etc.

Viewing and Showing Properties Identifying properties that meet the buyer’s profile and specifications, and arranging showings, takes effort. But what you do is well worth the time that is invested. Activities surrounding showings include: • Previewing the property prior to showing • Providing realtor/client data sheets to the buyer for each property being shown • Reviewing the history on the listing • Review local listing service data for recent sales in the neighbourhood • Preparing the buyer to view the property (such as, telling them if there is something unusual about the property so they are not surprised when they arrive) • Plan your route to optimize the time you have (set up the showing tour in a manner that makes travelling sense so you are not travelling back and forth across the area/town/city) • Setting the number of properties to show in one outing based on the buyer’s needs (the buyer may have travelled a long way and wants to see as many as possible, or has a limited amount of time to spend and wants to be as efficient as possible)

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Comparing Properties Comparing properties involves providing guidance in the selection process by comparing features/benefits of viewed properties; discussing price and identifying key trends that may impact the buying decision. Property comparisons include details of comparable homes currently listed, those that have recently sold, and listings that have recently expired and not sold.

Exploring the Need for Outside Professional Services Another good way to discover your buyer’s needs and narrow down your field of search is to consider the different outside services that may be needed. As the need for inspector and lawyer services, appraisers, mortgage brokers, moving companies, electricians, carpenters, plumbers, roofers, etc., come up you will begin to get a clearer picture of the buyer’s threshold, and understand how to narrow down your field of search for listings. It is always best to align selected properties with a buyer’s specific needs allowing you to build a more accurate and refined buyer profile; for example, if they are an investment buyer or a buyer with no interest in doing home improvements.

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Lesson 3 | Page 4 of 24

Property Profile Sheets for Buyers

The property profile sheet includes a series of questions for buyers to help you identify and keep track of their preferences, and the desired features they are looking for in a property. The property profile sheet may also include a place to record a potential buyer’s “deal-breakers” (for example, wheelchair access must be available). When new properties come on the market, you can use your buyer’s property profile sheets to determine whether the new properties meet the buyer’s requirements. Once you have conducted an interview and discussed a buyer’s list of wants and needs, you will want to keep the property profile open as a live and changing document.

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Lesson 3 | Page 5 of 24

Information to Collect for a Buyer’s Property Profile Sheet There is no standardized form used for the purpose of gathering information on a buyer’s preferences or requirements. Depending on the trading area, the general type of property being sought, age of the consumer, ethnicity or other cultural factors, there will be unique questions or topics that impact a buyer’s preferences. There are also questions or topics that would apply to most buyers no matter where the property search is, or the type of property being sought. The following six sections contain information on the items found in a property profile sheet.

Basic information Basic information specifies the price range and type of property the buyer is looking for; for example, style, size, lot size, neighbourhood or location, number of bedrooms and bathrooms, floor plan preferences, garage or other outbuildings, exterior features such as fencing, decking, pool, and other similar items.

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Environment This section identifies the buyer’s preferences for natural location characteristics, such as escarpments, lakefront, view, near wooded area, etc.

Access and accessibility This is where the salesperson details the type of access to and from the property that the potential buyer prefers. This may include items such as cul-de-sac, highway access, availability of public transit, proximity to schools or employment, and similar considerations. Accessibility is about the property itself, such as how many stories it has and accommodations it may have for disabilities; for example wheelchair access. These are critical to some buyers and can often be dealbreakers.

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Utilities This section highlights the various utilities preferred, such as municipal or private water supply, municipal sewers or private septic systems, primary heating system, central air, natural gas, hot water system, and whether or not modern conveniences are available (for example, high speed internet, fibre optic cable, curbside garbage pickup, etc.).

Amenities Amenities are services available in an area. They are usually based on who lives there (for example, close to health services based on age group of buyer, community centres, sports activities, shopping, restaurants, parks, etc.).

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Other sections There are no formalized standards for property profile sheets. They can include additional sections that the salesperson finds useful for identifying appropriate properties for showing. Additional sections or items may be types of schools nearby, time of possession (for example, immediate versus to be arranged), architectural style (for example, midcentury modern, side split, back split, bungalow, twostory, etc.), finishes (for example, solid-surface kitchen countertop, heated bathroom floor), etc.

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Lesson 3 | Page 6 of 24

Value of Creating a Property Profile Sheet for the Buyer

For a property profile sheet to fulfill its purpose and function, it must meet two criteria: 1. It must have all the preferences that a potential buyer has communicated to the salesperson, recorded accurately and precisely 2. It must be updated regularly throughout the search Completing a property profile sheet early on in the relationship is not sufficient in itself. In the process of visiting multiple properties, a buyer’s needs, wants, and preferences can – and frequently do – change. Buyers may change their minds once they have seen what is available in a market, neighborhood, or in their price range. They may realize their preferences do not actually align with their lifestyle choices, or the vision they have about a feature may not necessarily reflect reality. For example, they realize they will need a bigger dining room to fit their furniture. Property profile sheets help to paint a clear picture of what the buyer is looking for, both for you and for them. Investing time up front will usually save time searching. You are showing them what they have told you they want and ultimately you find them the right property sooner.

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Lesson 3 | Page 7 of 24

A buyer has signed a buyer representation agreement with a brokerage. It is now time for the salesperson to begin narrowing down what the buyer is looking for in a property. Question #42: What does the salesperson need to do to identify potential properties in preparation for the first property tour? There are six options. There are multiple correct answers.

1

Establish a buyer profile

2

Compare properties

3

Provide area information

4

Viewing and showing properties

5

Identifying target properties

6

Exploring the need for outside professional services

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Lesson 3 | Page 8 of 24

A salesperson is reviewing the information on a buyer’s property profile sheet in order to determine which homes to show to the buyer. Question #43: House style, house size, lot size, neighbourhood or location, number of bedrooms and bathrooms, floor plan, etc. are all the basic information that a salesperson can find on a buyer's property profile. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 3 | Page 9 of 24

A salesperson is reviewing the information on a buyer’s property profile sheet in order to determine which homes to show to the buyer. Question #44: Natural location characteristics, such as escarpments, lakefront, view, near wooded area, etc. are all environment-related information that influence where a buyer would like to live. Identify whether the given statement is true or false. There are two options. There is only one correct answer. 1

True

2

False

Exam Study Guide

Lesson 3 | Page 10 of 24

A salesperson is reviewing the information on a buyer’s property profile sheet in order to determine which homes to show to the buyer. Question #45: Accessibility is the section of the profile sheet were the information such as number of stories, accommodations it may have for disabilities and wheelchair access is filled. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 3 | Page 11 of 24

A salesperson is reviewing the information on a buyer’s property profile sheet in order to determine which homes to show to the buyer. Question #46: Amenities is the section of the profile sheet that highlights the various services such as municipal or private water supply, municipal or private sanitary sewers, primary heating system, central air, natural gas, hot water system, etc. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 3 | Page 12 of 24

A salesperson is reviewing the information on a buyer’s property profile sheet in order to determine which homes to show to the buyer. Question #47: Amenities is the section of the profile sheet that highlights the various services such as community centres, sports activities, etc. close to health services based on age group of buyers, etc. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 3 | Page 13 of 24

Updating Property Profile Sheets for Buyers

A salesperson should update a buyer’s property profile sheet after each showing and modify its contents based on the buyer’s feedback. As you go out looking at properties, it is important to take copious notes on what the buyer likes in one house or dislikes in another. Doing so enables you to respond to refining requirements quickly, track preferences of different buyers efficiently, and to effectively select suitable properties for showing. After you identify a buyer’s needs, wants, and preferences, the next step is to identify properties that match the buyer’s criteria.

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Lesson 3 | Page 14 of 24

A salesperson should update a buyer’s property profile sheet after each showing, modifying its contents based on the buyer’s feedback. It is important that a salesperson takes notes while viewing properties on what the buyer liked and did not like. Question #48: Why would a salesperson regularly update a buyer’s property profile? There are four options. There are multiple correct answers.

1

Enables a salesperson to respond to changing requirements quickly

2

Track preferences of different buyers efficiently

3

Select suitable properties for showing effectively

4

Allows a salesperson to double up on showings when two different buyers are looking for the same property

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Lesson 3 | Page 15 of 24

Identify Properties That Match a Buyer’s Criteria

Moving forward, you will explore the different ways to identify properties that meet your buyer’s criteria and how to use them to ensure what is shown to them is a good fit. You will cover: • Using fundamental marketing services to identify properties to show that meet a buyer’s criteria • Using print and electronic sources to identify properties to show that meet a buyer’s criteria • Ensuring that an identified property to show meets a buyer’s criteria

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Lesson 3 | Page 16 of 24

Marketing Tools and Digital Services to Identify Properties for Buyers Professional real estate associations maintain databases and local listing services. They are available to members only. They are considered the most complete and comprehensive source of properties available for sale. Some of their features and functions are also accessible to buyers, under certain circumstances, through public websites and interfaces. Many online marketing services, such as local listing service listings, real estate portals, and print advertising are available to the salesperson to find appropriate properties available for sale. The following six sections contain information on sources of properties that may meet a buyer’s criteria.

Local listing service

New listings

When you are ready to start the property search, you will set up a buyer profile with their needs in the local listing service. This can be set up as a client portal, which comes directly to you or to you and the client. The system will automatically pull every house that matches the description and the criteria you put in and sends them to you and/or the buyer. You will then look through the properties and read the descriptions to see if they fit. If they do, you will either send it or have the system send it directly to the buyers. It is good practice to view listings every morning and night to see what new listings are on the market that may work for your buyer. Be diligent about looking at them. Many brokerages and real estate boards issue regular “Hot Sheets”, which show all new listings, price changes, conditional offers, and properties that are sold, expired, suspended or cancelled. If your buyer lives a good distance away, or you cannot view the property yourself, do the due diligence before sending the property listing to the buyer. Call the listing salesperson and ask questions about the property to assess whether it is a good fit for the buyer before you book a viewing.

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Other salespersons

Classified advertising

Smart phone and computer applications

Social networking and media platforms

Talk to the other salespersons in your brokerage. Do any of them have any properties that meet your buyer’s needs? Attend brokerage tours, salesperson’s open houses and public open houses to see what houses are available. In some situations, especially if your buyers need to commute in, it is a good idea to ask another salesperson if you may preview their property to see if it meets your buyer’s needs. It is important to know the inventory you are working with. Newspapers and online ads are another source to find properties. With the gradual decline of print media, newspapers have become far less popular in recent years. There are new options to advertise online; for example, on free websites such as Craigslist and Kijiji. Properties that are for sale by owner (FSBO) will favour these options. Some salespersons will list the property features in an ad in the hope of attracting potential buyers. Classified ads will offer you an opportunity to widen your search in an attempt to meet your buyers’ needs. The number and diversity of applications, such as realtor.ca and redfin.ca that run on smartphones, tablets, or computers are growing on a daily basis. You can find a specialized application for virtually every single aspect of the real estate transaction. These apps help you to keep track of the newest listings. All of them use a “Map Feature” to allow you to see what’s for sale (or been sold) in a certain geographical area. A quick check of the appropriate app store can offer you a broad range of tools that help you identify and locate properties suitable to your buyer’s criteria, such as location and price. Sellers and salespersons increasingly use social media platforms to market and find available properties and services. This is another way to find properties instantly and easily; by searching for listings that fit their buyer. Never discount your social network. It can be an invaluable place to learn about private sales and opportunities that are coming on the market. Facebook, Instagram, and Twitter are all excellent platforms to share and find property listings.

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Lesson 3 | Page 17 of 24

Ensure Showing Identified Property Meets Buyer’s Criteria You will be in control of your buyer’s search as long as you update the property profile sheet every time you meet with them, keep track of new listings and other properties that have come up online, or go to open houses in your area. Buyers often change their pricing and may vary their criteria. They may increase it once they actually know what they can afford or start cancelling out must haves because they realize their budgets cannot withstand the long list. This is usually when space and location become prime targets over hardwood floors, air conditioning or move-in ready condition. As you show your buyer properties, it is always a good idea to sit down and catch up with them to make sure you are still on the right track or if you need to explore other options. The buyers will always need reassurance that you are working for them and are on top of the searches.

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Lesson 3 | Page 18 of 24

A salesperson is representing a family as buyers. They have given the salesperson property preference details and would like to start viewing homes. The salesperson is now ready to start searching for homes that meet the buyers’ requirements. Question #49: Local listing service is a property search technique in which the system will automatically pull every house that matches the description and the criteria provided. Identify whether the given statement is true or false. There are two options. There is only one correct answer. 1

True

2

False

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Lesson 3 | Page 19 of 24

A salesperson is representing a family as buyers. They have given the salesperson property preference details and would like to start viewing homes. The salesperson is now ready to start searching for homes that meet the buyers’ requirements. Question #50: Hot sheets method utilizes a system that will show which properties are new to the market, have price deductions, have conditional offers, have sold, are expired, suspended or cancelled. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 3 | Page 20 of 24

A salesperson is representing a family as buyers. They have given the salesperson property preference details and would like to start viewing homes. The salesperson is now ready to start searching for homes that meet the buyers’ requirements. Question #51: Talking to colleagues, attending other open houses and brokerage tours to see which houses are available is not one of the property search techniques. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 3 | Page 21 of 24

A salesperson is representing a family as buyers. They have given the salesperson property preference details and would like to start viewing homes. The salesperson is now ready to start searching for homes that meet the buyers’ requirements. Question #52: Classified advertisement includes reviewing classified ads online or in newspapers including free web sites such as Craigslist and Kijiji. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 3 | Page 22 of 24

A salesperson is representing a family as buyers. They have given the salesperson property preference details and would like to start viewing homes. The salesperson is now ready to start searching for homes that meet the buyers’ requirements. Question #53: Smart phone and computer applications such as realtor.ca and redfin.ca can offer a salesperson a broad range of tools to help identify and locate properties suitable to a buyer’s criteria. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 3 | Page 23 of 24

A new salesperson is at a real estate function. While networking with other brokerages he learns of a new listing that seems to meet the criteria of the new salesperson’s buyer. Question #54: What type of tool has the new salesperson used to find the buyer a potential property? There are four options. There is only one correct answer.

1

Hot sheets

2

Other salespersons

3

Local listing service

4

Classified ads

Exam Study Guide

Lesson 3 | Page 24 of 24

Congratulations, you have completed the lesson! There are two sections on this page with a summary of the key topics that were covered in this lesson.

Identify buyer needs and property requirements

Once qualifying questions have been asked and a buyer profile has been outlined, it is time to start the property search. As you go through the process of searching and targeting properties, then viewing and comparing them, you will get a clearer picture of what the buyer needs. Over and above the basic information, you must consider environment, accessibility, utilities and amenities when narrowing down the field of search.

Meeting a buyer’s criteria

Keeping your buyer profile and property profile sheet updated will be key throughout the process. There are a number of places you can look to find properties that are suitable for the buyer. Depending on the need, you may use the local listing service in your search but you could also search private listings, such as classified ads, online ads, computer apps and social networking to help get results. The most important thing is to keep your buyers needs and wants in mind when searching, and continually adjust the profile property sheet as they become clearer during the search.

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Appendix | Page 1 of 2

Appendix Answer Key Question #1: 1, 2, 3, 5 Question #2: 1 Question #3: 1, 2, 3 Question #4: 2 Question #5: 1 Question #6: 2 Question #7: 1 Question #8: 1 Question #9: 2 Question #10: 1, 2, 3, 5 Question #11: 3 Question #12: 1, 3, 4, 5, 6 Question #13: 1 Question #14: 1 Question #15: 1 Question #16: 2 Question #17: 2 Question #18: 1 Question #19: 1 Question #20: 2 Question #21: 2 Question #22: 2 Question #23: 3 Question #24: 1 Question #25: 3, 5 Question #26: 1 Exam Study Guide

Appendix | Page 2 of 2

Question #27: 2 Question #28: 2 Question #29: 2 Question #30: 1 Question #31: 2 Question #32: 1 Question #33: 1 Question #34: 1 Question #35: 2 Question #36: 2 Question #37: 1

Question #38: 2 Question #39: 1 Question #40: 2 Question #41: 1 Question #42: 1, 3, 5

Question #43: 1 Question #44: 1 Question #45: 1 Question #46: 2 Question #47: 1 Question #48: 1, 2, 3 Question #49: 1 Question #50: 1 Question #51: 2 Question #52: 1 Question #53: 1 Question #54: 2

Exam Study Guide

Lesson 4 | Page 1 of 45

Lesson 4: Showing Properties to the Buyer

As discussed in the preceding lessons, in service-based businesses – and especially in real estate – the secret of success is being capable, understanding, diligent, and reliable. After a buyer’s needs, wants and property requirements have been identified, the salesperson selects appropriate properties of potential interest to the buyer. The next phase of the process is to prepare to show the properties to the buyer.

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Lesson 4 | Page 2 of 45

The Leading Practices Related to Showing Properties

Showing properties provides you with multiple opportunities to service your buyer in a personalized way, and refine the search to find a successful match to their needs and wants. Upon completion of this lesson, you will be able to: • Describe leading practices related to showing properties • Describe leading practices of a salesperson related to protection of a buyer 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 45

Preparing to Show Properties: Coordinating Schedules

Showing a property is a pivotal step in the sale process. Be adequately prepared and sensitive to feedback during the showing. Various guidelines are provided to assist you with your first showing and many more. Once you find properties on the local listing service and other listings, you will want to confirm the properties your buyers would like to visit. It is a best practice to ask your buyers: “What day do you have available and what are your preferred times on each of those days?” This will help you arrange times that work in a schedule for all three parties, the buyers, you, and the sellers. Generally speaking, sellers will accommodate a viewing but in some cases there are circumstances that will prevent it. Let the buyer know that it is important to accommodate the seller too. The buyer wants to be as accommodating as possible if they decide later on that they want to put in an offer on the property. The more flexible and versatile you are the more open the seller will be to negotiating with you. Exam Study Guide

Lesson 4 | Page 4 of 45

Allotting a Proper Amount of Time

Give buyers about an hour for each house being shown. This will allow for a walk through, feedback after, and travel time to the next showing. Each buyer’s style and approach will be different. Take notes on how long they were in each house or property for future bookings so you can time visits accordingly. It is important to plan and leave enough time for the buyers to look around at their pace. Some will spend a half hour in the home fully inspecting it, even if they are not liking what they are seeing. Other buyers may only glance through it even though they love it. The time spent will also depend on the buyer’s availability; for example, if this is their only chance to see the property, if they can come back for future visits, or if the property is in a fast paced marketplace. You should be looking for serious interest in the property. If it is not there, move on.

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Lesson 4 | Page 5 of 45

Travelling with Your Buyers

In the past it was advisable to travel with your buyers when viewing properties. It allowed you one-on-one time to discuss the properties, gauge interest, and ensure that everyone arrives at the same time. However, there is a much safer way to gauge your buyer’s interests rather than being alone in a vehicle. For example, you might meet the buyer at the property. Depending on the proximity of the property you could also meet at the office or at a local coffee shop first, then from there you could travel to the property in separate vehicles. Safety needs to be a consideration in all your options. As a general rule, a salesperson will not take a new buyer in their vehicle nor get into theirs. A relationship must be built first and trust established before they would do this. In most cases, even after a salesperson and buyer have established a pattern of meeting at the interested properties, they will usually continue their business relationship in separate cars. Most buyers rush after work to see a property but in a slower market you could make an afternoon of showings on the weekend and schedule a meeting time as well.

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Lesson 4 | Page 6 of 45

Before the First Showing

The first showing will give you a good idea of your buyer’s style and viewing preferences. The best practices for the property tour are: • Make all showing appointments through the listing brokerage, and confirm them on the day of showing with both prospective buyers, and with sellers through the listing brokerage • Always try to prepare the seller well in advance so that they can spruce up the property, in addition to acting on any recommendations made at the time of listing the property • Try not to have the seller present unless situations arise where they are an essential source of information, or can in some way assist in the showing • If it is your own listing, ensure you have inspected/viewed it thoroughly before listing it so that you are well informed of its attributes. If it is not your listing try to get in before your buyer if there is time. Otherwise, try to speak with the listing salesperson to get some additional information, so you don’t have to exclusively rely on the listing and let your buyers know that you have not seen the property before you get there

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Lesson 4 | Page 7 of 45

A salesperson is sitting down with a broker to review what needs to be completed prior to the first property tour with the buyer. Question #55: The first thing that a salesperson needs do prior to the first property tour with the buyer is to find properties that match the buyer’s needs and wants. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 4 | Page 8 of 45

A salesperson is sitting down with a broker to review what needs to be completed prior to the first property tour with the buyer. Question #56: A salesperson must co-ordinate with the seller and buyer with the salesperson’s schedule 24 hrs in advance to arrange property showings before reviewing the realtor remarks on the data information sheet for seller direction on showings. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 4 | Page 9 of 45

A salesperson is sitting down with a broker to review what needs to be completed prior to the first property tour with the buyer. Question #57: Before arranging one hour visits to a series of properties, a salesperson should co-ordinate with the seller and buyer with the salesperson’s schedule 24 hrs in advance to arrange property showings. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 4 | Page 10 of 45

A salesperson is sitting down with a broker to review what needs to be completed prior to the first property tour with the buyer. Question #58: Arranging one hour visits to a series of properties based on their location and availability should be done by a salesperson prior to the first property tour with the buyer. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 4 | Page 11 of 45

A salesperson is sitting down with a broker to review what needs to be completed prior to the first property tour with the buyer. Question #59: Meeting the buyer at the brokerage to start the property tour is the final step in the first property tour with the buyer. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 4 | Page 12 of 45

Leading Practices for Showing Properties

Being Prepared Go to your showings prepared with each listing sheet (one for you and one for your buyer), the lockbox code, and a pen or note app ready for notes. If it is a first time out, it may be a good idea to send the listings in advance electronically or provide your buyers a clipboard with their sheets attached and a pen so they can take notes of their own. Prior to going into the showing, discuss the amenities offered in the locale and be sensitive to the buyer’s reaction. You may able to gauge if the area is right for them. It is important to make sure you bring your business card to each visit. You will need to leave it behind in every house you visit so that the seller is aware of who was in their home. Leaving a card confirms that you kept the appointment and were there.

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Lesson 4 | Page 13 of 45

Showing Courtesy

It is good to remember that you are visiting other peoples’ homes and property. It is also good practice to prepare your clients to show respect for the seller’s property. That protects the seller’s property, which you are responsible for during the showing and also shows you and your buyers in the best light should they want to make an offer. If you are going to be late for a showing or need to cancel you must contact the listing brokerage immediately so the seller can be notified. Remember if you are late, the seller may not be able to accommodate the later time. You should be with your buyers at all times while in the home. When leaving a showing, leave your business card, turn off all the lights (unless otherwise instructed) and lock all doors to be sure that you have left the home secure.

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Lesson 4 | Page 14 of 45

Leading Practices for Showing Properties

It is important to mention to buyers to refrain from touching personal items or looking in cabinet and dresser drawers. Although this sounds like common sense, you cannot always supervise each individual when showing the property to large groups. It is also easy to lose track of children when they are present. Remind your buyers they are not buying the furniture only the home. It is important to be vigilant so that the seller’s privacy is respected and their personal property is not taken or damaged. As a professional, you need to be respectful of the homes you visit, since you are responsible for what happens while you have control of the home. This will help you build a positive reputation with your colleagues, clients, customers, and the industry.

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Lesson 4 | Page 15 of 45

During the Showing

Be patient during the showing and allow the buyer adequate time to investigate the property, to appreciate the look, feel and flow of the home. You can step back during a showing if you feel your buyers need some privacy, but still be nearby and vigilant. If an important feature may have been overlooked, point it out. Otherwise, resist any attempt at ongoing conversation, except to expand on comments made. Effective listening is a vital aspect of any showing. It is important to remind your buyers that sellers might have video or audio recording devices. It is best to assume they are there and to act accordingly. People who bring an expert friend are often insecure about their own competence. Be prepared to treat such friends as true experts and sell to them as much as to the buyer. During the showing, try to keep it positive from start to end, regardless of whether the buyers like the property. It is good to remember that both positive comments and criticisms have value in narrowing the field. Again, sellers sometimes have recording devices and information collected on them could be used to the seller’s advantage.

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Lesson 4 | Page 16 of 45

Concerns During Showings

Do not be misled or dismayed by people who are critical. Often buyers criticize what they like, as they are setting the stage for negotiations. No objections can often mean no interest. Experience will inevitably show that someone who loves everything may have great difficulty in making a decision. Watch the actions and expressions of the buyer. Listen to understand concerns raised, to help better understand the buyer’s wants and needs. Be honest, but tread carefully, be helpful, and understanding. It is their decision, not yours, though they may want to hear your perspective.

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Lesson 4 | Page 17 of 45

When conducting a property tour, a salesperson should follow best practices to ensure a positive experience for the buyer. Question #60: Which of the given scenarios are best practices? There are six options There are multiple correct answers.

1

Arrange to have the seller present to provide information and assist in the showing.

2

Set up at least 10 houses for each tour to avoid additional tours in the future.

3

Prepare the seller well in advance so that they can spruce up the property, in addition to acting on any recommendations made at the time of listing the property.

4

Make all arrangements through the sellers when showing properties listed with other brokerages.

5

If possible, inspect all properties thoroughly in advance of showings to avoid unpleasant surprises. If the property has not been pre-inspected, the salesperson should openly disclose this to the buyer.

6

Confirm all appointments on the day of showing, both with prospective buyers and with the sellers’ salespersons.

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Lesson 4 | Page 18 of 45

Following Up After Showing Properties

After your buyer has had a chance to look at some properties, there are two follow-ups that need to happen. The first to requalify and gauge your buyer’s interest in the properties they have seen so far and whether they want to look more closely at one of them or to continue looking at other properties. Skilled salespeople listen and watch for signs of true interest, such as minor criticisms, phrases indicating acceptance, anticipated presence in the home. For example: “We could use this room as a den,” or “we could convert that room to a bedroom or office” or “That’s a great location for the TV,” are all signs that they might be more interested than they are letting on or even realize themselves. A point exists in every negotiation when the sales representative must ask if the buyer is ready to make an offer. However, asking someone if they are ready make an offer before someone is ready to buy can turn buyers off, making them feel undue pressure. Asking for the offer is not a pressure technique, but a matter of providing assurance to the buyer that what they think emotionally also has merit from a practical, objective viewpoint. Some buyers might take a very long time to be ready to make an offer, while others will know right away. The second type of follow-up is with the seller’s salesperson or listing brokerage. You will want to give them Exam Study Guide

feedback from your showing as a professional courtesy. This may include information on the property condition or opinions expressed by your buyers that will help the seller’s salesperson discuss impressions of the property, pricing, or potential repairs the seller may want to consider that may create more interest in the home. Understanding your duties and obligations, you would restrict the information shared by your buyers, ensuring you do not divulge any personal or confidential information such as how much they would be willing to pay for the home.

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Lesson 4 | Page 19 of 45

A salesperson has finished walking a buyer through the first of three 2-bedroom bungalows on a property tour. Before leaving, the salesperson reviews the checklist that was created with the broker to make sure all of the necessary steps are completed at the end of a visit. Question #61: What does the salesperson need to ensure is completed? There are four options. There are multiple correct answers.

1

Leave a business card

2

Lock up the property

3

Turn off all the lights (unless instructed otherwise)

4

Leave a brochure outlining your sales success

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Lesson 4 | Page 20 of 45

Securing the Property

After a showing, you must make sure the property is locked up properly. Leaving a property unsecured can make you liable for any damages that arise from your negligence. Note that listing brokerages often times provide instructions to salespersons to lock up upon leaving, turn off all lights, and to leave their business card as proof to the seller that the salesperson was in their home as arranged by the appointment. This is the best way to give sellers a sense of safety knowing who was in their home and give assurance that there was a showing. There may be special instructions around pets or other issues. Always follow those instructions carefully.

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Lesson 4 | Page 21 of 45

Using Showings to Re-Qualify the Buyer

Following the showing, you should continue the qualifying process. This means debriefing the buyer about their likes and dislikes, and revisiting and refining the buyer's property profile sheet, and criteria. Following the showing of a property, you should compare it to all subsequent properties, maintaining a comparison model if a property is considered a potential, using it as a sort of leading candidate. There is no such thing as an unsuccessful showing. By continually re-qualifying the buyers as to their required features and benefits you are always moving one step closer to finding the right property.

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Lesson 4 | Page 22 of 45

Deciding How Many Properties to Show a Buyer

The decision on how many properties to show in a day will come down to distance travelled and timing. If the buyer is coming from a long distance, they cannot afford the luxury of multiple visits. Generally speaking, it is recommended to show three to five houses during a property tour. Showing several properties in rapid succession can cause confusion and buyers misremembering the distinct features of each home. It will also depend on market conditions. If the market is a fast moving one and there are 10 houses that appear to meet the buyer’s criteria, it is best to book as many as possible and leave time for discussion. Book the day with them if necessary so that if they see a property they like, they can make an offer as fast as they are comfortable with, keeping in mind that some may sell before you even get in to see them.

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Lesson 4 | Page 23 of 45

Re-Qualifying to Prioritize Showings

Following each showing, the buyer should be re-qualified. This, in turn, may mean you re-evaluate what properties to show on another day based on their current feedback. You can prepare summary information regarding each property being shown and briefly introduce the buyer to these lists before the showing process. If there are negative attributes about a property, disclose them before the showing. The buyer will not be surprised by the drawbacks and will not be easily predisposed to a negative impression. Caution is advised, however, as people’s tastes differ. What the sales representative views as a drawback may not in fact appear so to others. Of course, all known material facts must be disclosed.

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Lesson 4 | Page 24 of 45

Ideal Sequence and Emphasis

Some believe that an ideal sequence to the order of showing properties exists, but in reality many factors can vary the approach. Most buyers know where they want to be. Location. Location. Location. The majority of buyers base their search on that first and then the specific features within a home second. Know the reasons for their preference as there may be other locations that can offer the same value to them that they may not have otherwise considered. Therefore, place emphasis on the neighborhood, amenities and general locale of the house. Secondly, discuss the layout and specific features.

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Lesson 4 | Page 25 of 45

Question #62: During a showing tour, a salesperson must always stay with the client in order to be available to discuss key issues. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 4 | Page 26 of 45

Question #63: When buyers criticize a property during its showing, a salesperson should take it as a cue that they are not interested. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 4 | Page 27 of 45

Question #64: During a property showing, if a buyer has brought along an expert friend, a salesperson should be prepared to treat such friends as true experts. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 4 | Page 28 of 45

Question #65: Following the showing, a salesperson must debrief the buyer about their likes and dislikes, and revisit and refine the buyer's property profile sheet and criteria. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 4 | Page 29 of 45

The initial decision on how many properties to show in a day will depend on distance travelled, timing and market conditions. Question #66: Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 4 | Page 30 of 45

A salesperson has planned four property visits for a property tour. The first property was visited and the feedback was mixed. Question #67: How should the salesperson prioritize the remainder of the tour? There are four options. There is only one correct answer.

1

Stick to the planned visits for the day and re-evaluate what properties to show on another day based on the current tour’s feedback

2

Re-qualify during the tour after each property visit and rearrange the remaining appointments

3

Consider specific features within a home first, location second

4

Cancel the rest of the tour until the buyer is able to figure out exactly what they want

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Lesson 4 | Page 31 of 45

Having a Discussion with a Buyer About Taking Photographs during the Showing Some buyers think that because the property is listed on the internet and photos are available online that it is okay to take photographs during a showing. Legally, it is not. You need a seller’s permission to take photographs because without it, it is a violation of privacy laws. It is good practice to know why a buyer would want to take photographs, especially since anywhere between 10-20 images are generally found in the listing. If you are granted permission, do not take pictures of the security features or of personal items. Use photographs instead to show parts and angles that are not seen in the listing, or of distinguishing features and fixtures that make the listing stand apart from the rest.

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Lesson 4 | Page 32 of 45

A buyer would like to take a photograph of the master bedroom in a property. The salesperson informs them that the seller’s permission would be needed to take photographs. Question #68: Is the salesperson’s response true or false? There are two options. There is only one correct answer.

1

True

2

False

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Lesson 4 | Page 33 of 45

Asking for the Offer

Many techniques are taught in sales training materials. The following are four popular approaches to assist the buyer in arriving at the decision to make an offer. The following four sections contain information on each technique to help your buyer.

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Comparison Faced with two alternatives, the buyer can make exact comparisons of benefits and features. The process then becomes which one of the properties should they buy.

Minor versus major details When buyers have narrowed down their search to two properties, they will often begin to consider the minor and major differences between them. Minor details would be chattels/fixtures included, carpeting, and painting. Major details would be location, house size does the property satisfy their family needs, and how well the property has been maintained can play an important factor as well. A salesperson can help with the process by reminding the buyers that minor details they object to can either be changed or be reflected in the offer price.

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Advantages versus disadvantages This approach is often referred to as the Benjamin Franklin technique. Franklin would draw a line down the middle of a sheet of paper and list all positive arguments on one side and all negative arguments on the other. An affirmative decision would simply be based on positives outweighing negatives. Visually seeing the descriptions can often help buyers be more objective about their options.

Confirming advantages Ideal for buyers who have found the right property, but are unsure about making a decision. By summarizing major advantages and directing their attention away from minor details, you help things fall into proper perspective. Remember to summarize the benefits of home ownership and not just the features of a specific home. Home ownership can provide security, a hedge against inflation, an attractive neighbourhood and, above all, personal satisfaction.

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Lesson 4 | Page 34 of 45

A salesperson and a buyer have completed two property tours. The buyer is considering the first and fourth homes visited on the second tour, but is having a hard time deciding which property is the best choice. Question #69: To help the buyer, the salesperson should start with the minor details and work towards the major decision. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 4 | Page 35 of 45

A salesperson and a buyer have completed two property tours. The buyer is considering the first and fourth homes visited on the second tour, but is having a hard time deciding which property is the best choice. Question #70: To help the buyer come to a decision, the salesperson should filter out the small details of the homes to allow him to focus on the major advantages. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 4 | Page 36 of 45

A salesperson and a buyer have completed two property tours. The buyer is considering the first and fourth homes visited on the second tour, but is having a hard time deciding which property is the best choice. Question #71: To help the buyer come to a decision, the salesperson does not need to list all positives on one side of a piece of paper and all negatives on the other to see how they compare. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 4 | Page 37 of 45

A salesperson and a buyer have completed two property tours. The buyer is considering the first and fourth homes visited on the second tour, but is having a hard time deciding which property is the best choice. Question #72: To help the buyer come to a decision, the salesperson should book another tour to give him four more home comparisons for benefits and features. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 4 | Page 38 of 45

The Leading Practices Related to the Protection of a Buyer

Another important consideration you must be mindful of in relation to showing properties is buyer protection. This covers three major areas concerning: • Buyer privacy and safety • Risk of damage to property and brokerage liability while showing properties • Communication, appointments, and access while showing properties The salesperson should discuss any privacy concerns the buyer may have related to being videotaped and possibly voice recorded and let the buyer decide if they wish to view a property where this is a possibility. If the buyer had wished to have their identity remain confidential, the buyer could elect not to view the property and the salesperson would notify the listing brokerage of the cancellation. Protecting buyers helps you protect their interests and increases the likelihood of a positive outcome. It also reduces the risk of negative outcomes, such as complaints, disciplinary measures, and legal actions against all parties. Exam Study Guide

Lesson 4 | Page 39 of 45

Buyer Privacy and Safety

Safety and privacy are two of the most fundamental buyer interests to protect. Your responsibilities and obligations are to ensure that your buyer’s protection cannot be restricted to a single phase of showing properties; they must be followed before, during, and after showing a property. Safety can be the condition on the home, visible mould or rotten planks on the deck. If you choose to move forward with a viewing, always take reasonable steps of care; for example, if there is no railing on a staircase. Use best judgement going forward based on the conditions you can see. Safety can also be in regards to confidential personal information that buyers can disclose, such as names, number of children, financial status etc., during a viewing. With the growing amount of smart home features, remind buyers not to say too much inside homes that they do not wish to become public information, as homeowners are more frequently using security systems that include audio and video recordings. For their own safety it is important to safeguard privacy information or it could be used against them in an offer negotiation situation. Exam Study Guide

Lesson 4 | Page 40 of 45

Smart Homes and Privacy

More and more people are setting up security systems and smart home features that allow them to see what people are doing and saying in their homes. So it is always a good idea to remind your buyer that people may be doing this. This way if your buyer is not comfortable being captured on video or talking freely they can be aware that it is a possibility, and they can decide whether or not they want to: • Continue to view the home • Limit their comments and conversations in a home, deferring detailed discussions till after they have left the home It is important to understand that buyers may want to limit their conversation while in the home, especially around anything that could tip the scale in the seller’s favour. There is currently no legislation that discusses security systems, or that says a seller must disclose that there is a security system installed. As a buyer’s representative, it would be a good idea to assume there is and to remind buyers to be mindful of their comments. Exam Study Guide

Lesson 4 | Page 41 of 45

In the second home of a tour, a salesperson notices a camera doorbell and a remote camera inside the home. Unsure if it also has audio capabilities, a call is placed to the seller’s salesperson who discloses that it does. Question #73: What would be the best way for the salesperson and the buyers to proceed in the viewing? There are four options. There are multiple correct answers.

1

Discuss whether they want to proceed with the viewing

2

Refrain from any conversations inside the home that would affect negotiations in an offer situation

3

Have any financial conversations outside of the home where it is private

4

Tell the buyer that since the seller is video taping the buyers, the buyers are free to take any photos in the house

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Lesson 4 | Page 42 of 45

The Risk of Damage to Property and Brokerage Liability While Showing Properties

When signing listing documents, the seller signs off on indemnification saying that if something goes missing during a showing or something is broken, provided you are not negligent, you are not responsible. Even though you know that things are in place to make sure everyone is protected, you must be vigilant and do your due diligence. If someone is walking in with a large bag, it is best to ask them to keep it in the car. This is to avoid them forgetting it or accidentally knocking over and breaking something as they tour the house. If a child picks up a figurine, it is best to ask the parents to have them ask their child to put it down. The only agreement in place to avoid liability is Form 200 – Listing Agreement that does not mean people may not seek action. Use common sense to avoid as much risk as possible during a showing.

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Lesson 4 | Page 43 of 45

Communication, Appointments, and Access While Showing Properties

Communicate with your buyer verbally and in writing so that it is really clear what time their appointment is and where it is located. Other details can also be discussed, such as whether you are to meet at the property and what they can do on the property (for example, take pictures, have access to all rooms, if there is a dog on the property should anyone have allergies, etc.). The better your communication with your buyers the smoother the showings will go.

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Lesson 4 | Page 44 of 45

A salesperson has set up an appointment to show properties to a couple and their two children. Question #74: Which of the given practices are best practices to employ prior to and during showings? There are six options. There are multiple correct answers.

1

Communicate with the buyers verbally and in writing so that the time and location of the showing is clear

2

Remind the buyers that some homes are equipped with smart home devices and security so feel free to talk about the maximum price you would pay for the home

3

Alert buyers if animals will be in the home

4

Keep an eye on buyers and children to ensure personal property is respected and left untouched

5

Warn buyers if any hazards are spotted such as missing railings and advise they stay away from those areas

6

Remind the buyers’ children that the home belongs to someone else, so they must stay with their parents and not leave the group

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Lesson 4 | Page 45 of 45

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were covered in this lesson.

Before the tour

Showing properties provides you with a number of different opportunities to service your buyer and enrich the experience with personal service. Being prepared by coordinating schedules to book showings is the first way to show professionalism and courtesy. Showing buyers properties in geographical order and leaving enough time for each visit allows you and the buyers to make the best of the property visits. Being courteous to sellers and respecting their time also provides you the opportunity to put the buyers in the best light should negotiations go forward. It is not necessary to travel in the same car as your buyers as the tour gets underway, instead meeting at the brokerage gives everyone the chance to coordinate, communicate locations, travel safely and enable each to go their own way once the tour is concluded. Planning your tour by booking enough properties without overwhelming the buyers is important, but it is good to note that distance, timing and market conditions play a factor in the decisions. Remember, it is important to confirm all meetings prior to setting out on your tour. This allows sellers to prepare their homes to set a visit up for success and gives them the time to leave the premises so your buyers have the privacy to view the home at their pace.

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During the tour

It’s important to go to the properties prepared with the listing sheets and to take notes. You’ll want to set up conversations in advance by telling your buyers about the location, amenities in the area and of course details on the home itself. At each property you’ll want to show proper respect for the seller’s personal possessions by removing your shoes and refraining from touching personal items. You’ll want to ensure that photographs are not taken without permission. You’ll also want to ensure that all potentially hazardous areas are pointed out to avoid any accidents, personal injuries or damage to the home. Safety and security are of utmost importance. Be diligent and keep an eye on buyers so things go smoothly, while still allowing them some personal space to discuss things privately from time-to-time. Be patient when listening to feedback, and answer questions and concerns with positivity but remember to be honest with your responses. Don’t be misled or dismayed with criticisms. Sometimes it’s a sign of interest and negative feedback can provide insights to requalify your buyers. Keep diligent notes during visits and write down any observations that will help you narrow down what your buyers are looking for. These notes will also be helpful when providing showing feedback to the sellers or their representatives.

After the tour

No showing is a waste of time. In each showing something can be learned and used to help close a transaction or direct the next property tour. Using feedback to re-qualify the buyers is important if you are going to find the right fit for them. Responding to it also shows you were listening and are providing personalized service that is of value. A successful showing will lead to an offer opportunity. You will then be able to assist your buyers with their decision, whatever it may be. Whether it is through comparisons, looking at the details, weighing advantages versus disadvantages, and confirming advantages, you can help your clients make an educated decision.

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Lesson 5 | Page 1 of 15

Lesson 5: Property Showing when Seller has Limited/No Services Provided

The leading practices and legal obligations you studied in the previous lessons apply to most scenarios of preparing and showing properties that meet a buyer’s criteria. In this lesson you will learn about special situations that impose additional obligations on the buyer’s salesperson, such as for sale by owner and mere postings.

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Lesson 5 | Page 2 of 15

Property Showing When Seller Has Limited/No Services Provided

As a salesperson, it is important to recognize there are additional leading practices and legal obligations to be aware of in situations where the seller has limited or no services being provided by a brokerage. Upon completion of this lesson, you will be able to: • Describe leading practices in situations where the seller has limited or no services being provided by a brokerage • Describe the type of agreement used by a co-operating brokerage to confirm commission terms with a seller 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 15

To begin our lesson, let’s recap the types of listings you will encounter when searching for properties. The following three sections contain information on each type of listing.

Mere posting

For sale by owner (FSBO)

Full service listing

A mere posting is an arrangement where the seller’s brokerage lists the property on a local listing service, but provides no other services. A mere posting is often done through a limited service agreement. The seller is selling their own home but have used a brokerage to post their property to the local listing system. In these cases as the buyer’s salesperson, you will need to contact the brokerage to know the extent of services being provided and set up a viewing. In many cases, you will have to contact the seller directly to arrange viewings, negotiate commission, and present offers directly to the seller. For sale by owner is when the seller is working independently from any brokerage. They are selling their own property through their own advertising, arranging their showing and representing themselves in negotiations. You will contact them directly to arrange viewings, negotiate commission, and in these situations more due diligence is needed on the buyer’s behalf. The seller has engaged the services of a brokerage to represent them at all stages of the real estate trade; for example, listing, marketing, negotiation of an offer, and closing details. In a full service listing, the brokerage is the point of contact for setting up showings and will be active in the transaction from beginning to end.

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Lesson 5 | Page 4 of 15

Instances When Seller Has Limited/No Services From Brokerage

Now you will look further in detail at each of the instances; where a seller is not receiving full service or any service from a brokerage. The first is when there is representation through a limited services agreement with a brokerage. This is called a mere listing or more commonly as a mere posting. In these situations, even though the property is listed with a brokerage, the seller is taking on all functions to do with showings, commission negotiation with a co-operating brokerage and presentation of any offers. The seller buys services as needed. For example, they would pay fees for the brokerage to put their property on the local listing system or measure their home. It is typical that the seller does all the negotiations in these instances. In return a flat fee for the posting or a reduced commission percentage is paid to the brokerage on their sale. Regardless of the agreement for services provided, all salespersons and brokerages must fully comply with REBBA and other legislative requirements, such as verifying identification and the accuracy of the information on the listing and documenting deposits as required under FINTRAC. Exam Study Guide

Lesson 5 | Page 5 of 15

Providing Limited Services

In circumstances where a brokerage is providing limited services only to the seller, often referred to as a mere posting, brokerages working with buyers will be required to alter some of their typical activities surrounding the showing of the property, payment of commission, and negotiating an offer. In these situations, you must consider four actions that arise from their legal obligations. Next, you will learn about these actions to best avoid challenges and disputes over commissions down the road. The following four sections contain information on the actions.

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Contacting the brokerage

When it is a mere posting, depending on what the listing says, you may or may not have direct access to the seller for things like showings or other activities related to the transaction, such as negotiations, inspections, and appraisals. The listing brokerage typically grants permission to other brokerages to contact the seller for three purposes: 1. To make arrangements for showing the property to a buyer 2. To negotiate commission to be paid to the buyer’s brokerage by the seller 3. To make arrangements to present and negotiate any offers directly with the seller

Contacting the seller

The buyer’s salesperson must have clear instructions from the listing brokerage on when they may contact the seller directly. Any contact outside of these permissions would not be in compliance with requirements under REBBA. Upon receiving permission, the buyer’s salesperson may contact the seller for the purposes identified by the listing brokerage. The salesperson would inform the seller that they have a buyer interested in viewing the property and that prior to showing the property, they would like to establish the commission paid by the seller. This way the buyer can decide whether or not to view the property based on any buyer obligations to pay commission.

Commission agreement with the seller

If the seller did not agree to pay any commission in the listing agreement, or intends to pay less commission than what is in the buyer’s representation agreement, the salesperson may try to negotiate with the seller to increase the amount of commission they are paying upon a successful property transaction. In the event that the seller is unwilling to pay a commission to the buyer’s brokerage, then the buyer may be required to pay a commission to their brokerage, as outlined in their buyer representation agreement. Therefore, once the commission has been agreed to between the seller and the buyer’s brokerage, documenting this agreement should be completed prior to showing the property to a buyer. As an example, OREA Form 202, Seller Commission Agreement with Co-operating Brokerage For a Listed Property. It is important to note that the seller is not obligated to agree to pay the buyer’s brokerage Exam Study Guide

any commission unless that forms part of the commission agreement between the seller and the listing brokerage.

Informing the buyer

The agreement between the seller and the buyer’s brokerage would confirm the seller’s obligations to compensate the buyer’s brokerage should that buyer agree to purchase the property during a specified time period. Once the seller and the buyer’s brokerage have agreed to the payment of commission by the seller, the salesperson would disclose this to the buyer. This should be disclosed prior to showing the property so that the buyer is fully informed of any commission obligations on their part. If a buyer is obligated to pay some or all of the commission to the brokerage, this could impact what a buyer would do. This is why it is important to disclose and discuss the commission obligations prior to showing the property because the buyer may choose to: 1. Not see the property 2. Agree to pay the brokerage the required commission, whether it be all of the commission or just the deficiency, that is to say, the difference between the commission from the seller and the commission stated in the buyer representation agreement In accordance with section 18 (5) (a) and (b) of the Code, the salesperson could negotiate an agreement whereby commission would be shared between the seller and the buyer based on an agreed-upon formula. In this instance, the salesperson must ensure disclosure requirements have been met when commission is being paid under separate agreements involving the same trade.

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Lesson 5 | Page 6 of 15

For Sale By Owner

The other instance is for sale by owner (FSBO), where a seller is not receiving any service from a brokerage. In this situation there is absolutely no brokerage involved on the seller side, the seller is representing themselves. You will not find their listings on the local listing service, realtor.ca or any brokerage websites. Instead they are found on classified ad services such as Kijiji, or have a private sale sign with a phone number in front of the home. In a FSBO, you will have to do significantly more work. The actions of private sellers are not regulated. The seller is not bound by a set of rules to follow, or a Code of Ethics. It is your responsibility to do additional due diligence and research to ensure you fulfill your duties and obligations. Exam Study Guide

Lesson 5 | Page 7 of 15

How to Work with a For Sale by Owner Property When you approach a property selling privately, you should consider the following actions to ensure you have met your legal obligations and the buyer’s best interests. The following four sections contain information on the actions.

Contacting the seller When a property is not listed with any brokerage (often referred to as FSBO), the seller has no relationship with any brokerage or salesperson. This means the buyer’s salesperson is free to contact the seller directly to inform them there is a buyer expressing interest in their property. This initial contact would be made to enquire if the seller would be agreeable to the brokerage showing the property and if so, would the seller pay a commission to the brokerage. None the less, when contacting the seller the first time, leading practices requires the salesperson to confirm that the seller has no representation agreement with another brokerage.

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Customer service agreement with seller When a property is not listed with any brokerage (commonly referred to as FSBO), the interested buyer’s salesperson typically has the seller sign some form of agreement regarding any commission the seller is prepared to pay the buyer’s brokerage. As an example, OREA Form 201, “Seller Customer Service Agreement (Commission Agreement For Property Not Listed)”. This is a non-exclusive seller customer service agreement in which the seller agrees to pay a specific percentage of the sale price as commission, or a flat fee or combination thereof, to the brokerage representing the buyer, in consideration of the buyer’s brokerage representing the buyer in the sale or lease of the property.

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Informing the buyer A buyer’s obligations for commission are the same as under a mere posting. It is important due to the additional risk, it is important to get the commission and remuneration details upfront and early in the transaction. There is no point in showing your buyers a home and having them falling in love with it, just to find out that the buyer is not prepared to pay your brokerage’s commission and the HST because the seller will not pay it. Often buyers realize that the added cost of your commission, in cash, over and above the deposit, the lawyer fee, and the statement of adjustment, which may include property tax, can put the amount over their budget and put the home out of reach. You do not want your buyers surprised. In the end you may be the one who does not get paid.

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Added due diligence actions Should the buyer choose to move forward and make an offer, there are a number of activities you may need to do in a FSBO or private sale: • Conduct a registry record search online or ask a lawyer to check the title and see what liens, etc., are on the home so your buyers get a free and clear title. You will also want to ensure that the seller has the right to sell the property. • Call the township or go to the municipal office to make sure that there is no easement, encroachment, right of way, and that all the building permits are filled and satisfied. • Make sure there are no outstanding work orders or open building permits. You will want them closed before the transaction closes. • Measure each room if measurements are important to your buyers. • Talk to the neighbors to ask if the house has had issues in the past; for example, it was once a cannabis or marijuana grow-op. The sellers are not obliged by any legislation or any code to tell you if it has or has not, if any damage has been remediated. • Advise your clients to arrange a property inspection and take more care because the seller is not a registrant. They do not have the same disclosure obligations that a brokerage or salesperson would have. Exam Study Guide

• Do closer due diligence on appliances and fixtures. • Explain documents to the seller to ensure they understand the legalities; you may have to work with their lawyer.

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Lesson 5 | Page 8 of 15

A salesperson has found a house on the local listing service that appears to meet the requirements of his buyer. It appears the seller has a mere posting arrangement with another brokerage and the salesperson is not sure how to proceed. Question #75: If you were the broker/manager, what advice would you give the salesperson? There are four options. There is only one correct answer.

1

Ignore the property. The seller chose to have a mere posting agreement with the listing brokerage, which indicates that they don’t want to pay for any additional services. This means the buyers would have to pay the commission in its entirety (based on the buyer representation agreement with the brokerage), so they wouldn’t be interested in the property anyway.

2

Contact the seller right away to make arrangements for showing the property. Under the Code, the salesperson has an obligation to show the buyers all properties that match the criteria.

3

Before doing anything else, the salesperson should read the listing to see if it allows a salesperson to contact the seller directly. If it does not, the listing brokerage should be contacted for permission. If it does, the salesperson should proceed with contacting the seller.

4

Contact the seller, and ask them if they would be willing to sign a “Seller Commission Agreement with Cooperating Brokerage For A Listed Property”. If the seller agrees, inform the buyers about the property. If the seller does not, the salesperson does not have to inform the buyers about the property.

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Lesson 5 | Page 9 of 15

The Type of Agreement Used by a Co-operating Brokerage to Confirm Commission Terms with a Mere Posting Seller

A salesperson can use a form specifically designed in these circumstances such as the OREA Form 202, Seller Commission Agreement with Co-operating Brokerage For A Listed Property. In a mere posting or limited service listing, it is critical to document your legal obligations to the seller and point out who is paying commission so there is no confusion on closing. For this reason, it is important to pay particular attention to the details of the agreement and its essential components. Exam Study Guide

Lesson 5 | Page 10 of 15

Commission Agreement When dealing with limited services listings or mere postings, it is important to have the commission agreement in writing with the seller prior to showing the property. The following three sections contain information on important components of the commission agreement used by a cooperating brokerage to confirm commission terms when showing a limited services listing or mere posting.

Commission In this section, the seller agrees to pay the brokerage that introduces the buyer to the property a specific percentage of the sale price of the property (or a flat fee, or a combination thereof), for any valid offer to purchase or lease the property that is entered into between the seller and the buyer during the term of the commission agreement.

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Deposit This section identifies who will hold the deposit in trust. Most commonly, it is held by the seller's brokerage or the seller's lawyer, but the parties to the agreement must agree. The parties also commonly agree that such deposit will be applied to reduce the commission payable, and in case the deposit is insufficient, further invoicing will need to be sent to the seller or their legal representative. In the majority of agreements, the seller is liable to pay the brokerage the deficiency and taxes owing on such a commission. In some cases there are situations, such as unpaid taxes, a lien or second mortgage where the deposit may have to legally be forwarded to the lawyer in order for the transaction to close. Other outlets, such as civil litigation or separate arrangement with the seller, may need to be sought to be paid commission.

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Permission to contact seller Brokerage confirmation that the brokerage obtained written consent from the listing brokerage to communicate directly with the seller.

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Lesson 5 | Page 11 of 15

A seller is listing his home as a mere posting. The salesperson has informed the seller that co-operating brokerages will contact the seller directly and may ask the seller to sign a commission agreement. Question #76: Even though a co-operating brokerage may be representing the buyer who purchases the property, the co-operating brokerage will also be representing the seller because the seller is paying the commission. Identify whether the given statement is true or false. There are two options. There is only one correct answer. 1

True

2

False

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Lesson 5 | Page 12 of 15

A seller is listing his home as a mere posting. The salesperson has informed the seller that co-operating brokerages will contact the seller directly and may ask the seller to sign a commission agreement. Question #77: The commission agreement confirms that the co-operating brokerage obtained written consent from the listing brokerage to communicate directly with the seller. Identify whether the given statement is true or false. There are two options. There is only one correct answer. 1

True

2

False

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Lesson 5 | Page 13 of 15

A seller is listing his home as a mere posting. The salesperson has informed the seller that co-operating brokerages will contact the seller directly and may ask the seller to sign a commission agreement. Question #78: The deposit for the transaction will be held in trust by the co-operating brokerage. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 5 | Page 14 of 15

A salesperson is showing properties to a buyer who has signed a buyer representation agreement. The buyer informs the salesperson of an ad for a private for sale (FSBO) property that the buyer would like to see. The salesperson makes an appointment with the private seller to sign a commission agreement. Question #79: Which of the given statements is correct regarding a commission agreement with a private seller (FSBO)? There are four options. There is only one correct answer.

1

A commission agreement makes the co-operating brokerage an agent for the seller and therefore the brokerage is acting in multiple representation.

2

A commission agreement is exclusive and the seller cannot deal with any other brokerages during the term of the agreement.

3

When contacting a for sale by owner it is important to inquire whether they are a party to a listing agreement with any other brokerage.

4

Once a seller signs a commission agreement, the buyer’s obligation to pay commission is eliminated.

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Lesson 5 | Page 15 of 15

Congratulations, you have completed the lesson! There are four sections on this page with a summary of the key topics that were covered in this lesson.

Obligations for a mere posting or FSBO

Regardless of services provided, all salespersons and brokerages must fully comply with REBBA and other legislative requirements, such as FINTRAC requirements, among others. When a property that matches the buyer’s criteria is FSBO, this means the seller does not have any agreement or relationship with any brokerage, not even for a mere posting or limited services. To clarify these matters, an information bulletin titled Questions & Answers Related to REBBA 2002 and the Consent Agreement was published by the Real Estate Council of Ontario.

Legal obligations for contact and commission of mere posting or FSBO listings

When a seller has a mere posting/limited service listing agreement with another brokerage, and the seller has not agreed to pay a commission, the buyer’s salesperson must consider four actions that arise in connection with their legal obligations: 1. Contact listing brokerage 2. Contact the seller 3. Enter a commission agreement with seller 4. Inform the buyer of the commission arrangement When a seller has a FSBO property and the seller has agreed to pay a commission, the salesperson must consider three actions that arise in connection with their legal obligations: 1. Contact the seller 2. Sign customer service agreement with seller 3. Inform the buyer of the commission arrangement

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Key components of a commission agreement with the seller

The Seller Commission Agreement with Co-operating Brokerage For A Listed Property has a critical role to play in assisting you in meeting your legal obligations when dealing with a mere posting/limited service arrangement with another brokerage. Key components of an agreement include: • Commission • Deposit • Confirmation of Permission to Contact the Seller

When there is no agreement between a mere posting seller or a FSBO and a buyer’s representative

You are obligated to inform the buyer of all properties whose attributes meet those your buyer is seeking and whose seller has a mere posting/limited service agreement with another brokerage (or when the property is a FSBO) to your buyer client (though not to your buyer customer) regardless of whether the seller signed a commission agreement with you. There are distinct disadvantages to both a seller and a salesperson when the seller does not sign either a seller commission agreement or seller customer service agreement. The primary disadvantage to a seller is the limited exposure to prospective buyers. For the salesperson a claim to commission can be called into question if there is no agreement for payment in place.

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Lesson 6 | Page 1 of 20

Lesson 6: Due Diligence Requiring a Third-Party Provider

Third-party providers such as lawyers, home inspectors and mortgage brokers are important people to have in your referral network. They are often instrumental in the due diligence process to help move deals forward with full disclosure. For example, in the case of a cottage or secondary home being sold it would be important to advise the seller to consult with their lawyer or accountant, or other qualified professionals, as there may be capital gains or other tax matters to be considered. You will cover your obligations when referring third-parties, identify the circumstances that warrant a referral, and describe leading practices when referring them.

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Lesson 6 | Page 2 of 20

Identify Salesperson's Obligations Regarding Third-Party Service Providers

Buyers will ask you for advice. Make sure you are skilled and knowledgeable in the areas in which you are giving advice or opinions. If you are not, you are expected to refer them to a third-party provider who does have the skill and knowledge. Having a good network of professionals who you know and have worked with before and trust is a value added service that not only helps your buyers but also helps ensure due diligence before transactions are done. Upon completion of this lesson, you will be able to: • Identify salesperson's obligations regarding third-party service providers • Identify circumstances that warrant referral to a third-party service provider • Describe leading practices of a salesperson when referring a buyer to a third-party service provider Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented. Exam Study Guide

Lesson 6 | Page 3 of 20

Providing Opinions

When providing opinions make sure the buyer knows it is your opinion. As per Section 6 of the Code, you should not provide opinions unless you are skilled or competent in that area. Because the buyer is looking at you as the expert, every time you say something the buyer will take you on your word because they will believe you know. Therefore, before you comment or provide an opinion on anything make sure you truly know what you are talking about or refrain from commenting or offering an opinion. This is where you would commit to getting the correct answer or refer the buyer to an expert in the area. For example, you are looking at a home where a few shingles are curling and the buyer asks you: “How much life is there left on the roof?” Unless you have experience you would answer: “I’m not a roofer. I can see some wear so I recommend you contact a roofing company. They would be better suited to give you an accurate idea of how much time that roof has and give you an estimate of how much it would cost to repair or replace it.”

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Lesson 6 | Page 4 of 20

Providing Referrals to Other Service Providers

Buyers will ask for advice on a number of aspects of the home, such as environmental, mortgage, electrical, plumbing, home inspections, insurance, and many others. As per Section 8 of the Code, if you are not an expert in that topic it is best to recommend they talk to a third party who is. Do not discourage them from seeking expert advice. When referring a third-party service provider, it is best practice to give three names and let the buyer decide on who to work with. They may ask you who you would work with. While it is helpful to tell them who you may have worked with in the past, or let them know which providers you have heard good things about in the area, it is good to emphasize that It is really up to them. The pricing and services need to match their requirements, not yours. They should be comfortable with who they choose. Also, if you select the individual, they will likely hold you responsible if something goes amiss. The last thing you want is to show favoritism to any one provider or appear like you are getting fees for referring them. You want to be helpful and impartial. If you do not have a good contact it is best to say you do not know one. Never guess or refer someone you do not know. Exam Study Guide

Lesson 6 | Page 5 of 20

Discovering Material Facts with Third-Party Service Providers

When dealing with customers you are required to disclose only the information you know or ought to know, treat them with honesty and in good faith. When dealing with clients it is your job to take reasonable steps to discover material facts and that may also require the assistance of a third-party service provider. Home inspectors or insurance companies can supply you with material facts about the property (for example, insurance claims, flooding, electrical or plumbing issues, possible mould or roof issues etc.). Lawyers search the registry to discover mortgages, liens and encumbrances against the property. The sale price may not be enough to cover what is owing which could stop the transaction from closing or the purchaser will have to come up with extra funds to close the transaction. Environmental agencies are helpful if you are dealing with conservation constraints. Township offices will confirm zoning and that permitted uses conform with your buyer’s ideas. Experience plays a big part in what you will observe yourself. It is your obligation to attend all your home inspections. You will get to know what is or is not a material fact when it comes to a building structure. Most importantly, never guess. Recommend that a third party, who is an expert, have a look at something in question. Exam Study Guide

Lesson 6 | Page 6 of 20

Qualifying Third-Party Service Providers

The quality of the referrals you make will directly reflect on you. Therefore it is important to qualify the expertise of the third parties you are referring. Your first source for qualified third-party service providers is your own brokerage. Check with your broker/manager and other salespeople in your office to find out who they recommend. When you are first starting in the business, it is good practice to check references and visit other homes where work has been done. Doing a search online through a search page like Google may help you find reviews and testimonials. Another good source to contact is the Better Business Bureau who will have records if anyone has made a complaint against them. Remember your business network of other real estate colleagues and your own personal network. Ask family and friends who they have used and would recommend. All these methods, combined with attending education courses and inspections, will help you build a list of good quality third-party referrals.

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Lesson 6 | Page 7 of 20

Working with Third-Party Service Providers

Nothing can substitute your own personal experience with a third-party provider. Attend every home inspection. Even after years in the business and attending them, you can learn something new each time. No matter if they are home inspectors, painters, plumbers, or other trades. Being on site and seeing how a third party provides their service, and what they include, will give you an excellent indication of how they work. Every professional might see things slightly differently, and every property is unique in some way. You can ask questions of the professional as well to help your buyer. There is likely a learning opportunity for you as well. Remember to ask your buyers who they used after their move. Find out who they liked and did a great job, who they had to call back, who was reasonably priced and what their experience was, etc. All of these steps will help you ensure you are referring quality providers who will take care of your clients.

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Lesson 6 | Page 8 of 20

A salesperson has taken buyers to view a house that has the basement concrete floor and walls painted. The salesperson has not experienced this previously but remembers the broker/manager telling him that this could be a sign that water damage is being covered up. Question #80: If the salesperson suspects that water damage is being covered up, what actions should the salesperson take? There are six options. There are multiple correct answers.

1

Provide his professional opinion that there is water damage

2

Take pictures of the painted floor and send them to a home inspector for advice

3

Refer the buyers to a home inspector whose card was on a bulletin board at a local networking event

4

Ask the broker and other colleagues at the brokerage for a list of reputable home inspectors

5

Inform the buyer that they are not skilled in that particular area of expertise and suggest that they hire a home inspector to look over the property

6

Provide a list of three home inspector referrals for the buyers to choose from

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Lesson 6 | Page 9 of 20

Identify Circumstances That Warrant Referral to a Third-Party Service Provider

It is important to know when a referral is needed. For example, a buyer is looking at an older property with a painted basement floor and walls. Experience tells you that this is a way to disguise water damage. But without skilled experience, a referral to a third party is needed. Other examples include curling shingles that may require a professional roofer to come out, cracks in a foundation where you will need a foundation specialist, or water leaks in the basement where you would need a water specialist, etc.

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Next you will cover: • Circumstances that warrant referral to a third-party service provider • Consequences of not obtaining third-party advice

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Lesson 6 | Page 10 of 20

Circumstances That Warrant Referral to a Third Party Circumstances that warrant a referral to a third-party service provider are often ones that are necessary to a transaction. The four professionals that you will most often refer are: Lawyer A lawyer is the person who will close the transaction for them. If your buyers do not already have a working relationship with one, help them find a lawyer. Lender or Mortgage Broker You will want to ensure the buyer has their financing in place and you want to make sure that they are working with a financial services professional or mortgage broker who knows timelines are extremely important. Insurance Professionals Insurance professionals will ensure the buyers are made aware of the coverage they need. This is important because it is often a condition of an offer. Home Inspector A professional home inspector will assess whether the property is sound and whether there are hidden problems with the home. These four service providers are key to keeping a buyer out of trouble. The need for others may arise as the property transaction progresses and material facts or other issues arise or are revealed.

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Lesson 6 | Page 11 of 20

Consequences of Not Obtaining Third-Party Advice

In some cases the consequences of not obtaining third-party advice can be detrimental to both the property and to the buyers. Without services from a third party, your buyers can find themselves in scenarios where they could be involved in costly repairs, be involved in a lawsuit or even have serious medical conditions arise. Lawyer Lawyers do all the necessary searches and requisitions before closing. If they are not done, on closing you may find a second or even third lien/mortgage registered against the home. If the proceeds from the sale are not enough to cover the extra expenses, your buyer must come up with extra cash in order to close the transaction or there will be no purchase.

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Mortgage Broker Without pre-approval you may be looking at homes that are out of your buyer’s financial reach and therefore cause embarrassment when offers fall apart on financing. Or it may cause disappointment when your clients realize what they can actually afford. Insurance Insurance providers may not cover your home for fire insurance because there is a woodstove that is not WETT Certified or there is knob and tube electrical wiring in your home that needs to be removed. Inspector Inspectors assess the integrity of the home. For example, a house looks sturdy and clean so an inspector is not hired. No one thinks to look in the attic. You move in only to discover you begin to have breathing issues. After much investigation you finally look in the attic to discover mould growing all over the trusses. This is due to a leak in the roof no one noticed. Another example would be in rural areas. Missing a test to see if the well water is potable could pose a health hazard to the buyers. You should be familiar with what a home inspection covers and ensure that where required other experts are called. For example a home inspector may not have the qualifications to inspect a well or complete a wett inspection on a wood stove. Issues that are of concern to the buyer can be addressed during the offer process by negotiating terms with the seller such as a price reduction, having the sellers fix the problem prior to the closing, or even the option to walk away from the sale. It is always best to err on the side of caution and ensure you address any potential issues before the transaction is closed.

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Lesson 6 | Page 12 of 20

A salesperson has begun assembling a list of third-party professionals to refer to clients and customers. It starts with the top four professionals that will most affect business. Question #81: A lawyer is one of the top four professionals and will review all the documentation and close the transaction for the buyers. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 6 | Page 13 of 20

A salesperson has begun assembling a list of third-party professionals to refer to clients and customers. It starts with the top four professionals that will most affect business. Question #82: A home inspector ensures that the financing is in place for the transaction. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 6 | Page 14 of 20

A salesperson has begun assembling a list of third-party professionals to refer to clients and customers. It starts with the top four professionals that will most affect business. Question #83: An insurance professional provides their product or coverage, which is often a condition of a sale. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 6 | Page 15 of 20

A salesperson has begun assembling a list of third-party professionals to refer to clients and customers. It starts with the top four professionals that will most affect business. Question #84: A mortgage broker identifies any physical problems with the property. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 6 | Page 16 of 20

A salesperson should always look out for the best interests of the buyer client. Many instances will arise where a buyer should be directed to contact a third-party professional. Question #85: Which of the given statements is correct in regard to the use of third-party professionals? There are four options. There is only one correct answer.

1

Provided that a house is less than five years old and appears to be well kept there is usually no need for a buyer to make an offer conditional upon a property inspection.

2

Lawyers should always be used to perform the various searches involved in the closing of a transaction.

3

Buyers are in the best position to know what they can afford to pay for a house and a salesperson can start a property search based on that information.

4

Property insurance is relatively easy to obtain and should not be an issue when a buyer is purchasing a property.

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Lesson 6 | Page 17 of 20

Leading Practices for Referring a Buyer to Third-Party Service Providers

It is worth repeating that as per Section 6 of the Code, you are not to provide opinions, unless you have education and experience in the particular problem area. Instead, refer the buyer to a third-party professional, otherwise the buyer might consider you as an expert in the field. Buyers may choose not to follow up on your advice to bring in a third party, and when this happens you are best to put something in writing that you suggested that they hire a third party in that particular field. Make reference to what the issue is, and that they have chosen not to seek external advice, then have them initial or sign it. Putting it in writing is important and can be at minimum sending them an email detailing the situation and your recommendation. As much as you want to protect their assets, you also want to protect yourself. As per Section 8 of the Code, services from others, you must advise buyers to a third party should you not have the necessary knowledge or skill. In the court of law, the court will look at you as the expert and expect you to go above and beyond in guiding your buyers through the transaction. Exam Study Guide

Lesson 6 | Page 18 of 20

Common Mistakes When Referring to Third-Party Service Providers

A mistake when referring a third party is referring someone you do not know without doing the due diligence. If you can confidently refer a third party, that is helpful. If you are gathering names from colleagues, let the buyers know your source. If you do not have any references or do not have any experiences with the contractors, let the buyers know that too, and the buyers can make their own inquiries. If you do not know someone to refer, tell the buyers you do not. It is better than forwarding the name of someone and taking a risk that they will not do the job properly, and put you at risk for liability.

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Lesson 6 | Page 19 of 20

Buyers have decided to make an offer on a home with painted basement floor and walls. At the salesperson’s urging they have agreed it would be in their best interest to include a home inspection clause in the offer. Question #86: Who should the salesperson refer for home inspection services? There are four options. There are multiple correct answers.

1

The salesperson refers ABC Inspectors, 123 Homes and XYZ Home Inspections, three companies that the salesperson’s colleague commonly uses and refers

2

The salesperson found Dad’s Home check through Google

3

A1 Home Inspections was recommended by the salesperson’s brother who has used them and was impressed with the quality of their work and is rated well with the Better Business Bureau

4

The salesperson’s uncle who is a handy man and has done a lot of small repair jobs for people in his neighbourhood

Exam Study Guide

Lesson 6 | Page 20 of 20

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were covered in this lesson.

Obligations regarding thirdparty service providers

Providing opinions is something you can do only when you are skilled or knowledgeable in the area you are commenting on. Never guess. If it is your opinion, say it is your opinion upfront and be clear. Failing to do so opens you up to liability. Your buyers are looking to you to be the expert, and the courts do as well. To move a transaction forward, third-party professionals are needed. If the buyer does not have their own providers it is a good idea to recommend no less than three for any one category, if possible. It is important to be impartial and let the buyer decide who is best for them. The more experience you have the easier this will become. Attend inspections and other appointments to show your buyer that you are engaged and supportive and doing your due diligence to look after their interests. The additional benefit is it allows you to increase your own knowledge. The more educated you are the easier you will be able to spot problems and help your clients, and customers.

Circumstances that warrant referral to a third-party service provider

In the beginning, you will identify obvious areas where a third party needs to be brought in. As your experience grows and you attend more inspections, other areas that are less obvious will get flagged and you will be able to help your buyers to a greater degree. There are four professionals that are key in most transactions: the lawyer, the mortgage broker, the insurance broker and the home inspector. Others over and above that will likely be identified as issues arise and material facts are revealed.

Exam Study Guide

Leading practices when referring a buyer to a thirdparty service provider

Doing your due diligence will help ensure that your buyers are getting complete and accurate information and are safe in their purchase. It will also help you to have your bases covered to avoid any liability on your part. No matter the situation it is always a good idea to document your referrals in writing. Whether in a printed document or by emails, sending referrals and getting acknowledgement that you have recommended a third party is important. Buyers may not go with your advice, but with it documented you have demonstrated your actions and advice and have done the necessary due diligence. That due diligence also includes doing your research on third-party providers you are recommending. When you are new and starting to gather good professionals to refer, start with your colleagues, as well as friends and family. Personal experience is key to ensuring that names given will take good care of your buyers, and reflect well on you and your service.

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Lesson 7 | Page 1 of 7

Lesson 7: Summary Practice Activities

This lesson contains several review activities to test your knowledge.

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Lesson 7 | 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 7 | Page 3 of 7

A salesperson is preparing a list of potential properties to show buyers who are interested in a specific neighborhood. Question #87: What steps should the salesperson take to prepare for a scheduled appointment? There are four options. There are multiple correct answers.

1

Call the seller’s salesperson to verify advance notice and appropriate appointment times

2

Review potential offer details in advance of the appointment

3

Confirm any safety measures and requirements (alarms, lockboxes, video surveillance, photo IDs, etc.)

4

Research the listing to ensure they’re fully informed

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Lesson 7 | Page 4 of 7

A salesperson is showing a couple a property and they are very excited about it. The salesperson starts to prepare a buyer representation agreement as a first step. The buyers ask the salesperson to just skip to the offer and that they will sign it right away. They don’t want to waste any time reading long documents and risk losing the home. The buyers want to skip signing the buyer representation agreement. Question #88: What potential concerns can you identify? There are four options. There are multiple correct answers.

1

The clients may regret signing an offer they did not fully read or understand

2

Skipping the representation agreement is a compliance concern

3

The clients could file a complaint or proceed legally against the salesperson/brokerage if issues arise later

4

The client must sign the representation agreement before you act on their behalf

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Lesson 7 | Page 5 of 7

A salesperson has a number of obligations that they owe a buyer client. Question #89: Which of the given obligations does a salesperson owe to their buyer clients (excluding multiple representation)? There are four options. There are multiple correct answers.

1

Locate properties that meet the buyer’s criteria

2

Research zoning restrictions on interested property

3

Inform the buyer of other offers for the same property

4

Inform the buyer only when the transaction is complete

Exam Study Guide

Lesson 7 | Page 6 of 7

A salesperson has prepared an offer for buyers who have asked to have a lawyer review it before submitting it. The buyers contact the salesperson two days later indicating that they are changing their mind about submitting the offer. The feedback from their lawyer indicates that the offer lacks several important conditions. Question #90: How can the salesperson respond to the buyers? There are four options. There are multiple correct answers.

1

“No problem. We can keep looking at more homes.”

2

“You haven’t signed the offer so it’s actually the best time to change your mind.”

3

“This offer protects your interests and you will lose this house unless you sign immediately.”

4

“Let’s discuss which conditions to include to better protect your interests.”

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Lesson 7 | 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 the module!

This lesson will present a summary of Learning Objectives.

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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 covered in this module.

Prepare to meet with potential buyers

Finding buyers and standing out from the competition is critical to a career in real estate sales. You must find ways to not only be seen but also found by potential clients and customers. Making sure you are doing a variety of activities will ensure that you are not relying on any one method. A buyer’s package is a good tool for you to use during the sales process. It is another way to show value, showcase yourself and your difference to potential buyers. Having a friendly headshot and contact information is just the beginning; it is truly the content that helps you shine. Include ways to collect information from your buyer in order to provide them with personalized service. Provide valuable information, such as a list of additional costs they should plan for, a variety of information on thirdparty professionals they may need, and perhaps some geographical information. These are ways to set yourself apart and position yourself as an expert and professional. A package, no matter the form it takes, must provide value. Think of ways you can help your buyers and tailor the package to reflect it. Understanding what your buyers are looking for is a critical piece in providing personalized service that will set you apart. This can only be achieved by asking qualifying questions. They will help you put together a picture of what your buyers want and need. As you begin assessing whether the buyer is already working with a brokerage, you will ask the first and most important question: “Are you currently working with a salesperson?” You will then continue from there and move through the qualifying process. You can save everyone time and frustration by having a list of qualifying questions to ask a buyer, enabling you to gather priorities and get a clear picture of what to search Exam Study Guide

for. Information such as their motivations, timing preference, budget, and wants and needs based on lifestyle should all surface for you to know what to look for in the property search. Once you have all the information, you can begin to personalize your buyer packages to suit different needs, enabling you to stand out from the competition. Completion of this lesson enabled you to: • Identify potential sources of buyers • Prepare a buyer’s package for initial contact • Identify the options for personalizing a buyer’s package

Describe the salesperson's obligations when working with buyers, whether clients or customers

It is important to review a buyers options with them. Each has a specific set of rules of conduct and the decision made will affect the types of conversations you will have with them moving forward. Generally, buyers become clients. This relationship is often implied, but it is important to document it. In some cases a buyer may choose to be a customer. While honesty and integrity are due to both, confidentially and fiduciary duty are not. It is important to discuss the differences with your buyers and to have them commit in writing to one of them before business moves too far forward. You are to ensure you are not working with another salesperson’s client. This is critical for adherence to Code 7, dealings with other registrants. When working with buyers, your obligations will differ from client to customer. Fairness, honesty and conscientious service are owed to all, as does providing opinions and disclosing material facts when dealing with one or the other. There are differences on best interests, informing buyers of properties and obligations to determine material facts when dealing with a client versus a customer. It is therefore important to know the difference, especially in a multiple representation situation.

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Completion of this lesson enabled you to: • Discuss relationship options with potential buyers • Describe the salesperson’s obligations when showing property to a potential buyer

Select properties to show based on identified buyer needs and wants

As a salesperson you will ask qualifying questions around wants, needs and budget. Once you have an idea of the requirements, you will begin to look for properties that are a match for your buyers. As you go through the process of identifying, viewing and comparing properties, you will begin to get a clearer view of what your buyer needs. It is important to keep updated notes during this time to ensure you capture as many details as possible. Over and above the basic information, a salesperson must consider environment, accessibility, utilities and amenities when narrowing down the field of search. Keeping your buyer profile and property profile sheet updated will be key throughout the process. Looking for properties in a variety of places will help you find suitable properties to show your buyers. Beginning your search on the local listing service and browsing through recent listings that have been posted is a best practice. Also, places for private listings, such as classified and online ads, computer apps and social networking can also help you get results. The most important thing is to keep your buyers needs and wants in mind when searching and to continually adjust the property profile as they become clearer during the search. Completion of this lesson enabled you to: • Identify buyer needs and property requirements to select appropriate properties to show • Identify properties that meet a buyer’s criteria

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Provide detailed information on specific residential properties of interest to the buyer

Showing properties provides you with multiple opportunities to service your buyer in a personalized way and refine the search to find a successful match to their needs and wants. As a salesperson your safety and the safety of your buyer is very important. Safety of information, as well as physical safety when on site is your responsibility. With the invention of smart homes and surveillance, the protection of privacy during showings is also a consideration and you must be proactive to safeguard yourselves when having discussions in order to maintain privacy. Protecting buyers helps the salesperson protect their interests and increases the likelihood of a positive outcome. It also reduces the risk of negative outcomes; for example, complaints, disciplinary measures, and legal actions against all parties. Regardless of services provided, all salespersons and brokerages must fully comply with REBBA and other legislative requirements, such as FINTRAC. When a property that matches the buyer’s criteria is for sale by owner (FSBO), this means the seller does not have any agreement or relationship with any brokerage, not even for a mere posting or limited services. Your responsibilities and due diligence needs will be greater in these situations. When a seller has a mere posting/limited service listing agreement with another brokerage, the buyer’s salesperson must contact the listing brokerage and confirm consent to contact the seller directly to work out a commission agreement with the seller and then inform the buyer. When a seller has a property for sale by the owner (FSBO) the salesperson contacts the seller directly to work out a commission agreement with the seller and then inform the buyer of the outcome. The salesperson is obligated to inform the buyer client of all properties of interest including those that are mere posting/limited service agreements with other brokerages, or when the property is a FSBO. If the seller has not signed a commission agreement or customer service agreement, any obligation for the buyer to pay their salesperson a commission should be documented in the buyer representation agreement. Exam Study Guide

Completion of this lesson enabled you to: • Describe leading practices related to showing properties • Describe leading practices in situations where the seller has limited or no services being provided by a brokerage • Describe the type of agreement used by a co-operating brokerage to confirm commission terms with a seller • Describe leading practices of a salesperson related to protection of a buyer

Describe salesperson due diligence and when to refer the buyer to a third-party service provider

It is important to avoid providing opinions unless you are skilled and have expertise in the area. You are the real estate expert in the eyes of your buyer and the courts. If it is your opinion, say it is your opinion up front and be clear. Failing to do so opens you up to liability. To move a transaction forward, if third-party professionals are needed it is a good idea to recommend no less than three professionals for any one category, if possible. It is important to be impartial and let the buyer decide who is best for them. The more experience you have, the easier this will become. Attend as many inspections and other appointments when possible to increase your knowledge. The more educated you are, the easier you will be able to spot problems and help your clients and customers. With experience it will be easier to identify when a third-party service provider needs to be recommended. Attend inspections and learn the terms and things to look for. You will gradually be able to help your buyers to a greater degree. Consult with your broker/manager when you are unsure. There are four professionals that are key in most transactions: the lawyer, the mortgage broker, the insurance broker and the home inspector. Others over and above that will likely be identified as issues arise or material facts are revealed. Doing your due diligence will help ensure that your clients and customers are getting complete and accurate information and are safe in their purchase. It will also ensure you have done your due diligence to reduce the risk of liability on your part. As a salesperson it is always a good idea to document your referrals in writing. Whether in a printed document or by emails, sending referrals and getting Exam Study Guide

acknowledgement that you have recommended a third party is important. With it documented, you have demonstrated your actions and advice and have done the necessary due diligence. That due diligence also includes doing your research on third-party providers you are recommending. When you are new and starting to gather good professionals to refer, start with your colleagues, as well as friends and family. Personal experience is key to ensuring that names given will take good care of your buyers and reflect well on you and your service. Completion of this lesson enabled you to: • Identify salesperson's obligations regarding third-party service providers • Identify circumstances that warrant referral to a third-party service provider • Describe leading practices of a salesperson when referring a buyer to a third-party service provider

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Appendix | Page 1 of 2

Appendix Answer Key Question #55: 1 Question #56: 2 Question #57: 1 Question #58: 1 Question #59: 1 Question #60: 5, 6 Question #61: 1, 2, 3 Question #62: 2 Question #63: 2 Question #64: 1 Question #65: 1 Question #66: 1 Question #67: 1 Question #68: 1 Question #69: 2 Question #70: 1 Question #71: 2 Question #72: 2 Question #73: 1, 2, 3 Question #74: 1, 3, 4, 5, 6 Question #75: 3 Question #76: 2 Question #77: 1

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Appendix | Page 2 of 2 Question #78: 2 Question #79: 3 Question #80: 4, 5, 6 Question #81: 1 Question #82: 2 Question #83: 1 Question #84: 2 Question #85: 2 Question #86: 1, 3 Question #87: 1, 3, 4 Question #88: 1, 3 Question #89: 1, 2, 3 Question #90: 1, 2, 4

Exam Study Guide

Module: The Offer Process and Regulatory Obligations This is a study guide to help you prepare for the qualifying exam. There are multiple study guides that are provided for preparation. Each study guide contains several decision points to test your knowledge. The answer key to these decision points is present in the “Appendix” section at the end of the guide. Please use Adobe Acrobat Reader (Recommended version 9 or above) to navigate through this PDF. Real Estate Pre-Registration 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 Pre-Registration Program learner.

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Module: The Offer Process and Regulatory Obligations

This module introduces the offer process from both a seller’s and buyer’s perspective. It explains your role and obligations as a salesperson relating to compliance with REBBA. The negotiation of an offer can be fast-paced and requires due diligence, attention to detail, and time management. Ensuring that the offer process is carried out with fairness and honesty is an important aspect of a salesperson’s role. Understanding the complexities of an offer and negotiation is essential as an accepted offer places obligations on sellers and buyers. This module details the knowledge you will need to complete a transaction competently and professionally. Specifically, this module details the requirements under REBBA relating to conveying offers at the earliest practical opportunity, the handling of a buyer’s deposit, and multiple representation disclosures. Organized real estate includes membership with a local real estate board, OREA, and CREA. If you are a member, you will have access to standard forms and clauses available through organizations you belong to. However, not all registrants choose to be members of organized real estate and may not have access to these forms. As they are commonly used in trading, specific forms will be used throughout this module for illustrative purposes. Images of OREA standard forms and clauses are included with permission of the Ontario Real Estate Association (OREA).

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Menu: The Offer Process and Regulatory Obligations Number of Lessons Lesson Number

5 Lessons Lesson Name

Lesson 1

The Offer Process

Lesson 2

Deposits and Other REBBA Considerations

Lesson 3

The Impact of Multiple Representation

Lesson 4

Summary Practice Activities Module Summary Appendix

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Lesson 1 | Page 1 of 24

Lesson 1: The Offer Process

You will learn about the offer process from the perspectives of both a seller and buyer.

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Lesson 1 | Page 2 of 24

In this first lesson you will learn about the key components of an offer, and how the typical offer process occurs from both a seller and buyer’s perspective. Upon completion of this lesson, you will be able to: • List the key components of an agreement of purchase and sale • Identify and explain a typical offer process from the buyer's perspective • Identify and explain a typical offer process from a seller's perspective • Describe the steps for presentation and acceptance of an offer 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 24

For many people, selling or buying a home is one of the biggest factors impacting their financial future. For a seller, their investment in a property could be a major component of their net worth. For a buyer, it is likely the single, largest purchase they will make in their lifetime. Negotiating an offer can be exciting but is often a stressful time for the parties involved. The offer process can happen quickly and decisions will need to be made, sometimes within a limited period of time. As a salesperson, ensuring a seller or buyer is prepared to make these decisions based on the realities of the situation rather than the emotions of the moment, is a key aspect of the services you will provide. Understanding the seller’s or buyer’s needs and wishes will allow you as a salesperson, to work effectively to draft and negotiate an offer that successfully achieves their goals. You will do this within a regulatory framework, which is in place to promote fairness and honesty, and provide protection to consumers throughout a real estate transaction.

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Lesson 1 | Page 4 of 24

Agreement of Purchase and Sale

An agreement for the sale of property in Ontario must be in writing and signed by the parties to be enforceable. You are not required to use a specific form; however, whichever form is used, it is referred to as an agreement of purchase and sale. Although there is no standard form, there is certain information relating to the rights and obligations of the parties that statutorily must be included in all agreements under the Vendors and Purchaser’s Act. Examples of these terms include: • The buyer is required to search the title at their own expense and make any objections within 30 days of when the agreement is made • The seller has 30 days to remove any objection. If the seller is not able or is unwilling to remove any objection that the buyer does not agree to accept, the agreement can be terminated and the buyer’s deposit is returned • All adjustments made to the purchase price; for example, property taxes, rents, and interest, are adjusted as of the date of closing with the day of closing apportioned to the buyer • The deed is prepared by the seller and registered at the expense of the buyer Exam Study Guide

Lesson 1 | Page 5 of 24

Offer Versus Agreement As a salesperson, you will be directly involved in many aspects of negotiations between a seller and a buyer. This includes explaining and advising on terms and conditions, and drafting the required documentation. During negotiations, the agreement of purchase and sale form is referred to as an offer. Once all of the terms are agreed to between the parties, the offer can be referenced as one of two types: • When the offer is conditional upon an event, such as the buyer obtaining financing, the offer is referred to as an accepted, conditional offer • When the offer is a legal binding contract, it is called an agreement In summary, the document used is called an Agreement of Purchase and Sale, however it is referred to as an offer until the time it becomes binding, after which it is referred to as an agreement. Before we look at the offer process, we will review the key components in an agreement of purchase and sale.

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Lesson 1 | Page 6 of 24

Key Components of an Agreement of Purchase and Sale An agreement of purchase and sale is used to document the terms by which one party agrees to sell and another party agrees to purchase a property. The title is transferred from the seller to the buyer based on the terms agreed upon in the agreement of purchase and sale. Although there is no standard form, there are key components which are included in all agreements of purchase and sale. The following four sections contain information on the key components of an agreement of purchase and sale. This list of components continues on the next screen.

Names of the sellers and buyers The parties to the transaction must be accurately identified using the full legal names of the sellers and buyers.

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Address and legal description A municipal address and a complete legal description is required to identify the property being sold. In some locations, a rural route number or an address used under the 911 program is used for the municipal address.

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Purchase price The purchase price is the amount that the seller will receive in return for the property being sold. The purchase price must be clearly identified on any agreement and is described in both words and numbers.

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Deposit amount Although a deposit is not required to have a binding agreement, a deposit is considered a show of good faith to the seller that the buyer is committed to completing the transaction. The deposit is identified in both words and numbers and is credited toward the purchase price when the transaction is completed. The agreement of purchase and sale identifies: • Who the deposit holder is; deposits are typically held in trust by the seller’s brokerage • When the deposit will be provided; options typically include: herewith or with the offer, upon acceptance of the offer, or as otherwise described in the agreement, which requires additional details to be included on a schedule to the agreement of purchase and sale Additional details regarding deposits and the obligations of a salesperson under REBBA are detailed later in this lesson.

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Lesson 1 | Page 7 of 24

Key Components of an Agreement of Purchase and Sale The following five sections contain information on the key components of an agreement of purchase and sale.

Irrevocable date The irrevocable date on an agreement of purchase and sale identifies the time and date the person making the offer is obligated to the offer. The wording uses the terms seller or buyer to identify who the offer is from, not who the offer is to. If the offer is not accepted within the irrevocable time period, it becomes null and void and the party no longer has any obligations related to making the offer.

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Completion date The completion date identified in the agreement of purchase and sale is the date set for closing. This is the agreed upon date when the title will be legally transferred to the buyer. In most instances, the seller agrees to provide vacant possession of the property on this date. In instances where the buyer has agreed to assume an existing tenancy, vacant possession would not be given. The completion date must be a business day, which excludes Saturdays, Sundays and statutory holidays as the Land Registry Offices are closed.

Title search date The title search date, also known as the Requisition Date, is the time period in which the buyer’s lawyer completes a search at the Land Registry Office. The purpose of the search is to review the information registered on the title and provide an opinion on these matters, such as confirmation of ownership, any mortgage or lien registered, or any easement affecting the property.

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Chattels and fixtures A chattel is personal moveable property. Unless identified in the agreement of purchase and sale that the item will remain, it is excluded from the sale. Common chattels a buyer may ask for include the appliances, such as a fridge and stove. A fixture is attached to the property. It is deemed to be included unless identified in the agreement of purchase and sale as excluded. In some instances, the seller will replace any fixture not remaining prior to the property being offered for sale to avoid any misunderstanding or confusion by a buyer. Common fixtures excluded by a seller include light fixtures or ceiling fans.

Conditions An agreement of purchase and sale can include conditions on behalf of a seller or a buyer, although most conditions are included for the benefit of the buyer. Common conditions for a buyer include obtaining financing or having the property inspected. An offer containing conditions allows the party to complete the required due diligence prior to the offer becoming a binding contract, sometimes referred to as a firm offer or agreement.

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Lesson 1 | Page 8 of 24

The Offer Process: The Buyer’s Perspective

1. Initiate the offer The offer process begins by either a seller or a buyer identifying they are prepared to submit an offer. Most offers are initiated by a buyer, but certain market conditions could result in a seller making the initial offer to a buyer. Perhaps a buyer has previously submitted an offer which was not accepted. A seller may choose to re-open negotiations by approaching this buyer with an offer for their consideration. As a salesperson working with a buyer, you will ensure you are prepared to draft an offer by making notes on each of the properties you show. Your notes would detail anything that is needed if an offer were to be drafted on that property without the opportunity to return for another viewing. For example, you would document the details regarding the chattels which might be asked for or note the offer should address any conditions noted, such as signs of an old water stain in the basement. You would also follow up with any additional questions or concerns with the listing salesperson after the showing if the buyer has expressed an interest in the property. When the decision is made to place an offer on a property, you would discuss all of the terms and conditions required for the offer with the buyer prior to drafting the agreement of purchase and sale. Exam Study Guide

Lesson 1 | Page 9 of 24

Preparing to Draft the Offer The agreement of purchase and sale must be accurate and complete. To ensure all information was obtained to draft the offer, key activities should be completed before the offer is prepared and signed by a buyer. The following five sections contain information on how to prepare for drafting the offer.

Review the listing Identify the information from the property listing that will be required for the offer. This may include any additional information received from the listing salesperson resulting from follow-up questions after the property is shown. Review the notes taken during the showing to ensure the offer addresses these notations. Although the listing salesperson is obligated to ensure the listing information is accurate, part of the due diligence of the buyer’s salesperson is to also confirm the information before relying on it for the offer. Use online sources including the municipality’s web site or GeoWarehouse, to verify the owner’s name(s), legal description, and lot size.

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Contact the listing salesperson Prior to drafting the offer, contact the listing salesperson to enquire if there are any other offers registered on the property. A registered offer means there is an offer signed by a buyer which may or may not have already been presented to the seller. If more than one registered offers occurs it is referred to as competing offers. This allows a seller to consider multiple offers at the same time. For a buyer, it is important to know if there are other offers, and if so, the number of competing offers as this information could impact the buyer’s decisions regarding the terms of the offer, including whether to continue with making an offer.

Complete a comparative market analysis (CMA) A comparative market analysis (CMA) is used to assist the seller to decide on a price when listing a property for sale. However, it can also be used to assist the buyer to decide on an appropriate price to offer for a property. As a salesperson, being familiar with the area and staying up to date on the listing and sale activity will assist the buyer in making an informed decision on the price they offer.

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Obtain details from buyer Discuss the specific offer details with the buyer. This would include: the offer price, deposit, completion date, chattels, fixtures, and any other terms or conditions they want included in the offer. Obtain and verify the full legal names of all buyers and ensure they are accurately identified on the agreement of purchase and sale.

Organize the required information Once all the information is obtained, it will need to be organized to ensure nothing is missed when the offer is drafted. There are many considerations when preparing to draft an offer, and each offer can be unique. Typically, the information required includes: • The offer mathematics, including the offer price, deposit, and the amount due on completion • The terms, conditions or other clauses required to address the needs or concerns of the buyer • The irrevocable date, completion date, title search date, and dates for any conditions and other due diligence to be completed Ensuring the offer is drafted accurately and completely is key to the services you provide. To ensure the information is organized, an offer plan can be created Exam Study Guide

before drafting the offer. You will learn about an offer plan later.

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Lesson 1 | Page 10 of 24

The Offer Process: The Buyer’s Perspective

When the offer is drafted and signed, you will continue with the rest of the steps in the process. The following four sections contain information on the remaining steps in the offer process from the buyer’s perspective.

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Step 2 - Draft the offer Draft the offer based on the buyer’s instructions for terms and conditions. You can advise or provide guidance to the buyer regarding the terms, however the ultimate decision on what to include in any offer is theirs. Ensure the offer is thoroughly reviewed for any missing terms or any errors before presenting the offer to them for their review and signature. Market conditions can impact certain aspects of an offer, such as the conditions included and the amount of time the offer is open for acceptance. For example, in a seller’s market, a seller would not likely accept an offer that contains a condition allowing the buyer two to three months to sell their property before purchasing the seller’s property. This type of market would also impact the irrevocability; the time could be shortened which would benefit the buyer by reducing the chance of another competing offer appearing while the seller is contemplating the buyer’s offer. Review the entire offer with the buyer. This requires all of the pre-set clauses, and any information inserted into the agreement of purchase and sale, to be explained carefully to ensure the buyer fully understands the offer being made. Explain the legal ramifications of signing the agreement of purchase and sale under seal. The buyer should understand that signing under seal means that the offer cannot be withdrawn once it is presented to the seller, as the irrevocable clause becomes binding. Where a brokerage is authorized to give and receive notices on Exam Study Guide

behalf of the seller, the buyer’s offer cannot be withdrawn once it is presented to the seller’s brokerage or the seller’s salesperson. All offers must be in writing and signed to be deemed an offer.

Step 3 - Register the offer with the seller’s brokerage Once the offer is signed, the seller’s brokerage is advised and arrangements are made to have the offer presented to the seller. This is known as registering the offer. When in contact with the seller’s brokerage or the listing salesperson, you would not discuss any details of your buyer’s offer. If there are any offers also registered on the property, the listing salesperson is required to advise you of how many offers are currently registered.

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Step 4 - Present the offer to the seller A leading practice is for the buyer’s salesperson to be present when the listing salesperson reviews the offer with the seller. In this case, if the seller has any questions, you could answer them directly or be able to quickly contact your buyer and make the necessary enquiries. Being in attendance during the offer presentation allows you the opportunity to promote the offer and your buyer to the seller. For example, you could provide copies of the comparable sales the buyer used when arriving at an offer price, or you could promote how your buyer will care for the property once purchased. Remember, a residential transaction can be steered by emotions; if the seller likes your buyer, the negotiations could fall in your favour. The highest price is not always the best offer for the seller. In some instances, it may not be possible to be present when an offer is being presented; for example, if the sellers are not in the same location as the property. Other times, the seller may prefer the offer be presented privately with their own salesperson. In these situations, the offer is provided to the listing salesperson and they would present it. The offer could be delivered personally or electronically to the listing salesperson.

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Step 5 - Await the seller’s response to the offer You should prepare your buyer for the possibility that the seller may reject the offer with no further negotiations on the seller’s part. Alternatively, the seller could make a counter offer back to the buyer.

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Lesson 1 | Page 11 of 24

Over the weekend a buyer and a salesperson viewed several properties. On Wednesday, the buyer calls the salesperson to indicate readiness to make an offer on one of the properties they visited. Question #1: Which of the given tasks should the salesperson complete before drafting the offer? There are five options. There are multiple correct answers. 1

Review and verify the listing information

2

Contact the seller to confirm listing details

3

Complete a comparative market analysis (CMA)

4

Obtain offer details from the buyer

5

Register the offer

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Lesson 1 | Page 12 of 24

The salesperson’s buyer client has asked that an offer be prepared on the property just viewed. The salesperson’s responsibility in drafting the offer for the buyer’s signature is to review the offer with the buyer. Question #2: Identify if the statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 1 | Page 13 of 24

The salesperson’s buyer client has asked that an offer be prepared on the property just viewed. The salesperson’s responsibility in drafting the offer for the buyer’s signature is to make decisions on the terms and conditions that would be best for the buyer and should be included in the offer. Question #3: Identify if the statement is true or false. There are two options. There is only one correct answer. 1

True

2

False

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Lesson 1 | Page 14 of 24

The salesperson’s buyer client has asked that an offer be prepared on the property just viewed. The salesperson’s responsibility in drafting the offer for the buyer’s signature is to explain to the buyer the significance of signing the offer under seal. Question #4: Identify if the statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 1 | Page 15 of 24

The Offer Process: The Seller’s Perspective

From the seller’s perspective the offer process starts formally when the offer is registered. You will prepare the seller beforehand by explaining some of the aspects of receiving an offer. Under the Code of Ethics, an offer must be presented at the earliest opportunity. Discuss the seller’s preferences for how the offer process will occur and mention that the offer will have an irrevocable time period which must be adhered to. The location should be determined, e.g., the seller’s home or the brokerage’s office, and whether the buyer’s salesperson will be in attendance. An offer presentation time should be set that is convenient to the seller, e.g., after dinner as both sellers work during the day or after the children have gone to bed. Leading practice would have any preferences or restrictions in writing from the seller. We will next look at the steps in the offer process from the seller’s perspective. Exam Study Guide

Lesson 1 | Page 16 of 24

The Offer Process: The Seller’s Perspective

The following six sections contain information on the offer process from the seller’s perspective.

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Step 1 - Arrange offer presentation time Once an offer is registered, arrange for the offer presentation to take place as soon as possible, keeping in mind any preferences or requests from the seller. At this time, you should follow up with any other salespeople who have shown the property and inform them that an offer has been received. This is done so the salespeople can let their buyers know that if they intend on placing an offer, this should be done right away as the property could be sold. Advise the other salespeople of the time when the seller will be reviewing the registered offer and encourage others to submit any offers prior to that time. Generating competing offers is considered working in the seller’s best interests. If additional offers are received you must notify all of the brokerages, with registered offers, how many offers are registered without divulging the contents of the offers.

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Step 2 - Prepare the seller for offer presentation Prepare the seller for the offer presentation by explaining how many offers they will receive and how the presentation will be conducted. If the buyer’s salesperson will be present, you will advise the seller to discuss any confidential information with you privately. Also explain that after the offer is presented they may ask questions or discuss any concerns they have. It is important for the seller to understand that they do not have to ask questions or make decisions during the offer presentation. If there is more than one offer being presented, let the seller know they will have an opportunity to review and analyze all offers prior to deciding on the next step. It is in this respect that the irrevocability of any offer will be a key consideration.

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Step 3 - Update seller on current market conditions Update the previous comparative market analysis (CMA) to show any recent activity that occurred since the most recent update was provided. You would review the listing and update the seller on the current market conditions to ensure they understand how this might impact any offer made. Retain a copy of the updated CMA as part of the documentation. This will help support any advice you provide to the seller and any decisions made during negotiations. You may also prepare an example of the seller’s net proceeds based on the updated CMA. This will help the seller understand approximate selling costs associated with any offer received.

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Step 4 - Review and analyze the offer During the offer presentation, if the buyer’s salesperson is in attendance, they may take this opportunity to explain and support their buyer’s offer. Once the offer is presented, if there are additional offers that have not yet been presented to the seller, this offer would be set aside for the time being. In the case of multiple offers, advise the seller not to discuss the contents of any of the offers in front of the other salespeople. Once all offers are presented, each offer will need to be thoroughly reviewed and analyzed. Although the seller will place a significant amount of importance on the offered price, there are other factors that must be taken into consideration, as these can have an impact on any decisions made. Review additional aspects of each offer such as: • Deposit amount • Completion date • Chattels included and fixtures excluded • Rental or Lease-to-Own contracts (if any) to be assumed • Conditions included, such as financing, home inspection, sale of a buyer’s property, etc. • Time period of the conditions As a salesperson, you should assist the seller in assessing the entire offer and understand the importance of what could be a seemingly insignificant component, such as the completion date. An inappropriate completion date could cause Exam Study Guide

the seller additional expenses for moving, storage of furniture, accommodations; for example, if the completion date does not align with their new residence.

Step 5 - Discuss options to address the offer Once an offer is presented, the seller can respond in one of four ways: • Accept the offer • Reject the offer • Counter the offer by making an offer back to the buyer from the seller • Send all or some offers back for improvement if there are competing offers If the seller wants to accept an offer, the acceptance must be done and communicated back to the other party prior to the irrevocable period expiring. If there is more than one offer for the seller to consider, and none of the offers are acceptable, the seller can counter only one of the offers. If two offers were signed back and both buyers accepted the offers, the seller would have sold the property twice. Once a seller makes an offer back to the buyer, the seller is obligated to that offer for the irrevocable time specified. A counter offer is also referred to as a sign back. Both terms are used within the profession as they mean the same thing; the offer was not acceptable

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and the party is making an offer back to the other party with terms acceptable to the offering party. If there are more than one offer on a property, a seller may elect to have their salesperson inform all of the competing salespeople that none of the offers is being accepted. The salespeople are given an opportunity to go back to their buyers and improve their offers. The listing salesperson may offer some guidance on what the seller is looking for, e.g., a particular closing date, the highest price possible, etc. Before selecting this option, the seller must be cautioned that some or all of the buyers may drop out of the negotiations and the seller may be left with no offers on the property. Any offers that do return would be presented in the same manner as the original presentation.

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Step 6 - Negotiate the offer Negotiating the offer means the seller chooses how they want to address the buyer’s offer. As the seller’s salesperson, you will implement those instructions and advise the buyer’s salesperson of the seller’s decision. For example: • If the seller chooses to accept the offer, you will advise the buyer’s salesperson that the offer is accepted, arrange to meet with the buyer’s salesperson (if they were not at the presentation) to finalize and exchange copies of the accepted offer, and make arrangements to obtain any deposit that is required • If the seller chooses to reject the offer, you will advise the buyer’s salesperson that the offer will not be addressed by the seller and return additional copies of the offer or the deposit cheque • If the seller chooses to counter the offer, advise the buyer’s salesperson that the offer is being signed back and ensure the buyer’s salesperson is able to present the seller’s offer within the irrevocable period REBBA requires the seller’s brokerage to retain copies of all written offers that it receives. This will require the brokerage to retain a copy of all offers, whether

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accepted, rejected, or countered. Prior to countering an offer, the salesperson is required to retain a copy of the offer exactly as it was received from the buyer. You will learn more about this later.

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Lesson 1 | Page 17 of 24

Once an offer is presented, the listing salesperson should take the time to review and assess the entire offer with the seller to ensure the seller makes an informed decision to accept, reject, or counter it. A salesperson should ensure that the seller considers the price while assessing the offer. Question #5: Identify if the statement is true or false. There are two options. There is only one correct answer. 1

True

2

False

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Lesson 1 | Page 18 of 24

Once an offer is presented, the listing salesperson should take the time to review and assess the entire offer with the seller to ensure the seller makes an informed decision to accept, reject, or counter it. A salesperson should ensure that the seller considers the deposit while assessing the offer. Question #6: Identify if the statement is true or false. There are two options. There is only one correct answer. 1

True

2

False

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Lesson 1 | Page 19 of 24

Once an offer is presented, the listing salesperson should take the time to review and assess the entire offer with the seller to ensure the seller makes an informed decision to accept, reject, or counter it. A salesperson should ensure that the seller considers the title search while assessing the offer. Question #7: Identify if the statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 1 | Page 20 of 24

Once an offer is presented, the listing salesperson should take the time to review and assess the entire offer with the seller to ensure the seller makes an informed decision to accept, reject, or counter it. A salesperson should ensure that the seller considers the conditions while assessing the offer. Question #8: Identify if the statement is true or false. There are two options. There is only one correct answer. 1

True

2

False

Exam Study Guide

Lesson 1 | Page 21 of 24

The offer process involves many activities for the salespersons of sellers and buyers. Some of these activities are unique to the seller or buyer in the process and some activities may be similar in each process. Question #9: Which of the following activities would take place for a seller in the offer process? There are seven options. There are multiple correct answers. 1

Draft the completion date and title search date

2

Verify owner’s name, property legal description and lot size

3

Explain the irrevocable time period

4

Include or adjust conditions for specific needs

5

Complete a comparative market analysis (CMA)

6

Generate competing offers

7

Calculate net proceeds

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Lesson 1 | Page 22 of 24

The offer process follows specific steps for the salespersons for the seller and buyer. Question #10: Which of the following steps are completed by a salesperson for a buyer in a typical offer process? There are ten options. There are multiple correct answers. 1

Initiate the offer

2

Draft the offer

3

Register the offer

4

Presentation of the offer

5

Await seller’s response to the offer

6

Review and analyze the offer

7

Arrange offer presentation time

8

Discuss options to address the offer

9

Listing salesperson prepares client for offer presentation

10

Negotiate the offer

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Lesson 1 | Page 23 of 24

Steps for Acceptance of an Offer

When a buyer’s offer is presented, the seller will review and discuss the terms with their salesperson. One of the options available to the seller is to accept the buyer’s offer. If the offer is accepted, specific steps must be completed to ensure the acceptance is correctly executed and communication of the acceptance is made to the other party. REBBA requires each seller and buyer to receive a copy of the accepted offer as soon as possible. Additionally, copies of the agreement are retained by each brokerage. The following six sections contain information on the steps to complete when accepting the buyer’s offer.

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Accept the offer To accept the buyer’s offer, all sellers must sign and initial the agreement of purchase and sale. A verbal acceptance is not considered an acceptance of the offer. In the case of a non-titled spouse of a matrimonial home, written consent for the sale must also be obtained. Acceptance of the offer must be communicated to the other party prior to the expiration of the irrevocable time period.

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Confirm acceptance To confirm when the offer is accepted, the agreement of purchase and sale will provide for the time and date of acceptance to be identified. This statement is then signed by the last party who accepted the offer.

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Distribute copies REBBA requires each seller and buyer to receive a copy of the accepted agreement as soon as possible. The brokerage will provide these copies and obtain the party’s signature acknowledging they have received their true copy. When the seller accepts the offer, a copy is provided at that time for each seller. The buyer’s salesperson will obtain copies for each buyer, have them sign acknowledgement of receipt and deliver the acknowledged copy to the listing brokerage as soon as possible. In addition to acknowledging receipt of the accepted offer, the seller and buyer will provide the brokerage the authority to send copies to their respective lawyers. This process may be paper-based or electronic.

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Sign a remuneration or commission trust agreement When there are two different brokerages involved in the transaction, a trust agreement is created which protects the co-operating brokerage’s remuneration should the listing brokerage become insolvent or bankrupt. A salesperson can sign this on behalf of their brokerage. If only one brokerage is involved in the transaction, it is not signed.

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Retain a copy for the brokerage The brokerages involved in a transaction are required to retain a copy of the fully signed and accepted agreement of purchase and sale. As a salesperson, it is your responsibility to ensure the brokerage is provided a copy of the accepted agreement of purchase and sale as soon as possible.

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Forward a copy to the lawyer A lawyer will be retained by the seller and the buyer to complete the transaction. The brokerage will provide copies of all documentation relating to the trade to the lawyer on behalf of the seller or the buyer.

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Lesson 1 | Page 24 of 24

Congratulations, you have completed the lesson! There are four sections on this page with a summary of the key topics that were covered in this lesson.

Components of an agreement

An agreement of purchase and sale documents the terms and conditions involved in a real estate transaction between the seller and the buyer. During negotiations, the document is referred to as an offer. Once the offer is accepted and unconditional, it becomes a binding contract, referred to as an agreement. The key components of an agreement of purchase and sale are the names of the sellers and buyers, address and legal description of the property, purchase price, deposit amount, irrevocable date, completion date, title search date, chattels and fixtures, and conditions.

The offer process from a buyer’s perspective

From a buyer’s perspective, the offer process consists of working with a salesperson to complete these five steps: 1. 2. 3. 4. 5.

Initiate the offer Draft the offer Register the offer with the seller Present the offer to the seller Await the seller’s response to the offer

Once the offer is presented, either electronically or in person, the seller has the irrevocable time period to decide on the offer.

The offer process from a seller’s perspective

From a seller’s perspective, the offer process consists of working with a salesperson to complete these six steps: 1. Arrange offer presentation time 2. Prepare the seller for offer presentation 3. Update seller on current market conditions

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4. Review and analyze the offer 5. Discuss options to address the offer 6. Negotiate the offer As the final step in the process, the seller has four options: accept the offer, reject the offer, or make a counter offer. If there is more than one offer on a property, a seller may elect to send all or some of the offers back for improvement.

Steps for acceptance of an offer

The offer acceptance process consists of these six steps: 1. Accept the offer by signing and initialling where necessary 2. Complete and sign the confirmation of acceptance 3. Acknowledgement signed and distribute copies 4. The brokerages sign a remuneration or commission trust agreement 5. Retain a copy for the brokerage 6. Forward a copy to the other party When an offer is accepted, the confirmation of acceptance must be communicated to the other party prior to the end of the irrevocable period. The acceptance must be in writing and include the date and time. The last party who accepted the offer confirms the acceptance. If there are two brokerages involved, a remuneration or commission trust agreement is also signed. All parties, including the brokerages, receive a copy of the signed and completed agreement as soon as practicable. The lawyers for each respective party also receive copies of the signed agreement. The copies may be paper-based or electronic.

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Lesson 2 | Page 1 of 28

Lesson 2: Deposits and Other REBBA Considerations

You will learn about the key regulations that impact the activities of a salesperson regarding receiving a buyer’s deposit and presenting offers.

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Lesson 2 | Page 2 of 28

In this lesson you will learn about the requirements under REBBA that will guide your actions, as a salesperson, during the offer process. The requirements are related to a buyer’s deposit, and the conveyance of an offer to promote a fair and ethical transaction. Upon completion of this lesson, you will be able to: • Identify the requirements under REBBA regarding deposits • Describe additional considerations regarding deposits • Identify the requirements of a salesperson under REBBA regarding activities associated with an offer 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 28

The deposit is a part of the offer transaction and is applied towards the purchase price when the transaction is completed. The agreement of purchase and sale will identify key aspects of the deposit. The Code of Ethics requires a salesperson to perform any action related to the deposit in accordance with the terms agreed to in the agreement of purchase and sale.

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Lesson 2 | Page 4 of 28

Define the Deposit, I

The agreement of purchase and sale will identify the deposit amount, when it will be delivered, and to whom it will be delivered. One of three options is used to identify when it will be delivered: 1) Herewith – the deposit will be provided along with the offer when initially presented to the seller. 2) Upon acceptance of the offer – the deposit will be provided once the offer is accepted. Most offers will also identify that “upon acceptance” requires the deposit to be provided within 24 hours of acceptance. 3) As otherwise described in the agreement – the deposit will be provided at some other time which is then identified in the agreement by including the details on a schedule added to the agreement. For example, this could identify that the deposit will be paid within seven business days (as defined by REBBA) from acceptance of the offer. Whichever option is identified, if a salesperson is to deliver the deposit, they must follow these instructions. When Exam Study Guide

obtaining a buyer’s deposit, ensure the buyer understands their obligations relating to the deposit: • Provide the deposit in the manner specified in the agreement – this could include a cheque, bank draft, or a money order. If the buyer provides a cheque, it must be capable of being presented immediately for payment (i.e., it must be a negotiable cheque). In some instances, there could be a requirement for the cheque to be certified; this would be identified in the offer • Ensure the deposit is payable to the deposit holder identified on the agreement of purchase and sale • Provide the deposit when required as specified in the agreement of purchase and sale

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Lesson 2 | Page 5 of 28

Define the Deposit, II

There is no minimum amount that must be provided as a deposit. The deposit is a sign of the level of commitment being made by the buyer and the amount often varies relative to the purchase price or the practices of the specific trading areas. A deposit is typically held in trust by the listing brokerage. As the salesperson for the seller, you would ensure the deposit is delivered according to the option identified in the agreement by maintaining contact with the buyer’s salesperson. The deposit is placed in the brokerage’s real estate trust account which is a non-interest bearing account unless otherwise specified in the agreement of purchase and sale. You must also ensure all time limits associated with depositing the funds are complied with. You will learn about your obligations under REBBA for depositing funds later in this module.

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Lesson 2 | Page 6 of 28

The buyer’s deposit is a part of the transaction and is applied towards the purchase price when the transaction is completed. Question #11: Which of the given statements about the buyer’s deposit are correct? There are five options. There are multiple correct answers.

1

Details of the deposit are recorded in the buyer representation agreement

2

Interest on the deposit may be payable to the buyer

3

The deposit is normally due when the offer is registered

4

The minimum deposit required is 10% of the purchase price

5

If the buyer provides a cheque for the deposit, the cheque must be capable of being presented immediately for payment

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Lesson 2 | Page 7 of 28

Time Requirements for Deposit of Funds

Under REBBA, if an amount of money is received by a brokerage in trust for another person, the brokerage must deposit the funds into their real estate trust account within five business days of receipt. Business days exclude Saturdays, Sundays and statutory holidays. When a holiday falls on a Saturday or Sunday, the following Monday is also a holiday, so the time limit is extended to include the next day that is not a holiday. The five-day requirement begins when the brokerage receives the money and the timing may vary depending upon how the agreement of purchase and sale is written. If the agreement of purchase and sale indicates a deposit is submitted herewith, the agreement clearly implies that the deposit is already with the brokerage and must be placed in the real estate trust account within five business days of the initial offer. For example, a buyer's salesperson delivers the offer and the deposit cheque to the listing salesperson on Wednesday, June 26 at 11:00 a.m., to be presented to the seller. The funds must be deposited into the Exam Study Guide

brokerage real estate trust account no later than the end of the day on Wednesday, July 3. If the agreement of purchase and sale indicates the deposit will be submitted upon acceptance, the agreement clearly implies that the deposit is provided to the brokerage upon the acceptance. In this case, the deposit must be placed in the real estate trust account within five business days following acceptance. For example, an offer is accepted by the seller on Wednesday, June 26. The buyer delivers the deposit cheque to the salesperson on Thursday, June 27 at 11:00 a.m. The funds must be deposited into the brokerage real estate trust account no later than the end of the day Thursday, July 4. A delay by a co-operating brokerage in timely delivery of the deposit could potentially jeopardize the listing brokerage's ability to satisfy the requirement of Sec. 17 of the Code of Ethics. Sec. 29 of the Code of Ethics requires a salesperson to deliver the deposit in accordance with the agreement of purchase and sale. Deposit cheques received should be deposited as soon as is practicable. Common practice is that a brokerage will deposit any funds that have been received before the end of the day on each business day.

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Lesson 2 | Page 8 of 28

The brokerage receives a cheque representing the deposit for an accepted offer on one of their listings. The cheque is received on the Wednesday before a long weekend. Monday is the statutory holiday in the upcoming long weekend. Question #12: Based on the obligations under REBBA for deposit of funds, what is the latest day by which the cheque must be deposited into the brokerage’s trust account? There are four options. There is only one correct answer.

1

The Wednesday after the statutory holiday

2

The Tuesday after the statutory holiday

3

The Thursday after the statutory holiday

4

The Friday after the statutory holiday

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Lesson 2 | Page 9 of 28

Real Estate Trust Account

When a brokerage is named in the agreement as the deposit holder, the funds are placed in the brokerage’s real estate trust account. Under REBBA, all brokerages must maintain a designated trust account in Ontario. Trust funds must be kept separate, and clearly identifiable as separate from any other account the brokerage has, such as the general bank account which is used for the day-to-day banking for the brokerage. A trust ledger must be maintained and disbursements can only be made within the terms of the trust. The trust account imposes fiduciary and legal responsibilities on the brokerage. REBBA has specific requirements relating to a brokerage’s real estate trust account, including: • The trust account must be designated as a real estate trust account • Only one trust account may be used, unless otherwise approved by the Registrar • All disbursements must be authorized by the brokerage’s broker of record • All trust cheques must be signed by the brokerage’s broker of record • Brokerages must prepare a monthly reconciliation of the trust account within 30 days of the monthly bank statement Payments to salespersons and co-operating brokerages are not paid from the real estate trust account, but rather through a separate account; either a remuneration trust account or the general bank account. Exam Study Guide

Lesson 2 | Page 10 of 28

To comply with REBBA, all trust funds such as deposits received by a brokerage must be placed into their designated real estate trust account. If the trust account incurs bank charges, they are paid from the trust account. Question #13: Identify if the statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 2 | Page 11 of 28

To comply with REBBA, all trust funds such as deposits received by a brokerage must be placed into their designated real estate trust account. Trust funds must be kept separate from money belonging to the brokerage. Question #14: Identify if the statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 2 | Page 12 of 28

To comply with REBBA, all trust funds such as deposits received by a brokerage must be placed into their designated real estate trust account. Disbursement from a real estate trust account can only be authorized by the brokerage’s broker of record. Question #15: Identify if the statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 2 | Page 13 of 28

Deposit Protection Under the RECO Insurance Program

A buyer can be assured that when a brokerage places the deposit in their real estate trust account, the funds are protected under RECO’s Insurance Program. In the event of a brokerage becoming insolvent (i.e., the brokerage becomes bankrupt), or there is theft, fraud, misappropriation, or wrongful conversion of the deposit by a registrant, the buyer’s deposit is safeguarded. The insurance provides coverage up to a maximum of $100,000 per claim, with no deductible paid for the buyer to make a claim. The policy has a limit of $3,000,000 per event, so if the brokerage does not have additional insurance coverage and claims related to an event exceeds $3,000,000, the amount recoverable by each buyer may be pro-rated.

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Lesson 2 | Page 14 of 28

Documenting a Deposit

Documenting a buyer’s deposit will help ensure the funds are properly handled and deposited as required under REBBA. Most residential transactions identify the listing brokerage as the deposit holder on an agreement of purchase and sale. When there are two brokerages involved in the transaction, the deposit will need to be forwarded to the listing brokerage. This is typically done by the buyer’s salesperson, although there may be instances where a buyer provides the deposit directly to the listing brokerage. When there is a co-operating brokerage, the given steps outline the typical flow of a deposit being held by the listing brokerage: Step 1. Obtain the buyer’s deposit as identified in the agreement of purchase and sale and provide a receipt to the buyer. This will confirm the buyer’s compliance with the terms of the agreement. Exam Study Guide

Step 2. Deliver the buyer’s deposit to the listing brokerage as soon as possible and obtain a receipt from the listing brokerage. This will confirm the salesperson’s compliance with REBBA and the beginning of the five business day requirement for the listing brokerage to deposit the funds. Step 3. Listing brokerage deposits the funds into their real estate trust account within five business days. The bank statement will note the date of deposit which confirms the brokerage’s compliance with REBBA. Step 4. Listing brokerage documents the deposit on a trust ledger. This is completed by the brokerage and a salesperson would not be required to document anything further regarding the deposit. Step 5. Monthly reconciliation while the deposit is held in trust. This ensures the deposit is safeguarded while being held in trust. A brokerage is required to immediately deposit funds if there is any shortfall in the trust account identified by the reconciliation. In some instances, a buyer’s deposit could generate interest while being held in trust. See the next screen for information on interest paid on deposit funds.

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Lesson 2 | Page 15 of 28

When two separate brokerages are involved in a transaction, each one has responsibilities to ensure the deposit funds are handled properly and in compliance with REBBA. In the majority of cases, the listing brokerage will be the holder of the deposit funds. Question #16: Which of the following are the deposit-related responsibilities of a cooperating brokerage? There are five options. There are multiple correct answers.

1

Obtain deposit funds

2

Deliver deposit funds

3

Deposit of the funds

4

Enter deposit on trust ledger

5

Monthly reconciliation of deposit

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Lesson 2 | Page 16 of 28

Interest on Deposits

REBBA requires a brokerage to fully disclose to persons depositing trust money the terms on which the money is deposited. If the deposit is made to an interest-bearing account, the brokerage must disclose the interest rate the brokerage receives on the account. If the funds are placed in a variable interest rate account, the brokerage would disclose the current interest rate. Interest on trust money will accrue to the beneficial owner of the trust money, unless otherwise agreed to in the agreement of purchase and sale. In a transaction, the buyer is typically the beneficial owner of the trust money until closing. OREA Form-100 Agreement of Purchase and Sale states 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. In order for the deposit holder to retain any interest earned on the deposit, a salesperson shall disclose this fact to all parties of the agreement. The deposit holder shall place the deposit in its interest-bearing real estate trust Exam Study Guide

account where interest is earned at a specified rate and any interest earned over a specific dollar amount shall be paid to the buyer. In other words, the interest earned on the deposit and retained by the deposit holder shall be for the amount of earned interest less than the specified dollar amount owed to the buyer on the interest earned. This written disclosure is done in the form of a clause included in the agreement of purchase and sale on the Schedule A. If interest is earned by the deposit holder and this clause is not included in the agreement of purchase and sale or other form of contractual agreement, the full interest earned shall be paid to the beneficial owner of the trust money, namely the buyer.

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Lesson 2 | Page 17 of 28

Interest-bearing Trust Accounts

There are several types of interest-bearing accounts that are used and each has different disclosure obligations. The terms for how interest is disbursed must be clearly described in the agreement of purchase and sale and explained to the parties. The following four sections contain information on the disclosure requirements under various scenarios for a brokerage to deposit funds that generate interest.

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Payment of all interest earned

This option pays the full interest earned. The agreement of purchase and sale would include a clause whereby the seller and the buyer acknowledge: • The terms on which the brokerage deposits the money (e.g., the deposit will be placed in an interest-bearing real estate trust account) • The interest rate received from the financial institution (e.g., interest is earned at 2%) • The payment of interest at the same rate as the brokerage earns on the deposit (e.g., the brokerage agrees to pay any interest earned to the buyer) • Identify who will receive the interest (e.g., insert the buyer’s name to avoid any miscommunication as to who the beneficial owner of the trust money is)

Payment of interest at a rate less than earned

This option pays less than the interest earned on the account. The agreement of purchase and sale would include a clause whereby the seller and the buyer acknowledge and agree: • The terms on which the brokerage deposits the money (e.g., the deposit will be placed in an interest-bearing real estate trust account) • The interest rate the brokerage earns (e.g., the account earns interest at 2%) • The lower rate of interest to be paid (e.g., the brokerage will pay interest at 1%) • Identify who will receive the interest (e.g., insert the buyer’s name to avoid any miscommunication as to who the beneficial owner of the trust money is) • The deposit holder may retain the difference in interest earned and the interest paid

Payment of interest earned less than a fee

This option pays less than what is earned on the account by creating a minimum payment threshold. The agreement of purchase and sale would include a clause whereby the seller and the buyer acknowledge and agree: • The terms on which the brokerage deposits the money (e.g., the deposit will be Exam Study Guide

placed in an interest-bearing real estate trust account) • The interest rate the brokerage earns (e.g., the account earns interest at 2%) • The interest payable is the amount equal to or more than a specified amount (e.g., $25.00) • Identify who will receive the interest (e.g., insert the buyer’s name to avoid any miscommunication as to who the beneficial owner of the trust money is) • The deposit holder may retain any interest earned that is less than the specified amount

Term deposit bearing interest

This option requires the brokerage to place the funds in an interest-bearing security with all accrued interest being paid to the buyer. The agreement of purchase and sale would include a clause whereby the seller and the buyer acknowledge: • The terms on which the brokerage deposits the money (e.g., the deposit will be placed in an interest-bearing security) • The interest rate received on the deposit (e.g., 2%) • The interest will be paid to the buyer as soon as possible following the transaction closing • An agreement to accept the short-term rate for any deposit withdrawn before the term is expired

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Lesson 2 | Page 18 of 28

Electronic Funds Transfer

Deposits are typically provided by a buyer in the form of a personal cheque, a certified cheque, bank draft, or money order. However, buyers are increasingly choosing to provide a deposit by way of an electronic funds transfer (EFT). A brokerage must retain a proper audit trail for each transfer in and out of their bank accounts. These guidelines should be followed when a brokerage has agreed to receive an electronic deposit: • Ensure the deposit is noted as an EFT payment on the deposit section of the agreement of purchase and sale. • The brokerage should obtain written confirmation of the EFT deposit from the brokerage’s financial institution. • The details of the EFT deposit are documented in the brokerage’s deposit book and the trust account ledger. • The EFT transaction is also recorded on any other document referencing the buyer’s deposit, such as a trade record sheet, which is used to record any money that the brokerage holds in trust, along with every transaction relating to that money.

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Lesson 2 | Page 19 of 28

Conditions for Return of Deposit An agreement of purchase and sale may not be completed for a number of reasons, including one of the parties not being able to satisfy a condition included in the offer (e.g., a condition allowing the buyer time to obtain financing). In most instances, the buyer’s deposit is received and placed into the brokerage’s real estate trust account when the transaction occurs. When a condition cannot be satisfied, the buyer would request a return of the deposit. A brokerage may only disburse a deposit from their real estate trust account in accordance with the terms of the trust. The proper course of action when a transaction has failed is one of the given points: • By mutual consent with a release or direction signed by the seller and the buyer agreeing to the disbursement • A Court Order authorizing the disbursement if either the seller or the buyer does not sign a release or direction When a seller and a buyer sign a mutual consent to release the deposit, the listing and co-operating brokerage’s broker of record will also sign the document. The release will specify who the deposit will be paid to and in most instances it will be the buyer. However, if the release is not signed by the seller and the buyer, and the parties become involved in a court action to determine entitlement to the deposit, the brokerage would not be authorized to release the funds at the time of the failed transaction and it will remain in the brokerage’s real estate trust account.

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Lesson 2 | Page 20 of 28

REBBA Requirements for the Offer Process

The offer process, by its very nature, is stressful for sellers and buyers and they need to feel confident that they are being treated with fairness and honesty throughout a transaction. REBBA addresses these concerns by regulating the offer process relating to the: • Obtaining of an offer • Conveying an offer • Providing copies of an accepted offer • Retaining copies of all offers In some instances, the requirements under REBBA can be altered if the seller or the buyer has provided clear written direction to do otherwise. However, not all of the requirements under REBBA can be altered.

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Lesson 2 | Page 21 of 28

Requirement Under REBBA Related to an Offer The following three sections contain information on each requirement under REBBA relating to an offer.

Offers to purchase real estate REBBA does not permit a salesperson to indicate an offer that exists, or present any offer, unless it is in writing. This means an offer cannot be verbal. • Only written and signed offers from a buyer to purchase a property may be presented to the seller. • A seller’s salesperson may not indicate that they have received an offer or convey an offer to the seller, unless the offer is in writing. Verbal interest in a property cannot be presented as an offer. For an offer to be valid, it must be signed by the party making the offer. This requirement under REBBA may not be altered by a seller or a buyer.

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Conveying/Presenting offers Time is of the essence in offers. You must convey a written and signed offer to a seller or a buyer at the earliest practical opportunity. All offers will identify the irrevocable time period for which the offer is open for acceptance. Once the irrevocable period has elapsed, the offer may no longer be accepted. REBBA requires the conveyance of an offer, regardless of the identity of the person making the offer, the contents of the offer, or the nature of any arrangements for remuneration. As a salesperson, you are required to present the offer at the earliest opportunity, and if you are going to be unavailable (e.g., you will be away for the weekend), there must be an arrangement made with another salesperson in your brokerage to receive and present the offer. The requirement to convey an offer as soon as possible can be altered under the written instructions of a seller or a buyer. For example, a seller has implemented a specific strategy for offer presentation which results in no offers being presented prior to a specific date. The instructions must be clear, detailed, and unequivocal written directions that the seller does not want to know about any offers received prior to this date. If these instructions are not provided, the seller must be informed of any offer received. These instructions must be in writing and disclosed in the listing information. The brokerage must act in strict accordance with the instructions given. If these instructions change; for example, the seller has decided to review offers received prior to this Exam Study Guide

date, the listing information must be updated and all interested parties must be notified of the change. Written notice of the change must be given to everyone who has expressed an interest in the property. Expressing an interest includes: • Anyone who has booked an appointment to view the property • Anyone who has previously viewed the property • Anyone who has informed the listing brokerage or salesperson they will be submitting an offer, or have submitted an offer on the property Written notice can be by facsimile, email, or text message.

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Copies of the agreement Once an offer is accepted, REBBA identifies the requirements for providing copies: • Signed copies of the agreement must be provided to the parties at the earliest opportunity • Every party to the agreement receives a copy of the agreement • In situations where copies of the agreement are provided personally to sellers and buyers, when the agreement is accepted, the party accepting the offer receives a copy immediately. For example, if there are two sellers who accept a buyer’s offer, both sellers will receive a copy of the agreement at the same time as the acceptance occurs. The salesperson working with the buyer would then provide a copy of the signed agreement to the buyer as soon as possible. If there are two buyers, then two copies of the agreement would be provided. In addition, the listing brokerage and the co-operating brokerage are required to retain copies of the agreement for their records • Where an offer is sent electronically to a seller or a buyer, the party is deemed to have received and retained a copy of the agreement • Lawyers for the seller and the buyer will also receive copies of the signed agreement. These

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do not need to be original copies and can be sent electronically as well

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Lesson 2 | Page 22 of 28

Based on REBBA requirements, a salesperson has several responsibilities related to offers. Question #17: Which of the given statements about offers are in accordance with REBBA? There are four options. There are multiple correct answers.

1

Verbal offers must be presented in person

2

Signed, written offers should be delivered at the earliest practicable opportunity

3

Under REBBA, a verbal offer can be presented to a seller providing both the seller and buyer agree to this

4

Once accepted, copies of the written agreement should be provided to all parties

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Lesson 2 | Page 23 of 28

The listing on the seller’s property specifies that no offers are to be presented to the seller prior to May 12, which is in two days’ time. There have been many showings and two offers have already been registered. The seller has been advised by the listing salesperson of several more viewing appointments over the next few days. Question #18: Suppose the seller asks the listing salesperson to change the date so that no offers are to be presented before May 14, how should the seller’s salesperson deal with this request? There are five options. There are multiple correct answers.

1

Ask the seller to provide written instructions detailing the change in date

2

Advise the seller that the date for the offer presentation cannot change now that there are offers registered on the property

3

Update any listing information with the change in dates

4

Since the information contained in a listing cannot be changed, only the buyers who have an offer registered on the property can be notified of the change in date

5

Provide written notice of the change to all persons who have expressed an interest in the property

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Lesson 2 | Page 24 of 28

The buyers’ offer has just been accepted by the two sellers who own the property. The buyers are represented by one salesperson and the sellers are represented by a salesperson with another brokerage. Question #19: Which of the given would be a salesperson’s obligations under REBBA with respect to providing copies of the agreement? There are four options. There are multiple correct answers. 1

A salesperson should do their best to ensure copies of the agreement are given to each of the parties to an agreement at the earliest practical opportunity.

2

A salesperson must ensure copies of the agreement are given to each of the parties to an agreement immediately after the offer is signed.

3

A salesperson must ensure that one copy of the agreement is given to the buyers and one copy is given to the sellers.

4

A salesperson should ensure that the brokerage employing them is provided with a copy of the accepted agreement as soon as possible.

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Lesson 2 | Page 25 of 28

Recommend Independent Legal Advice In the offer process, situations may arise that are outside of the expertise of a salesperson and require the advice or services of someone with specialized knowledge or skills, such as a lawyer. A salesperson must advise a seller or a buyer to obtain such services from others when they are not able to provide the services with reasonable knowledge, skill, judgement, and competence. Under no circumstances, should a seller or a buyer be discouraged from seeking such services. Example – Seller: A seller has received an offer on their property which includes a clause asking the seller to provide a warranty to the buyer regarding the condition of the property. The seller informs their salesperson they are concerned about the clause as there was a previous problem with the property that was discovered after they purchased it, but the problem has now been remedied. The seller wants to discuss the legal ramifications of the clause now that the property is being resold, and would like their lawyer to review the offer before accepting it. As the salesperson for the seller, you would encourage the seller to seek this advice as soon as possible. A condition may need to be added to the offer allowing the seller time to obtain this independent legal advice. Example – Buyer: While showing a property to a buyer, a salesperson notes water staining on the basement wall in one corner. The salesperson explains they are not qualified in determining the physical condition of a property, however the water stain could be an indication of a more serious problem. The salesperson advises the buyer to include a condition in their offer for an inspection by a qualified property inspector to determine the extent of the water seepage problem. The buyer does not want a condition in the offer and the salesperson suggests they speak to their lawyer to fully understand the risk of not including a condition before proceeding.

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Lesson 2 | Page 26 of 28

Dealings with Other Registrants

Although negotiating a typical real estate transaction involves opposing interests, all discussions between the salespeople must be ethical and according to the obligations owed to the seller or buyer regarding confidentiality. Any interaction with the parties or other individuals a salesperson interacts with during the course of a trade, must be approached with fairness, honesty, and integrity. As a salesperson, you must respect the relationship between a salesperson and a seller or a buyer: • If you know or ought to know that a person is a client of another brokerage, any communication of information for the purpose of a trade must be done through the other brokerage, unless the other brokerage has agreed in writing • If you know or ought to know that a seller or buyer is a party to a representation agreement with another brokerage, you may not induce the seller or buyer to break the agreement Exam Study Guide

Example: A buyer’s offer is being presented to a seller which does not contain a condition allowing the buyer time to confirm financing is available for the purchase. The seller wants confirmation that the buyer has the available funds to complete the transaction. The buyer’s salesperson has obtained a proof of funds letter from the buyer’s bank and wants to provide it to the seller. The salesperson is required to relay the information to the seller’s salesperson rather than providing it directly to the seller.

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Lesson 2 | Page 27 of 28

The Code of Ethics requires that a salesperson’s interactions with all parties in a real estate transaction must be marked by fairness, honesty, and integrity. This is one of the many requirements of the Code of Ethics. Question #20: Which of the given statements reflect requirements as set out in the Code of Ethics? There are four options. There are multiple correct answers. 1

In most cases, it is not acceptable for a salesperson to communicate directly about a transaction with the client of another brokerage

2

A salesperson may present to the seller either a verbal or written offer

3

A registered salesperson is by law automatically considered to have the competency and knowledge to offer legal advice to a seller or buyer during the offer process

4

A client should not be discouraged from seeking independent expert advice if required

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Lesson 2 | Page 28 of 28

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were covered in this lesson.

Requirements under REBBA regarding deposits

REBBA has the given requirements regarding deposits: • A brokerage must deposit money it receives in trust into a designated trust account within five business days of receipt. • All Ontario brokerages must maintain a designated trust account, which is separate from any other brokerage accounts. The trust account imposes fiduciary and legal responsibilities on the brokerage.

Additional considerations regarding deposits

A buyer’s deposit held by a brokerage in their real estate trust account is protected under the RECO insurance program. To ensure funds are handled properly, RECO requires a buyer’s deposit is documented. REBBA requires a brokerage to fully disclose to persons depositing trust money the terms on which the money is deposited. If the account bears interest, then the disclosure must include the interest rate paid to the person as well as the interest rate that the account generates. There are several types of interest-bearing accounts that are used, and each has different disclosure obligations. The terms for how interest is disbursed must be clearly described in the agreement of purchase and sale and explained to the parties. Buyers may choose to provide a deposit using an electronic funds transfer (EFT). A brokerage must retain a proper audit trail for each transfer in and out of their bank accounts. A brokerage may only disburse a deposit from their real estate trust account in accordance with the terms of the trust. When a transaction has failed, the proper course of action is by mutual consent of the seller and buyer or by court order. Exam Study Guide

REBBA requirements for the offer process

Offers to purchase real estate must be in writing and signed by the party making the offer. As a salesperson, you are required to convey an offer at the earliest opportunity. All offers will identify the irrevocable time period for which the offer is open for acceptance. Once an offer is accepted, signed copies of the agreement must be provided at the earliest opportunity to every party to the agreement.

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Lesson 3 | Page 1 of 46

Lesson 3: The Impact of Multiple Representation

You will review the disclosure requirements of a salesperson under REBBA regarding multiple representation, including a review of the scenarios with the emphasis on the salesperson’s obligations for disclosure relating to multiple representation.

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Lesson 3 | Page 2 of 46

Multiple representation can occur in the offer process when sellers and buyers are represented in the same transaction by the same brokerage. This activity is not prohibited, but because of the inherent conflict of interest for the sellers and the buyers, it is strictly regulated under REBBA. As a salesperson, you are required to disclose the possibility of the brokerage entering into multiple representation and the differences in your obligations owed or the services provided. All parties must agree in writing to proceed with an offer under multiple representation. This permission is obtained before an offer is made. Upon completion of this lesson, you will be able to: • Identify different scenarios where a brokerage is working under multiple representation • Identify the limitations to services provided to a client under multiple representation • Identify a salesperson’s disclosure obligations under REBBA regarding multiple representation • Identify the requirements to disclose and obtain written consent for multiple representation • Explain how to complete a document to confirm the representation status and remuneration obligations of a seller and a buyer • Identify leading practices of a salesperson regarding multiple representation Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented. Exam Study Guide

Lesson 3 | Page 3 of 46

When operating in a multiple representation situation, the brokerage must act impartially and equally to protect the interests of the sellers and the buyers while abiding by a limited duty of disclosure. The sellers and the buyers must fully understand the limitations to the services being provided and the disclosure of information when multiple representation occurs.

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Lesson 3 | Page 4 of 46

Multiple Representation Situations The brokerage has a fiduciary relationship with clients and must act in their best interests. However, when operating in a multiple representation situation, the interests of these clients are opposed and the brokerage is in the difficult position of trying to promote and protect competing interests. The following four sections contain information on possible multiple representation situations. Consider the conflicting interests as you review each situation.

Situation 1 One brokerage representing both the seller and the buyer through different salespersons. a) The salespersons are employed within the same brokerage office. b) The salespersons are located in different branch offices of the same brokerage.

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Situation 2 One brokerage representing competing buyers who are placing offers on the same property at the same time through different salespersons. a) The salespersons are employed within the same brokerage office. b) The salespersons are located in different branch offices of the same brokerage. In this scenario, the seller is being represented by a different brokerage.

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Situation 3 One brokerage representing both the seller and the buyer with the same salesperson working with all parties.

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Situation 4 One brokerage with the same salesperson working with competing buyers for the same property. The buyers are both being represented by the brokerage. In this scenario, the seller is being represented by a different brokerage.

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Lesson 3 | Page 5 of 46

Multiple representation is strictly regulated under REBBA. A brokerage representing both the buyer and the seller in the same trade is multiple representation. Question #21: Identify if the statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 3 | Page 6 of 46

Multiple representation is strictly regulated under REBBA. A brokerage representing a seller and providing customer service to a buyer in the same trade is multiple representation. Question #22: Identify if the statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 3 | Page 7 of 46

Multiple representation is strictly regulated under REBBA. A brokerage representing two buyers purchasing a property together is multiple representation. Question #23: Identify if the statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 3 | Page 8 of 46

Multiple representation is strictly regulated under REBBA. A salesperson from one office of a brokerage representing a buyer and a salesperson from another office of the same brokerage representing the seller in the same trade is multiple representation. Question #24: Identify if the statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 3 | Page 9 of 46

Limitations to Services, I

Prior to entering into a representation agreement with a seller or a buyer, REBBA requires specific information to be provided. This includes the nature of the services the brokerage would provide to each client if the brokerage represents more than one client for the same trade, and any differences in the sharing of information with seller or buyer. This includes information the brokerage will NOT disclose unless otherwise instructed in writing by the seller or buyer to do so, and services they will NOT perform. Information NOT disclosed and services NOT performed include: • The amount a seller may or will accept (e.g., a salesperson may not disclose to the buyer that the seller will accept less than the listed price) • Advising a seller how much they should accept (e.g., a salesperson may not advise the seller how much they should accept when receiving a buyer’s offer, nor at what price they should counter the buyer’s offer) or the amount a buyer may or will pay (e.g., a salesperson may not disclose to the seller that the buyer will offer more than the offered price) Exam Study Guide

• Advising a buyer how much they should offer (e.g., a salesperson may not advise the buyer how much they should offer when submitting an offer, nor whether any offer from the seller should be accepted) • The terms of any other offer (e.g., a salesperson may not disclose to the buyer the offered price of any other buyer’s offer, nor the price the seller has agreed to when previously considering a buyer’s offer) • The motivation or personal information about the seller or the buyer (e.g., a salesperson may not disclose to the buyer why the seller is selling, nor disclose to the seller any motivation the buyer may have to purchase the property)

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Lesson 3 | Page 10 of 46

Limitations to Services, II

Information the brokerage is permitted to disclose to assist the seller and buyer in arriving at their own conclusions includes: • Full disclosure to both parties about the property, including factual information • Market information about comparable properties for sale or sold • Information regarding the potential uses for the property A client relationship can be established with a seller or a buyer by the words and actions of a salesperson. A client relationship can exist without any signed documentation. However, it is important to document and ensure a seller or a buyer is fully informed at the earliest opportunity, and always before an offer is made, of the nature of the relationship, the potential for multiple representation, and how this impacts the services they will receive from the brokerage under the agreement. Exam Study Guide

Lesson 3 | Page 11 of 46

Disclosure Requirements Under REBBA Due to the restricted nature of the services provided, and the information shared by a brokerage when operating in a multiple representation situation, there are disclosure requirements at several stages of any relationship with a seller or a buyer. The following four sections contain information on the requirements under REBBA relating to a brokerage’s relationship with a seller or a buyer, and specifically, when working under multiple representation. The Code identifies the requirement to provide information to a seller or a buyer Information before agreements (Section 10 prior to entering into a representation or customer service agreement. The service alternatives and the services being offered under the agreement are to be identified, of the Code of Ethics)

along with an explanation of multiple representation and how this alters the obligations and services. The Code requires the disclosure that the brokerage proposes to work under multiple representation, but that the brokerage could not do so unless all clients consent in writing.

Nature of relationship A brokerage which represents or provides services to more than one seller or buyer (Section 17 of the Code in the same transaction is required to disclose in writing, at the earliest practical opportunity and before an offer is made, the nature of the brokerage’s relationship to of Ethics) each seller and buyer.

As a salesperson, you would disclose to all parties the fact that only one brokerage is participating in the transaction, and the type of services the brokerage is providing to each party. The brokerage’s relationships must be clearly explained and acknowledged in writing by every person involved in the trade before an offer is made. This disclosure requirement applies not only to multiple representation, but to both a client and a customer relationship the brokerage has with a seller or a buyer.

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Disclosure before multiple representation (Section 16 of the Code of Ethics)

A brokerage is required to disclose at the earliest opportunity, and before any offer is made, that the brokerage is proposing to represent more than one client in the same trade and how that impacts the obligations and the services being provided. You must clearly explain the differences in services provided under multiple representation versus single representation.

A brokerage must obtain informed written consent from all parties when multiple Multiple representation (Section representation occurs. Informed consent is given by an individual who has a clear understanding of the facts 22 of O. Reg. 567/05) and implications of a proposed action that they would not do without this understanding.

If a client refuses to consent to multiple representation, the brokerage must release one or more of the clients to seek alternate representation with another brokerage. The brokerage cannot represent more than one client to a trade without the written consent of all clients it is representing in that trade.

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Lesson 3 | Page 12 of 46

The salesperson explains to a prospective buyer client the possible limitations to the services the brokerage would provide to that prospective buyer if a multiple representation situation occurred. The prospective buyer is satisfied with the salesperson’s explanation and signs the representation agreement. Question #25: What would be examples of limitations to those services if multiple representation were to occur in a situation where the brokerage represented both the seller and buyer in the same trade? There are six options. There are multiple correct answers.

1

Personal Information or motivations about the seller and buyer will not be disclosed without seller or buyer consent in writing

2

Factual Information about the property beyond what is described in the listing description will not be given to the buyer

3

The terms of any other buyer’s offer may not be given to the buyer client

4

Advice about what price should be offered by the buyer or accepted by the seller will not be given

5

Market information about comparable properties for sale or sold will not be given to either the seller or buyer

6

Other than providing the listing price, information about the actual price a seller may or will accept will not be disclosed to the buyer

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Lesson 3 | Page 13 of 46

The buyer would like to put in an offer on a property that is listed for sale. Both the seller and buyer are being represented by the same brokerage and salesperson. This situation is going to involve multiple representation. A brokerage will have to obtain written consent from both the seller and buyer agreeing to this multiple representation. Question #26: In this situation, what option would the brokerage have if one or both of the parties refuses to consent to multiple representation? There are four options. There is only one correct answer. 1

The brokerage will have to release both the seller and buyer so that they can obtain representation from another brokerage.

2

The brokerage can have another one of its salespeople work with either the seller or buyer and this would relieve the requirement for consent.

3

The brokerage would be required to release either the seller or the buyer so that one of them can seek representation at another brokerage.

4

The brokerage should have the seller and buyer agree in writing to waive the need for written consent.

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Lesson 3 | Page 14 of 46

The buyer would like to put in an offer on a property. The buyer is being represented by a brokerage through a salesperson employed by the brokerage. The seller of the property is represented by another salesperson within the same brokerage. In these situations, the brokerage must make a disclosure in writing to both the seller and buyer about the nature of the relationship it has with both of them, i.e. the client relationship. Question #27: Based on the given scenario, when would the brokerage need to make this disclosure? There are four options. There is only one correct answer. 1

At the very latest, before an offer is actually made on the property

2

At the very latest just prior to an offer being accepted by the seller

3

At the very latest just prior to the buyer viewing the property

4

At the very latest, prior to an appointment being booked for the buyer to view the property

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Lesson 3 | Page 15 of 46

A brokerage operating in a multiple representation situation is restricted in what information it can disclose to the seller and buyer clients. Question #28: Unless otherwise instructed in writing by the clients, which of the given information is a brokerage not to disclose to either party under multiple representation? There are five options. There are multiple correct answers. 1

Seller’s or buyer’s ideal price

2

Factual information about the property

3

Information on comparable properties

4

The terms of someone else’s offer to the buyer

5

Seller’s or buyer’s motivation

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Lesson 3 | Page 16 of 46

The process of explaining multiple representation and confirming disclosure of the relationship occurs at specific times over the course of a transaction. At the earliest practical opportunity, and before any offer is made, written consent for the brokerage to operate under multiple representation must be obtained.

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Lesson 3 | Page 17 of 46

Disclosure Requirements to Operating in a Multiple Representation Situation

To comply with the requirements under REBBA, disclosure regarding multiple representation involves at minimum, two steps. The specific disclosures required at each step are in place to help ensure a seller or a buyer fully understands how this will alter the obligations of a brokerage and the services being provided under the representation agreement. Step 1 : Disclosure before agreement Before entering into a representation agreement, the Code of Ethics requires a disclosure that the brokerage may enter into representation agreements which would result in the brokerage representing more than one client in respect of the same trade, but that the brokerage could not do this unless all clients represented by the brokerage consent in writing. Exam Study Guide

Step 2: Disclosure before offer Multiple representation occurs during the offer process when the brokerage, which has entered into a representation agreement with a seller, has also entered into a representation agreement with a buyer. Before any offer is made, the seller and buyer must consent in writing to the brokerage representing both clients under multiple representation. Multiple representation can also occur when a brokerage is representing competing buyers. In this situation, a brokerage may not know multiple representation is occurring, so consent to the multiple representation would be required as soon as the brokerage becomes aware that it is operating in a multiple representation situation. This knowledge may come through the listing brokerage or the listing salesperson, as they are in a position to know the source of all buyers. The listing brokerage is then expected to pass on this information to the buyer’s brokerage.

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Lesson 3 | Page 18 of 46

Disclosure and Written Consent In the course of a transaction, there are several occasions to discuss multiple representation with a seller or a buyer which will help ensure they fully understand the nature of this relationship. When discussing this throughout the relationship, a seller or buyer will be better prepared when asked to provide written consent for the brokerage to operate under multiple representation. The following four sections contain information on how disclosure and consent are handled at each point during the relationship with a seller or a buyer.

Before a representation agreement In initial discussions with a seller or a buyer, a salesperson would provide information on the service alternatives available. This would include representation, customer service, and multiple representation. The prospective seller or buyer should be provided sufficient information to determine the type of relationship they would like to establish with the brokerage. Brokerages could have a document which explains the service alternatives and facilitates a discussion with a seller or a buyer to ensure their understanding. To assist in complying with the obligations under the Code of Ethics, a seller or a buyer might be asked to sign the document confirming they have received the information. A copy of the document would be retained by the seller or the buyer as well as a copy for the brokerage. Exam Study Guide

When entering into a representation agreement When documenting the relationship with a seller or a buyer, the salesperson would confirm the given information is understood: • Description of the services that will be provided to the seller or the buyer • Explanation of the possibility of multiple representation, and how the services the brokerage would provide will be altered in that situation • Confirmation of the requirement to obtain written consent from all parties for the brokerage to operate in a multiple representation situation The representation agreement is signed by the salesperson on behalf of the brokerage and presented to the seller or buyer for signature. A copy of the representation agreement is provided to the seller or the buyer and a copy retained by the brokerage.

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During the term of a representation agreement As a salesperson for a seller or a buyer, you will have opportunities to remind them of the possibility of multiple representation. For example, when showing a property to a buyer that would result in multiple representation. If an offer is pursued, you would remind the buyer of how this would alter the services provided or the information disclosed. Or when confirming an appointment with a seller for a showing, you would disclose that the salesperson representing the buyer is also employed by your brokerage, which would result in multiple representation should the buyer place an offer on the property. This helps to maintain an open and transparent relationship with clients and ensures they understand how the showing might differ from other showings where multiple representation would not occur. If the seller or buyer remains informed throughout the listing and showing process, this will help prepare them when asked to provide written consent for the brokerage to operate under multiple representation.

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Before an offer is made At the earliest practical opportunity, and before any offer is made, written consent for the brokerage to operate under multiple representation must be obtained. At the time of placing an offer by a buyer, or the receiving of an offer by a seller, the emotions and anxiety they experience could be heightened. To help avoid any misunderstandings, a salesperson should use the previous opportunities to discuss and clarify the party’s understanding of the brokerage’s requirements when operating under multiple representation. When this is done throughout the relationship, obtaining the seller’s and the buyer’s consent should not be a point of confusion or misunderstanding between the party and the brokerage. To obtain written consent, confirm the party fully understands the impact of multiple representation, and then document this consent in writing. Copies of the signed consent are provided to the parties and retained by the brokerage. Additional information on obtaining written consent is on the next screens.

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Lesson 3 | Page 19 of 46

A salesperson has responsibilities to ensure a client understands the impact of multiple representation. Question #29: Which of the following is a salesperson's responsibility regarding multiple representation? There are two options. There is only one correct answer. 1

A salesperson should explain the potential for multiple representation and how it alters the services and information provided by the brokerage.

2

A salesperson should explain the potential for multiple representation and how it alters the remuneration due on a transaction in a multiple representation situation.

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Lesson 3 | Page 20 of 46

A salesperson has responsibilities to ensure a client understands the impact of multiple representation. Question #30: Which of the following is a salesperson's responsibility regarding multiple representation? There are four options. There is only one correct answer.

1

A salesperson should explain the potential for multiple representation and how it alters the services and information provided by the brokerage. This information should first be provided prior to a seller or buyer signing an agreement with the brokerage and once again to sellers and buyers when it appears that there is a potential for them to become involved in a multiple representation situation.

2

A salesperson should explain the potential for multiple representation and how it alters the services and information provided by the brokerage. This information should first be provided prior to a seller or buyer signing an agreement with the brokerage and once again after a buyer client has signed an offer but before a seller client accepts the offer.

3

A salesperson should explain the potential for multiple representation and how it alters the services and information provided by the brokerage. This information should first be provided after a seller and buyer have signed a representation agreement and once again to sellers and buyers when it appears that there is a potential for them to become involved in a multiple representation situation.

4

A salesperson should explain the potential for multiple representation and how it alters the services and information provided by the brokerage. This information should first be provided after a seller and buyer have signed a representation agreement and once again after a buyer client has signed an offer but before a seller client accepts the offer.

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Lesson 3 | Page 21 of 46

A salesperson has responsibilities to ensure a client understands the impact of multiple representation. Question #31: Which of the following is a salesperson's responsibility regarding multiple representation? There are four options. There is only one correct answer.

1

A salesperson must obtain written consent before an offer is made for the brokerage to operate under multiple representation.

2

A salesperson must obtain verbal consent before an offer is made for the brokerage to operate under multiple representation.

3

A salesperson must obtain written consent at the time an offer is made for the brokerage to operate under multiple representation.

4

A salesperson must obtain verbal consent at the time an offer is made for the brokerage to operate under multiple representation.

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Lesson 3 | Page 22 of 46

Before any offer is made, there are various matters that must be addressed and documented by a brokerage, including: single representation, multiple representation, customer service and remuneration involving a cooperating brokerage. A brokerage must obtain written consent to operate under multiple representation.

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Lesson 3 | Page 23 of 46

Confirm Representation and Remuneration Obligations of a Seller and a Buyer Documenting representation, multiple representation, customer service and remuneration involving a co-operating brokerage are done prior to the signing or presentation of an offer. All agreements requiring signature must be reduced to writing, and the parties would sign to acknowledge the information documented, although obtaining the seller’s or buyer’s signature on a representation or customer service agreement is not mandatory. Providing written confirmation of this pertinent information ensures all parties clearly understand the relationship between each party and each brokerage, the remuneration obligations of the seller and the buyer, and the remuneration payable to the co-operating brokerage. The signatories include the seller(s), the buyer(s), the listing brokerage, and when applicable, the co-operating brokerage. Documenting this information is required before any offer, therefore it is typically the buyer’s salesperson who would prepare and complete a form with the buyer and include it with the offer. The seller would review the document and typically sign indicating they have received, read and understood the information prior to reviewing the buyer’s offer. In instances where multiple representation does occur during an offer process, the Act does require that all parties provide their consent in writing to multiple representation. If they do not consent in writing, the brokerage must remove itself from its representation of one of the parties. The information provided before entering into any agreement with a consumer varies: Category 1: Listing Brokerage (Explains the relationship of the listing brokerage to the parties) The listing brokerage is required to document that they: • Represent the seller and: a) Do not represent or provide customer service to the buyer OR b) Do provide customer service to the buyer If the listing brokerage is operating under multiple representation, the disclosure would include: • That they represent the seller and the buyer with their consent • The limitations to the services being provided Exam Study Guide

Category 2: Buyer Brokerage (Explains the relationship of the brokerage to a buyer and remuneration obligations when purchasing a property not listed with a brokerage (i.e., a private for sale)) The buyer's brokerage is required to document that they: • Represent the buyer OR • Do not represent the buyer Payment of remuneration is agreed to as: • By the seller OR • By the buyer Buyer Customer Service Agreement versus Buyer Representation Agreement remuneration obligations: • In a Buyer Customer Service Agreement, there is no requirement for the buyer to pay the brokerage compensation for the customer service provided by the brokerage, unless otherwise agreed to in writing • A Buyer Representation Agreement can obligate a buyer to pay directly to a buyer brokerage any deficiency between what is paid to the brokerage by a seller or pay the brokerage the full amount of remuneration indicated in the agreement Category 3: Co-operating Brokerage (Explains the relationship of the co-operating brokerage to the parties) The co-operating brokerage is required to document that they: • Represent the buyer OR • Provide customer service to the buyer OR • Do not represent or provide customer service to the buyer Payment of remuneration is agreed to as: Exam Study Guide

• Indicated in the listing information for the property OR • Specifically described in the agreement

Exam Study Guide

Lesson 3 | Page 24 of 46

CREA WEBForms

As a reminder, not all registrants choose to be a member of OREA, the forms and clauses provided by OREA are commonly used in trading. This module will reference the OREA forms and clauses for illustrative purposes only. Images of the OREA form and clauses are included with permission from OREA. One benefit of membership in the Canadian Association of REALTORS® is access to CREA WEBForms®, a complete document and transaction management solution. CREA WEBForms® is included as part of your membership benefits without any added cost. CREA WEBForms® allows you to manage all your real estate documents in one centralized location with unlimited storage. A seamless integration with your board or association, guarantees access to the latest forms and automatically populates them with relevant MLS® data. You are able to go paperless from contract to close because CREA WEBForms® provides access to all your forms and documents from any device, anywhere. CREA WEBForms® also provides integrations with industry-leading e-signature applications. CREA WEBForms® contains a new built-in wizard that walks you through your transactions. In addition, in-depth training videos and tools will ensure that you are able to take full advantage of CREA WEBForms®.

Exam Study Guide

Lesson 3 | Page 25 of 46

Confirm Co-operation and Representation for Single Representation: Two Brokerages

Single representation occurs where the listing brokerage represents the seller and a co-operating brokerage represents the buyer. In this scenario, both the seller and buyer are clients of their respective brokerages. This scenario does not involve any customer services from a brokerage. In addition to identifying the representation status of each brokerage, the remuneration due to the co-operating brokerage is clearly defined. This includes the amount being paid and who will pay it. The total remuneration being paid by the seller to the listing brokerage is not documented; the seller representation agreement identifies this. The listing brokerage will identify the amount of remuneration being offered to a co-operating brokerage on the document confirming co-operation and representation. When the co-operating brokerage’s remuneration is as per the listing agreement, this is identified on the document. If the co-operating brokerage is being compensated in another way, Exam Study Guide

those details would be included on the document. For example, the co-operating brokerage will be paid by the buyer rather than the seller or the co-operating brokerage is being paid by both the seller and the buyer. The remuneration terms are important for all parties to understand as this can impact the price offered or the price accepted, and factor into the net dollar considerations for a seller. For example, a co-operating brokerage who is being compensated by the buyer directly may propose to waive their share of the offered co-operating remuneration. If the seller and brokerage agree to this reduction, and amend the original listing contract terms, the total remuneration payable to the listing brokerage will be reduced by the offered co-operating remuneration amount. A brokerage has obligations to disclose any remuneration being paid, including disclosure when the brokerage is being paid by both the seller and the buyer for the same trade.

Exam Study Guide

Lesson 3 | Page 26 of 46

Single Representation – Listing Brokerage

From form 320: Confirmation of Co-operation and Representation. © 2019 Ontario Real Estate Association. All rights reserved. Used under license.

When a co-operating brokerage is drafting the Confirmation of Co-operation and Representation, they will insert the seller and buyer names and the address of the property. Under single representation, where the buyer is being represented by the co-operating brokerage, the listing brokerage will be shown as representing the interests of the seller. In this example, Imree Ana Santosh is the buyer interested in placing an offer on the property being sold by Jurgen Horst Aldridge. The property address is 5678 Main Street, Anycity, AnyRegion. Imree Santosh is represented by Maya Thom of ABC Real Estate Inc., at 3999 North Street, AnyCity, AnyRegion (Tel: 555-323-1234/Fax: 555-323-4567). Jurgen Aldridge is represented by Rita Hollis-Laga of XYZ Realty Ltd. at 1898 Central Street, AnyCity, AnyRegion (Tel: 555-5652345/Fax: 555-565-9876). Exam Study Guide

Lesson 3 | Page 27 of 46

Single Representation – Co-operating Brokerage

From form 320: Confirmation of Co-operation and Representation. © 2019 Ontario Real Estate Association. All rights reserved. Used under license.

The co-operating brokerage will confirm that they are representing the interests of the buyer and also disclose how remuneration will be paid. For example, the co-operating brokerage is paid the remuneration offered in the listing service information. Should the co-operating brokerage represent competing buyers for the property (i.e., multiple representation), this disclosure is made by inserting additional comments. In this example, Maya Thom is representing the interests of Imree Santosh. The remuneration inserted is the percentage of the selling price identified in the listing service information, which is 2.5% plus HST. Exam Study Guide

Lesson 3 | Page 28 of 46

Signing

From form 320: Confirmation of Co-operation and Representation. © 2019 Ontario Real Estate Association. All rights reserved. Used under license.

Once the seller and buyer have reviewed and agree with the information initialling is required on page 1 and signing is completed on page 2. An example of how this can be completed is shown in the given image.

Exam Study Guide

Lesson 3 | Page 29 of 46

Acknowledgement

The brokerage will obtain an acknowledgement from the seller and the buyer that they have received, read and understood the information contained within the disclosure document. An example of this acknowledgement is shown in the image.

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Lesson 3 | Page 30 of 46

Confirmation of Co-operations and Representation: Single Representation

The background shows the page 1 of OREA Form 320: Confirmation of Co-operation and Representation. Three sections are highlighted in the form. Exam Study Guide

1. The buyer’s name is Imree Ana Santosh. The seller’s name is Jurgen Honst Aldridge. For the transaction on the property known as 5678 Main Street, Anycity, AnyRegion. In this section, the names of the seller and buyer and the property in the transaction are identified. 2. Under the Listing Brokerage section, the ‘Listing Brokerage represents the interests of the Seller in this transaction. It is further understood that:’ checkbox is selected. Under this checkbox, ‘The Listing Brokerage is not representing or providing Customer Service to the Buyer. (If the Buyer is working with a Co-operating Brokerage, Section 3 is to be completed by Co-operating Brokerage)’ checkbox is selected. In this section, the listing brokerage identifies their representation status for seller and buyer. 3. The INITIALS OF BUYER(S)/SELLER(S)/BROKERAGE REPRESENTATIVE(S) (Where applicable) section is initialed by the Buyer, Co-operating/Buyer Brokerage, Seller, and Listing Brokerage. The document is reviewed first usually by the buyer and then the seller; they initial the front of the form along with their representatives to confirm the review.

Exam Study Guide

Lesson 3 | Page 31 of 46

Confirmation of Co-operation and Representation: Single Representation

The background shows the page 2 of OREA Form 320: Confirmation of Co-operation and Representation. Four sections are highlighted in the form.

Exam Study Guide

1. The ‘Co-operating Brokerage completes Section 3 and Listing Brokerage completes Section 1’ Section contains two subsections, CO-OPERATING BROKERAGE - REPRESENTATION and CO-OPERATING BROKERAGE COMMISSION. ‘The Co-operating Brokerage represents the interests of the Buyer in this transaction’ check box is selected under the CO-OPERATING BROKERAGE – REPRESENTATION subsection. In this subsection, the co- operating brokerage identifies their representation status with the buyer. 2. ‘The Listing Brokerage will pay the Co-operating Brokerage the commission as indicated in the MLS® information for the property 2.5% plus HTS (Commission As Indicated In MLS® Information) to be paid from the amount paid by the Seller to the Listing Brokerage’ check box is selected under the CO-OPERATING BROKERAGE - COMMISSION subsection. In this subsection, the co-operating brokerage identifies the remuneration to be paid. In this case, it is the percentage of the selling price according to the listing. 3. In the SIGNED BY THE BROKER/SALESPERSON REPRESENTATIVE(S) OF THE BROKERAGE(S) (Where applicable) section, Name of Co-operating/Buyer Brokerage is ABC Real Estate, Inc. 3999 North Street, AnyCity, AnyRegion. Telephone number is 555-323-1234. Fax number is 555-323-4567. Authorized to bind the Co-operating/Buyer Brokerage by Maya Thom. Date is April 24, 2019. Print Name of Broker/Salesperson Representative of the Brokerage is Maya Thom. Name of Listing Brokerage is XYZ Realty, Ltd. 1898 Central Street, AnyCity, AnyRegion. Telephone number is 555-565-2345. Fax number is 555-565-9876. Authorized to bind the Cooperating/Buyer Brokerage by RHollis-Laga. Date is April 24, 2019. Print Name of Broker/Salesperson Representative of the Brokerage is Rita Hollis-Laga. In this section, each brokerages’ information is provided along with the signatures of the salespersons. 4. In the ACKNOWLEDGEMENT section, Signature of Buyer is Imree Santosh. Date is April 24, 2019. Signature of Seller is Jurgen H Aldridge. Date is April 24, 2019. In this section, the brokerages will obtain the acknowledgement from the seller and buyer that they have received and understand the information within this disclosure document.

Exam Study Guide

Lesson 3 | Page 32 of 46

A buyer is about to make an offer on a seller’s property. Documenting, disclosing and acknowledging the relationships and the remuneration obligations that the seller and buyer have with the brokerage or brokerages is important. Question #32: Which of the following could be correct in terms of the types of relationships that might be documented and disclosed to a buyer, seller, brokerage or brokerages in a particular transaction prior to an offer being made? There are six options. There are multiple correct answers. 1

The listing brokerage might be representing the seller and providing customer service to the buyer

2

A co-operating brokerage might be representing the buyer

3

The buyer brokerage might be representing both the seller and buyer

4

The listing brokerage might be representing both the seller and the buyer

5

The co-operating brokerage might be providing customer service to the buyer

6

The co-operating brokerage might be providing customer service to the seller

Exam Study Guide

Lesson 3 | Page 33 of 46

Confirm Co-operation and Representation of Seller and Buyer Under Multiple Representation

Written consent is required from both the seller and the buyer when the listing brokerage is operating under multiple representation. The disclosure requirements will also provide the seller and the buyer with information on how multiple representation impacts the brokerage’s obligations for disclosure. The next screens provide an example of how the disclosures for multiple representation are made and written consent is obtained. All other information on the document is completed as previously identified. In this example, Lincoln Dan Post is the buyer interested in placing an offer on the property being sold by Yasmin Alia Muflatte and Piet Duroche Muflatte. The property address is 4321 Anystreet, North Anytown, AnyRegion. Lincoln Post is represented by Santi Rhodes of ABC Real Estate Inc. at 456 East Street, North Anytown, AnyRegion (Tel: 555- 3214321/Fax: 555-323-3456). The sellers, Yasmin and Piet Muflatte are also represented by Santi Rhodes of ABC Real Estate Inc. Exam Study Guide

Lesson 3 | Page 34 of 46

Disclose Multiple Representation

From form 320: Confirmation of Co-operation and Representation. © 2019 Ontario Real Estate Association. All rights reserved. Used under license.

The listing brokerage discloses they represent both the seller and the buyer under multiple representation. The limitations to the brokerage’s disclosure requirements are identified to help ensure the seller and buyer understand how multiple representation impacts the brokerage’s obligations prior to providing their consent. Exam Study Guide

Lesson 3 | Page 35 of 46

Seller and Buyer Consent

From form 320: Confirmation of Co-operation and Representation. © 2019 Ontario Real Estate Association. All rights reserved. Used under license.

The seller and the buyer initial their consent in the appropriate location on the form which allows the brokerage to operate under multiple representation. If a party does not consent, the offer cannot proceed and one of the parties must be released to seek representation from another brokerage.

Exam Study Guide

Lesson 3 | Page 36 of 46

Initials and Signing

From form 320: Confirmation of Co-operation and Representation. © 2019 Ontario Real Estate Association. All rights reserved. Used under license.

Under multiple representation, only the listing brokerage is involved. As offers typically begin with a buyer, Santi Rhodes creates the document and initials pages 1 and 2 on behalf of the listing brokerage. The buyer initials and signs the form before signing the offer. Santi Rhodes will review the form with the sellers and have them initial and sign before presenting the offer to them. Only the listing brokerage’s details are provided on page 2.

Exam Study Guide

Lesson 3 | Page 37 of 46

Confirmation of Co-operation and Representation: Multiple Representation

The background shows the page 1 of OREA Form 320: Confirmation of Co-operation and Representation. Three sections are highlighted in the form. Exam Study Guide

1. The buyer’s name is Lincoln Dan Post. The seller’s name is Yasmin Alia Muflatte and Plot Duroche Muflatte. For the transaction on the property known as 4321 Anystreet, North Anytown, AnyRegion. In this section, the names of the seller and buyer and the property in the transaction are identified. 2. Under the Listing Brokerage section, the ‘Multiple Representation’ checkbox is selected. It states that the Listing Brokerage has entered into a Buyer Representation Agreement with the Buyer and represents the interests of the Seller and the Buyer, with their consent, for this transaction. The Listing Brokerage must be impartial and equally protect the interests of the Seller and the Buyer in this transaction. The Listing Brokerage has a duty of full disclosure to both the Seller and the Buyer, including a requirement to disclose all factual information about the property known to the Listing Brokerage. However, the Listing Brokerage shall not disclose: • That the Seller may or will accept less than the listed price, unless otherwise instructed in writing by the Seller; • That the Buyer may or will pay more than the offered price, unless otherwise instructed in writing by the Buyer; • The motivation of or personal information about the Seller or Buyer, unless otherwise instructed in writing by the party to which the information applies, or unless failure to disclose would constitute fraudulent, unlawful or unethical practice; • The price the Buyer should offer or the price the Seller should accept; • And, the Listing Brokerage shall not disclose to the Buyer the terms of any other offer. However, it is understood that factual market information about comparable properties and information known to the Listing Brokerage concerning potential uses for the property will be disclosed to both Seller and Buyer to assist them to come to their own conclusions. In this section, the listing brokerage identifies their multiple representation status for seller and buyer. 3. The INITIALS OF BUYER(S)/SELLER(S)/BROKERAGE REPRESENTATIVE(S) (Where applicable) section is initialed by the Buyer, Seller, and Listing Brokerage. When the document is reviewed first by the buyer and then the seller, they initial the front of the form along with their representative to confirm their review.

Exam Study Guide

Lesson 3 | Page 38 of 46

Confirmation of Co-operation and Representation: Multiple Representation

The background shows the page 2 of OREA Form 320: Confirmation of Co-operation and Representation. Three sections are highlighted in the form. Exam Study Guide

1. In the SIGNED BY THE BROKER/SALESPERSON REPRESENTATIVE(S) OF THE BROKERAGE(S) (Where applicable) section, Name of Co-operating/Buyer Brokerage field is blank. Telephone number field is blank. Fax number field is blank. Authorized to bind the Co-operating/Buyer Brokerage field is blank. Date field is blank. Print Name of Broker/Salesperson Representative of the Brokerage field is blank. Name of Listing Brokerage is ABC Real Estate, Inc. 456 East Street, North Anytown, AnyRegion. Telephone number is 555-321-4321. Fax number is 555-323-3456. Authorized to bind the Co-operating/Buyer Brokerage by Santi Rhodes. Date is April 10, 2019. Print Name of Broker/Salesperson Representative of the Brokerage is Santi Rhodes. In this section, the listing brokerages’ information is provided along with the signature of the salesperson. 2. The CONSENT FOR MULTIPLE REPRESENTATION (To be completed only if the Brokerage represents more than one client for the transaction) section is initialed by the Buyer and Seller. In this section, the seller and buyer must provide written consent here for multiple representation. If consent is not provided, the offer cannot be presented and one or both of the parties must seek representation elsewhere. 3. In the ACKNOWLEDGEMENT section, Signature of Buyer is Lincoln Post. Date is April 10, 2019. Signatures of Seller are Pist Muflatte and Yasmin Muflatte. Date is April 10, 2019. In this section, the brokerage will obtain the acknowledgement from the seller and buyer that they have received and understand the information within this disclosure document.

Exam Study Guide

Lesson 3 | Page 39 of 46

A brokerage is representing both a seller and a buyer. The buyer wishes to put in an offer on the seller’s property. The relationships that the brokerage has with the seller and buyer has to be disclosed to both parties. Question #33: What information would be shown in a document disclosing the relationships? There are six options. There are multiple correct answers.

1

Multiple Representation: The listing brokerage has a representation agreement with the buyer and represents the best interests of both seller and buyer

2

The co-operating brokerage represents the buyer

3

The limitations to the services being provided as a result of the multiple representation

4

The listing brokerage does not represent or provide customer service to the buyer

5

The remuneration the co-operating brokerage will be paid

6

Consent for multiple representation- seller and buyer initial their consent

Exam Study Guide

Lesson 3 | Page 40 of 46

Confirm Representation Status and Remuneration Obligations - When the Seller or the Buyer Is a Customer

Within a transaction, a seller or a buyer could be provided customer service from a brokerage rather than be represented as a client. Under these situations, a brokerage will disclose the relationship status and any remuneration agreements. The next screens provide an example of how the disclosures would be made under various scenarios of providing customer service.

Exam Study Guide

Lesson 3 | Page 41 of 46

Listing Brokerage: Providing Customer Service to Buyer

From form 320: Confirmation of Co-operation and Representation. © 2019 Ontario Real Estate Association. All rights reserved. Used under license.

Where a listing brokerage is representing a seller and providing customer service to the buyer, the disclosure of these relationships would be documented as shown in the given image.

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Lesson 3 | Page 42 of 46

Co-operating Brokerage: Providing Customer Service to a Buyer

From form 320: Confirmation of Co-operation and Representation. © 2019 Ontario Real Estate Association. All rights reserved. Used under license.

Where a co-operating brokerage is providing customer service to a buyer, the disclosure of this relationship would be documented as shown in the image. In this instance, remuneration being paid to the co-operating brokerage is generally identified as indicated in the listing information, as a buyer customer service agreement does not typically require a buyer to pay remuneration. Exam Study Guide

Lesson 3 | Page 43 of 46

Property Sold By Buyer Brokerage - Property Not Listed

From form 320: Confirmation of Co-operation and Representation. © 2019 Ontario Real Estate Association. All rights reserved. Used under license.

In situations where the seller has not listed the property for sale with a brokerage (i.e., a private for sale), and the buyer’s brokerage is preparing an offer, the disclosure of the brokerage’s relationships would be documented as shown in the image. Prior to drafting an offer, the remuneration obligations of the seller and the buyer would be documented under a separate agreement. In this example, the remuneration being paid to the brokerage is documented in a Seller Customer Service Agreement.

Exam Study Guide

Lesson 3 | Page 44 of 46

Providing customer service in a trade requires the same confirmation of representation and remuneration obligations as those provided to clients. Customers, while not owed fiduciary duties must be dealt with honestly and with integrity. Question #34: If a brokerage were representing a seller and providing customer service to a buyer who wanted to put in an offer on the seller’s property, what information would be shown in a document disclosing representation, co-operation and remuneration. There are six options. There are multiple correct answers. 1

The listing brokerage represents the seller

2

The co-operating brokerage represents the buyer

3

The co-operating brokerage is providing customer service to the buyer

4

The listing brokerage does not represent or provide customer service to the buyer

5

The remuneration that the co-operating brokerage will be paid

6

The listing brokerage is providing customer service to the buyer

Exam Study Guide

Lesson 3 | Page 45 of 46

Leading Practices for Multiple Representation Situations Multiple representation places the brokerage, the seller, and the buyer in a situation where opposing interests can be the core of the negotiations. The key to successfully operating in a multiple representation situation is to ensure the brokerage and all salespeople act in an impartial manner, to best protect the interests of multiple clients. To assist in complying with the requirements under REBBA, the given leading practices should be incorporated into your day-to-day business practices. The following five sections contain information on leading practices that can help you incorporate compliance with the requirements under REBBA into your day-to-day activities.

Impartiality while maintaining fairness, honesty, and integrity

As a salesperson, this is the foundation for all of your actions. Every person involved in a trade must be treated fairly, honestly, and with integrity. This goes beyond the seller and buyer. This extends to all persons, such as an appraiser, lender, property inspector, etc. When a brokerage is operating under multiple representation, the potential for misunderstandings or confusion regarding the obligations of the brokerage could occur. Ensuring the brokerage is impartial while maintaining fairness, honesty, and integrity throughout the transaction is a leading practice to successfully work with sellers and buyers under these situations. Leading Practice: There are many opportunities to discuss, explain, and demonstrate how the brokerage’s obligations will be altered when representing more than one client in the same trade. As a salesperson, use these opportunities to ensure the seller or buyer understands the limitations to the services and the information that may not be disclosed. As you complete various activities throughout the transaction, inform the parties of the reason for the action and how it fits within the limitations imposed with multiple representation. This approach to openness provides transparency in a transaction, and is especially relevant when a brokerage is operating under multiple representation. Exam Study Guide

Disclosure before entering into an agreement

Entering into an agreement with a seller or a buyer to represent them in a transaction can occur intentionally or by accident. Creating a client relationship can unintentionally occur based on the words and actions of the parties. A seller or buyer could, by the words or actions of a salesperson, believe they are being represented. Documenting this relationship in a seller or buyer representation agreement could occur at a much later time. Leading Practice: To ensure a seller or a buyer is fully informed prior to creating a client relationship, limit your interactions with the party until sufficient time is allocated to discussing and detailing the service alternatives, the services a brokerage would provide, and the limitations to those services when operating under multiple representation. The brokerage’s proposal to work under multiple representation should be clearly understood by a seller or buyer in advance of any actual situations occurring. If a client relationship has already been established through the words and actions of the salesperson, the opportunity for customer service is no longer available.

Disclosure when entering into a representation agreement

After fully explaining the service alternatives available, the services the brokerage will provide, and the limitations when operating under multiple representation, a brokerage should document the relationship chosen by the seller or the buyer. Leading Practice: If the relationship chosen is one where the brokerage is representing the seller or the buyer, documenting this relationship early will help avoid any misunderstandings or confusion. This is an opportunity to reinforce the limitations to the brokerage’s services and obligations for disclosure of information, while also reminding the party the brokerage is not permitted to operate under multiple representation unless all clients for the trade consent in writing.

Exam Study Guide

Nature of relationship and consent for multiple representation

A brokerage is required to disclose the nature of their relationship if more than one seller or buyer is being represented or provided services for the same trade. A brokerage is also required to obtain written consent for multiple representation. These disclosures are required at the earliest opportunity and at all times before an offer is made. Leading Practice: When the potential for multiple representation occurs during the listing and selling activities, use this as an opportunity to reinforce the information previously provided. As there could be many weeks or months pass between the initial discussions, a seller or buyer might be concerned or confused over the brokerage’s obligations pertaining to multiple representation. When the seller or the buyer have remained fully informed, asking for their consent to operate under multiple representation is a natural aspect of the offer process.

Requirements if consent is not obtained

When consent for a brokerage to operate under multiple representation is not given by a seller or a buyer, a brokerage may not proceed with the offer. As consent must be obtained from all clients in the trade. The brokerage is required to release one or more of its clients to seek alternate representation with another brokerage. Leading Practice: When properly explained, a seller or buyer typically enter into a representation agreement with the intent to provide consent for multiple representation. When consent is not received, a salesperson should understand that certain events or circumstances occurring during the listing and selling period may have impacted this decision. An open and detailed discussion to address the specific concerns should be undertaken to ensure the decision is based on a full understanding of the limitations of the brokerage. Rather than place a seller or a buyer in an uncomfortable or detrimental position, provide an opportunity for them to seek representation with another brokerage.

Exam Study Guide

Lesson 3 | Page 46 of 46

Congratulations, you have completed the lesson! There are six sections on this page with a summary of the key topics that were covered in this lesson.

Multiple representation scenarios

Multiple representation can occur in the offer process when a seller and buyer, or when two competing buyers, are represented in the same transaction by the same brokerage.

Limitations to client services under multiple representation

Prior to entering into a representation agreement, REBBA requires the brokerage to provide a seller or buyer with the given information: • The services the brokerage will provide to each client if the brokerage represents more than one client for the same trade. • Any differences in the sharing of information with the seller or buyer. This includes Information the brokerage will NOT disclose unless otherwise instructed in writing by the seller or buyer to do so, and services they will NOT perform.

Disclosure obligations under REBBA regarding multiple representation

Disclosure regarding multiple representation takes place in two stages: before a representation agreement is signed and before an offer is made.

Disclosure and written consent requirements for multiple representation

To comply with the requirements under REBBA, disclosure regarding multiple representation involves at minimum, two steps: 1. Disclosure before agreement - Before entering into a representation agreement, the brokerage must disclose the possibility of multiple representation and inform the client that they must consent in writing before an offer is submitted or presented. 2. Disclosure before offer - Before any offer is made, the seller and buyer must consent in writing to work under multiple representation. Exam Study Guide

Confirmation of representation status and remuneration obligations of a seller and buyer

Before signing or presenting an offer, the relationship of the brokerage to seller and buyer must be explained in writing and signed by all parties as acknowledgement. This confirmation practice helps ensure all parties understand who is being represented by whom, the remuneration obligations of the seller and the buyer, and the remuneration payable to the co-operating brokerage. The signatories include the seller(s), the buyer(s), the listing brokerage, and when applicable, the co-operating brokerage or buyer brokerage. Documenting this information is required before any offer, therefore it is typically the buyer’s salesperson who would complete a form with the buyer and include it with the offer. The seller would receive and review the document and sign indicating their acknowledgement of the information prior to reviewing the buyer’s offer.

Leading practices of a Every person involved in a trade must be treated fairly, honestly, and with integrity. To salesperson regarding provide transparency throughout a transaction, inform the parties of the reason for multiple representation each action and how it fits within the limitations imposed with multiple representation.

The brokerage’s proposal to work under multiple representation should be clearly understood by a seller or buyer in advance of any actual situations occurring. If the brokerage is representing the seller or the buyer, documenting this relationship early will help avoid any misunderstandings or confusion. A brokerage is required to disclose the nature of their relationship if more than one seller or buyer is being represented or provided services for the same trade. A brokerage is also required to obtain written consent for multiple representation. A brokerage may not proceed with an offer if consent to operate under multiple representation is not given by a seller or a buyer.

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Lesson 4 | Page 1 of 5

Lesson 4: Summary Practice Activities

You will practice how to complete the offer process using an example from a real-life scenario.

Exam Study Guide

Lesson 4 | Page 2 of 5

This lesson provides a scenario for details to be filled in the form, and other concerns on each page of the OREA Form 320: Confirmation of Co-operation and Representation.

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Lesson 4 | Page 3 of 5

Scenario Intro: Multiple Representation

Fernando Kumara was looking for an investment property. He wanted to purchase a property that was in the vicinity of the two universities and within walking distance of downtown. He was represented by Analyn Santosh who worked very hard to find suitable properties. After looking at many properties, Fernando finally decided to place an offer on the property at 43 North Street, Anytown, AnyRegion. The property was being sold by Vin Dao Tran and Karen Li Tran who were also represented by Analyn Santosh. Analyn is a salesperson with XYZ Realty Ltd., at 46 Centre Road, Anytown, Any Region (Tel: 555-333-4221 or Fax: 555-323-5656). Analyn ensured both seller and buyer completely understood the ramifications of working under multiple representation. Before the offer was presented, she disclosed to both the seller and buyer the limitations to services and information shared under multiple representation and received their consent in writing on April 24, 2019. Analyn documented the brokerage relationship and the consent from seller and buyer using OREA form 320: Confirmation of Co-operation and Representation. Exam Study Guide

Lesson 4 | Page 4 of 5

Analyn and the seller and buyer have completed the OREA Form 320: Confirmation of Co-operation and Representation. The details for Section 1 of the form are as follows: • Buyer is Fernando Kumara. • Sellers are Vin Dao Tran and Karen Li Tran. • For the transaction on the property known as 43 North Street, Anytown, AnyRegion. This is the address of the property. The details for Section 2 of the form are as follows: • The following checkboxes are not selected as these fields are not completed for identifying multiple representation. The listing brokerage represents the interests of both seller and buyer under multiple representation. • The listing brokerage represents the interests of the Seller in this transaction. It is further understood and agreed that: 1. The Listing Brokerage is not representing or providing Customer Service to the Buyer (If the Buyer is working with a Co-operating Brokerage, Section 3 is to be completed by Co-operating Brokerage). 2. The Listing Brokerage is providing Customer Service to the Buyer. • The checkbox for multiple representation is selected. The listing brokerage identifies they represent both the seller and the buyer under multiple representation. The limitations to the brokerage’s disclosure requirements are identified to help ensure the seller and buyer understand how multiple representation impacts the brokerage’s obligations. • The field for additional comments and/or disclosures by Listing Brokerage is left blank. This filed is not required for this scenario. There are no additional disclosures. The details for Section 3 of the form are as follows: • The following checkboxes are not selected as this section does not pertain to multiple representation. This section pertains to a property that is not listed with a brokerage and documents the disclosure of the relationship of the buyer’s brokerage and any remuneration obligations. Exam Study Guide

1. The Brokerage does/does not represent the Buyer and the property is not listed with any real estate brokerage. The Brokerage will be paid 2. By the Seller in accordance with a Seller Customer Service Agreement 3. Or by the Buyer directly • In the initials of buyer(s)/seller(s)/brokerage representative(s) section, the initials of buyer are FK, the field for initials of co-operating/buyer brokerage is left blank, the initials of seller are VDT KLT, and the initials of listing brokerage are AS. Once the seller and buyer have reviewed and agree with the information, they initial page 1. Under multiple representation, only the listing brokerage is identified. Analyn Santosh can initial on behalf of her brokerage as its representative. The details for Section 4 of the form are as follows: • The following checkboxes are not selected as these sections do not pertain to this multiple representation situation. There is no co-operating brokerage involved. 1. The Co-operating Brokerage represents the interests of the Buyer in this transaction. 2. The Co-operating Brokerage is providing Customer Service to the Buyer in this transaction. 3. The Co-operating Brokerage is not representing the Buyer and has not entered into an agreement to provide customer service(s) to the Buyer. 4. The Listing Brokerage will pay the Co-operating Brokerage the commission as indicated in the MLS information for the property, to be paid from the amount paid by the Seller to the Listing Brokerage. 5. The Co-operating Brokerage will be paid as, followed by a field to enter the information. The details for Section 5 of the form are as follows: • The section where the name of co-operating/buyer brokerage is to be added is left blank. Under multiple representation, there is no co-operating brokerage. • Name of Listing Brokerage is XYZ Realty Ltd and address is 46 Centre Road, Anytown, AnyRegion; telephone number is 555-333-4221; and fax number is 555-323-5656. • Analyn Santosh is entered in the “Authorized to bind the Listing Brokerage” field; date is April 24, 2019; and print name of Broker/Salesperson Representative of the Brokerage is Analyn Santosh. The salesperson for the listing brokerage signs and dates the form and prints their name below. Exam Study Guide

• Buyer's initials are FK, and seller's initials are VDT KLT. The seller and the buyer initial their consent in this section on the form which allows the brokerage to operate under multiple representation. If a party does not consent, the offer cannot proceed and one of the parties must be released to seek representation from another brokerage. • Signature of buyer is Fernando Kumara, April 24, 2019; signatures of sellers are Vin Dao Tran, April 24, 2019 and Karen Li Tran, April 24, 2019. The brokerage obtains an acknowledgement from the seller and the buyer that they have received, read and understood the information contained within the disclosure document.

Exam Study Guide

Lesson 4 | Page 5 of 5

Congratulations, you have completed the lesson!

Exam Study Guide

Module Summary | Page 1 of 3

Module Summary

You will see a summary of concepts from the entire module.

Exam Study Guide

Module Summary | Page 2 of 3

Congratulations, you have completed this module!

This lesson will present a summary of Learning Objectives.

Exam Study Guide

Module Summary | Page 3 of 3

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

The offer process

An agreement of purchase and sale documents the terms and conditions involved in a real estate transaction between the seller and buyer. From a buyer’s perspective, the offer process consists of working with a salesperson to complete five steps from initiating the offer to awaiting the seller’s response to the offer. Once the offer is presented, either electronically or in person, the seller has the irrevocable time period to decide what they will do with the offer. From a seller’s perspective, the offer process consists of working with a salesperson to complete six steps from arranging an offer presentation time to negotiating the offer. As the final step in the process, the seller has four options: accept the offer, reject the offer, make a counter offer or if there are multiple offers, a seller may elect to send all or some of the offers back for improvement. The offer acceptance process consists of six steps from accepting the offer to forwarding a copy of the completed agreement to the buyer. During the acceptance process, the parties involved must sign and date specific parts of the agreement. Once the agreement is completed, each party receives signed copies, which may be paper-based or electronic. Completion of this lesson has enabled you to: • List the key components of an agreement of purchase and sale • Identify and explain a typical offer process from the buyer's perspective • Identify and explain a typical offer process from the seller's perspective • Describe the steps for presentation and acceptance of an offer

Exam Study Guide

Deposits and other REBBA criteria

REBBA requires a brokerage to deposit money it receives in trust into a designated trust account within five business days of receipt. A buyer’s deposit held by a brokerage in their real estate trust account is protected under the RECO insurance program. To ensure funds are handled properly, RECO requires a buyer’s deposit to be documented. REBBA requires a brokerage to fully disclose to persons depositing trust money the terms on which the money is deposited such as whether the account bears interest and the rate of interest paid. Buyers may choose to provide a deposit using an electronic funds transfer (EFT). A brokerage must retain a proper audit trail for each transfer in and out of their bank accounts. A brokerage may only disburse a deposit from their real estate trust account in accordance with the terms of the trust. When a transaction has failed, the proper course of action is by mutual consent of the seller and buyer or by court order. According to REBBA, offers to purchase real estate must be in writing and signed by the party making the offer. As a salesperson, you are required to convey an offer at the earliest opportunity. All offers will identify the irrevocable time period for which the offer is open for acceptance. Once an offer is accepted, signed copies of the agreement must be provided at the earliest opportunity to every party to the agreement. Completion of this lesson has enabled you to: • Identify the requirements under REBBA regarding deposits • Describe additional considerations regarding deposits • Identify the requirements of a salesperson under REBBA regarding activities associated with an offer

Exam Study Guide

The impact of multiple representation

Multiple representation can occur in the offer process when a seller and buyer, or when two competing buyers, are represented in the same transaction by the same brokerage. Prior to entering into a representation agreement, REBBA requires the brokerage to provide a seller or buyer with the information regarding the services provided to each client and how they differ under multiple representation. Disclosure about multiple representation takes place in two stages: before a representation agreement is signed and before an offer is made. To comply with REBBA requirements, the disclosure prior to an offer must be in writing, confirmed and signed by the seller and buyer. Leading practices for a salesperson in a multiple representation situation involve treating people fairly, being transparent regarding the obligations of the brokerage throughout a transaction, keeping parties informed about each action, and following the requirements set by REBBA for disclosure of relationships, documentation, and obtaining consent of the seller and buyer. Completion of this lesson has enabled you to: • Identify different scenarios where a brokerage is working under multiple representation • Identify the limitations to services provided to a client under multiple representation • Identify a salesperson’s disclosure obligations under REBBA regarding multiple representation • Identify the requirements to disclose and obtain written consent for multiple representation • Explain how to complete a document to confirm the representation status and remuneration obligations of a seller and a buyer • Identify leading practices of a salesperson regarding multiple representation

Exam Study Guide

Appendix | Page 1 of 2

Appendix Answer Key Question #1: 1, 3, 4 Question #2: 1 Question #3: 2 Question #4: 1 Question #5: 1 Question #6: 1 Question #7: 2 Question #8: 1 Question #9: 6, 7 Question #10: 1, 2, 3, 5 Question #11: 2, 5 Question #12: 3 Question #13: 2 Question #14: 1 Question #15: 1 Question #16: 1, 2 Question #17: 2, 4 Question #18: 1, 3, 5 Question #19: 1, 4 Question #20: 1, 4 Question #21: 1 Question #22: 2

Exam Study Guide

Appendix | Page 2 of 2 Question #23: 2 Question #24: 1 Question #25: 1, 3, 4, 6 Question #26: 3 Question #27: 1 Question #28: 1, 4, 5 Question #29: 1 Question #30: 1 Question #31: 1 Question #32: 1, 2, 4, 5 Question #33: 1, 3, 6 Question #34: 1, 6

Exam Study Guide

Module: Completing a Residential Agreement of Purchase and Sale, Countering an Offer, and Working with Competing Offers This is a study guide to help you prepare for the qualifying exam. There are multiple study guides that are provided for preparation. Each study guide contains several decision points to test your knowledge. The answer key to these decision points is present in the “Appendix” section at the end of the guide. Please use Adobe Acrobat Reader (Recommended version 9 or above) to navigate through this PDF. Real Estate Pre-Registration 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 Pre-Registration Program learner.

Exam Study Guide

Module: Completing a Residential Agreement of Purchase and Sale, Countering an Offer, and Working with Competing Offers

This module continues with drafting an offer and begins by completing an agreement of purchase and sale that includes conditions. The module then advances the offer process to situations where a buyer’s offer is not accepted by the seller, but rather the seller makes an offer back to the buyer. This situation is called a counter offer and sometimes referred to as a sign back. Many real estate negotiations will include one or more counter offers before an agreement is reached between the seller and buyer. The module will also identify the typical changes made during counter offer situations. In a seller’s market, the supply of available properties is less than the demand. Therefore, several buyers can be competing for the same property, which is referred to as a competing offer scenario. There are requirements under REBBA relating to these situations. To ensure ethical practices when dealing with competing offers, you will need to be familiar with and follow the requirements specified by the Code of Ethics. As with any negotiation, there can be risks associated with submitting or accepting an offer. Under typical market conditions, both sellers and buyers will include terms and conditions to help mitigate these risks. However, in a competing offer scenario, there can be additional risks when terms and conditions are not included in an attempt to make an offer more desirable. The module will also detail these risks, strategies for handling competing offers, and leading practices when working with sellers and buyers in a competing offer situation. By the end of the module, you will have a foundation for completing counter offers and competing offers. This module covers the following tasks and related information: Exam Study Guide

• Complete an Agreement of Purchase and Sale with Conditions • Complete a Counter Offer • Work with Competing Offers This module also provides opportunities for you to review scenarios that highlight how to discuss and act accordingly when faced with the previously listed topics.

Exam Study Guide

Module: Completing a Residential Agreement of Purchase and Sale, Countering an Offer, and Working with Competing Offers Number of Lessons Lesson Number

5 Lessons Lesson Name

Lesson 1

Complete an Agreement of Purchase and Sale with Conditions

Lesson 2

Complete a Counter Offer

Lesson 3

Work with Competing Offers

Lesson 4

Summary Practice Module Summary Appendix

Exam Study Guide

Lesson 1 | Page 1 of 40

Lesson 1: Complete an Agreement of Purchase and Sale with Conditions

This lesson covers drafting an offer with conditions using a scenario. You will gain practice using clauses and learn how to stack conditions.

Exam Study Guide

Lesson 1 | Page 2 of 40

This lesson gives you practice working with a scenario to identify and draft clauses to include on an offer’s schedule. Upon completion of this lesson, you will be able to: • Identify the steps required to draft an offer that includes conditions • Draft an offer that includes conditions and other clauses • Consolidate, or “stack” conditions to simplify the clause wording on an offer Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

Exam Study Guide

Lesson 1 | Page 3 of 40

Information to Identify in an Offer Plan Related to Conditions

When you have an offer that includes conditions, you will need to identify the following additional information: • Required Dates (Step 2 of the offer plan) To ensure dates align, you will need to identify key dates when drafting an offer. The offer plan should itemize these five dates in the following chronological order: • Offer date • Irrevocable • Expiry of conditions – conditional date • Requisition – title search date • Completion or closing date Note: The order of these dates does not follow the order on the agreement of purchase and sale. Using this chronological order will help you to determine when different activities must occur for the transaction to be Exam Study Guide

successful. • Required Clauses (Step 3 of the offer plan) For Schedule A, which is part of every offer, you will need to itemize the required clauses for the offer. A clause identifying the balance due on completion must be included in every offer. Other clauses and conditions, such as obtaining financing or a property inspection, are also added to Schedule A. To organize the clauses, use these steps as a guideline: 1. List the conditions with short timeframes, for example obtain A) financing, B) inspection, and C) insurance. These conditions can usually be fulfilled in a week. 2. For a condition with a longer period, such as D) the sale of a buyer’s property, the conditional period will be longer, for example 30 days. 3. Use one condition with the same timeframe for A, B, and C. 4. A separate condition should be used for D as the conditional period will be longer and the condition may include an escape clause. Using one date for conditions A, B, and C will simplify the process and allow you to keep better track of the dates. It will also be less cumbersome for the buyer and seller when understanding their responsibilities.

Exam Study Guide

Lesson 1 | Page 4 of 40

Guidelines for Writing Multiple Clauses For some offers, you might need to include many clauses which can require several schedules. To help you reduce the wordiness and make the terms clear and easy to understand, follow these guidelines. The following five sections contain information on each guideline.

Review Clauses

To assess the impact on pre-printed clauses and wording, carefully review the clauses you add to a schedule.

Be Precise

Avoid vague wording and be as specific and precise as possible.

Group Clauses

Where possible simplify by grouping similar requirements. For example, the buyer of a rental property might want to include a review or confirmation of the following items: • Tenant records • Rental amounts • Fire safety issues • Building code compliance You might group these items under one condition that states the property meets all these requirements.

Be Concise

Reduce wordiness and avoid vague clauses.

Redraft Offer

If necessary, redraft an offer to clarify clauses and present them in a logical sequence.

Exam Study Guide

Lesson 1 | Page 5 of 40

Stacking

Many salespersons find it efficient to consolidate, or “stack” conditions in offers. Stacking refers to a way of grouping and writing conditions that are required to be fulfilled by the same date. For example, you might stack financing, insurance, and lawyer’s approval clauses that require the same 5 to 7 days. When you include these conditions separately, they can clutter the offer making it overly long and more difficult to understand. When stacking these conditions, you use bullets to group the conditions into a block and remove wordiness to avoid repetitive language. With stacking, the party responsible for completing the conditions is clear. There’s a single fulfillment or waiver date for multiple conditions. Stacking conditions avoids repetitive language for several different clauses. Example Consider an offer that requires two conditions: a property inspection and the sale of the buyer’s property. To include these two conditions, you could write two separate clauses as follows: This Offer is conditional upon the inspection of the subject property by a home inspector at the Buyer’s own expense, and the obtaining of a report satisfactory to the Buyer in the Buyer’s sole and absolute discretion. Exam Study Guide

Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than p.m. on the day of _, 20 , that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. The Seller agrees to co-operate in providing access to the property for the purpose of this inspection. This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein. From INSP 1 – Inspection of Property by a Home Inspector—General Inspection ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

This Offer is conditional upon the sale of the Buyer’s property known as __ . Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than p.m. on the day of , 20 , that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. This condition is included for the benefit of the Buyer and maybe waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein. From SBP/SA-1 – Condition—Buyer’s Property ©2019 Ontario Real Estate Association. All rights reserved. Used under license. As an example using stacking, you can combine the two clauses already discussed and revise them. This offer is conditional upon: • The inspection of the subject property by a home inspector at the Buyer’s own expense, and the obtaining of a report satisfactory to the Buyer in the Buyer’s sole and absolute discretion. • The sale of the Buyer’s property known as 32 Cedar Crescent in City of Anycity Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than , that these conditions are fulfilled, this Offer shall be null p.m. on the day of , 20 and void and the deposit shall be returned to the Buyer in full without deduction. These conditions are included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein. Stacking clauses works in this scenario, as both conditions are for the benefit of the buyer, and both will be completed by the same date. Exam Study Guide

Lesson 1 | Page 6 of 40

When creating an offer plan, step two requires you to identify several key dates. These dates often create a deadline on which a certain action must be completed, or the requirement for that action waived. Question #1: In chronological order, offer date is the first date for an action to be waived. Identify whether the given statement is true or false. There are two options. There is only one correct answer. 1

True

2

False

Exam Study Guide

Lesson 1 | Page 7 of 40

When creating an offer plan, step two requires you to identify several key dates. These dates often create a deadline on which a certain action must be completed, or the requirement for that action waived. Question #2: In chronological order, irrevocable date is the third date on which an action will be waived. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 1 | Page 8 of 40

When creating an offer plan, step two requires you to identify several key dates. These dates often create a deadline on which a certain action must be completed, or the requirement for that action waived. Question #3: In chronological order, date of expiry of conditions is the second date on which an action will be waived. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 1 | Page 9 of 40

When creating an offer plan, step two requires you to identify several key dates. These dates often create a deadline on which a certain action must be completed, or the requirement for that action waived. Question #4: In chronological order, requisition date is the fourth date on which an action will be completed. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 1 | Page 10 of 40

When creating an offer plan, step two requires you to identify several key dates. These dates often create a deadline on which a certain action must be completed, or the requirement for that action waived. Question #5: In chronological order, completion date is the last date on which an action will be finalized. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 1 | Page 11 of 40

Following several leading practices will help you when you are adding multiple clauses to an agreement of purchase and sale. Question #6: Identify which of the given statements are correct. There are five options. There are multiple correct answers. 1

Review all clauses that you plan to add to a schedule.

2

Keep the wording of the clauses slightly vague to allow some open interpretation.

3

Group similar clauses.

4

Ensure your clauses are long and complex so the seller and buyer realize the value you bring when you interpret those clauses for them.

5

If necessary, redraft the offer.

Exam Study Guide

Lesson 1 | Page 12 of 40

Multiple Conditions You represent buyers who are looking for their dream home. The buyers want to be careful about this purchase and have a list of conditions, including a home inspection, financing, insurance, and lawyer’s review. You decide to consolidate, or stack the applicable conditions. Question #7: What are the advantages of stacking multiple conditions? There are four options. There are multiple correct answers. 1

The offer is easy to read.

2

The party responsible for completing the condition is clear.

3

There’s a single fulfillment or waiver date for multiple conditions.

4

Saves space in the agreement of purchase and sale.

Exam Study Guide

Lesson 1 | Page 13 of 40

Multiple Conditions Often, buyers want to be careful about a home purchase and have a list of conditions, including a home inspection, financing, insurance, a lawyer’s review, and more. In such cases, it often makes sense to consolidate or ‘stack’ the applicable conditions. Question #8: What should you be aware of when stacking multiple conditions? There are four options. There are multiple correct answers.

1

Include all conditions that can be completed in more or less the same timeframes as one condition.

2

Waiving one condition in a stack results in all conditions being waived.

3

Set the completion date to that of the condition with the shortest timeframe.

4

Do not include a condition in a stacked clause that requires an escape clause because the escape clause will apply to the entire stack.

Exam Study Guide

Lesson 1 | Page 14 of 40

Ella Jane Billingsworth wants you to draft an offer for 95 Wentworth Drive owned by Kristen Ellen Chartwell. Offer Details The property, 95 Wentworth Drive is located on the east side of Wentworth Drive, has a frontage of 52.37 feet and a depth of 138.45 feet and is legally described as Lot 73, Registered Plan 92M-4296, City of Anycity, Regional Municipality of Anyregion. The offered price is $468,900 with a deposit of $15,000 provided upon acceptance of the offer. The deposit is payable to the listing brokerage, ABC Real Estate Inc. The balance of the purchase price will be paid upon completion of the transaction. In addition to the deposit, Ella expects to have up to $110,000 available to put towards a down payment. Ella requires a $350,000 mortgage. Recently, when talking with her bank, she learned that she could reasonably expect to be approved for a mortgage of that size at no more than 3.5%, with a 5 year term, and amortization of 25 years. The monthly payment would amount to $1,747.45. However, since the mortgage is not confirmed, she wants to make her offer conditional on obtaining such a mortgage. Ella is requesting a property inspection by a qualified home inspector. As well, she wants to make the offer Exam Study Guide

conditional upon being able to obtain insurance on the property. Ella wants the offer to be conditional on the sale of her home at 32 Cedar Crescent in city of Anycity within 60 days, as this is expected to provide sufficient cash for her down payment. Other conditions should be fulfilled within one week of the date of acceptance of the offer. Ella understands she may have to waive the condition on the sale of her home if a competing offer is submitted pursuant to an escape clause. The offer will contain a warranty from the seller that the chattels and fixtures included in the agreement will be in good working order on completion. Ella would like assurance from the seller that the garage door will be fixed and in good working order on closing. The chattels included in the offer are the Cooksmart stove, Model 3288, the SuperiorChef refrigerator, Model 7465, and the KitchenChef microwave, Model 2000. All existing light fixtures will be included except for the dining room chandelier. The hot water tank is rented from Anycity Energy at $38.25 (plus HST) per month, and is assumable. The offer is being drafted and signed on May 15, 20xx and is irrevocable until 9:00 p.m. on May 17, 20xx. The completion date is 120 days from the offer date, on September 12. The title search date is 30 days prior to the completion date –August 13. The completion and title search dates are both business days. The HST is deemed to be included in the purchase price and the present use is single family residential. Olivia Johansson is the listing salesperson with ABC Real Estate Inc. and is representing the seller Kristen Ellen Chartwell. You are a salesperson with XYZ Realty Ltd. and are representing the buyer. Notices can be delivered to the brokerages. The listing brokerage’s fax number is 555-433-9976 and the email is [email protected]. The cooperating brokerage’s fax number is 555-233-2989 and the email is [email protected].

Exam Study Guide

Lesson 1 | Page 15 of 40

Refer to the scenario for the 95 Wentworth property. Ella Jane Billingsworth is the buyer. Question #9: On what date does the last condition expire? There are four options. There is only one correct answer.

1

May 17, 20xx

2

July 14, 20xx

3

July 16, 20xx

4

August 13, 20xx

Exam Study Guide

Lesson 1 | Page 16 of 40

Key Dates Refer to the scenario for the 95 Wentworth property. Ella Jane Billingsworth is the buyer. The scenario states several key dates. Question #10: September 12 is the completion date. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 1 | Page 17 of 40

Key Dates Refer to the scenario for the 95 Wentworth property. Ella Jane Billingsworth is the buyer. The scenario states several key dates. Question #11: The date for the expiry of the last condition is July 14. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 1 | Page 18 of 40

Key Dates Refer to the scenario for the 95 Wentworth property. Ella Jane Billingsworth is the buyer. The scenario states several key dates. Question #12: May 15 is the requisition date. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 1 | Page 19 of 40

Key Dates Refer to the scenario for the 95 Wentworth property. Ella Jane Billingsworth is the buyer. The scenario states several key dates. Question #13: August 13 is the requisition date. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 1 | Page 20 of 40

Key Dates Refer to the scenario for the 95 Wentworth property. Ella Jane Billingsworth is the buyer. The scenario states several key dates. Question #14: Expiry date for most conditions is May 17. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 1 | Page 21 of 40

Key Dates Refer to the scenario for the 95 Wentworth property. Ella Jane Billingsworth is the buyer. The scenario states several key dates. Question #15: May 22 is the irrevocable date. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 1 | Page 22 of 40

Refer to the scenario for the 95 Wentworth property. Ella Jane Billingsworth is the buyer. Question #16: You should add inspection of property by home inspector to Schedule A of the buyer’s offer. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 1 | Page 23 of 40

Refer to the scenario for the 95 Wentworth property. Ella Jane Billingsworth is the buyer. Question #17: You should not add mortgage approval to Schedule A of the buyer’s offer. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 1 | Page 24 of 40

Refer to the scenario for the 95 Wentworth property. Ella Jane Billingsworth is the buyer. Question #18: You should not add warranty to Schedule A of the buyer’s offer. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 1 | Page 25 of 40

Refer to the scenario for the 95 Wentworth property. Ella Jane Billingsworth is the buyer. Question #19: You should add insurance condition to Schedule A of the buyer’s offer. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 1 | Page 26 of 40

Refer to the scenario for the 95 Wentworth property. Ella Jane Billingsworth is the buyer. Question #20: You should add acknowledgment to Schedule A of the buyer’s offer. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 1 | Page 27 of 40

Refer to the scenario for the 95 Wentworth property. Ella Jane Billingsworth is the buyer. Question #21: You should not add condition on Environmental Site Assessment to Schedule A of the buyer’s offer. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 1 | Page 28 of 40

Refer to the scenario for the 95 Wentworth property. Ella Jane Billingsworth is the buyer. Question #22: You should add condition of sale of buyers’ property to Schedule A of the buyer’s offer. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 1 | Page 29 of 40

Refer to the scenario for the 95 Wentworth property. Ella Jane Billingsworth is the buyer. Question #23: You should not add the clause of right to revisit property prior to completion to Schedule A of the buyer’s offer. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 1 | Page 30 of 40

Refer to the scenario for the 95 Wentworth property. Ella Jane Billingsworth is the buyer. For the offer Ella Jane Billingsworth wishes to make on the property at 95 Wentworth, the following information is entered in the initial section of the offer plan and the section 1. Under the initial section: Offer Plan – Residential Real Property – Single Family: • Address is 95 Wentworth Drive, Any City, Anyregion. The address of the property is required. • Buyer is Ella Jane Billingsworth. The name of the buyer is required. • Seller is Kristen Ellen Chartwell. The name of the seller is required. Under the section 1: Summarize offer mathematics: • Offer price is $468,900. The offer price is required • Deposit is $15,000. The deposit amount is required. • To be paid upon acceptance. Identify whether the deposit is to be paid herewith, upon acceptance, or as otherwise described. • Additional deposit(s) is not applicable as there is only one deposit. • Details: payable to the listing brokerage, ABC Real Estate Inc. Identify payment details for the deposit. • Balance due is $453,900 since offer price is $468,900 and total deposit is $15,000. Insert all relevant amounts into the SAD formula to identify the balance due.

Exam Study Guide

Lesson 1 | Page 31 of 40

Refer to the scenario for the 95 Wentworth property. Ella Jane Billingsworth is the buyer. For the offer Ella Jane Billingsworth wishes to make on the property at 95 Wentworth, the following information is entered in the section 2 of the offer plan. Under the section 2: Identify dates: • Offer date is May 15, 20xx. • Irrevocable date is 9:00 pm on May 17, 20xx. • Requisition date is August 13, 20xx. • Completion date is September 12, 20xx.

Exam Study Guide

Lesson 1 | Page 32 of 40

Refer to the scenario for the 95 Wentworth property. Ella Jane Billingsworth is the buyer. You want to identify the conditions and warranties to enter into the Schedule A. Question #24: Identify whether each of the following items is a condition or warranty. There are five options. There are multiple correct answers.

1

Requirement for a new first mortgage is a condition.

2

Requirement for chattels and fixtures to be in good working order is a condition.

3

Property insurance requirement is a warranty.

4

Sale of buyer’s property with escape clause is a right.

5

Property inspection by qualified home inspector is a condition.

Exam Study Guide

Lesson 1 | Page 33 of 40

The purchase is dependent upon the sale of the buyer’s current property. It contains an escape clause in case someone else offers on the Wentworth property. Question #25: Which combination of OREA’s clauses would you use to fulfil these requirements? There are four options. There is only one correct answer.

1

Conditional upon the sale of the buyer’s property and an escape clause allowing the seller to continue to offer the property for sale until the buyer’s property sells, or the buyer waives that condition of sale.

2

Conditional upon the buyer receiving notification of the removal of all conditions in an existing agreement of purchase and sale for the buyer’s property and an escape clause allowing the seller to continue to offer the property for sale until the buyer’s property sells, or the buyer waives that condition of sale.

3

Conditional upon the sale of the buyer’s property and an escape clause that requires removal of all conditions, not just the sale of the buyer’s property.

4

Conditional upon the seller obtaining a release from a prior agreement of purchase and sale and an escape clause that allows the buyer to continue to look for other properties until the buyer’s property sells.

Exam Study Guide

Lesson 1 | Page 34 of 40

The property, 95 Wentworth Drive is located on the east side of Wentworth Drive, has a frontage of 52.37 feet and a depth of 138.45 feet and is legally described as Lot 73, Registered Plan 92M-4296, City of Anycity, Regional Municipality of Anyregion. The offered price is $468,900 with a deposit of $15,000 provided upon acceptance of the offer. The deposit is payable to the listing brokerage, ABC Real Estate Inc. The balance of the purchase price will be paid upon completion of the transaction. In addition to the deposit, Ella expects to have up to $110,000 available to put towards a down payment. Ella requires a $350,000 mortgage. Recently, when talking with her bank, she learned that she could reasonably expect to be approved for a mortgage of that size at no more than 3.5%, with a 5-year term, and amortization of 25 years. The monthly payment would amount to $1,747.45. However, since the mortgage is not confirmed, she wants to make her offer conditional on obtaining such a mortgage. Ella is requesting the offer be conditional on a property inspection performed by a qualified home inspector. As well, she wants to make the offer conditional upon being able to obtain insurance on the property. Ella wants the offer to be conditional on the sale of her home at 32 Cedar Crescent in City of Anycity within 60 days, as this is expected to provide sufficient cash for her down payment. Other conditions should be fulfilled within one week of the date of acceptance of the offer. Ella understands she may have to waive the condition on the sale of her home if a competing offer is submitted pursuant to an escape clause. The offer will contain a warranty from the seller that the chattels and fixtures included in the agreement will be in good working order on completion. Ella would like assurance from the seller that the garage door will be fixed and in good working order on closing. The chattels included in the offer are the Cooksmart stove, Model 3288, the SuperiorChef refrigerator, Model 7465, and the KitchenChef microwave, Model 2000. All existing light fixtures will be included except for the dining room chandelier. The hot water tank is rented from Anycity Energy at $38.25 (plus HST) per month, and is assumable. The offer is being drafted and signed on May 15, 20xx and is irrevocable until 9:00 p.m. on May 17, 20xx. The completion date is 120 days from the offer date, on September 12. The title search date is 30 days prior to the

Exam Study Guide

completion date –August 13. The completion and title search dates are both business days. The HST is deemed to be included in the purchase price and the present use is single family residential. Olivia Johansson is the listing salesperson with ABC Real Estate Inc. and is representing the seller Kristen Ellen Chartwell. You are a salesperson with XYZ Realty Ltd. and are representing the buyer. Notices can be delivered to the brokerages. The listing brokerage’s fax number is 555-433-9976 and the email is [email protected]. The cooperating brokerage’s fax number is 555-233-2989 and the email is [email protected]. For the offer Ella Jane Billingsworth wishes to make on the property at 95 Wentworth, the following information is entered in the section 3 of the offer plan. Under the section 3: List required information to be included on a schedule: • A. Balance due clause: amount due on closing is $453,900. Note: Of which, $350,000 will be paid by the new mortgage and the remaining $103,900 by the buyer as the remainder of the down payment. • B. Conditions: 1. New first mortgage 2. Property inspection by qualified home inspector: OREA INSP–1 3. Property insurance: OREA INSUR–1 4. Sale of buyer’s property with escape clause: OREA SBA/SA–1 and SBA/SA–4 • Time period for condition: 1. Due 7 days. This is the time period for condition 1 . 2. Due 7 days. This is the time period for condition 2 . 3. Due 7 days. This is the time period for condition 3 . 4. Due 60 days. This is the time period for condition 4 . • C. Any additional clause: 1. Warranty on chattels and fixtures in good working order: OREA CHATT–2 2. Right to visit property once before closing: OREA INSP–15

Exam Study Guide

Lesson 1 | Page 35 of 40

The property, 95 Wentworth Drive is located on the east side of Wentworth Drive, has a frontage of 52.37 feet and a depth of 138.45 feet and is legally described as Lot 73, Registered Plan 92M-4296, City of Anycity, Regional Municipality of Anyregion. The offered price is $468,900 with a deposit of $15,000 provided upon acceptance of the offer. The deposit is payable to the listing brokerage, ABC Real Estate Inc. The balance of the purchase price will be paid upon completion of the transaction. In addition to the deposit, Ella expects to have up to $110,000 available to put towards a down payment. Ella requires a $350,000 mortgage. Recently, when talking with her bank, she learned that she could reasonably expect to be approved for a mortgage of that size at no more than 3.5%, with a 5-year term, and amortization of 25 years. The monthly payment would amount to $1,747.45. However, since the mortgage is not confirmed, she wants to make her offer conditional on obtaining such a mortgage. Ella is requesting the offer be conditional on a property inspection performed by a qualified home inspector. As well, she wants to make the offer conditional upon being able to obtain insurance on the property. Ella wants the offer to be conditional on the sale of her home at 32 Cedar Crescent in City of Anycity within 60 days, as this is expected to provide sufficient cash for her down payment. Other conditions should be fulfilled within one week of the date of acceptance of the offer. Ella understands she may have to waive the condition on the sale of her home if a competing offer is submitted pursuant to an escape clause. The offer will contain a warranty from the seller that the chattels and fixtures included in the agreement will be in good working order on completion. Ella would like assurance from the seller that the garage door will be fixed and in good working order on closing. The chattels included in the offer are the Cooksmart stove, Model 3288, the SuperiorChef refrigerator, Model 7465, and the KitchenChef microwave, Model 2000. All existing light fixtures will be included except for the dining room chandelier. The hot water tank is rented from Anycity Energy at $38.25 (plus HST) per month, and is assumable. The offer is being drafted and signed on May 15, 20xx and is irrevocable until 9:00 p.m. on May 17, 20xx. The completion date is 120 days from the offer date, on September 12. The title search date is 30 days prior to the completion date –August 13. The completion and title search dates are both business days. The HST is deemed to be included in the purchase price and the present use is single family residential. Olivia Johansson is the listing salesperson with ABC Real Estate Inc. and is representing the seller Kristen Ellen Chartwell. You are a salesperson with XYZ Realty Ltd. and are representing the buyer. Notices can be delivered to the brokerages. The listing brokerage’s fax number is 555-433-9976 and the email is [email protected]. The coExam Study Guide

operating brokerage’s fax number is 555-233-2989 and the email is [email protected]. For the offer Ella Jane Billingsworth wishes to make on the property at 95 Wentworth, the following information is entered in the section 4 of the offer plan. Under the section 4: Identify any additional information required for the offer: • Chattels: Cooksmart stove, Model 3288; SuperiorChef refrigerator, Model 7465; and KitchenChef microwave, Model 2000. This is the information about chattels included. • Fixtures: All existing light fixtures will be included with the exclusion of the dining room chandelier. This is the information about fixtures excluded. • Rental items: Hot water heater rented from Anycity Energy at $38.25 (plus HST) per month, and is assumable. • Other: The HST is deemed to be included in the purchase price and the present use is single family residential. This is other pertinent information.

Exam Study Guide

Lesson 1 | Page 36 of 40

The property, 95 Wentworth Drive is located on the east side of Wentworth Drive, has a frontage of 52.37 feet and a depth of 138.45 feet and is legally described as Lot 73, Registered Plan 92M-4296, City of Anycity, Regional Municipality of Anyregion. The offered price is $468,900 with a deposit of $15,000 provided upon acceptance of the offer. The deposit is payable to the listing brokerage, ABC Real Estate Inc. The balance of the purchase price will be paid upon completion of the transaction. In addition to the deposit, Ella expects to have up to $110,000 available to put towards a down payment. Ella requires a $350,000 mortgage. Recently, when talking with her bank, she learned that she could reasonably expect to be approved for a mortgage of that size at no more than 3.5%, with a 5-year term, and amortization of 25 years. The monthly payment would amount to $1,747.45. However, since the mortgage is not confirmed, she wants to make her offer conditional on obtaining such a mortgage. Ella is requesting the offer be conditional on a property inspection performed by a qualified home inspector. As well, she wants to make the offer conditional upon being able to obtain insurance on the property. Ella wants the offer to be conditional on the sale of her home at 32 Cedar Crescent in City of Anycity within 60 days, as this is expected to provide sufficient cash for her down payment. Other conditions should be fulfilled within one week of the date of acceptance of the offer. Ella understands she may have to waive the condition on the sale of her home if a competing offer is submitted pursuant to an escape clause. The offer will contain a warranty from the seller that the chattels and fixtures included in the agreement will be in good working order on completion. Ella would like assurance from the seller that the garage door will be fixed and in good working order on closing. The chattels included in the offer are the Cooksmart stove, Model 3288, the SuperiorChef refrigerator, Model 7465, and the KitchenChef microwave, Model 2000. All existing light fixtures will be included except for the dining room chandelier. The hot water tank is rented from Anycity Energy at $38.25 (plus HST) per month, and is assumable. The offer is being drafted and signed on May 15, 20xx and is irrevocable until 9:00 p.m. on May 17, 20xx. The completion date is 120 days from the offer date, on September 12. The title search date is 30 days prior to the completion date –August 13. The completion and title search dates are both business days. The HST is deemed to be included in the purchase price and the present use is single family residential. Olivia Johansson is the listing salesperson with ABC Real Estate Inc. and is representing the seller Kristen Ellen Chartwell. You are a salesperson with XYZ Realty Ltd. and are representing the buyer. Notices can be delivered to Exam Study Guide

the brokerages. The listing brokerage’s fax number is 555-433-9976 and the email is [email protected]. The cooperating brokerage’s fax number is 555-233-2989 and the email is [email protected].

The purchase is dependent upon the sale of the buyer’s current property. It contains an escape clause to permit the seller to continue to offer the property for sale. Question #26: Make an attempt to draft the condition contingent upon the sale of the buyer's property, with an appropriate escape clause.

Exam Study Guide

Lesson 1 | Page 37 of 40

The property, 95 Wentworth Drive is located on the east side of Wentworth Drive, has a frontage of 52.37 feet and a depth of 138.45 feet and is legally described as Lot 73, Registered Plan 92M-4296, City of Anycity, Regional Municipality of Anyregion. The offered price is $468,900 with a deposit of $15,000 provided upon acceptance of the offer. The deposit is payable to the listing brokerage, ABC Real Estate Inc. The balance of the purchase price will be paid upon completion of the transaction. In addition to the deposit, Ella expects to have up to $110,000 available to put towards a down payment. Ella requires a $350,000 mortgage. Recently, when talking with her bank, she learned that she could reasonably expect to be approved for a mortgage of that size at no more than 3.5%, with a 5-year term, and amortization of 25 years. The monthly payment would amount to $1,747.45. However, since the mortgage is not confirmed, she wants to make her offer conditional on obtaining such a mortgage. Ella is requesting the offer be conditional on a property inspection performed by a qualified home inspector. As well, she wants to make the offer conditional upon being able to obtain insurance on the property. Ella wants the offer to be conditional on the sale of her home at 32 Cedar Crescent in City of Anycity within 60 days, as this is expected to provide sufficient cash for her down payment. Other conditions should be fulfilled within one week of the date of acceptance of the offer. Ella understands she may have to waive the condition on the sale of her home if a competing offer is submitted pursuant to an escape clause. The offer will contain a warranty from the seller that the chattels and fixtures included in the agreement will be in good working order on completion. Ella would like assurance from the seller that the garage door will be fixed and in good working order on closing. The chattels included in the offer are the Cooksmart stove, Model 3288, the SuperiorChef refrigerator, Model 7465, and the KitchenChef microwave, Model 2000. All existing light fixtures will be included except for the dining room chandelier. The hot water tank is rented from Anycity Energy at $38.25 (plus HST) per month, and is assumable. The offer is being drafted and signed on May 15, 20xx and is irrevocable until 9:00 p.m. on May 17, 20xx. The completion date is 120 days from the offer date, on September 12. The title search date is 30 days prior to the completion date –August 13. The completion and title search dates are both business days. The HST is deemed to be included in the purchase price and the present use is single family residential. Olivia Johansson is the listing salesperson with ABC Real Estate Inc. and is representing the seller Kristen Ellen Chartwell. You are a salesperson with XYZ Realty Ltd. and are representing the buyer. Notices can be delivered to the brokerages. The listing brokerage’s fax number is 555-433-9976 and the email is [email protected]. The coExam Study Guide

operating brokerage’s fax number is 555-233-2989 and the email is [email protected].

The purchase is dependent upon the sale of the buyer’s current property. It contains an escape clause to permit the seller to continue to offer the property for sale. Question #27: Assuming the seller accepted Ella, the buyer’s offer, what happens if the seller informs the buyer after ten days that they have received another satisfactory offer? There are four options. There is only one correct answer.

1

The seller can accept both offers and see which buyer fulfils their conditions first.

2

The seller can accept the other offer and use the escape clause to inform Ella that her offer is no longer valid.

3

The buyer can counter the other offer by bidding up the purchase price of the property.

4

The buyer has a pre-determined amount of time to either successfully sell their home and waive the condition, or walk away from the purchase.

Exam Study Guide

Lesson 1 | Page 38 of 40

The property, 95 Wentworth Drive is located on the east side of Wentworth Drive, has a frontage of 52.37 feet and a depth of 138.45 feet and is legally described as Lot 73, Registered Plan 92M-4296, City of Anycity, Regional Municipality of Anyregion. The offered price is $468,900 with a deposit of $15,000 provided upon acceptance of the offer. The deposit is payable to the listing brokerage, ABC Real Estate Inc. The balance of the purchase price will be paid upon completion of the transaction. In addition to the deposit, Ella expects to have up to $110,000 available to put towards a down payment. Ella requires a $350,000 mortgage. Recently, when talking with her bank, she learned that she could reasonably expect to be approved for a mortgage of that size at no more than 3.5%, with a 5-year term, and amortization of 25 years. The monthly payment would amount to $1,747.45. However, since the mortgage is not confirmed, she wants to make her offer conditional on obtaining such a mortgage. Ella is requesting the offer be conditional on a property inspection performed by a qualified home inspector. As well, she wants to make the offer conditional upon being able to obtain insurance on the property. Ella wants the offer to be conditional on the sale of her home at 32 Cedar Crescent in City of Anycity within 60 days, as this is expected to provide sufficient cash for her down payment. Other conditions should be fulfilled within one week of the date of acceptance of the offer. Ella understands she may have to waive the condition on the sale of her home if a competing offer is submitted pursuant to an escape clause. The offer will contain a warranty from the seller that the chattels and fixtures included in the agreement will be in good working order on completion. Ella would like assurance from the seller that the garage door will be fixed and in good working order on closing. The chattels included in the offer are the Cooksmart stove, Model 3288, the SuperiorChef refrigerator, Model 7465, and the KitchenChef microwave, Model 2000. All existing light fixtures will be included except for the dining room chandelier. The hot water tank is rented from Anycity Energy at $38.25 (plus HST) per month, and is assumable. The offer is being drafted and signed on May 15, 20xx and is irrevocable until 9:00 p.m. on May 17, 20xx. The completion date is 120 days from the offer date, on September 12. The title search date is 30 days prior to the completion date –August 13. The completion and title search dates are both business days. The HST is deemed to be included in the purchase price and the present use is single family residential. Olivia Johansson is the listing salesperson with ABC Real Estate Inc. and is representing the seller Kristen Ellen Chartwell. You are a salesperson with XYZ Realty Ltd. and are representing the buyer. Notices can be delivered to the brokerages. The listing brokerage’s fax number is 555-433-9976 and the email is [email protected]. The coExam Study Guide

operating brokerage’s fax number is 555-233-2989 and the email is [email protected].

You have decided to stack some of the conditions. Question #28: Which of the given conditions would you stack? There are six options. There are multiple correct answers.

1

Right to visit property once before closing

2

Property insurance

3

Sale of buyer’s property with escape clause

4

New first mortgage

5

Property inspection by qualified home inspector

6

Warranty on chattels and fixtures in good working order

Exam Study Guide

Lesson 1 | Page 39 of 40

The property, 95 Wentworth Drive is located on the east side of Wentworth Drive, has a frontage of 52.37 feet and a depth of 138.45 feet and is legally described as Lot 73, Registered Plan 92M-4296, City of Anycity, Regional Municipality of Anyregion. The offered price is $468,900 with a deposit of $15,000 provided upon acceptance of the offer. The deposit is payable to the listing brokerage, ABC Real Estate Inc. The balance of the purchase price will be paid upon completion of the transaction. In addition to the deposit, Ella expects to have up to $110,000 available to put towards a down payment. Ella requires a $350,000 mortgage. Recently, when talking with her bank, she learned that she could reasonably expect to be approved for a mortgage of that size at no more than 3.5%, with a 5-year term, and amortization of 25 years. The monthly payment would amount to $1,747.45. However, since the mortgage is not confirmed, she wants to make her offer conditional on obtaining such a mortgage. Ella is requesting the offer be conditional on a property inspection performed by a qualified home inspector. As well, she wants to make the offer conditional upon being able to obtain insurance on the property. Ella wants the offer to be conditional on the sale of her home at 32 Cedar Crescent in City of Anycity within 60 days, as this is expected to provide sufficient cash for her down payment. Other conditions should be fulfilled within one week of the date of acceptance of the offer. Ella understands she may have to waive the condition on the sale of her home if a competing offer is submitted pursuant to an escape clause. The offer will contain a warranty from the seller that the chattels and fixtures included in the agreement will be in good working order on completion. Ella would like assurance from the seller that the garage door will be fixed and in good working order on closing. The chattels included in the offer are the Cooksmart stove, Model 3288, the SuperiorChef refrigerator, Model 7465, and the KitchenChef microwave, Model 2000. All existing light fixtures will be included except for the dining room chandelier. The hot water tank is rented from Anycity Energy at $38.25 (plus HST) per month, and is assumable. The offer is being drafted and signed on May 15, 20xx and is irrevocable until 9:00 p.m. on May 17, 20xx. The completion date is 120 days from the offer date, on September 12. The title search date is 30 days prior to the completion date –August 13. The completion and title search dates are both business days. The HST is deemed to be included in the purchase price and the present use is single family residential. Olivia Johansson is the listing salesperson with ABC Real Estate Inc. and is representing the seller Kristen Ellen Chartwell. You are a salesperson with XYZ Realty Ltd. and are representing the buyer. Notices can be delivered to Exam Study Guide

the brokerages. The listing brokerage’s fax number is 555-433-9976 and the email is [email protected]. The cooperating brokerage’s fax number is 555-233-2989 and the email is [email protected].

The purchase is dependent upon an inspection, and on the buyer, Ella, arranging a new mortgage and insurance on the property. Question #29: Write a condition that comprises the stacked clauses for the mortgage, the home inspection, and the proof of insurance.

Exam Study Guide

Lesson 1 | Page 40 of 40

Congratulations, you have completed the lesson! There are two sections on this page with a summary of the key topics that were covered in this lesson.

Identify the steps required to draft an offer that includes conditions

To ensure dates align, you will need to identify key dates when drafting an offer. The offer plan should itemize these five dates in the following chronological order: Offer date, Irrevocable, Expiry of conditions – conditional date, Requisition – title search date, and Completion or closing date. For Schedule A, which is part of every offer, you will need to itemize the required clauses for the offer. A clause identifying the balance due on completion must be included in every offer. Other clauses and conditions, such as obtaining financing or a property inspection, are also added to Schedule A.

Stack conditions to simplify the clause wording on an offer

Stacking refers to a way of grouping and writing conditions that are required to be fulfilled by the same date. With stacking, the party responsible for completing the conditions is clear. There’s a single fulfillment or waiver date for multiple conditions. Stacking conditions avoids repetitive language for several different clauses.

Exam Study Guide

Lesson 2 | Page 1 of 38

Lesson 2: Complete a Counter Offer

This lesson describes the requirements under REBBA when countering an offer rather than accepting an offer. The lesson also explains options when an offer is to be countered, identifies the typical changes that can be made, and includes drafting an offer and a counter offer.

Exam Study Guide

Lesson 2 | Page 2 of 38

Obtaining acceptance of an offer can be complex and lengthy as sellers and buyers negotiate the terms and conditions of the agreement. Many real estate transactions will include one or more offers being made by the parties. For example, if the buyer’s offer is not acceptable, the seller can make changes to the offer and submit the new offer back to the buyer. This transaction is known as a counter offer – also referred to as a sign back – and once a seller amends the buyer’s offer, the buyer is no longer obligated to their offer. The buyer may then choose to accept the seller’s offer, reject the seller’s offer, or may further the negotiations by submitting another offer back to the seller. Offers can be negotiated between the parties many times before reaching a final agreement. REBBA has specific requirements when an offer is being countered rather than accepted. These requirements relate to retaining copies of offers and ensuring the offer is legible. As a salesperson you will need to understand how a counter offer is completed to ensure the necessary changes are made to achieve a fully accepted offer that complies with REBBA. Upon completion of this lesson, you will be able to: Exam Study Guide

• Identify the requirements under REBBA when an offer will be countered rather than accepted • Identify the steps when an offer will be countered rather than accepted • Describe what changes are typically made when countering an offer • Complete an agreement of purchase and sale that includes a counter offer Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

Exam Study Guide

Lesson 2 | Page 3 of 38

Requirements Under REBBA Related to Counter Offers: Retaining Copies of Offers

For a buyer's offer to purchase a property to be valid, it must be in writing and signed by all buyers who are party to the agreement of purchase and sale. A verbal indication from a buyer that they are prepared to submit an offer on a property is not considered a valid offer and this should not be portrayed as such by a salesperson. REBBA requires brokerages to retain documents and records relating to a trade in real estate, which would include any financial records and supporting documentation for at least six years from receipt by the brokerage. This onus of responsibility falls to all brokerages involved in the trade. A salesperson should ensure that all agreements of purchase and sale and other pertinent documents associated with the trade are submitted to their brokerage at the earliest opportunity. When an offer has been presented to a seller, the seller has three options — accept, reject, or counter the offer back to the buyer. When an offer is not accepted or countered back to the buyer, the seller is at liberty to reject the offer. The listing brokerage is required to retain all the documents pertaining to the rejected agreement of purchase and sale and all related documents for a period of at least one year after the brokerage received the written offer. For unsuccessful offers, the listing brokerage may retain a summary document instead of retaining Exam Study Guide

the offer in its entirety. In addition, under REBBA, the listing brokerage is also required to retain all agreements of purchase and sale and related documents that were presented but not acceptable to the seller or were unsuccessful for any reason. When a seller counters an offer back to the buyer, otherwise known as a sign back or the seller's offer to the buyer, a copy of the buyer's offer, as submitted, must be retained by the listing brokerage for a period of at least one year from when the offer was received by the brokerage. Again a summary document may be retained in lieu of retaining the offer in its entirety. For every written offer that is received on behalf of a seller, whether it is a buyer's original offer or an agreement of purchase and sale with changes made during negotiations, the offer is considered a separate offer and the listing brokerage is required to retain a copy of the agreement of purchase and sale and all related documents and records. Once an agreement of purchase and sale has been agreed upon and accepted by all parties, the offer and related documents are retained in its entirety for at least six years by the all brokerages involved in the transaction.

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Lesson 2 | Page 4 of 38

Exam Study Guide

Sections 35.1(2) and 19.1 of the Act cover changes related to records that must be kept for real estate transactions. Question #30: Which of the following statements related to records for offers are true? There are four options. There are multiple correct answers. You can use Reference to access “Bill 55: Changes for handling of offers” to assist with your learning. Reference: Conservation Authorities Act

1

A brokerage can choose to retain a summary document or the original offer of a successful transaction.

2

A successful offer must be kept in its entirety (the agreement of purchase and sale) for six years.

3

A brokerage acting on behalf of a seller shall retain copies of all written offers not accepted or a summary document.

4

A brokerage can create its own summary document or use the Offer Summary Document, OREA Form 801 when drafting an offer for a buyer.

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Lesson 2 | Page 5 of 38

Requirements Under REBBA Related to Counter Offers: Summary Document

A summary document may be used rather than the seller’s brokerage retaining the offer in its entirety. You can use a summary document under the following conditions: • The seller’s brokerage receives the offer on behalf of the seller • The offer is made through a brokerage on behalf of the buyer • The offer did not result in a transaction, that is, the offer was not accepted • The summary contains all the required information Exam Study Guide

When using a summary document in lieu of retaining the offer, REBBA requires specific information to be included in the document: 1. Buyer’s name and signature 2. Seller’s name and contact information 3. Name of the buyer’s brokerage and their representative 4. Name of the seller’s brokerage and their representative 5. Address, legal description or other identifier of the property 6. Date and time the offer was made 7. Date and time the offer was received by the brokerage and how the offer was received, such as in person or by fax 8. Date of presentation, if the brokerage presented the offer to the seller 9. Date and time, if any, until which the offer was irrevocable Although a summary document can be used rather than retaining an unaccepted offer in its entirety, it is important to understand that the summary document cannot be used as a substitute for the Agreement of Purchase and Sale form during negotiations.

Exam Study Guide

Lesson 2 | Page 6 of 38

A salesperson’s listing has just sold as a result of multiple offers. The salesperson is required to keep records for all the offers. Question #31: Which of the given statements related to the retention of offers are true? There are six options. There are multiple correct answers. 1 2 3 4

5 6

The salesperson can retain a summary document for offers that were received but not accepted. The salesperson can retain a summary document because she is working for a brokerage that received offers on behalf of the seller. The salesperson must retain a summary document for all offers that failed. The listing brokerage must keep either the summary document or the complete offer for each failed offer for one year from the date of the offer. A salesperson working for a buyer in the transaction for the property can create a summary document as a record. The brokerage must use the appropriate OREA form for the summary document

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Lesson 2 | Page 7 of 38

Requirements Under REBBA Related to Counter Offers: Legibility Requirements for Offers An agreement of purchase and sale being used during negotiations must remain legible at all times. In instances where an offer is being negotiated, the same agreement of purchase and sale can be used with changes made multiple times before it is accepted. The delivery of an offer can occur in various ways, personally delivered or electronically by email or facsimile. Over time, an offer can become difficult to read, and when sent by facsimile, the offer can become illegible after only a few transmissions. The Code of Ethics requires all offers to be legible. This is to ensure the terms agreed to by the parties are clearly displayed and readable. Example: A buyer receives a counter offer from a seller which is becoming difficult to read due to the number of times the offer is revised by the parties. The buyer is not willing to accept the seller’s offer and would like to submit an offer back to the seller for their consideration. The salesperson, rather than using the same agreement of purchase and sale to counter the seller’s offer, drafts a new offer based on the buyer’s new terms. The salesperson has the buyer sign the new offer and presents this to the seller. The salesperson also keeps the original offer with all the changes so it can be referred to if questions arise about the previous negotiations.

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Lesson 2 | Page 8 of 38

You’re involved in a counter offer situation as the salesperson for a seller. The buyer has countered the offer twice but it has not been acceptable by the seller. However, the seller would like to keep negotiating to reach an agreement. The offer document contains numerous changes and is getting hard to read. Question #32: You can create a new offer for the next counter offer to avoid legibility issues. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 2 | Page 9 of 38

You’re involved in a counter offer situation as the salesperson for a seller. The buyer has countered the offer twice but it has not been acceptable by the seller. However, the seller would like to keep negotiating to reach an agreement. The offer document contains numerous changes and is getting hard to read. Question #33: You should not create a summary document to avoid legibility issues. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 2 | Page 10 of 38

You’re involved in a counter offer situation as the salesperson for a seller. The buyer has countered the offer twice but it has not been acceptable by the seller. However, the seller would like to keep negotiating to reach an agreement. The offer document contains numerous changes and is getting hard to read. Question #34: You can continue to amend the original offer to avoid legibility issues. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 2 | Page 11 of 38

You’re involved in a counter offer situation as the salesperson for a seller. The buyer has countered the offer twice but it has not been acceptable by the seller. However, the seller would like to keep negotiating to reach an agreement. The offer document contains numerous changes and is getting hard to read. Question #35: You should make sure each amendment to the offer is written and legible to avoid legibility issues. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 2 | Page 12 of 38

You’re involved in a counter offer situation as the salesperson for a seller. The buyer has countered the offer twice but it has not been acceptable by the seller. However, the seller would like to keep negotiating to reach an agreement. The offer document contains numerous changes and is getting hard to read. Question #36: You should copy the counter offer so you have a legible record then amend it with the next round of requested changes to avoid legibility issues. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 2 | Page 13 of 38

Countering an Offer Acceptance of an offer does not necessarily occur when a seller receives a buyer’s initial offer. The offer may contain terms that are not acceptable to the seller, and rather than reject the offer, the seller can make an offer back to the buyer. This situation is referred to as a counter offer, where the seller and buyer roles are reversed, and the seller is now the offeror. Counter offers can be made by either party. Typically, a buyer places an offer and if the original offer is not acceptable, the seller can make a counter offer with changes. However, if the seller’s offer is not acceptable, the buyer can make a counter offer back again to the seller. Negotiating an offer requires skill and a clear understanding of the party’s goals for acceptance. Perhaps the price is not acceptable, the completion date is too soon, the seller does not agree to leave the chattels being asked for, or a condition or other term of the offer is not agreed to. These terms can be changed in a counter offer. However, as a salesperson, you should ensure the seller or the buyer fully understands that any change they make to the offer will release the other party from their obligations to the offer. Once an offer is changed, the offer cannot be accepted by that party. To counter an offer, you have three options: 1. Amend the original offer: This is done by inserting the required changes on the agreement of purchase and sale. This would include deleting any term not acceptable and inserting any additional term. To confirm the party agrees to and understands the change, the party is asked to place their initials at each change. This method is the most common. 2. Draft a new offer: A new offer can be drafted when the offer requires significant changes and inserting these is difficult to complete while still ensuring the offer is legible. Written changes can become confusing when multiple counter offers are being made. 3. Prepare a counter offer form: A counter offer form can be used as an alternative to amending the original offer. This would include itemizing each change in detail the seller wishes to make. Rather than the seller signing the agreement of purchase and sale, the seller signs the counter offer form. If the buyer agrees to these terms, the buyer signs the counter offer form to indicate acceptance of the seller’s offer. As amending the original offer is the most common method of countering an offer, this module will explain the steps in detail. The other methods will not be detailed.

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Lesson 2 | Page 14 of 38

You are working for the sellers of a property. The sellers receive an offer from a buyer, which doesn’t meet their needs but they would like to make a counter offer. Question #37: What options do you have for creating a counter offer? Describe each option. You have these three options for creating a counter offer: Option 1: Amend the original offer You amend by inserting your changes on the agreement form and having the seller or buyer initial each change. This method is the most common. Options 2: Draft a new offer You can draft a new offer when the seller or buyer amends the offer significantly and written changes are difficult to insert. Written changes become confusing due to two or more counter offers. Have the seller or buyer sign the new offer and use it. Keep the original offer with all the changes so you can go back and see what the parties were doing if you are ever questioned. Option 3: Prepare a counter offer form You can use a counter offer form as an alternative to amend an original offer. To use the counter offer form, itemize each change in detail the seller wishes to make. Have the seller sign the counter offer form, NOT the original offer. If the buyer accepts the counter offer terms, the buyer signs the counter offer form.

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Lesson 2 | Page 15 of 38

Amending the Original Offer

Countering an offer by amending the original offer includes ruling out any term that is not acceptable and inserting any term as part of the counter offer. The counter offer can also include insertions. All changes would be initialled by the party to indicate agreement with the amended term. Prior to any changes to a buyer’s offer, the seller’s brokerage should ensure a copy of the unsuccessful offer, as received from the buyer, is retained.

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Lesson 2 | Page 16 of 38

To create a counter offer for a seller, you will need to complete specific steps to amend the offer. Question #38: You will need to make a copy of the original offer in Step 1. Identify whether the given statement is true or false. There are two options. There is only one correct answer. 1

True

2

False

Exam Study Guide

Lesson 2 | Page 17 of 38

To create a counter offer for a seller, you will need to complete specific steps to amend the offer. Question #39: You will need to change the irrevocable in Step 2. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 2 | Page 18 of 38

To create a counter offer for a seller, you will need to complete specific steps to amend the offer. Question #40: You will need to amend the offer by crossing out the original text and inserting the change in Step 3. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 2 | Page 19 of 38

To create a counter offer for a seller, you will need to complete specific steps to amend the offer. Question #41: You will need to make the initial changes in Step 4. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 2 | Page 20 of 38

To create a counter offer for a seller, you will need to complete specific steps to amend the offer. Question #42: You will need to complete confirmation of acceptance and acknowledgement in Step 5. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 2 | Page 21 of 38

To create a counter offer for a seller, you will need to complete specific steps to amend the offer. Question #43: You will need to present the counter offer to the buyer in Step 6. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 2 | Page 22 of 38

Typical Changes in a Counter Offer Although any term of an agreement of purchase can be changed by a seller or a buyer when completing a counter offer, there are some common terms which are the crux of the negotiations. These include the purchase price, completion date, chattels included, and fixtures excluded from the sale of the property. Other typical changes include the amount of deposit or modification to conditions or other terms included on Schedule A. The following five sections contain information on each type of change made in a counter offer.

Purchase Price

The purchase price is the most commonly negotiated term. The seller might offer a price somewhere between the buyer’s offer and the original asking price. Or, the seller might counter the offer with the original asking price, which indicates the seller is not willing to negotiate on this term. On a counter offer, the buyer can choose to accept the seller's proposal or make another counter offer back to the seller.

Completion Date

The completion date can financially impact a seller or a buyer, and therefore, this term might become part of the negotiations. For a seller, they may need more time to arrange moving, or they have a firm date for occupancy of their new home. A completion date that is too early could cause the seller expenses to store furniture and find interim accommodations. A completion date too late could require the seller to obtain financing to purchase the new property while waiting for the transaction to be completed.

Conditions or Other Terms in the Offer

The seller can make a counter offer that modifies or rejects one or more conditions set by the buyer on Schedule A of the agreement. A seller may also want to insert a condition or other term on their behalf. For example, a seller may want to add a clause identifying there is no warranty on any chattels included in the purchase. When an offer contains a condition, such as a home inspection or approval of the buyer’s financing, the wording of the condition should be carefully reviewed. In some instances, the buyer might ask for too much time to complete their due diligence. A counter offer would Exam Study Guide

shorten the number of days allowing for the condition to be fulfilled. One condition which is less appealing to a seller, is the sale of the buyer’s home. In a fastpaced market, sellers are reluctant to accept offers with this condition as it can deter others from viewing the property. In a slow real estate market this condition is more acceptable to a seller as they can continue to offer the property for sale and provide notice to the buyer if they receive another acceptable offer.

Chattels Included and Fixtures Excluded

When viewing a property, a buyer might show interest in retaining some of the personal items belonging to the seller. A discussion of the legal requirements regarding chattels and fixtures should be held with all sellers and buyers. When working with buyers, ensure they understand the seller is under no obligation to leave any chattel. Chattels can ultimately interfere with the negotiations between the seller and the buyer. If the buyer is aware of the seller’s obligations, misunderstandings over what will remain and what will be removed can be reduced. To avoid fixture negotiation, it is best to advise sellers to remove and replace any fixtures that the seller wishes to take with them, prior to showing their property to potential buyers. For example, a dining room chandelier is considered a fixture which would remain with the property but a seller wishes to keep it. The seller could be advised to replace the chandelier before putting the property on the market.

Deposit

The amount of the deposit is an indication of the buyer acting in good faith. A deposit that is lower than typical offers in the trading area may give the seller concerns regarding how serious the buyer is about purchasing the property. If the deposit is too low, a seller might counter with an increase in the amount, when the deposit will be made, and/or add a supplemental deposit request as a clause to the schedule. Or the seller might be wary of the buyer’s intent and consider other offers. A deposit made with a certified cheque submitted with the offer can also enhance a buyer’s offer.

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Lesson 2 | Page 23 of 38

A couple has listed their home for sale at $495,000. They are relocating and need some time to find a new place to buy so have set a closing date of September 30. They are planning to take the oriental rug and crystal chandelier in the dining room with them. A buyer has made an offer of $440,000 with a $5,000 deposit payable on acceptance of the offer. The buyer wants to take possession as soon as possible so sets the completion date for June 1. The buyer’s offer is conditional upon arranging a first mortgage. The offer also includes a condition for a home inspection. The sellers have decided to counter this offer. Question #44: Which of the following items are the sellers likely to change on the counter offer? There are seven options. There are multiple correct answers. 1

$440,000 purchase price

2

$5,000 deposit

3

Fixtures Excluded: [blank]

4

Chattels Included: [blank]

5

Home inspection condition

6

Closing date

7

Financing condition for approval of first mortgage

Exam Study Guide

Lesson 2 | Page 24 of 38

Changing the Balance Due on Closing in a Counter Offer

When a counter offer contains a change to the purchase price and/or deposit, that change impacts the balance due on closing. Depending on the wording of the clause on Schedule A under the Buyer agrees to pay the balance statement, you will need to amend the amount. The formula to calculate the balance due on closing is: Purchase price less: • S (Seller take back mortgage) • A (Assumed mortgage) • D (Deposit(s)) Example 1: A buyer is offering $300,000 for a property and will provide a $10,000 deposit upon acceptance of the offer. The Exam Study Guide

buyer is arranging a new mortgage. For this offer, the buyer’s balance due is $290,000 as calculated: Purchase price: 300,000 - S: 0 - A: 0 - D: - 10,000 290,000 The seller makes a counter offer of $315,000 with no other changes. For this offer, the buyer’s balance due is $305,000 as calculated: Purchase price: 315,000 - S: 0 - A: - D: - 10,000 305,000 Example 2: A buyer is offering $350,000 for a property and will provide a $20,000 deposit upon acceptance of the offer. The buyer will arrange a new first mortgage. For this offer, the buyer’s balance due is $330,000 as calculated: Purchase price: 350,000 - S: 0 - A: 0 - D: - 20,000 330,000 On the counter offer from the seller, the purchase price is increased by $25,000 and the deposit is increased by $5,000. Exam Study Guide

For this counter offer, the buyer’s balance due becomes $350,000 as calculated: Purchase price: 375,000 - S: 0 - A: 0 - D: - 25,000 350,000

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Lesson 2 | Page 25 of 38

Changing the Balance Due on Closing in a Counter Offer

From Clause DEP/PAY-1 and Form 100: Agreement of Purchase and Sale, Schedule A ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

The example uses OREA Form 100: Agreement of Purchase and Sale, Schedule A to show changes required in the balance due on closing clause for a counter offer. You will notice the initials of the seller and buyer positioned against the changes made.

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Lesson 2 | Page 26 of 38

A buyer has offered to buy a property from a couple. Her offer is for $186,000 with a $10,000 deposit upon acceptance of the offer. She will arrange a new first mortgage for approximately $130,000. She will provide an additional deposit of $5,000 once her financing condition is removed. The couple makes a counter offer that increases the purchase price by $2,500. They also change the additional deposit from $5,000 to $10,000. Question #45: Assuming the buyer accepts the couple’s counter offer, what is the balance due on completion of the transaction for this scenario? There are three options. There is only one correct answer. 1

$168500

2

$168600

3

$168400

Exam Study Guide

Lesson 2 | Page 27 of 38

Changing the Irrevocable in a Counter Offer

In a counter offer, you will also need to change the irrevocable. The irrevocable specifies who the offer is coming from as well as the deadline for making the decision about the offer. Typically, the buyer initiates the offer. On a counter offer, the buyer is changed to seller by placing a line through the word buyer and inserting the word seller. If the party making the counter offer is changing the time or date, the change is made in the same way by placing a line through the time and/or date and inserting the new deadline. The party making the counter offer must initial each change to identify consent to the change.

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Lesson 2 | Page 28 of 38

Changing the Irrevocable in a Counter Offer

From Form 100: Agreement of Purchase and Sale, Clause 1: Irrevocability ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

The example shows changes required in the irrevocability clause for a counter offer. It is critically important to note any changes to this, as the timeline for responding to the counter offer has changed and any response to the counter offer must be taken by the time indicated.

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Lesson 2 | Page 29 of 38

Example: Counter Offer Simon T. Chan and his wife Valerie have made an offer to purchase a property from the Sandersons for $390,000. The Chans’ offer includes a deposit of $20,000 upon acceptance of the offer. The Chans would like the oriental rug in the dining room and the bar stools in the kitchen included. The offer, dated at Anycity on July 10, 2019 will be irrevocable for two days and expires at 6 p.m. on that day. The offer has a closing date of September 6, 2019. Counter Offer The sellers, Eric P. Sanderson and his wife Lauren R. Sanderson, counter the Chans’ offer on July 12, for $415,000. They amend the closing date to October 1, 2019 and extend the irrevocable period until 11:59 on July 13. The Sandersons remove the chattels included in the buyer’s offer when countering the offer. The following five sections contain information on how to amend each section of the offer for the Sandersons’ counter offer.

Purchase Price The purchase price for the counter offer is amended from $390,000 to $415,000. The sellers, Eric and Lauren Sanderson, both initial the change. From Form 100: Agreement of Purchase and Sale, Purchase Price ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

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Irrevocability The irrevocable is changed from Buyer to Seller, the date changes from July 12 to July 13, 2019, and the time changes from 6 p.m. to 11:59 p.m. The sellers initial all three changes. From Form 100: Agreement of Purchase and Sale, Clause 1: Irrevocability ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

Completion Date The completion is extended to October 1, 2019, and both sellers initial the change. From Form 100: Agreement of Purchase and Sale, Clause 2: Completion Date ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

Chattels Included The oriental rug and the bar stools are deleted and the sellers place their initials beside the change. From Form 100: Agreement of Purchase and Sale, Clause 4: Chattels Included ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

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Balance Due in Closing The balance due on closing increases to $395,000 based on the increase to the purchase price. Both sellers initial each change, words and numbers. From Form 100: Agreement of Purchase and Sale, Schedule A ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

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Lesson 2 | Page 30 of 38

Accepting a Counter Offer

To accept a counter offer from the seller, the buyer must do the following: • Initial all changes made by the seller • Complete and sign the Confirmation of Acceptance on the agreement of purchase and sale • Complete and sign the Acknowledgement portion of the agreement of purchase and sale As the salesperson for the buyer, when accepting the offer, you are required to complete the following: • Provide a copy of the accepted offer to each buyer • Sign the Remuneration or Commission Trust Agreement on the agreement of purchase and sale and obtain the listing brokerage’s signature when providing documents to the listing salesperson • Provide copies of the accepted offer to the listing salesperson • Retain a copy of the accepted offer for the brokerage’s records As the listing salesperson, provide a copy of the accepted offer to each seller and obtain their information and signature in the Acknowledgement portion. A copy of the accepted offer is also retained for the brokerage’s records.

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Lesson 2 | Page 31 of 38

A buyer has made an offer to purchase a home, which the sellers countered. The buyer has decided to accept their counter offer. The buyer works with a salesperson from a cooperating brokerage. The sellers work with the listing salesperson. Question #46: Identify the correct statements about the steps the buyer and his salesperson take to accept the counter offer and complete the transaction. There are four options. There are multiple correct answers.

1

The buyer accepts the counter offer and initials all changes, and dates and signs the Acknowledgement on the agreement.

2

The salesperson, after signing the Confirmation of Acceptance on the agreement, completes and signs the Acknowledgement portion of the agreement providing information about his lawyer.

3

The buyer’s salesperson signs the Confirmation of Acceptance after signing the Acknowledgement portion of the agreement.

4

The buyer’s salesperson after signing the Confirmation of Acceptance, distributes copies of the agreement to the buyer.

Exam Study Guide

Lesson 2 | Page 32 of 38

Example: Counter Offer Accepted by the Buyer The Chans have met with their salesperson, Ed Morley, to review the Sandersons’ counter offer. They decide to accept the counter offer and Simon Chan signs the Confirmation of Acceptance at 5:00 p.m. on July 13, 2019. This example shows the requirements of the buyers when accepting the offer. The following seven sections contain information on each requirement.

Purchase Price Simon and Valerie Chan, initial the changes to the purchase price on the counter offer. This indicates their acceptance of the terms. From Form 100: Agreement of Purchase and Sale, Purchase Price ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

Irrevocability The Chans initial the three changes the sellers made to the irrevocable. From Form 100: Agreement of Purchase and Sale, Clause 1: Irrevocability ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

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Completion Date The Chans initial the revised completion date. From Form 100: Agreement of Purchase and Sale, Clause 2: Completion Date ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

Chattels Included The Chans agree to the removal of the chattels included by placing their initials where these were deleted. From Form 100: Agreement of Purchase and Sale, Clause 4: Chattels Included ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

Balance Due on Closing The Chans initial the change to the balance due on closing on Schedule A of the offer. From Form 100: Agreement of Purchase and Sale, Schedule A ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

Exam Study Guide

Confirmation of Acceptance Simon Chan dates and signs the Confirmation of Acceptance. From Form 100: Agreement of Purchase and Sale, Acknowledgement ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

Acknowledgment Simon and Valarie complete the Acknowledgment portion of the offer. From Form 100: Agreement of Purchase and Sale, Acknowledgement ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

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Lesson 2 | Page 33 of 38

Buyers, a couple, are offering $420,000 for a property and will provide a $30,000 deposit upon acceptance of the offer. They will assume the existing first mortgage with an approximate balance owing today of $300,000. The couple has the necessary funds required to complete the transaction. The counter offer from the sellers increases the purchase price by $30,000. The sellers would like a month more for the closing to find another place to live. The irrevocable period is sufficient for the sellers counter offer so the time and date remain the same. They are satisfied with the conditions in the offer. Question #47: You should change the irrevocable time and date on the counter offer. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 2 | Page 34 of 38

Buyers, a couple, are offering $420,000 for a property and will provide a $30,000 deposit upon acceptance of the offer. They will assume the existing first mortgage with an approximate balance owing today of $300,000. The couple has the necessary funds required to complete the transaction. The counter offer from the sellers increases the purchase price by $30,000. The sellers would like a month more for the closing to find another place to live. The irrevocable period is sufficient for the sellers counter offer so the time and date remain the same. They are satisfied with the conditions in the offer. Question #48: You should change the balance due on closing on the counter offer. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 2 | Page 35 of 38

Buyers, a couple, are offering $420,000 for a property and will provide a $30,000 deposit upon acceptance of the offer. They will assume the existing first mortgage with an approximate balance owing today of $300,000. The couple has the necessary funds required to complete the transaction. The counter offer from the sellers increases the purchase price by $30,000. The sellers would like a month more for the closing to find another place to live. The irrevocable period is sufficient for the sellers counter offer so the time and date remain the same. They are satisfied with the conditions in the offer. Question #49: You should change the home inspection clause on the counter offer. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 2 | Page 36 of 38

Buyers, a couple, are offering $420,000 for a property and will provide a $30,000 deposit upon acceptance of the offer. They will assume the existing first mortgage with an approximate balance owing today of $300,000. The couple has the necessary funds required to complete the transaction. The counter offer from the sellers increases the purchase price by $30,000. The sellers would like a month more for the closing to find another place to live. The irrevocable period is sufficient for the sellers counter offer so the time and date remain the same. They are satisfied with the conditions in the offer. Question #50: You should not change the deposit on the counter offer. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 2 | Page 37 of 38

Buyers, a couple, are offering $420,000 for a property and will provide a $30,000 deposit upon acceptance of the offer. They will assume the existing first mortgage with an approximate balance owing today of $300,000. The couple has the necessary funds required to complete the transaction. The counter offer from the sellers increases the purchase price by $30,000. The sellers would like a month more for the closing to find another place to live. The irrevocable period is sufficient for the sellers counter offer so the time and date remain the same. They are satisfied with the conditions in the offer. Question #51: You should not change the completion date on the counter offer. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 2 | Page 38 of 38

Congratulations, you have completed the lesson! There are six sections on this page with a summary of the key topics that were covered in this lesson.

Record keeping

All offers must be in writing and signed for the offer to be valid. Retaining copies of the offer is regulated under REBBA. An accepted offer must be kept in its entirety for six years. Additional requirements apply to the seller’s brokerage only if an offer is unsuccessful. For every written offer that you receive on behalf of a seller, whether it is a buyer’s first offer or an offer with changes made during negotiations, the offer is considered a separate offer and the seller’s brokerage is required to retain a copy. If the offer is not accepted, that is the offer is either rejected or countered, the seller’s brokerage must retain a copy of the offer in its entirety for one year from the date the offer is signed by the buyer. Under certain conditions, the seller’s brokerage may keep a summary document rather than the unaccepted offer.

Legibility

The Code of Ethics requires all offers to be legible. This is to ensure the terms agreed to by the parties are clearly displayed and readable.

requirements Countering an offer

A counter offer is completed in one of three ways: amend the original offer, draft a new offer, or prepare a counter offer form. Countering an offer by amending the original offer includes ruling out any term that is not acceptable and inserting any term as part of the counter offer. All changes are initialled by the party to indicate agreement with the amended term.

Typical changes in a counter offer

Although any term of an agreement of purchase and sale can be changed by a seller or a buyer when completing a counter offer, there are some terms which typically become part of the negotiations. These terms include the purchase price, a change of completion date, chattels included or fixtures excluded from the sale of the property. Other typical changes include the amount of the deposit or revisions, inclusions or deletions to a condition, or other term included on Schedule A.

Exam Study Guide

Changes required in When a counter offer is being made, specific changes to the offer must be completed. The irrevocability clause will require a change to the term Seller/Buyer as this indicates who the a counter offer

offer is coming from. Also, confirm the time and date for the offer’s irrevocability is valid. If a counter offer includes a change to the purchase price and/or the deposit, that change will impact the amount identified on Schedule A for the balance due on completion. The party making the counter offer must initial each change to identify consent to the change.

Accepting a counter offer

To accept a counter offer, the party must place their initials by every change made by the other party. This initialing indicates acceptance of those revised terms. Once an offer is accepted, additional signing is completed by the party accepting the offer, including Confirmation of Acceptance and Acknowledgement. The Remuneration or Commission Trust Agreement is signed by the salespersons representing their brokerage when there is both a listing brokerage and a co-operating brokerage. A copy of the accepted offer must be provided to each seller and each buyer as soon as possible. A copy is also retained by each brokerage.

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Lesson 3 | Page 1 of 23

Lesson 3: Work with Competing Offers

This lesson describes the requirements under REBBA when working with competing offers and the risks associated with multiple offer scenarios. As a salesperson, you will be relied upon to provide advice and guidance to sellers and buyers, so the lesson includes strategies and leading practices when working with competing offer situations.

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Lesson 3 | Page 2 of 23

In certain market conditions; for example, in a seller’s market, sellers can be faced with multiple buyers interested in purchasing their property. When more than one buyer is placing an offer on a property at the same time, this situation is known as competing offers. The situation is also referred to as multiple offers. Competing offers represent a new challenge for sellers and buyers, and place additional obligations on a brokerage. The Code of Ethics includes specific requirements for the seller’s brokerage in a competing offer situation. Compliance with these requirements is important to ensure all parties are treated with fairness and honesty. Competing offers can also tempt buyers to place an offer without the same level of due diligence. As a salesperson, you will need to advise a seller or a buyer about the different strategies and potential risks when working with multiple offers. Upon completion of this lesson, you will be able to: • Identify the requirements under REBBA regarding competing offers • Identify the risks associated with multiple offers for sellers and buyers • Identify strategies for sellers and buyers when working with multiple offers • Identify leading practices for the salesperson when working with multiple offers Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented. Exam Study Guide

Lesson 3 | Page 3 of 23

Requirements Under the Code of Ethics – Number of Competing Offers

In certain market conditions, a seller’s property may appeal to several buyers resulting in multiple offers being received at the same time. This competing offer situation creates unique conditions in a real estate transaction. Both sellers and buyers need to consider how to respond when an offer is being submitted or received in a competing offer scenario. As the seller’s salesperson, the Code requires you to disclose the number of competing offers to all buyers who have submitted a written offer. If there are two buyers from a cooperating brokerage, the listing brokerage should advise each salesperson from the co-operating brokerage when there are registered competing offers, so they can make Exam Study Guide

the required disclosures if they are in multiple representation. However, the substance (terms and conditions) of each offer are confidential to the seller and their salesperson and may not be disclosed to any other brokerage or buyer. When there are competing offers, all buyers must be treated ethically and fairly to ensure no buyer is placed in a better position than any of the other buyers. If a buyer’s offer has not been presented to the seller or the seller’s salesperson, a buyer can withdraw their offer should they choose not to participate in a multiple offer scenario. As a salesperson, a pro-active approach to confirm the number of offers prior to submitting a buyer’s offer will result in a more informed decision by the buyer regarding the terms of an offer, or whether to participate in a multiple offer scenario.

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Lesson 3 | Page 4 of 23

Requirements Under the Code of Ethics – Disclosure of Agreements Relating to Remuneration When a brokerage offers a remuneration reduction, it is essential to create an appropriate agreement to ensure compliance with REBBA. All remuneration reduction agreements negotiated by a salesperson are binding on the brokerage. As a salesperson, ensure you are aware of any brokerage policies regarding remuneration prior to making any agreement with a seller or a buyer. In a remuneration reduction agreement, the listing brokerage agrees with the seller to reduce remuneration. This could occur when a brokerage and seller are signing a representation agreement, or when the seller is being presented one or more offers. The Code requires the disclosure whenever a remuneration agreement could impact whether an offer to buy is accepted by the seller. In any remuneration reduction situation, the listing salesperson must disclose the details and terms of the remuneration reduction agreement in writing to all buyers who have made a written offer. The disclosure must occur before the seller accepts any offer. The listing brokerage must keep a record of the disclosure. If the remuneration agreement results from an offer being negotiated, a written amendment to the documented seller representation agreement is to be provided to the seller in the event the offer is accepted. If the remuneration agreement forms part of the original seller representation agreement, the listing may indicate this as a collateral agreement. This allows all salespersons working with buyers to identify the existence of the agreement, and when in a competing offer scenario, ensure a disclosure has been provided. An agreement to reduce the gross remuneration by a brokerage may be effective only under specified conditions – these details are documented on the seller representation agreement and may include • When one salesperson is working with both the seller and the buyer in a transaction, the remuneration will be reduced. • When two salespersons from the listing brokerage are working with both the seller and the buyer in a transaction, the remuneration will be reduced. • When a competing offer situation exists, the brokerage may exclude any remuneration reduction identified on the collateral agreement.

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A remuneration reduction agreement is most common in these two situations: 1. One brokerage – The same brokerage is working with both the seller and the buyer. In this situation, the listing brokerage’s offer to reduce remuneration could be part of the original representation agreement, or the result of the seller receiving an offer. 2. Two brokerages – The co-operating brokerage offers to reduce the remuneration being paid to that brokerage. In this situation, the buyer’s brokerage offers to reduce the remuneration as part of the offer negotiations, and the listing brokerage and seller agree to reduce the total remuneration payable under the seller representation agreement. In either of the two situations, a commission reduction could result in a buyer’s offer being accepted by the seller because the seller will receive a higher “net” value for the property than they would receive if they paid the commission that they originally agreed to. Example – One Brokerage: ABC Real Estate Inc. lists a property for sale and the seller agrees to pay remuneration of five percent of the sale price. The representation agreement includes a collateral agreement that indicates a one percent reduction in remuneration if the buyer who purchases the property is also working with ABC Real Estate. In a competing offer situation, if ABC Real Estate is working with one of the buyers, a disclosure of the one percent reduction must be provided to all other buyers. If ABC Real Estate is not working with one of the buyers, the collateral agreement would not be in effect and no disclosure is required. Example – Two Brokerages: A salesperson representing a buyer offers to reduce the amount of remuneration being paid to the co-operating brokerage by 0.5%. The buyer’s offer is for $500,000 however, with the remuneration reduction, the seller will save $2,500 in remuneration. This results in this buyer’s offer netting more to the seller than another offer for the same amount, but with no remuneration reduction. Prior to the seller accepting the offer, full written disclosure of the remuneration reduction of 0.5% is made to all buyers who have currently submitted a written offer. Disclosure of multiple representation in competing offers is another requirement of the Code.

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Lesson 3 | Page 5 of 23

Requirements Under the Code of Ethics – Disclosure of Multiple Representation

Multiple representation can occur whether the seller has one offer to consider or competing offers. The disclosure requirements remain the same, however there are unique considerations relating to disclosure of multiple representation when working in a multiple offer scenario. There are various requirements relating to multiple representation under REBBA. A brokerage may not operate under multiple representation unless: Exam Study Guide

• Disclosure of the proposal to represent more than one client in the same trade is made – this disclosure must be done at the earliest opportunity and before entering into a representation agreement. This disclosure also requires the differences in the obligations of the brokerage when operating under multiple representation be explained. • All clients represented by the brokerage consent in writing to the brokerage operating under multiple representation. In a competing offer situation, multiple representation could occur when: • The brokerage represents the seller and the buyer in a transaction. This applies whether it is the same salesperson or different salespersons employed by the brokerage. • The brokerage represents multiple prospective buyers making an offer in a single transaction. This can apply when the seller is represented by the same brokerage or a different brokerage. The Code also requires a brokerage, when representing or providing services to more than one seller or buyer for the same trade, to disclose in writing, at the earliest opportunity and before an offer is made, the nature of the brokerage’s relationship to each seller and buyer. In instances where the brokerage is representing the seller and the buyer, it should be evident the brokerage is operating under multiple representation and disclosures and consent are required. In other instances where a brokerage is representing multiple prospective buyers making an offer in a single transaction, it may not be evident to the buyer’s brokerage that a single brokerage is representing multiple buyers until one or more buyers have expressed an interest in the same property. This knowledge may come through the listing brokerage or the listing salesperson as they are in a position to know the source of all buyers. The listing brokerage is then expected to pass on this information to the buyer’s brokerage. In such situations, consent to the multiple representation is required as soon as the brokerage becomes aware that it is operating in a multiple representation situation.

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Lesson 3 | Page 6 of 23

Two or more competing offers for the same property creates a multiple offer situation. Usually multiple offers occur when demand for properties is high and supply is low, which is a seller’s market. REBBA has rules that govern multiple offer situations. Question #52: Which of the given multiple offer practices comply with REBBA? There are five options. There are multiple correct answers.

1

A competing offer must be made in writing and signed by the buyer.

2

The listing salesperson can disclose the substance of offers already made to other potential buyers.

3

The seller’s salesperson must retain a copy of only the accepted offer.

4

A listing brokerage that represents both the seller and a buyer must make this disclosure to all other competing buyers.

5

A listing salesperson can offer to reduce their remuneration if they have a competing offer provided proper disclosure is made.

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Lesson 3 | Page 7 of 23

Multiple representation occurs when the same brokerage represents the seller and buyer or the same salesperson or brokerage represents multiple buyers making offers on the same property. In either situation, certain rules apply. Question #53: Identify the three rules that apply to multiple representation in competing offer situations.

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Lesson 3 | Page 8 of 23

Buyer’s Risks in a Multiple Offer Situation In a multiple offer situation, buyers competing for a property might be tempted to increase their offer price or remove conditions from their offers. Increasing the offer price and/or removing a condition included to protect the buyer, such as a condition allowing for a property inspection, exposes the buyer to risk. As a salesperson, a buyer should be made aware of certain factors when considering placing an offer in a multiple offer situation: • Offer Price: A high offer price can increase a buyer’s chance of success in a competing offer situation. However, the buyer needs to consider whether or not the offer is affordable. Can the buyer finance the amount without hardship? What will the buyer pay in interest to finance the mortgage over the long term? Is the property worth the higher offer price? As a salesperson, question how much the buyer can afford and research how much a property is worth. Also, advise the buyer that an offer meeting, or exceeding the asking price, will not guarantee the seller will accept the offer. • Financing: If buyers are pre-qualified for a mortgage, they might consider removing a financing condition as a tactic to improve their offer’s success. Pre-qualification for a mortgage does not guarantee approval of financing. Most lenders require a professional appraisal of a property before approving a mortgage. An appraiser could estimate the value of the property to be less than the amount the buyer offers. In this case, the buyer’s mortgage might not be sufficient for the purchase price and the buyer would need to fund the difference somehow. In terms of financing, remind the buyer that once an offer without any conditions is accepted, it becomes a binding contract. The buyer needs to consider the pre-approved mortgage versus the appraisal of the property, and the potential for having to finance the difference. • Property Inspection: Removing the condition for a property inspection in a competing offer situation might also appear as an option to improve the buyer’s offer. However, not including a property inspection can place the buyer in a risky situation. On viewing the home, it might appear to be in good repair. However, once ownership takes place, the buyer might discover defects, which can lead to costly repairs and potential upgrades. A qualified and reputable property inspector can highlight potential problems and improvement for a property and their associated costs. Advise the buyer of the risk in omitting a home inspection condition. Exam Study Guide

When working with buyers in a competing offer situation, caution them around the risks involved. Remind them of the legal obligation incurred once an unconditional offer is accepted. Certain strategies can be used by a buyer to increase the appeal of their offer while not being exposed to the same level of risk.

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Lesson 3 | Page 9 of 23

Strategies for Buyers When Working with Multiple Offers As a salesperson representing a buyer in a competing offer situation, you are required to promote and protect their best interests. You want to provide conscientious and competent service and negotiate a transaction which results in an accepted offer for your buyer. At the same time, you want to treat the seller with fairness. To assist a buyer, it is important to understand what could occur in a competing offer situation. Small details within an offer can impact a seller’s decision. Being aware of these small details is the first step to assisting the buyer in their purchase. No single strategy is guaranteed to work; however, you need to understand some typical options to give buyers a possible advantage. The following four sections contain information on each strategy when working with buyers in a multiple offer situation.

Best Offer First

When demand for housing is high, the seller has the advantage. In a seller’s market, the strategy of making the buyer’s first offer their best offer is common. A buyer may hesitate with this strategy, as it provides little or no room for negotiations. However, leading with a strong offer might be the only opportunity for the buyer’s offer to be considered by the seller. To assist a buyer, you should know what a strong offer looks like in your local market. Each market can be different, however analyzing past sales to see the sale to listing price ratio would be important information. First sale details: • Listing price: $300,00 • Sale price: $315,000 • Sale to list ratio: 105% Second sale details: • Listing price: $309,00 • Sale price: $322,000 • Sale to list ratio: 104% Exam Study Guide

Third sale details: • Listing price: $295,00 • Sale price: $310,000 • Sale to list ratio: 105% Fourth sale details: • Listing price: $299,00 • Sale price: $319,000 • Sale to list ratio: 107% A buyer would want to consider this type of information when determining an appropriate offer price. Ensure you have researched all recent comparable sales in the neighbourhood and use this historical data to assist in current negotiations.

Pre-approved Mortgage

Buyers are well advised to get mortgage pre-approval and discuss their financial situation in depth with their lender. A buyer should know in advance what the maximum amount a lender will provide in financing. This amount, together with the buyer’s down payment, will provide guidance on the maximum purchase price. Remember though, a pre-approval does not guarantee the funds will be advanced. As a salesperson, view the property in terms of factors that may impact a lender’s decisions, such as deferred maintenance, neighbouring property conditions, or the age and condition of the structure and major components, such as the heating and electrical systems. By completing this due diligence in advance of an offer, the buyer can be more confident in their buying power.

Deposit

A large deposit can give a seller more confidence about the seriousness of a buyer’s offer and the buyer’s ability to finance the property. If the offer is conditional on financing, a large deposit can also provide the seller some reassurance of the buyer’s financial status. Having a large deposit typically indicates financing approval is more likely to occur. Making the deposit with the offer by way of a certified cheque can also provide assurance to sellers.

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Proof of Funds

A buyer’s offer, whether it includes a financing condition or not, can be more desirable to a seller if there is an assurance the buyer has funds available to complete the transaction. Suggest the buyer speak with their lender and obtain a letter indicating the buyer’s financial ability. Although an appraisal may indicate the property’s value is less than the purchase price, a buyer could have sufficient funds to make up the difference. In other instances, it is the property and not the buyer’s ability to pay that reduces the amount of financing a lender will provide. Showing financial strength to a seller can increase confidence in the buyer’s offer.

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Lesson 3 | Page 10 of 23

Strategies for Buyers When Working with Multiple Offers The following four sections contain information on more strategies when working with buyers in a multiple offer situation.

Completion Date

Sellers can be influenced by the completion date chosen. When drafting an offer for the buyer, pay attention to the listing data sheet to see what the seller’s preference is. Timing can have an impact. For example, a seller might need time to find another home, or prefer to finish the season at a vacation property before the sale is completed. A buyer who is flexible on the completion date might be one reason why a seller chooses their offer.

Conditions

The strength of an offer is not based solely on price, it is the cumulative effect of every term that ultimately impacts acceptance of a buyer’s offer. In a multiple offer situation, the buyer needs to consider the value of having conditions in the offer versus making an unconditional offer which becomes firm and binding once accepted. An unconditional or firm offer might be more desirable than one with conditions and a higher price. However, sellers will also consider the firm offer and the ability of the buyer to complete the sale. A firm offer does not guarantee a completed transaction. When including conditions in an offer, ensure the time period to complete the due diligence is reasonable and the condition shows an honest attempt by the buyer to have it fulfilled. For example, a financing condition that identifies specific terms may appear as a more honest attempt than a financing condition that allows the buyer a lot of latitude in determining whether it is fulfilled. This is also true with a property inspection condition. In some instances, a property inspection condition which allows a specified dollar figure in repairs to be reached before being able to cancel an offer might be more desirable than a condition that states “in the buyer’s sole and absolute discretion”. A buyer needs to be cautious about the risks associated with not including any conditions, and should be aware that some conditions can be included which are more favourable to a seller than others. Exam Study Guide

Inclusions

In a multiple offer situation, buyers might want to leave out the chattels they were hoping the seller would agree to include in the sale. An item that might seem insignificant to the buyer might be important to the seller. Including that item can have an impact on the seller’s view of the offer. Advise buyers it might be best to not complicate their offers with too many inclusions.

Irrevocable Period

The time the seller has to accept the offer (the irrevocable period) can be another factor in a multiple offer situation. The right price combined with a shortened irrevocable time period can help put the buyer in a better negotiation position. On the other hand, pressuring the seller to make a decision before they are ready, can result in the offer being rejected. A long irrevocable can give the seller more time to make the choice between offers or allow the seller to find more offers, but this puts the buyer at a disadvantage. The irrevocable time period should be discussed with the buyer to ensure they understand their obligations related to this.

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Lesson 3 | Page 11 of 23

Seller’s Risks in a Multiple Offer Situation When sellers receive multiple offers on their property, they have a decisive advantage. While price can influence their decision, they need to consider other factors to ensure a successful sale that meets or exceeds their expectations. Once the offers are presented, the seller can accept one, make a counter offer, send offers back for improvement, or reject them all. Here are three factors sellers should consider in offers and their associated risks: 1. Conditions: If a seller accepts an offer with conditions, the risk is the potential loss of the transaction if conditions are not met. Along with that loss is the potential loss of offers from other interested buyers. A buyer not including conditions in an offer also presents a risk. For example, a buyer who has financing preapproval does not include a financing condition in their offer, however the pre-approval does not guarantee the lender will approve the buyer’s mortgage. If the buyer cannot arrange the required financing, the sale might not be completed. This could result in the seller needing to re-list the property for sale several weeks or months later. 2. Countering Offers: The seller can counter an offer for one of the buyers. That buyer, however, may decide against the counter offer. Other buyers who made offers may have placed an offer on a different property, resulting in the seller losing the opportunity to accept or negotiate other offers. 3. Rejecting Offers: The seller can reject all offers and advise buyers to bring back their best offer at a specific time. This strategy might result in buyers deciding not to participate. Once an offer is rejected, a buyer is no longer obligated to the offer. Certain strategies can be used by a seller when assessing the strength of various offers being received at the same time.

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Lesson 3 | Page 12 of 23

Strategies for Sellers When Working with Multiple Offers Sellers receiving multiple written offers for their property is an exciting and desirable situation. At the same time, the seller has to consider how to handle the offers. Your role as a salesperson is to help the seller remain focused and make the best decisions. To do this, you need to understand some typical options to consider when working with multiple offers. The following three sections contain information on each strategy when working with sellers in a multiple offer situation.

Irrevocable Period

All offers will identify the irrevocable period. A seller must address the buyer’s offer within this time period, otherwise the offer becomes null and void. It is your responsibility, as the seller’s salesperson, to ensure every offer’s irrevocability is identified and the time period monitored. If there are several offers which appear similar, a seller may be able to negotiate one of the offers during the irrevocable time period of the other offers. This would allow a seller to still consider one of the other offers should the offer they choose to negotiate not result in acceptance.

Offer Presentation The seller may request that the listing salesperson withhold any offer presentations until a specific day and time. Offers can be registered, but no offers will be presented to the seller Time until this time.

An offer presentation time allows a seller the opportunity to have as many buyers view the property and consider placing an offer before addressing any offer. The intent would be to generate interest, build competition, and produce more offers for the seller to consider.

Property Inspection Report

In some circumstances, a seller could obtain a property inspection report and make this report available to any buyer during the property viewing. This would indicate the seller is providing as much information as possible about the property. The result could be an offer that is higher priced with fewer conditions as the buyer is more aware of the structure’s condition. This might be an acceptable approach in several circumstances, such as when the home is older or the seller has not lived in the property (e.g., the property is inherited or being sold by the estate). Exam Study Guide

Lesson 3 | Page 13 of 23

You are working for a couple who want to make an offer on a property listed at $450,000. The property is in a highly desirable area of the city although it is listed as needs repairs and sold “as is”. Your market research shows homes in the area have sold for $500,000 and up. The couple has a pre-approved mortgage for $450,000 and $50,000 in the bank for a down payment. They also have a certain tolerance for risk and have family available to guarantee any mortgage up to a certain amount. You learn from the listing salesperson the property has three offers registered. The sellers want a closing date of August 31. Question #54: You should advise the couple to make an offer of not more than $500,000. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 3 | Page 14 of 23

You are working for a couple who want to make an offer on a property listed at $450,000. The property is in a highly desirable area of the city although it is listed as needs repairs and sold “as is”. Your market research shows homes in the area have sold for $500,000 and up. The couple has a pre-approved mortgage for $450,000 and $50,000 in the bank for a down payment. They also have a certain tolerance for risk and have family available to guarantee any mortgage up to a certain amount. You learn from the listing salesperson the property has three offers registered. The sellers want a closing date of August 31. Question #55: You should advise the couple to waive a home inspection. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 3 | Page 15 of 23

You are working for a couple who want to make an offer on a property listed at $450,000. The property is in a highly desirable area of the city although it is listed as needs repairs and sold “as is”. Your market research shows homes in the area have sold for $500,000 and up. The couple has a pre-approved mortgage for $450,000 and $50,000 in the bank for a down payment. They also have a certain tolerance for risk and have family available to guarantee any mortgage up to a certain amount. You learn from the listing salesperson the property has three offers registered. The sellers want a closing date of August 31. Question #56: You should advise the couple to make the completion date on the offer August 31. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 3 | Page 16 of 23

You are working for a couple who want to make an offer on a property listed at $450,000. The property is in a highly desirable area of the city although it is listed as needs repairs and sold “as is”. Your market research shows homes in the area have sold for $500,000 and up. The couple has a pre-approved mortgage for $450,000 and $50,000 in the bank for a down payment. They also have a certain tolerance for risk and have family available to guarantee any mortgage up to a certain amount. You learn from the listing salesperson the property has three offers registered. The sellers want a closing date of August 31. Question #57: You should advise the couple to make a deposit of $25,000 upon acceptance with an additional deposit of up to $25,000 on a certain date or condition. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 3 | Page 17 of 23

You are working for a couple who want to make an offer on a property listed at $450,000. The property is in a highly desirable area of the city although it is listed as needs repairs and sold “as is”. Your market research shows homes in the area have sold for $500,000 and up. The couple has a pre-approved mortgage for $450,000 and $50,000 in the bank for a down payment. They also have a certain tolerance for risk and have family available to guarantee any mortgage up to a certain amount. You learn from the listing salesperson the property has three offers registered. The sellers want a closing date of August 31. Question #58: You should advise the couple to waive a financing condition. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 3 | Page 18 of 23

You work for a seller of a property listed at $295,000. The property is in good condition in a desired neighbourhood. The seller is considering four offers. The sellers cannot move for at least three months. Question #59: Which one of the offers provides the least risk to the seller? Choose the best offer. There are four options. There is only one correct answer.

1

A $290,000 offer with a $15,000 deposit on acceptance. The offer is conditional on the buyers selling their home.

2

A $292,000 offer with a $10,000 deposit on acceptance. The offer has financing and home inspection conditions and a short closing date, only four weeks from now.

3

An offer of $289,000 with a $25,000 deposit on acceptance of the offer. The only condition is a home inspection.

4

An offer of $291,000 with a $5,000 deposit upon acceptance. The offer has no conditions and has a long list of chattels included.

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Lesson 3 | Page 19 of 23

You work for a seller of a property listed at $335,000. The property is in good condition in a desired neighbourhood. Based on the aggressive pricing and current market conditions, you are expecting to receive multiple offers on the property. Question #60: What strategies can you use to help the seller obtain and work with multiple offers? There are four options. There are multiple correct answers. 1

If several offers appear similar, the seller may be able to negotiate one of the offers during the irrevocable time period of the other offers.

2

The seller could obtain a property inspection report and make this report available to any buyer during the property viewing.

3

With the seller’s agreement, provide an offer presentation time. Offers can be registered, but no offers will be presented to the seller until the stated time.

4

Advise the seller to be firm with the completion date.

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Lesson 3 | Page 20 of 23

Leading Practices When Working for Buyers in Multiple Offer Situations

At all times, a salesperson must ensure a buyer is making well-informed decisions and a transaction is being negotiated ethically and fairly. As a salesperson, your actions can impact the results of a buyer’s offer. Consider the following leading practices when working with a buyer in a competing offer situation. • Research the market to know what comparable properties have sold for recently. • Know what price the buyer is qualified to pay. You can suggest the buyer discuss mortgage options with a lender in advance to understand their financing position. Discourage buyers from overextending their offer Exam Study Guide

beyond what they can afford. • Encourage the buyer to make the largest deposit they can to demonstrate their interest and commitment to the purchase. • Ensure the buyer understands and is comfortable with the risks associated with not including conditions in their offer. • Be pro-active and suggest the buyer bring along someone when viewing a property who can capably assess the condition of the structure or identify any environmental concerns. • Consider the time period for the irrevocable period. Allowing an extended time period for a buyer’s offer places them at a disadvantage as this allows the seller to address other offers in the interim. • Be prepared to act quickly. Ensure the buyer understands how events can unfold and prepare them for the necessary paperwork in advance. • Remind buyers that in a multiple offer situation, the highest priced offer is not always accepted and it might take several offers on different properties before their offer is accepted. • Advise buyers to be readily available during the time period when offers are being presented. This will allow for any counter offer to the buyer to be addressed quickly. • Before presenting an offer, contact the listing salesperson to confirm the current number of offers. Ensure the buyer is prepared to enter a competing offer scenario and may be required to make their first offer their best offer. • Register the offer, which means get it signed and let the listing salesperson and brokerage know you have an offer. • Consider presenting the offer in person. Having face-to-face contact can give you the opportunity to position the buyer and explain their offer to the seller.

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Lesson 3 | Page 21 of 23

Leading Practices When Working for Sellers in Multiple Offer Situations

Communication with all parties involved in a multiple offer situation is vital. Consider the following practices to help you manage a competing offer situation with a seller. • Before presenting offers, meet with the seller and review the standard clauses contained in the agreement of purchase and sale to ensure they understand the legal obligations if an offer were to be accepted. • Ensure the seller understands the required disclosures to buyers submitting written offers. You will be Exam Study Guide

required to disclose the number of offers, multiple representation, and remuneration agreements. • Do not disclose any information to other brokerages or buyers regarding the details of any competing offer. • Educate the seller on the process and what to expect. If using a presentation date, choose a date and time for reviewing offers that are convenient to the seller. Discuss the options the seller has once all offers have been presented. • Unless instructed by the seller otherwise, convey each offer to the seller as soon as possible. Only counter one offer at a time. Consider whether an offer that is substantially lower than others is worth countering. If you send back a buyer’s offer for improvement, ensure the seller understands that the buyer can walk away. • As soon as an offer is registered, notify the other salespersons who have shown the property in an attempt to generate additional offers for the seller. • When a second offer is registered, contact the salespersons who registered the first offer and advise them they are in a multiple offer situation. Keep people informed as other offers get registered. Keep track of all contact information. • Consider communicating to the salesperson what the seller wants along with any special instructions. Also let them know of any changes to the process. Ensure the same information is provided to all brokerages and salespersons to ensure no buyer has an advantage. • Prior to presenting offers to the seller, notify all salespersons who have registered offers, to inform them of the total number of offers. If an offer arrives while you are presenting offers (a late offer), notify all salespersons with registered offers that the number of offers has changed. • Once the seller has accepted an offer, inform the other salespersons of the offer status. • Ensure you submit to the brokerage copies of all unsuccessful offers, including original offers and any counter offers (or a summary document when applicable).

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Lesson 3 | Page 22 of 23

As a salesperson you can find yourself dealing with multiple offers. Whether you are working for the seller or the buyer, some leading practices are the same for both parties. Question #61: Identify at least three leading practices that apply to working with both sellers and buyers.

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Lesson 3 | Page 23 of 23

Congratulations, you have completed the lesson! There are five sections on this page with a summary of the key topics that were covered in this lesson.

Required disclosures When a seller receives competing offers, the following disclosures are required by the seller’s salesperson to every buyer who has submitted an offer:

• The number of offers received, but not the contents of any offer • Any remuneration agreement with the seller that might impact whether a buyer’s offer is accepted • The representation status when a brokerage is operating under multiple representation • The nature of the relationship to each seller and buyer when the brokerage is representing or providing services to more than one seller or buyer for the same trade

Risks and strategies for buyers when working with multiple offers

Risks for a buyer include: offering a price for a property that cannot be financed or is above appraised value; relying on a pre-approval for a purchase but finding out before closing that circumstances have impacted the approval; not including conditions meant to protect the buyer, such as a property inspection. Certain strategies can be used by a buyer to increase the appeal of their offer while not being exposed to the same level of risk. Strategies to consider for a buyer include: making their first offer their best offer; ensuring the market place has been analyzed to ensure the offer reflects the current conditions; obtaining a pre-approved mortgage; making a large deposit with a certified cheque; providing the seller with proof of funds along with any offer; being flexible for the completion date; ensuring conditions are appropriately worded and the time period for due diligence is reasonable; minimizing the chattels included; ensuring the irrevocable time period is reasonable and appropriate based on market conditions.

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Risks and strategies for sellers when working with multiple offers

Risks for a seller include: accepting offers with conditions if the buyer cannot fulfill the condition; countering an offer which could result in the buyer not accepting the offer; rejecting the offers which could result in buyers deciding to no longer participate in the offer process. Certain strategies can be used by a seller when assessing the strength of various offers being received at the same time. Strategies to consider for a seller include: using the irrevocable period to the best advantage of the seller while ensuring the irrevocability of other offers is monitored; set an offer presentation time to allow for more offers to be obtained; providing as much information about the property as possible to allow buyers to make fully-informed decisions about the property.

Leading practices for Prepare the buyer for making an offer by educating the buyer on the process, the terms of the agreement of purchase and sale, and the best strategies for their offer and the a salesperson working with buyers associated risks. Communicate with the listing salesperson to stay informed on the process, register and present your buyer’s offer, and be available for quick revision of an offer.

Leading practices for Prepare the seller for reviewing offers by ensuring the seller understands their obligations related to accepting an offer, discussing the offer process and how multiple salespersons working with sellers offers will be addressed, and educating the seller on the strategies for dealing with offers, and the associated risks.

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Lesson 4 | Page 1 of 8

Lesson 4: Summary Practice

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 8

This lesson provides a scenario for which the possible errors, omissions, details to be filled in the form and other concerns on each page of the Agreement of Purchase and Sale have been discussed.

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Lesson 4 | Page 3 of 8

Exam Study Guide

Mr. Wayne Chisolm and Mrs. Sylvia Chisolm are negotiating the purchase of a property. Their salesperson drafted and presented an offer on their behalf, which the sellers countered. The possible errors, omissions, and other concerns on page one of the agreement of purchase and sale prepared for Mr. and Mrs. Chisolm and countered by the sellers regarding 3291 Forest View Parkway in Anycity are as follows: Under the Deposit section: • Buyers’ initials are required for the change to the deposit. • Deposits are typically held by listing broker only. They cannot be held jointly by two brokerages. Under the Irrevocable section: • The offer should have been irrevocable by the buyer initially and then amended to read as seller. Under the Initials section: • Initials are reversed at the bottom of the page: the sellers initialed the buyers’ initials location, and the buyers initialed the seller’s initials location.

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Lesson 4 | Page 4 of 8

Exam Study Guide

Mr. Wayne Chisolm and Mrs. Sylvia Chisolm are negotiating the purchase of a property. Their salesperson drafted and presented an offer on their behalf, which the sellers countered. The possible errors, omissions, and other concerns on page two of the agreement of purchase and sale prepared for Mr. and Mrs. Chisolm and countered by the sellers regarding 3291 Forest View Parkway in Anycity are as follows: Under the Chattels Included section: • The description of the security system and the lower family room furnishings is incomplete. Under the Fixtures Excluded section: • The Chattels Included clause shows all drapes included. The Fixtures Excluded clause excludes the living room drapes as fixtures. Under the Initials section: • Initials are reversed at the bottom of the page: the sellers initialed the buyers’ initials location, and the buyers initialed the sellers’ initials location.

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Lesson 4 | Page 5 of 8

Mr. Wayne Chisolm and Mrs. Sylvia Chisolm are negotiating the purchase of a property. Their salesperson drafted and presented an offer on their behalf, which the sellers countered. The possible problem on page three and four of the agreement of purchase and sale prepared for Mr. and Mrs. Chisolm and countered by the sellers regarding 3291 Forest View Parkway in Anycity is that the initials are reversed at the bottom of the page: the sellers initialed the buyers’ initials location, and the buyers initialed the sellers’ initials location.

Exam Study Guide

Lesson 4 | Page 6 of 8

Exam Study Guide

Mr. Wayne Chisolm and Mrs. Sylvia Chisolm are negotiating the purchase of a property. Their salesperson drafted and presented an offer on their behalf, which the sellers countered. The possible errors, omissions, and other concerns on page five of the agreement of purchase and sale prepared for Mr. and Mrs. Chisolm and countered by the sellers regarding 3291 Forest View Parkway in Anycity are as follows: Under the Spousal Consent section: • Marilyn Mostofi’s signature is in the wrong location. She should sign as a seller, not under spousal consent. Under the Confirmation of Acceptance section: • The co-operating salesperson signed the Confirmation of Acceptance. It should be signed by the last person signing the counter offer. In this instance, one of the buyers, Silvia or Wayne Chisolm, should sign. Under the Acknowledgment section: • Wayne Chisolm’s signature and required date are missing from the Acknowledgment.

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Lesson 4 | Page 7 of 8

Mr. Wayne Chisolm and Mrs. Sylvia Chisolm are negotiating the purchase of a property. Their salesperson drafted and presented an offer on their behalf, which the sellers countered. Exam Study Guide

The possible errors, omissions, and other concerns on Schedule A (Page 6) of the agreement of purchase and sale prepared for Mr. and Mrs. Chisolm and countered by the sellers regarding 3291 Forest View Parkway in Anycity are as follows: Under the Pay Further Sum section: • The additional amount to pay should be $225,000 ($250,000 purchase price – $10,000 deposit – $15,000 seller take back mortgage). Under the Mortgage condition fulfilment date section: • The mortgage condition fulfilment date should be before the title search date stated on page three. Note: While this is difficult to see here, it highlights the importance of comparing information from different pages. Under the First Mortgage section: • The wording should be changed to “not more than” and the waiver provision should be deleted to prevent a possible fraudulent offer. As an alternative, a standard mortgage clause could be added to the agreement. Under the Seller Take Back section: • This should be conditional on a credit check of the buyers. Under the Leakage section: • The clause does not adequately protect the buyer. Under the Easement section: • The easement description poses problems, as it is indefinite regarding location. Further, no reference to easement appears in the legal description. The issue should have been addressed prior to drafting the agreement, by attaching a survey showing the easement, or inserting an appropriate condition to investigate further if it was not possible to clearly establish its location. Legal advice should be sought. Under the initials section: • Initials are reversed at the bottom of the page: the sellers initialed the buyers’ initials location, and the buyers initialed the sellers’ initials location. Under the Agreement of purchase and sale and the Schedule A section: • The agreement of purchase and sale have the sellers’ and buyers’ names written one way and an initial added on the Schedule A. Exam Study Guide

Lesson 4 | 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 the module!

This lesson will present a summary of Learning Objectives.

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Module Summary | Page 3 of 3

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

Complete an agreement of purchase and sale with conditions

A fundamental part of working as a salesperson involves completing an agreement of purchase and sale. When doing so, you will need to ensure dates within the agreement align. To do so, you will need to identify key dates when drafting an offer. The offer plan should itemize these five dates in the following chronological order: Offer date, Irrevocable, Expiry of conditions – conditional date, Requisition – title search date, and Completion or closing date. For Schedule A, which is part of every offer, you will need to itemize the required clauses for the offer. A clause identifying the balance due on completion must be included in every offer. Other clauses and conditions, such as obtaining financing or a property inspection, are also added to Schedule A. Stacking refers to a way of grouping and writing conditions that are required to be fulfilled by the same date. With stacking, the party responsible for completing the conditions is clear. There’s a single fulfillment or waiver date for multiple conditions. Stacking conditions avoids repetitive language for several different clauses.

Complete a counter offer

As a salesperson, you will need to understand and complete counter offers. All offers must be in writing and signed for the offer to be valid. Retaining copies of offer is regulated under REBBA. The Code of Ethics requires all offers to be legible. A counter offer is completed in one of three ways: amend the original offer, draft a new offer, or prepare a counter offer form. Terms which typically become part of the counter offer negotiations include the purchase price, a change of completion date, chattels included or fixtures excluded from the sale of the property. Other typical changes include the amount of the deposit or revisions, inclusions or deletions to a condition, or other term included on Schedule A. When a counter offer is being made, specific changes to the offer must be completed, such as the irrevocability clause. The party making the counter offer must initial each change to identify consent to the change. To accept a counter offer, the party must place their initials by every change made by the other party. Exam Study Guide

Completion of this lesson has enabled you to: • Identify the requirements under REBBA when an offer will be countered rather than accepted • Identify the steps when an offer will be countered rather than accepted • Describe what changes are typically made when countering an offer • Complete an agreement of purchase and sale that includes a counter offer

Work with competing offers

A competing offer is when more than one buyer places an offer on a property at the same time. These situations represent a new challenge for buyers and sellers, and places additional obligations on a brokerage. The Code of Ethics includes specific requirements for the seller’s brokerage in a competing offer situation. Compliance with these requirements is important to ensure all parties are treated with fairness and honesty. Competing offers can also tempt buyers to place an offer without the same level of due diligence. As a salesperson, you need to advise a seller or a buyer about the different strategies and potential risks when working with multiple offers. Completion of this lesson has enabled you to: • Identify the requirements under REBBA regarding competing offers • Identify the risks associated with multiple offers for sellers and buyers • Identify strategies for sellers and buyers when working with multiple offers • Identify leading practices for the salesperson when working with multiple offers

Exam Study Guide

Appendix | Page 1 of 4

Appendix Answer Key Question #1: 1 Question #2: 2 Question #3: 2 Question #4: 1 Question #5: 1 Question #6: 1, 3, 5 Question #7: 1, 3, 4 Question #8: 1, 2, 4 Question #9: 2 Question #10: 1 Question #11: 1 Question #12: 2 Question #13: 1 Question #14: 2 Question #15: 2 Question #16: 1 Question #17: 2 Question #18: 2 Question #19: 1 Question #20: 2 Question #21: 1 Question #22: 1 Question #23: 1

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Appendix | Page 2 of 4 Question #24: 1, 5 Question #25: 1 Question #26: Here is an example: This Offer is conditional upon the sale of the Buyer’s property known as 32 Cedar Crescent, in the City of Anycity. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale th or any Schedule thereto not later than 5:00 p.m. on the 14 day of July, 20xx, that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein. Provided further that the Seller may continue to offer the property for sale and, in the event the Seller receives another Offer satisfactory to the Seller, the Seller may so notify the Buyer in writing by delivery to the Buyer personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto. The Buyer shall have seventy-two (72) hours from the giving of such notice to waive this condition by notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto, failing which this Offer shall be null and void, and the Buyer’s deposit shall be returned in full without deduction. Question #27: 4 Question #28: 2, 4, 5 Question #29: Stack OREA clauses INSP–1, MORT–2, and INSUR–1. Note: Information that has been added to these clauses is in bold. This offer is conditional upon:

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The inspection of the subject property by a home inspector at the Buyer’s own expense, and the obtaining of a report satisfactory to the Buyer in the Buyer’s sole and absolute discretion

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The Buyer arranging, at the Buyer’s own expense, a new first Charge/Mortgage for not less than three hundred and fifty thousand dollars ($350,000), bearing interest at a rate of not more than 3.5% per annum, calculated semi-annually not in advance, repayable in blended monthly payments of about one thousand seven hundred and forty seven dollars and forty-five cents ($1,747.45 ), including principal and interest, and to run for a term of not less than five years from the date of completion of this transaction

•

The Buyer arranging insurance for the property satisfactory to the Buyer in the Buyer’s sole and absolute discretion

Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this nd Agreement of Purchase and Sale or any Schedule thereto not later than 5:00 p.m. on the 22 day of May, 20xx, that this condition is fulfilled, this offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. The Seller agrees to co-operate in providing access to the property, if necessary, for any inspection of the property required for the fulfillment of this condition. This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein.

Exam Study Guide

Appendix | Page 3 of 4 Question #30: 2, 3 Question #31: 1, 2, 4, 5 Question #32: 1 Question #33: 1 Question #34: 2 Question #35: 1 Question #36: 2 Question #37: You have these three options for creating a counter offer: Option 1: Amend the original offer You amend by inserting your changes on the agreement form and having the seller or buyer initial each change. This method is the most common. Options 2: Draft a new offer You can draft a new offer when the seller or buyer amends the offer significantly and written changes are difficult to insert. Written changes become confusing due to two or more counter offers. Have the seller or buyer sign the new offer and use it. Keep the original offer with all the changes so you can go back and see what the parties were doing if you are ever questioned. Option 3: Prepare a counter offer form You can use a counter offer form as an alternative to amend an original offer. To use the counter offer form, itemize each change in detail the seller wishes to make. Have the seller sign the counter offer form, NOT the original offer. If the buyer accepts the counter offer terms, the buyer signs the counter offer form. Question #38: 1 Question #39: 2 Question #40: 2 Question #41: 1 Question #42: 2 Question #43: 2 Question #44: 1, 2, 3, 6 Question #45: 1

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Appendix | Page 4 of 4

Question #46: 2, 4 Question #47: 1 Question #48: 1 Question #49: 2 Question #50: 1 Question #51: 2 Question #52: 1, 4, 5 Question #53: The rules that apply to multiple representation in competing offer situations:

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You must have written consent from both the seller and the buyer.

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You need to disclose to anyone with a written offer if you are representing both the seller and the buyer.

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If you are the listing salesperson and receive two offers from the same co-operating brokerage, you are responsible for informing their salespersons of the multiple representation situation.

Question #54: 1 Question #55: 2 Question #56: 1 Question #57: 2 Question #58: 1 Question #59: 3 Question #60: 1, 2, 3 Question #61: Leading practices that apply to working with both sellers and buyer:

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Research the market to know what comparable properties have sold for recently.

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Meet with the seller or buyer to review the standard clauses contained in the agreement of purchase and sale.

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Ensure sellers and buyers understand and are comfortable with the risks associated with removing conditions from offers.

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Consider the time period for the irrevocable clause.

Exam Study Guide

Module: Additional Sale-Related Documents and Other Legal Obligations This is a study guide to help you prepare for the qualifying exam. There are multiple study guides that are provided for preparation. Each study guide contains several decision points to test your knowledge. The answer key to these decision points is present in the “Appendix” section at the end of the guide. Please use Adobe Acrobat Reader (Recommended version 9 or above) to navigate through this PDF. Real Estate Pre-Registration 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 PreRegistration Program learner.

Exam Study Guide

Module: Additional Sale-Related Documents and Other Legal Obligations

Sale-Related Documents and Legislative Requirements This module introduces you to additional documents related to a transaction including an amendment to the agreement of purchase and sale, notices relating to the fulfillment or waiver of a condition, and a mutual release when a transaction is terminated. Details for completing negotiations for a trade include information regarding obligations under REBBA for retaining copies of the agreement of purchase and sale by the brokerage and a salesperson, and guidelines to help ensure any personal or confidential information from the trade is securely retained and used appropriately according to the Personal Information Protection and Electronic Documents Act (PIPEDA). REBBA also requires specific information to be documented relating to a trade, and as a salesperson, you will be involved in reviewing and signing this document for each transaction. The module includes additional obligations relating to instances of a direct or indirect interest in a trade to ensure the required disclosure is made in compliance with REBBA. As market conditions can impact the offer process, considerations regarding this topic are detailed, including leading practices to follow regarding the offer process. The module also reviews obligations under FINTRAC and how to identify suspicious activity. There is a final segment to identify distinct challenges when explaining the agreement of purchase and sale to a seller or a buyer which includes a summary of the more complex areas of the agreement.

Exam Study Guide

Menu: Additional Sale-Related Documents and Other Legal Obligations Number of Lessons Lesson Number

6 Lessons

Lesson Name

Lesson 1

Additional Sale-Related Documents

Lesson 2

Requirements Under REBBA Relating to a Trade

Lesson 3

Compliance With Requirements Under FINTRAC

Lesson 4

Putting It All Together – A Residential Agreement of Purchase and Sale

Lesson 5

Summary Practice Activities Module Summary Appendix

Exam Study Guide

Lesson 1 | Page 1 of 54

Lesson 1: Additional Sale-Related Documents

In this lesson, you will learn how to document changes to an accepted agreement of purchase and sale, the required notices when a condition is either fulfilled or waived, and the requirements when an agreement is terminated to release the parties from their obligations and to provide directions for the brokerage relating to a buyer’s deposit.

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Lesson 1 | Page 2 of 54

Additional Sale-Related Documents

When an agreement of purchase and sale has been accepted, any change required to the original terms must be in writing and agreed to by all parties. When an accepted offer contains one or more conditions; for example, a condition on obtaining financing, notice must be provided to the other party prior to the time period for the condition expiring (when the condition is written as a condition precedent). Depending on the circumstances, one of two types of notices could be used – a notice identifying the condition is fulfilled or a notice identifying the condition is being waived. If the notice is not received by the other party prior to the time period for the condition expiring, the offer becomes null and void. When an agreement of purchase and sale is binding upon the parties – that is, it is an agreement rather than a conditional offer – and for some reason the agreement needs to be terminated, all parties must release each other and the brokerage from their obligations to the agreement and provide directions to the brokerage relating to disbursing the buyer’s deposit from their statutory trust account. In all of these situations, as a salesperson, you will need to be prepared and knowledgeable in how to properly document the action taken to ensure the requirements are accurately addressed and the parties are in full understanding.

Exam Study Guide

Upon completion of this lesson, you will be able to: • Identify key aspects of, and complete an amendment to an agreement of purchase and sale • Identify when to use, and complete a notice of fulfillment of conditions • Identify when to use, and complete a waiver • Identify when to use, and complete a mutual release Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

Exam Study Guide

Lesson 1 | Page 3 of 54

Once an offer has been accepted, there can be no additional changes made to that document. When an offer has been accepted, any change to the terms agreed to must be documented in writing. This change must be on a new document. If the amendment is accepted, it is read in conjunction with the agreement of purchase and sale and forms part of the agreement. Only the altered or amended term(s) are written in the new document. All other terms of the accepted offer remain the same. The amended terms now replace the original terms in the agreement. If the amendment is not accepted, the original terms, as agreed to, remain in effect.

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Lesson 1 | Page 4 of 54

Amending an Agreement of Purchase and Sale An amendment to the agreement of purchase and sale is used to delete any term agreed to, revise any term agreed to, or add a new term to the agreement. An amendment is an offer to change what was previously agreed to by the parties. An amendment may be requested by either a seller or a buyer. Examples of terms which could be amended include: • Completion date – reschedule to an earlier or a later date. For example, a seller is informed that possession of the new home they are having built has been delayed by 30 days • Purchase price – revise based on new information received. For example, a property inspection report identifies a previously unknown problem and the parties agree to reduce the purchase price to reflect this new information • Chattels and fixtures – add or delete an inclusion and/or exclusion. For example, a light fixture the seller wishes to retain was not previously identified as an exclusion • Seller or buyer name(s) – add, delete or correct. For example, a spelling error to a name on the agreement of purchase and sale As a salesperson, you should exercise caution when an amendment to the agreement is being considered. Any change to the agreed upon terms can create a complex situation that requires an assessment of the impact of the change. For example, a change to the completion date may result in additional costs; the party may only accept the amendment if they are compensated for the additional expenses. Or, an amendment made within the conditional period that relates to a condition in the offer which could result in negotiation of other terms being reopened.

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Lesson 1 | Page 5 of 54

Key Components of an Amendment to an Agreement of Purchase and Sale

An amendment is a proposal or offer to amend the agreement of purchase and sale. It does not void the agreement – the amendment adds, deletes or revises one or more terms previously agreed to by the seller and the buyer. Just like an agreement of purchase and sale, an amendment will include an irrevocable time period. If the amendment is not accepted or a counter-offer to the amendment is not made by the other party within the irrevocability, the amendment is null and void and the terms originally agreed to remain in effect. The given information is required to document an amendment to an agreement of purchase and sale: • Cross reference the amendment to the agreement of purchase and sale. • Insert the wording being deleted (when required) exactly as shown on the agreement of purchase and sale. • Insert the new wording (when required) exactly as it should be shown on the agreement of purchase and sale. • Insert the irrevocable date. • Have all required parties – that being all those who signed the original agreement of purchase and sale – sign the amendment. Exam Study Guide

Lesson 1 | Page 6 of 54

Completing an Amendment to an Agreement of Purchase and Sale

The offer for Ben and Sarika Horvath to purchase a property owned by Joseph Markes and Sebastian de Freyne has been accepted. The offer indicated a completion date of November 8, 2019. The buyers are now asking for the completion date to be changed to November 27, 2019. The amendment is prepared by their salesperson Rozsa Lamos on October 1, 2019.

Exam Study Guide

Lesson 1 | Page 7 of 54

Amendment to Agreement of Purchase and Sale – Cross-Reference to Agreement of Purchase and Sale For example, OREA Form 120 contains a section at the top to cross-reference the amendment to the agreement of purchase and sale.

From OREA Form 120: Amendment to Agreement of Purchase and Sale. ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

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Lesson 1 | Page 8 of 54

Amendment to Agreement of Purchase and Sale – Insert Deletion and/or Insertion For example, OREA Form 120, provides areas for inserting the wording to be deleted and/or inserted. The initials of the applicable party are also obtained.

From OREA Form 120: Amendment to Agreement of Purchase and Sale. ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

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Lesson 1 | Page 9 of 54

Amendment to Agreement of Purchase and Sale – Insert Irrevocable Date and Signature(s) For example, OREA Form 120 provides an irrevocable date and time for the amendment to be accepted. The party making the amendment signs and dates the document.

From OREA Form 120: Amendment to Agreement of Purchase and Sale. ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

Exam Study Guide

Lesson 1 | Page 10 of 54

Accepting an Amendment to the Agreement of Purchase and Sale

If the amendment is accepted, the other party initials and signs to confirm their agreement. All parties who signed the original agreement of purchase and sale will also sign the amendment to the agreement of purchase and sale. The Confirmation of Acceptance and acknowledgement is also signed when the amendment has been accepted. This can be by either the seller or buyer as the amendment can be initiated by either party and a counter offer made to any offer to amend the originally accepted offer. If the amendment is not accepted, all provisions of the original agreement remain the same. An example of a completed amendment to the agreement of purchase and sale is shown on the given screens. The amendment to the agreement of purchase and sale submitted by Ben and Sarika Horvath is being accepted by the sellers, Joseph Markes and Sebastian de Freyne. Their salesperson, Neo Farai, witnesses the signatures and the Confirmation of Acceptance is completed. This must be accepted and communicated back to the buyers prior to the irrevocability expiring. The acknowledgement sections are also completed identifying all parties have received their copy of the accepted amendment. Exam Study Guide

Lesson 1 | Page 11 of 54

Amendment to Agreement of Purchase and Sale: Acceptance For example, OREA Form 120, provides for the party to sign and date their signature indicating acceptance of the amendment. The party would also initial the amendment as required.

From OREA Form 120: Amendment to Agreement of Purchase and Sale. ©2019 Ontario Real Estate Association. All rights reserved. Used under license. Exam Study Guide

Lesson 1 | Page 12 of 54

Amendment to Agreement of Purchase and Sale: Complete Acknowledgement For example, OREA Form 120 provides for both the seller and the buyer to complete the information in the Acknowledgement section to confirm they have received a copy of the amendment and also provides permission to provide a copy of the amendment to their respective lawyers.

From OREA Form 120: Amendment to Agreement of Purchase and Sale. ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

Exam Study Guide

Lesson 1 | Page 13 of 54

Amendment to Agreement

Anette Alahodpo and George Alahodpo have just purchased their first property. The property is located at 1922 East Street, AnyCity, Municipality of AnyRegion. They are represented by Lemuel Orlov of XYZ Realty Ltd., at 30 Main Street, AnyCity, AnyRegion (tel: 555-626-2134 or fax: 555-627-2334). Anette and George currently reside at 130 End Road, AnyCity, AnyRegion (tel: 555-345-0091). Their lawyer is Thom Jason of Jason and Associates at 67 Main Road, AnyCity, AnyRegion ([email protected], tel: 555-345-9876, fax: 555-667-8876). The seller, Viloh Ebbert (tel 555-653-8765) is represented by C.A. Waur of ABC Real Estate Inc. at 2167 North Road, AnyCity, AnyRegion (tel: 555-341-4321 or fax: 555-441-3333). Viloh’s lawyer is S.E. Das of Hodss and Associates at 34 High Blvd., AnyCity, AnyRegion ([email protected], tel: 555-998-8900, fax: 555-999-6677). The offer was accepted on May 20, 2019. On May 21, Lemuel received a call from Anette asking him to change the agreement because her last name is misspelled as Alahidpo on the first page of the agreement. Lemuel prepared an amendment document with an irrevocable until May 22 at 10 p.m. The amendment was submitted to the seller on May 21, 2019, and was accepted by Viloh on the same day at 7 p.m. and returned to the buyers. Exam Study Guide

Lesson 1 | Page 14 of 54

The amendment was completed on OREA Form 120 – Amendment to Agreement of Purchase and Sale. The following information is entered in the page 1 of the accepted form. • Between buyers Anette Alahodpo and George Alahodpo and seller Viloh Ebbert. The legal names of the buyers and seller are required. • RE: Agreement of Purchase and Sale between the Seller and Buyer, dated the 20th day of May, 2019, concerning the property known as 1922 East Street, AnyCity, AnyRegion as more particularly described in the aforementioned Agreement. • The date shown on the top of the first page of the agreement of purchase and sale and the property address are included as cross-reference to the agreement. • Delete: Anette Alahidpo under “Buyer". This is the name to be deleted. • Insert: Anette Alahodpo under “Buyer”. This is the name to be inserted. • Initials of Buyer(s) are AA GA. The buyers initialled the change to be sent to the seller. • Initials of Seller(s) are VE. When accepted, the seller initialled the change.

Exam Study Guide

Scenario: Amendment to Agreement Anette Alahodpo and George Alahodpo have just purchased their first property. The property is located at 1922 East Street, AnyCity, Municipality of AnyRegion. They are represented by Lemuel Orlov of XYZ Realty Ltd., at 30 Main Street, Any City, AnyRegion. (tel: 555-626-2134 or fax: 555-627-2334). Anette and George currently reside at 130 End Road, AnyCity, AnyRegion. (tel: 555-345-0091) Their lawyer is Thom Jason of Jason and Associates at 67 Main Road, AnyCity, AnyRegion. ([email protected], tel: 555-345-9876, Fax: 555-667-8876). The seller, Viloh Ebbert (tel 555-653-8765) is represented by C.A.Waur of ABC Real Estate Inc. at 2167 North Road, AnyCity, AnyRegion (tel: 555-341-4321 or fax: 555-441-3333). Viloh’s lawyer is S.E.Das of Hodss and Associates at 34 High Blvd., AnyCity, AnyRegion. ([email protected], tel: 555-998-8900, fax 555-999-6677). The offer was accepted on May 20, 2019. On May 21, Lemuel received a call from Anette asking him to change the agreement because her last name is misspelled as Alahidpo on the first page of the agreement. Lemuel prepared an amendment document with an irrevocable until May 22 at 10 pm. The amendment was submitted to the seller on May 21, 2019 and was accepted by Viloh on the same day at 7 pm and returned to the buyers.

Exam Study Guide

Lesson 1 | Page 15 of 54

The amendment was completed on OREA Form 120 – Amendment to Agreement of Purchase and Sale. The following information is entered in the page 2 (section 1) of the accepted form. • Irrevocability: This Offer to Amend the Agreement shall be irrevocable by Buyer until 10 p.m. on the 22nd day of May, 2019, after which time, if not accepted, this Offer to Amend the Agreement shall be null and void. Here the irrevocable date and time for the amendment to be accepted is defined. • All other Terms and Conditions in the aforementioned Agreement to remain the same. Signed, sealed, and delivered in the presence of L Orlov. In witness whereof I have hereunto set my hand and seal: A Alahodpo May 21, 2019. Signed, sealed, and delivered in the presence of L Orlov. In witness whereof I have hereunto set my hand and seal: George Alahodpo May 21, 2019. • The buyer’s salesperson witnessed the signing and dating of the offer to amend the agreement and then signed as witness. • The buyers signed and dated the offer to amend the agreement. • I, the undersigned, agree to the above Offer to Amend the Agreement. Signed, sealed, and delivered in the presence of C A Waur. In witness whereof I have hereunto set my hand and seal: V Ebbert May 21, 2019. After the offer to amend was accepted by the sellers, the seller’s salesperson witnessed the signing and dating of the agreement. The seller signed and dated agreement to the amendment.

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Scenario: Amendment to Agreement Anette Alahodpo and George Alahodpo have just purchased their first property. The property is located at 1922 East Street, AnyCity, Municipality of AnyRegion. They are represented by Lemuel Orlov of XYZ Realty Ltd., at 30 Main Street, Any City, AnyRegion. (tel: 555-626-2134 or fax: 555-627-2334). Anette and George currently reside at 130 End Road, AnyCity, AnyRegion. (tel: 555-345-0091) Their lawyer is Thom Jason of Jason and Associates at 67 Main Road, AnyCity, AnyRegion. ([email protected], tel: 555-345-9876, Fax: 555-667-8876). The seller, Viloh Ebbert (tel 555-653-8765) is represented by C.A.Waur of ABC Real Estate Inc. at 2167 North Road, AnyCity, AnyRegion (tel: 555-341-4321 or fax: 555-441-3333). Viloh’s lawyer is S.E.Das of Hodss and Associates at 34 High Blvd., AnyCity, AnyRegion. ([email protected], tel: 555-998-8900, fax 555-999-6677). The offer was accepted on May 20, 2019. On May 21, Lemuel received a call from Anette asking him to change the agreement because her last name is misspelled as Alahidpo on the first page of the agreement. Lemuel prepared an amendment document with an irrevocable until May 22 at 10 pm. The amendment was submitted to the seller on May 21, 2019 and was accepted by Viloh on the same day at 7 pm and returned to the buyers.

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Lesson 1 | Page 16 of 54

The amendment was completed on OREA Form 120 – Amendment to Agreement of Purchase and Sale. The following information is entered in the page 2 (section 2) of the accepted form. • Confirmation of Acceptance: Notwithstanding anything contained herein to the contrary, I confirm this Agreement with all changes both typed and written was finally accepted by all parties at 7 p.m. this 21st day of May, 2019. This is followed by the signature of the seller, V Ebbert. The seller was the last party to accept the amendment and signed and dated the confirmation of acceptance. Under the Acknowledgement section, the following information is entered for the seller. The seller signed acknowledgement to confirm they have received a copy of the amendment and permission to provide a copy of the amendment to their lawyer. • • • • • • • • •

Seller is Viloh Ebbert. Date is May 21, 2019. Address for Service is 1922 East Street, AnyCity, AnyRegion. Telephone Number is 555-653-8765. Seller's Lawyer is SE Das. Address is 34 High Blvd., AnyCity, AnyRegion. Email is [email protected]. Telephone Number is 555-998-8900. Fax Number is 555-999-6677.

Under the Acknowledgement section, the following information is entered for the buyer. The buyers signed acknowledgement to confirm they have received a copy of the amendment and permission to provide a copy of the amendment to their lawyer. • • • • • • •

Buyers are Anette Alahodpo and George Alahopdo. Date is May 21, 2019. Address for Service is 130 End Road, AnyCity, AnyRegion. Telephone Number is 555-345-0091. Buyer's Lawyer is Thom Jason. Address is 67 Main Road, AnyCity, AnyRegion. Email is [email protected]. Exam Study Guide

• Telephone Number is 555-345-9876. • Fax Number is 555-667-8876.

Exam Study Guide

Scenario: Amendment to Agreement Anette Alahodpo and George Alahodpo have just purchased their first property. The property is located at 1922 East Street, AnyCity, Municipality of AnyRegion. They are represented by Lemuel Orlov of XYZ Realty Ltd., at 30 Main Street, Any City, AnyRegion. (tel: 555-626-2134 or fax: 555-627-2334). Anette and George currently reside at 130 End Road, AnyCity, AnyRegion. (tel: 555-345-0091) Their lawyer is Thom Jason of Jason and Associates at 67 Main Road, AnyCity, AnyRegion. ([email protected], tel: 555-345-9876, Fax: 555-667-8876). The seller, Viloh Ebbert (tel 555-653-8765) is represented by C.A.Waur of ABC Real Estate Inc. at 2167 North Road, AnyCity, AnyRegion (tel: 555-341-4321 or fax: 555-441-3333). Viloh’s lawyer is S.E.Das of Hodss and Associates at 34 High Blvd., AnyCity, AnyRegion. ([email protected], tel: 555-998-8900, fax 555-999-6677). The offer was accepted on May 20, 2019. On May 21, Lemuel received a call from Anette asking him to change the agreement because her last name is misspelled as Alahidpo on the first page of the agreement. Lemuel prepared an amendment document with an irrevocable until May 22 at 10 pm. The amendment was submitted to the seller on May 21, 2019 and was accepted by Viloh on the same day at 7 pm and returned to the buyers.

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Lesson 1 | Page 17 of 54

An accepted offer containing one or more conditions will require written notice to be provided to the other party within the due diligence time period provided in the agreement of purchase and sale. How the condition is structured – whether it is a condition precedent, a condition subsequent, or a true condition precedent – and whether the party has fulfilled the condition exactly as provided for in the offer, will impact the type of notice provided. When notice is provided, all other terms and conditions in the accepted offer remain unchanged.

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Lesson 1 | Page 18 of 54

Providing Written Notice for a Condition

A condition precedent requires notice that the condition is either fulfilled or waived within the specified time period, otherwise the offer becomes null and void. Notice is required to make the agreement legally binding. A condition precedent can be either fulfilled or waived, but a true condition precedent can only be fulfilled. A condition subsequent is binding upon acceptance of the offer with the ability to terminate the agreement within the specified time period. Therefore, no notice is required for a condition subsequent to identify a condition has been fulfilled or waived. Notice is only required if the party is not able to fulfill the condition or is not waiving the condition – then a notice of termination would be provided. If no notice is provided, the agreement remains binding whether the condition has been fulfilled or not. When a condition is satisfied, a notice identifying fulfillment of the condition is provided. For example, a condition may be worded which requires the buyer to obtain financing based on specific terms. When the financing has been Exam Study Guide

obtained that meets these terms, as a salesperson, you would prepare a notice of fulfillment. Example: Financing Condition – Fulfilled A buyer’s offer is conditional upon obtaining financing. The condition identified the terms associated with the financing were to be for not less than $250,000, with interest not more than 3.5 percent per annum, calculated semiannually not in advance, and for a term of not less than five years. The lender has approved the buyer for a $260,000 mortgage with interest at 3 percent per annum, calculated semi-annually not in advance, and a five year term. The buyer provides a notice to the seller identifying the condition is fulfilled. Conversely, when a condition has not been fulfilled exactly as identified in the accepted offer, however the party is continuing with the transaction, a waiver is used. This form of notice removes the condition from the offer. Example: Financing Condition – Waived A buyer’s offer is conditional upon obtaining financing. The condition identified the terms associated with the financing which were to be for not less than $250,000, with interest not more than 3.5 percent per annum, calculated semi-annually not in advance, and for a term of not less than five years. The lender has approved the buyer for a $260,000 mortgage with interest at 4 percent per annum, calculated semi-annually not in advance, and a three year term. As the interest rate and the term have not been fulfilled as provided for in the offer, the buyer provides a notice to the seller identifying the condition is waived. Although the buyer did not obtain financing as defined within the condition, they are prepared to continue with purchasing the property, and waive the condition. The agreement is now firm and binding.

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Lesson 1 | Page 19 of 54

Providing Notice – Using a Notice of Fulfillment of Condition(s)

When a condition is fulfilled exactly as in the agreement, the other party is notified using a notice of fulfillment. If there are multiple conditions associated with the accepted offer, a separate notice may be required for each condition unless the conditions are fulfilled and completed at the same time. In that case, one notice itemizing the conditions can be used.

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Lesson 1 | Page 20 of 54

Completing a Notice of Fulfillment of Condition(s)

When a condition has been met and the party is providing notice, the given will be required: • Cross reference the notice to the agreement of purchase and sale • Insert the exact clause wording being fulfilled • The party providing the notice signs and dates the notice • The party receiving the notice signs, dates, and inserts the time when the notice was received • A brokerage representing a seller, or a buyer may sign the acknowledgement on behalf of the client. When the seller or the buyer is a customer, they must acknowledge receipt of the notice as the brokerage is not authorized to acknowledge it on the customer’s behalf. Under multiple representation, the brokerage is also not authorized to acknowledge receipt of the notice • The acknowledgement must be completed prior to the expiry of the time period provided for in the accepted offer relating to the condition(s) • Copies of the notice are provided to each party and a copy is retained by the brokerage(s) The offer for Ben and Sarika Horvath to purchase a property owned by Joseph Markes and Sebastian de Freyne has been accepted. The offer indicated a condition for the buyers to obtain an inspection of the property and obtain a report satisfactory to them. The buyers have received the property inspection report and are satisfied with the results. The notice to the seller is being prepared by their salesperson Rozsa Lamos on September 15, 2019.

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Lesson 1 | Page 21 of 54

Notice of Fulfillment – Cross-Reference to Agreement of Purchase and Sale For example, OREA Form 124 – Notice of Fulfillment of Condition(s) can be used for this purpose. It provides a section for the seller and buyer name(s) and description of the property which is used to cross-reference the document to the agreement of purchase and sale.

From OREA Form 124: Notice of Fulfillment of Condition(s) ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

Exam Study Guide

Lesson 1 | Page 22 of 54

Notice of Fulfillment – Insert Exact Clause Wording For example, OREA Form 124 – Notice of Fulfillment of Condition(s) provides for the exact clause wording being fulfilled to be inserted.

From OREA Form 124: Notice of Fulfillment of Condition(s) ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

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Lesson 1 | Page 23 of 54

Notice of Fulfillment – Signatures and Receipt Acknowledgement OREA Form 124 – Notice of Fulfillment of Condition(s) also provides for the party fulfilling the condition to sign and date their signature. As outlined earlier, the notice must be received by the other party prior to the expiry of the condition as provided for in the accepted offer. Ensuring this information is complete and accurate is important as the accepted offer will become null and void if the notice is not received within the specified time period.

From OREA Form 124: Notice of Fulfillment of Condition(s) ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

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Lesson 1 | Page 24 of 54

Providing Notice – Using a Waiver

Although a notice of fulfillment and a waiver both result in a condition no longer affecting the contract, they are used under different circumstances and must be used appropriately. A notice of fulfillment is used to indicate that a condition has been met (fulfilled). Conversely, a waiver is used to waive or remove a condition that is in the agreement. However, a waiver can only be used if the clause in the accepted offer contains a waiver provision. The waiver provision is included in most conditions, but not all. If the clause does not contain the waiver provision, it is a true condition precedent and a notice of fulfillment may only be used. The waiver provision is highlighted in the given example:

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This Offer is conditional upon the inspection of the subject property by a home inspector at the Buyer’s own expense, and the obtaining of a report satisfactory to the Buyer in the Buyer’s sole and absolute discretion. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than p.m. on the day of , 20 , that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. The Seller agrees to co-operate in providing access to the property for the purpose of this inspection. This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein. From OREA Clause Inspection of Property by a Home Inspector – General Inspection ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

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Lesson 1 | Page 25 of 54

Situations Requiring the Use of a Waiver

Example: Property Inspection An accepted offer contains a condition for the benefit of the buyer to obtain a limited inspection of the property by a home inspection firm and obtain a report that all deficiencies can be remedied at a cost no greater than $2,000. The buyer receives an inspection report which indicates the deficiencies can be remedied for $3,000. The buyer determines this is satisfactory and would like to proceed with the offer. As the condition has not been fulfilled, the buyer provides a notice using a waiver which removes the condition from the agreement of purchase and sale. Example: Obtaining Insurance An accepted offer contains a condition for the benefit of the buyer to arrange for insurance on the property. The property is remote, and the buyer is unsure of the cost for obtaining insurance as the area is serviced by a volunteer fire department. The condition indicates the cost for insurance was not to exceed $1,000 per year. The property has just been inspected and the buyer is advised the annual policy will be $1,150 per year. The buyer is satisfied with these terms and provides a notice using a waiver rather than a notice of fulfillment.

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Lesson 1 | Page 26 of 54

Completing a Waiver

When a condition has not been met but the party wishes to proceed with the offer, a waiver is used. The given will be required: • Cross reference the waiver to the agreement of purchase and sale. • Insert the exact clause wording for the condition being waived. • The party providing the notice signs and date the notice. • The party receiving the notice signs, dates and inserts the time when the notice was received. • A brokerage representing a seller, or a buyer may sign the acknowledgement on behalf of the client. When the seller or the buyer is a customer, they must acknowledge receipt of the notice as the brokerage is not authorized. Under multiple representation, the brokerage is also not authorized to acknowledge receipt of the notice. • The acknowledgement must be completed prior to the expiry of the time period provided for in the accepted offer relating to the condition(s). Copies of the notice are provided to each party and a copy retained by the brokerage(s). Using the scenario presented earlier, the offer for Ben and Sarika Horvath to purchase a property owned by Joseph Markes and Sebastian de Freyne Exam Study Guide

has been accepted. The offer indicated a condition for the buyers to obtain a new first charge/mortgage for not less than $200,000, at an annual interest rate of not more than 3.5 percent and a term of not less than four years. The buyers have received notice they have been approved for the required financing, however the approval includes an interest rate of 3.75 percent. The notice to the seller is prepared by their salesperson Rozsa Lamos on September 15, 2019.

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Lesson 1 | Page 27 of 54

Waiver – Cross-Reference to Agreement of Purchase and Sale For example, OREA Form 123 – Waiver can be used for this purpose. It provides a section for the seller and buyer name(s) and description of the property which is used to cross-reference the document to the agreement of purchase and sale.

From OREA Form 123: Waiver ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

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Lesson 1 | Page 28 of 54

Waiver – Insert Exact Clause Wording For example, OREA Form 123 – Waiver provides for the exact clause wording being waived to be inserted.

From OREA Form 123: Waiver ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

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Lesson 1 | Page 29 of 54

Waiver– Signatures and Receipt Acknowledgement OREA Form 123 – Waiver also provides for the party waiving the condition to sign and date their signature. The notice must be received by the other party prior to the expiry of the condition as provided for in the accepted offer. Ensuring this information is complete and accurate is important as the accepted offer will become null and void if the notice is not received within the specified time period.

From OREA Form 123: Waiver ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

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Lesson 1 | Page 30 of 54

Anette Alahodpo and George Alahodpo have just purchased their first property. The property is located at 1922 East Street, AnyCity, Municipality of AnyRegion. They are represented by Lemuel Orlov of XYZ Realty Ltd., at 30 Main Street, AnyCity, AnyRegion (Tel: 555-626-2134 or Fax: 555-627-2334). Anette and George currently reside at 130 End Road, AnyCity, AnyRegion (Tel: 555-345-0091). Their lawyer is Thom Jason of Jason and Associates at 67 Main Road, AnyCity, AnyRegion ([email protected], Tel: 555-345-9876, Fax: 555-667-8876). The seller, Viloh Ebbert (Tel: 555-653-8765) is represented by C. A. Waur (Carla Ashen Waur) of ABC Real Estate Inc. at 2167 North Road, AnyCity, AnyRegion (Tel: 555-341-4321 or Fax: 555-444-3333). Viloh’s lawyer is S.E. Das of Hodss and Associates at 34 High Blvd., AnyCity, AnyRegion ([email protected], Tel: 555-998-8900, Fax 555-999-6677). The offer was accepted on May 20, 2019. On May 24, 2019, Anette and George are advised that their property insurance has been approved with terms that are acceptable to them. Lemuel meets with the couple to complete a notice of fulfillment of the insurance condition.

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Lesson 1 | Page 31 of 54

Lemuel is completing the notice of fulfillment for the inspection clause. He uses the agreement of purchase and sale to gather the information and arranges with the buyers to sign the document. He uses OREA Form 124 - Notice of Fulfillment to record the fulfillment of the condition. The following information is entered in the form to be sent to the seller. • Buyers are Anette Alahodpo and George Alahodpo. This field identifies buyers’ full names as on the Agreement of Purchase and Sale. • Seller is Viloh Ebbert. This field identifies seller’s full names as on the Agreement of Purchase and Sale. • Real Property is 1922 East Street, AnyCity, AnyRegion. This field identifies property address as on the Agreement of Purchase and Sale. • In accordance with the terms and conditions of the Agreement of Purchase and Sale dated the 20th day of May, 2019, regarding the above property. This field records the date on the Agreement of Purchase and Sale.

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Scenario: Notice of Fulfillment Anette Alahodpo and George Alahodpo have just purchased their first property. The property is located at 1922 East Street, AnyCity, Municipality of Any Region. They are represented by Lemuel Orlov of XYZ Realty Ltd., at 30 Main Street, Any City, Any Region. (tel. 555-626-2134 or fax: 555-627-2334). Anette and George currently reside at 130 End Road, AnyCity, Any Region. (tel: 555-345-0091) Their lawyer is Thom Jason of Jason and Associates at 67 Main Road, AnyCity, AnyRegion. ([email protected], Tel: 555-345-9876 , Fax: 555-667-8876) The seller, Viloh Ebbert (tel 555-653-8765) is represented by C. A.-Waur (Carla Ashen Waur) of ABC Real Estate Inc. at 2167 North Road, AnyCity, Any Region (tel: 555-341-4321 or fax: 555-444-3333). Viloh’s lawyer is S.E.Das of Hodss and Associates at 34 High Blvd., AnyCity, AnyRegion. ([email protected], Tel: 555-998-8900, Fax 555-999-6677) The offer was accepted on May 20, 2019 On May 24, 2019, Anette and George are advised that their property insurance has been approved with terms that are acceptable to them. Lemuel meets with the couple to complete a notice of fulfillment of the insurance condition.

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Lesson 1 | Page 32 of 54

Scenario: Notice of Fulfillment Anette Alahodpo and George Alahodpo have just purchased their first property. The property is located at 1922 East Street, AnyCity, Municipality of Any Region. They are represented by Lemuel Orlov of XYZ Realty Ltd., at 30 Main Street, Any City, Any Region. (tel. 555-626-2134 or fax: 555-627-2334). Anette and George currently reside at 130 End Road, AnyCity, Any Region. (tel: 555-345-0091) Their lawyer is Thom Jason of Jason and Associates at 67 Main Road, AnyCity, AnyRegion. ([email protected], Tel: 555-345-9876 , Fax: 555-667-8876) The seller, Viloh Ebbert (tel 555-653-8765) is represented by C. A.-Waur (Carla Ashen Waur) of ABC Real Estate Inc. at 2167 North Road, AnyCity, Any Region (tel: 555-341-4321 or fax: 555-444-3333). Viloh’s lawyer is S.E.Das of Hodss and Associates at 34 High Blvd., AnyCity, AnyRegion. ([email protected], Tel: 555-998-8900, Fax 555-999-6677) The offer was accepted on May 20, 2019 On May 24, 2019, Anette and George are advised that their property insurance has been approved with terms that are acceptable to them. Lemuel meets with the couple to complete a notice of fulfillment of the insurance condition.

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In order to complete the notice of Fulfillment, Lemuel is reviewing the insurance clause on Schedule A. Question #1: The Buyer agrees to pay a further sum of Two Hundred Thousand Dollars ($200,000.00), subject to adjustments, to the Seller on completion of this transaction, with funds drawn on a lawyer's trust account in the form of a bank draft, certified cheque or wire transfer using the Large Value Transfer System. In Schedule A, this clause will be included in the notice of fulfillment. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 1 | Page 33 of 54

Scenario: Notice of Fulfillment Anette Alahodpo and George Alahodpo have just purchased their first property. The property is located at 1922 East Street, AnyCity, Municipality of Any Region. They are represented by Lemuel Orlov of XYZ Realty Ltd., at 30 Main Street, Any City, Any Region. (tel. 555-626-2134 or fax: 555-627-2334). Anette and George currently reside at 130 End Road, AnyCity, Any Region. (tel: 555-345-0091) Their lawyer is Thom Jason of Jason and Associates at 67 Main Road, AnyCity, AnyRegion. ([email protected], Tel: 555-345-9876 , Fax: 555-667-8876) The seller, Viloh Ebbert (tel 555-653-8765) is represented by C. A.-Waur (Carla Ashen Waur) of ABC Real Estate Inc. at 2167 North Road, AnyCity, Any Region (tel: 555-341-4321 or fax: 555-444-3333). Viloh’s lawyer is S.E.Das of Hodss and Associates at 34 High Blvd., AnyCity, AnyRegion. ([email protected], Tel: 555-998-8900, Fax 555-999-6677) The offer was accepted on May 20, 2019 On May 24, 2019, Anette and George are advised that their property insurance has been approved with terms that are acceptable to them. Lemuel meets with the couple to complete a notice of fulfillment of the insurance condition.

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In order to complete the notice of Fulfillment, Lemuel is reviewing the insurance clause on Schedule A. Question #2: This Offer is conditional upon the inspection of the subject property by home inspector at the Buyer's own expense, and the obtaining of a report satisfactory to the Buyer in the Buyer's sole and absolute discretion. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than 9:00 p.m. on the 25th day of May, 2019 that this condition is fulfilled, this Offer shall be null and void, and the deposit shall be returned to the Buyer in full without deduction. The Seller agrees to cooperate in providing access to the property for the purpose of this inspection. This condition is included for the benefit of the Buyer and may be waived at the Buyer's sole option by notice in writing to the Seller as aforesaid within the time period stated herein. In Schedule A, this clause will be included in the notice of fulfillment. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 1 | Page 34 of 54

Scenario: Notice of Fulfillment Anette Alahodpo and George Alahodpo have just purchased their first property. The property is located at 1922 East Street, AnyCity, Municipality of Any Region. They are represented by Lemuel Orlov of XYZ Realty Ltd., at 30 Main Street, Any City, Any Region. (tel. 555-626-2134 or fax: 555-627-2334). Anette and George currently reside at 130 End Road, AnyCity, Any Region. (tel: 555-345-0091) Their lawyer is Thom Jason of Jason and Associates at 67 Main Road, AnyCity, AnyRegion. ([email protected], Tel: 555-345-9876 , Fax: 555-667-8876) The seller, Viloh Ebbert (tel 555-653-8765) is represented by C. A.-Waur (Carla Ashen Waur) of ABC Real Estate Inc. at 2167 North Road, AnyCity, Any Region (tel: 555-341-4321 or fax: 555-444-3333). Viloh’s lawyer is S.E.Das of Hodss and Associates at 34 High Blvd., AnyCity, AnyRegion. ([email protected], Tel: 555-998-8900, Fax 555-999-6677) The offer was accepted on May 20, 2019 On May 24, 2019, Anette and George are advised that their property insurance has been approved with terms that are acceptable to them. Lemuel meets with the couple to complete a notice of fulfillment of the insurance condition.

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In order to complete the notice of Fulfillment, Lemuel is reviewing the insurance clause on Schedule A. Question #3: This Offer is conditional upon the Buyer arranging insurance for the property satisfactory to the Buyer in the Buyer's sole and absolute discretion. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than 9:00 p.m. on the 27th day of May, 2019, that this condition is fulfilled, this Offer shall be null and void, and the deposit shall be returned to the Buyer in full without deduction. The Seller agrees to co-operate in providing access to the property, if necessary, for any inspection of the property for the fulfillment of this condition. This condition is included for the benefit of the Buyer and may be waived in the Buyer's sole option by notice in writing to the Seller as aforesaid within the time period stated herein. In Schedule A, this clause will be included in the notice of fulfillment. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 1 | Page 35 of 54

Lemuel meets the buyers and they sign the Notice of Fulfilment at 4:30 pm on May 24, 2019. Lemuel immediately emails the Notice of Fulfilment to the Listing Brokerage who acknowledges receipt of notice at 5:00 pm on May 24, 2019. Notice of Fulfillment (form 124) attached to email. The following information is entered in the rest of the form along with the acknowledgement. • All other terms and conditions in the aforementioned Agreement of Purchase and Sale to remain unchanged. For the purposes of this Notice of Fulfillment of Condition, “Buyer” includes purchaser and “Seller” includes vendor. Dated at AnyCity, Ontario, at 4:30 p.m. this 24th day of May 2019. These are the details on where and when the notice of fulfillment document was signed. • Signed, sealed, and delivered in the presence of Lorlov, in witness whereof I have hereunto set my hand and seal: Anette Alahopdo May 24, 2019. Signed, sealed, and delivered in the presence of Lorlov, in witness whereof I have hereunto set my hand and seal: G Alahopdo May 24, 2019. These are the buyers’ signatures and the date. Their salesperson signs as witness once the document is signed by the buyers. • Receipt acknowledged at 5 p.m. day of 24th May 2019 by Carla Ashen Waur. • The notice of fulfillment is sent to the brokerage. The brokerage, (the seller’s representative in this case), may acknowledge receipt for the seller by recording the time and date on the document and signing it. The notice of fulfillment must be received before the end of the irrevocable time associated with the condition or the offer will be null and void. The parties and the brokerage receive copies of the fully signed fulfillment.

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Scenario: Notice of Fulfillment Anette Alahodpo and George Alahodpo have just purchased their first property. The property is located at 1922 East Street, AnyCity, Municipality of Any Region. They are represented by Lemuel Orlov of XYZ Realty Ltd., at 30 Main Street, Any City, Any Region. (tel. 555-626-2134 or fax: 555-627-2334). Anette and George currently reside at 130 End Road, AnyCity, Any Region. (tel: 555-345-0091) Their lawyer is Thom Jason of Jason and Associates at 67 Main Road, AnyCity, AnyRegion. ([email protected], Tel: 555-345-9876 , Fax: 555-667-8876) The seller, Viloh Ebbert (tel 555-653-8765) is represented by C. A.-Waur (Carla Ashen Waur) of ABC Real Estate Inc. at 2167 North Road, AnyCity, Any Region (tel: 555-341-4321 or fax: 555-444-3333). Viloh’s lawyer is S.E.Das of Hodss and Associates at 34 High Blvd., AnyCity, AnyRegion. ([email protected], Tel: 555-998-8900, Fax 555-999-6677) The offer was accepted on May 20, 2019 On May 24, 2019, Anette and George are advised that their property insurance has been approved with terms that are acceptable to them. Lemuel meets with the couple to complete a notice of fulfillment of the insurance condition.

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Lesson 1 | Page 36 of 54

Complete A Notice of Waiver

On May 25th, Lemuel is called by the buyers who are in a panic because they haven’t been able to arrange a home inspection. At one of the open houses, they had walked through the house with a friend who is a contractor and he gave the house a positive review. The buyers feel that the home inspection is not critical, and they do not want to lose the sale on the basis of not completing the inspection.

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Lesson 1 | Page 37 of 54

Lemuel strongly advises the buyers against waiving the condition, and thoroughly outlines the risks of not having the inspection completed. They insist they are comfortable accepting the risk, and the guidance of their contractor friend. Lemuel documents this direction to waive the condition from the buyers to confirm everyone’s understanding. In order to complete the Waiver, Lemuel is reviewing Schedule A. The background shows the OREA form 100: Schedule A – Agreement of Purchase and Sale. Five sections are highlighted in the form. 1. The buyer name is Anette Alahodpo and George Alahodpo. In this section, the legal names of the buyers must be included on the waiver as cross-reference to the agreement of purchase and sale. 2. The seller name is Vilot Ebbert. In this section, the legal names of the seller must be included on the waiver as cross-reference to the agreement of purchase and sale. 3. For the purchase and sale of 1922 East Street, AnyCity, AnyRegion. In this section, the address of the property must be included on the waiver as cross-reference to the agreement of purchase and sale. 4. Dated the 20th day of May, 2019. In this section, the date on the agreement of purchase and sale must be included in the waiver as cross-reference to the agreement of purchase and sale. 5. This Offer is conditional upon the inspection of the subject property by home inspector at the Buyer's own expense, and the obtaining of a report satisfactory to the Buyer in the Buyer's sole and absolute discretion. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than 9:00 p.m. on the 25th day of May, 2019 that this condition is fulfilled, this Offer shall be null and void, and the deposit shall be returned to the Buyer in full without deduction. The seller agrees to co-operate in providing access to the property for the purpose of this inspection. This condition is included for the benefit of the Buyer, and may be waived at the Buyer's sole option by notice in writing to the Seller as aforesaid within the time period stated herein. The applicable clause to be waived must be copied in full onto the waiver.

Exam Study Guide

From Form 100: Schedule A – Agreement of Purchase and Sale. ©2019 Ontario Real Estate Association. All rights reserved. Used under license. Exam Study Guide

Lesson 1 | Page 38 of 54

Lemuel completes the waiver with the buyers and sends to the seller’s brokerage at 5:00 p.m. on May 25, 2019. C.A. Waur, the salesperson for the buyer acknowledges receipt of the waiver at 5:30 p.m. the same day. She reviews the waiver and notices an error. Question #4: Identify the error she must correct in the waiver. There are three options. There is only one correct answer.

1

For the purposes of this Waiver, “Buyer” includes purchaser and “Seller” includes vendor. WAIVED at AnyCity, Ontario, at 5 pm this 25th day of May 2019.

2

Receipt acknowledged at 5:30 pm this 25th day of June 2019

3

Print Name: Carla Ashen Waur followed by their signature

Exam Study Guide

Lesson 1 | Page 39 of 54

When an offer that contains conditions has been accepted, it may not become a binding agreement if a party fails to satisfy a condition. When a condition is not met or waived, the offer becomes null and void. The offer becoming null and void does not allow a brokerage to disburse a buyer’s deposit from their statutory trust account without written instructions from the parties. Therefore, once an offer has become null and void, the parties must provide written direction to the brokerage regarding the deposit. To ensure there are no liabilities or obligations stemming from the proposed transaction on the part of the seller, the buyer, and the brokerage, written confirmation is obtained. When a party makes a good faith effort to fulfill a condition, but the proposed transaction becomes null and void, the deposit is generally returned to the buyer. The seller is then free to continue to market the property for sale.

Exam Study Guide

Lesson 1 | Page 40 of 54

Completing a Mutual Release

A mutual release is signed to release all parties and the brokerages from any claims or obligations from the proposed transaction, and to identify how the disbursement of the deposit will occur. In most instances, a seller and a buyer will agree to sign a mutual release. However, there could be some circumstances where a seller or a buyer is not agreeable to these terms and does not sign. As a salesperson, obtain advice from your broker of record or manager, and advise the party the brokerage is working with to seek legal advice. A brokerage would not be permitted to disburse the deposit if a mutual release is not signed as the courts may need to determine the outcome. When a mutual release is being completed, the given information and/or actions will be required: • Cross reference the release to the agreement of purchase and sale Exam Study Guide

Describe the terms for disbursement of the deposit Include an irrevocable date to ensure there is no delay in obtaining the required signatures The party initiating the release signs and dates the mutual release The party receiving the release signs and dates the mutual release identifying agreement The confirmation of acceptance is signed, and the time and date of acceptance is inserted The broker of record for the listing brokerage and the co-operating brokerage (when applicable) sign and date the release • Copies of the release are provided to each party and a copy retained by the brokerage(s) • • • • • •

Earlier in this lesson, you drafted a notice of fulfillment and a waiver relating to the offer for Ben and Sarika Horvath to purchase a property owned by Joseph Markes and Sebastian de Freyne. Rather than fulfilling and waiving those conditions, the given screens will illustrate how a mutual release would be completed based on the proposed transaction becoming null and void. The mutual release is being prepared by the buyer’s salesperson, Rozsa Lamos, on September 15, 2019.

Exam Study Guide

Lesson 1 | Page 41 of 54

Mutual Release – Identify Parties and Cross-Reference to Agreement of Purchase and Sale For example, OREA Form 122 – Mutual Release can be used for this purpose. It provides a section for the seller and buyer name(s) and the applicable brokerage(s). The date of the offer and a description of the property is used to cross-reference the document to the Agreement of Purchase and Sale.

From OREA Form 122: Mutual Release ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

Exam Study Guide

Lesson 1 | Page 42 of 54

Mutual Release – Return of Deposit and Irrevocability OREA Form 122 – Mutual Release includes a release of the parties from all liabilities, covenants, obligations, and claims. The deposit holder – typically the listing brokerage – is provided directions for the disbursement of the deposit. This includes defining the full amount to be released and the name of the party to be paid the deposit. The irrevocability of the mutual release is also identified to help ensure the parties address the requirements in a timely manner.

From OREA Form 122: Mutual Release ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

Exam Study Guide

Lesson 1 | Page 43 of 54

Mutual Release – Signatures and Confirmation of Acceptance OREA Form 122 – Mutual Release also provides an area for signing by the seller and the buyer. Either party can initiate the mutual release, and their signature would be completed first. The second signature states the party agrees to the above offer to mutual release. When the release is accepted, the last party confirms acceptance by signing and adding the date and time for the acceptance.

From OREA Form 122: Mutual Release ©2019 Ontario Real Estate Association. All rights reserved. Used under license. Exam Study Guide

Lesson 1 | Page 44 of 54

Mutual Release –Brokerage Signature(s) Lastly, OREA Form 122 – Mutual Release provides for the broker of record or manager for the brokerage(s) to sign the mutual release. This releases all parties from any claim by the brokerage(s) for remuneration. As a salesperson, there are several documents which you are permitted to sign on behalf of the brokerage, such as a representation agreement and a customer service agreement. However, the broker of record or a manager for the brokerage(s) are required to sign a mutual release. A salesperson does not have permission to release the brokerage from any contract or obligation.

From OREA Form 122: Mutual Release ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

Exam Study Guide

Lesson 1 | Page 45 of 54

The previous information explained the use of a mutual release prior to a binding agreement. In those situations, the accepted offer automatically became null and void when the time period for the condition expired. The mutual release was used to release any claims against either party and the brokerage, as well as instruct the deposit holder how to disburse the buyer’s deposit. In situations where a binding agreement is to be terminated, as a salesperson, you will be required to complete additional documentation along with a mutual release. A binding agreement can occur when: • A conditional offer was accepted, and the conditions have been fulfilled or waived by the party • A conditional offer was accepted, and the conditions were written in a condition subsequent format • An unconditional offer was accepted

Exam Study Guide

Lesson 1 | Page 46 of 54

Requirement for Mutual Release Accompanied by a Notice of Termination of Agreement

When a condition subsequent is included in an offer, there is a binding agreement once the offer has been accepted. The condition provides an opportunity to terminate the agreement within the time period of the condition. If the time period expires without the agreement being terminated, the agreement remains binding. As a salesperson, it is critical for you to monitor the condition(s) in a buyer’s offer to ensure they are proceeding as the transaction was intended. No matter what the cause, a binding agreement must be terminated as a mutual release does not serve this purpose. Documentation would include a mutual release and a termination notice from the seller or the buyer. Exam Study Guide

Example: Buyer Termination – Condition Subsequent A buyer’s offer contains a condition on obtaining a satisfactory property inspection – the condition is written as a condition subsequent. The home inspector notes several unexpected issues after inspecting the property, which the sellers are not aware of. The buyers discuss their options with the salesperson and decide these new problems are too costly to repair and they do not want to proceed with the purchase. The results are shared with the seller’s salesperson who is advised that the required documentation will be forthcoming prior to the expiry of the conditional time period. As the buyer’s salesperson has monitored the progress of this inspection, they are prepared to complete the required documentation within the time limit. A termination of the agreement is signed by the buyers. A mutual release is also prepared and is signed by the buyers and the brokerage’s broker of record. Both documents are forwarded to the listing brokerage who obtains the seller’s signature on the notice of termination, the seller’s signature on the mutual release, and the broker of record’s signature on the mutual release. The deposit is identified as being disbursed back to the buyer.

Exam Study Guide

Lesson 1 | Page 47 of 54

Complete A Mutual Release

Anette Alahodpo and George Alahodpo have just purchased their first property. The property is located at 1922 East Street, AnyCity, Municipality of AnyRegion. They are represented by Lemuel Orlov of XYZ Realty Ltd., at 30 Main Street, AnyCity, AnyRegion (Tel: 555-626-2134 or Fax: 555-627-2334). The seller, Viloh Ebbert (Tel 555-653-8765) is represented by C.A. (Carla Ashen) Waur of ABC Real Estate Inc. at 2167 North Road, AnyCity, AnyRegion (Tel: 555-341-4321 or Fax: 555-444-3333). The offer was accepted on May 20, 2019. One of the conditions in the offer was the completion of a home inspection with a satisfactory review from the inspector. Suppose that Anette and George did have a home inspection done and the inspector found structural problems with the house. The cost of repairing the house was too much for them and they decide not to waive the condition.

Exam Study Guide

Lesson 1 | Page 48 of 54

Scenario: Complete a Mutual Release Anette Alahodpo and George Alahodpo have just purchased their first property. The property is located at 1922 East Street, AnyCity, Municipality of AnyRegion. They are represented by Lemuel Orlov of XYZ Realty Ltd., at 30 Main Street, AnyCity, AnyRegion. (tel. 555-626-2134 or fax: 555-627-2334). The seller, Viloh Ebbert (tel 555-653-8765) is represented by C.A. (Carla Ashen) Waur of ABC Real Estate Inc. at 2167 North Road, AnyCity, AnyRegion (tel: 555-341-4321 or fax: 555-444-3333). The offer was accepted on May 20, 2019. One of the conditions in the offer was the completion of a home inspection with a satisfactory review from the inspector. Suppose that Anette and George did have a home inspection done and the inspector found structural problems with the house. The cost of repairing the house was too much for them and they decide not to waive the condition.

Exam Study Guide

From Form 122: Mutual Release. ©2019 Ontario Real Estate Association. All rights reserved. Used under license Their salesperson, Lemuel, completes a mutual release in order to release the brokerages from their obligations and direct how to release the deposit of $20,000. The completed mutual release is sent to the listing brokerage. The seller agrees and signs the form on the same evening. The background shows the OREA Form 122: Mutual Release – Agreement of Purchase and Sale. Five sections are highlighted. 1. The buyer name is Anette Alahodpo and George Alahodpo. In this section, the legal names of the buyers must be included on the mutual release as cross-reference to the agreement of purchase and sale. 2. The seller name is Vilot Ebbert. In this section, the legal names of the seller must be included on the mutual release as cross-reference to the agreement of purchase and sale. 3. Brokerages: ABC Real Estate Inc, which is the listing brokerage and XYZ Realty Ltd, which is the co-operating brokerage. In this section, the names of the brokerages involved in the trade are identified. 4. RE: Agreement of Purchase and Sale between the Seller and Buyer dated the 20th day of May 2019, concerning Exam Study Guide

the property known as: 1922 East Street, AnyCity, AnyRegion as more particularly described in the aforementioned Agreement of Purchase and Sale. In this section, the date of the agreement and address of the property must be included on the mutual release as cross-reference to the agreement of purchase and sale. 5. We, the Buyers and the Sellers in the above noted transaction hereby acknowledge that the above described transaction is terminated and release each other and the Brokerage in the proposed transaction, from all liabilities, covenants, obligations, claims and sums of money arising out of the above Agreement of Purchase and Sale, together with any rights and causes of action that each party may have had against the other and/or the Brokerage, and we direct the deposit holder to disburse the deposit of: Twenty thousand CanadianDollars($CDN): $20,000 payable to: Anette Alahodpo and George Alahodpo. In this section, the amount of the deposit must be identified in words and numbers and the party the deposit is payable to is also identified.

Exam Study Guide

Lesson 1 | Page 49 of 54

The background shows OREA Form 122: Mutual Release – Agreement of Purchase and Sale. Four sections are highlighted. 1. IRREVOCABILITY: This Mutual Release shall be irrevocable by buyer until 9 p.m. on the 27th day of May 2019, after which time if not fully executed by Buyer and Seller, this Mutual Release shall become null and void. In this section, the irrevocability of the mutual release is identified to help ensure the parties address the requirements in a timely manner. 2. SIGNED, SEALED AND DELIVERED: The parties initiating the mutual release, in this case, the buyers, sign and date the release and when signed, their salesperson witnesses each signature. 3. I, the Undersigned, agree to the above offer to Mutual Release. SIGNED, SEALED AND DELIVERED. The party accepting the mutual release, in this case, the seller, signs and dates the release and when signed, their salesperson witnesses the signature. 4. CONFIRMATION OF ACCEPTANCE: Notwithstanding anything contained herein to the contrary, I confirm this Mutual Release with all changes both typed and written was finally accepted by all parties at 8 p.m. this 26th day of May 2019. The last party to accept the agreement, confirms acceptance by signing and adding the date and time for the acceptance.

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From Form 122: Mutual Release. ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

Exam Study Guide

Lesson 1 | Page 50 of 54

The background shows the OREA Form 122: Mutual Release – Agreement of Purchase and Sale. The SIGNED, SEALED, AND DELIVERED section is highlighted. The Brokerage hereby releases all parties from any claim that the Brokerage may have had for commission or other remuneration in the above transaction, except as may be hereinbefore specifically provided. SIGNED, SEALED AND DELIVERED. The broker of record or a manager for the brokerage(s) are required to sign a mutual release. A salesperson does not have permission to release the brokerage from any contract or obligation.

From Form 122: Mutual Release. ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

Exam Study Guide

Lesson 1 | Page 51 of 54

The buyer wants a chandelier included in an agreement that was recently accepted. The chandelier was on the list of exclusions from seller. The buyer’s salesperson is preparing the amendment to the agreement. Question #5: What information does the buyer’s salesperson document on the amendment to the agreement? There are six options. There are multiple correct answers. 1

Cross-reference to the agreement of purchase and sale

2

Insert the deletion of the chandelier from the list of exclusions

3

Insert the inclusion of the chandelier to the list of inclusions

4

Irrevocable date

5

Signature of the buyer

6

Signature of the seller

Exam Study Guide

Lesson 1 | Page 52 of 54

Following the acceptance of an agreement of purchase and sale, the buyers decided they wanted the chandelier to be included in the purchase price. The listing salesperson received an amendment signed by the buyers, deleting the chandelier from the list of items to be excluded and inserted that the chandelier would be included in the purchase price. The seller wanted compensation for the chandelier. Question #6: What are the next steps for the seller’s salesperson? There are four options. There are multiple correct answers.

1 2 3 4

Contact the buyer’s salesperson directly and try to negotiate the compensation amount between them Add the seller’s compensation requirements directly to the amendment and add a new irrevocable date for the buyer’s consideration Do nothing until the irrevocable expires then complete an amendment to the agreement with the seller’s offer to include the chandelier for specific compensation Discuss the acceptable compensation amount with the seller

Exam Study Guide

Lesson 1 | Page 53 of 54

The agreement of purchase and sale included this clause: “The Buyer may terminate this Agreement through written notice delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than__6___p.m. on the _19th day of April , 20_19 , if a new first Charge/Mortgage cannot be arranged by the Buyer, at the Buyer’s expense. This Charge/Mortgage is to be for a sum of not less than _Two hundred and fifty thousand ($250,000 ) bearing interest at a rate of not more than 3 % per annum, calculated semi-annually, not in advance, repayable in blended monthly payments of about one thousand and one , ($ _1,183.11 ), hundred and eighty-three dollars and eleven cents including both principal and interest, and to run for a term of not less than 4 year(s) from the date of completion of this transaction. Upon receipt of the above notice, this Agreement shall be null and void and the deposit shall be returned to the Buyer in full without deduction. If no such notice is received within the above time limit, then this term of contract shall be deemed waived by the Buyer and this Agreement shall remain valid and binding whether or not such Charge/Mortgage has been arranged.” On April 18, 2019, the buyers were approved for a mortgage of $230,000 with an interest rate of 2.5% over 3 years. They have decided this is not acceptable and cannot proceed. Question #7: What are the next steps for their salesperson? There are five options. There are multiple correct answers.

Exam Study Guide

1

Send a completed notice of termination of agreement to the listing brokerage before the condition time limit expires

2

Send a completed mutual release to the listing brokerage and the notice of termination

3

Ensure the broker of record for the brokerage has signed the mutual release

4

Ensure the broker of record for the brokerage has signed the termination of agreement

5

Identify how the deposit will be released on the mutual release

Exam Study Guide

Lesson 1 | Page 54 of 54

Congratulations, you have completed the lesson! There are four sections on this page with a summary of the key topics that were covered in this lesson.

Using an amendment to the Agreement of Purchase and Sale

An amendment is a proposed change to the Agreement of Purchase and Sale that occurs after an offer has been accepted. The proposed change can revise, delete, or add to the original agreement, but must be agreed by both parties in writing to be effective. If the amendment is not accepted within the irrevocable time period, the original terms agreed to remain in effect. An amendment only changes those terms identified – all other agreed upon terms remain the same.

Providing a notice

When providing a notice to the other party that a condition has been met, a notice of fulfillment is used. The notice is cross-referenced to the agreement of purchase and sale and includes specific information, including an exact wording of the condition being fulfilled. This must be received by the other party within the due diligence time period identified in the accepted offer, otherwise the agreement becomes null and void.

– using a notice of fulfillment

If an offer contains a true condition precedent, only a notice of fulfillment may be used to provide notice to the other party. A waiver is not acceptable.

Providing notice – using a waiver

When providing a notice to the other party that a condition has not been fulfilled exactly as identified in the accepted offer, however the party is continuing with the proposed transaction, a waiver is used. The notice is cross-referenced to the agreement of purchase and sale and includes specific information, including an exact wording of the condition being waived. This must be received by the other party within the due diligence time period identified in the accepted offer, otherwise the agreement becomes null and void.

Providing a mutual release

When a conditional offer does not result in a transaction, a mutual release is used to release all parties from any obligation to the agreement and to provide direction to the deposit holder relating to the disbursement of the buyer’s deposit. Once an agreement is binding, as in the case of a condition subsequent, if the agreement is to be terminated, a Exam Study Guide

notice of termination from the seller or the buyer must also be provided along with a mutual release.

Exam Study Guide

Lesson 2 | Page 1 of 21

Lesson 2: Requirements Under REBBA Relating to a Trade

This lesson details the disclosure obligations under REBBA when a salesperson is a party to a trade, either directly or indirectly, obligations when receiving written directions from a seller for receiving offers, and the requirements for a brokerage and salesperson relating to copies of Agreement of Purchase and Sale. The lesson also details the requirement for a trade record sheet which must contain specific information relating to any trade.

Exam Study Guide

Lesson 2 | Page 2 of 21

Requirements Under REBBA Relating to a Trade

This lesson details additional obligations for you, as a salesperson, related to the offer process. These obligations apply when circumstances surrounding a transaction have some unique characteristics; for example, when a registrant is acquiring or disposing of any direct or indirect interest in real estate, considerations when a seller provides written instructions for receiving offers, and obligations when there is a change in these instructions. All documentation that is part of the offer process must be handled according to the requirements under REBBA. These requirements speak about the responsibility of the brokerage to retain copies of agreements of purchase and sale and any other documentation related to a trade for a specific time period. You will be required to provide copies of all documentation obtained during a trade to the brokerage as soon as possible, and ensure appropriate steps are taken to secure any information relating to a trade that is retained or used by you. For every trade, specific information must be documented to identify the parties to the trade, the receipt and disbursement of a buyer’s deposit, the remuneration paid, and other information as required under REBBA. This is known as a trade record sheet and you will be required to review and sign this for every transaction you are involved in. Upon completion of this lesson, you will be able to: • Identify the disclosure obligations when the salesperson is party to a trade • Identify considerations regarding written directions from a seller for receiving offers • Identify the requirements under REBBA and other legislation regarding document retention and privacy • Identify requirements under REBBA regarding a trade record sheet Exam Study Guide

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

Exam Study Guide

Lesson 2 | Page 3 of 21

REBBA includes disclosure requirements when a registrant – a brokerage, broker or salesperson – has a personal interest or knowledge regarding a real estate transaction. An interest can be any benefit, direct or indirect, that can be gained now or in the future from a transaction. The benefit is something beyond the fees or remuneration earned or potentially earned. Understanding the disclosure requirements is critical as specific information must be disclosed to a potential seller or buyer within a specified time period.

Exam Study Guide

Lesson 2 | Page 4 of 21

Disclosure of Interest As a salesperson, you possess knowledge and skills that can place you in an advantageous position in a real estate transaction. You will use this knowledge and skill set when representing sellers and buyers as part of promoting and protecting their best interests. However, when you have a direct or an indirect interest in a transaction, REBBA requires specific disclosures be made to the prospective seller or buyer at the earliest opportunity and before any offer is made. The disclosure requirements do not change whether the interest is direct or indirect, whether the prospective seller or buyer is a client or a customer of the brokerage, or when the transaction is a private sale without brokerage participation. Some examples of an interest include: • A registrant is the seller or the buyer • A relative of the registrant is the seller or the buyer • A registrant, or a relative of the registrant is a shareholder of a company that is the seller or the buyer • A registrant, or a relative of the registrant has another role in the transaction that is not evident; for example, a registrant is a mortgagee providing financing for the seller or the buyer A direct interest is when the registrant is the seller or the buyer of the property. An indirect interest can include situations where the registrant is not clearly identified as having an interest and would include transactions involving any related persons of the registrant. The Code requires the disclosure of a relative’s interest when the registrant knows or ought to know of the interest. REBBA describes who is considered a related person: • Related by blood, adoption or conjugal relationship • An associated person, such as an officer or director of a corporation or a partner in a partnership When unsure if you have a personal interest in a transaction, leading practices would include providing the disclosure to help ensure the party is being treated fairly, ethically, and with integrity.

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Lesson 2 | Page 5 of 21

Disclosure Requirements

As a salesperson, when you are involved in a trade and have a personal interest, either direct or indirect, you must disclose in writing to the prospective seller or buyer the given information: • Notice that you are a registered salesperson. • All facts within your knowledge that affect or will affect the value of the real estate involved. If the trade involves a purchase by a registrant, the given disclosures also apply: • Notice of any negotiation, offer or agreement that you have conducted, or that has been conducted on your behalf, for the subsequent sale, lease, exchange or other disposition of an interest in the real estate to any other person. • Details of any payment that will be paid to you by anyone as part of the transaction, other than what is listed in a listing or other services agreement. Example: Facts Affecting the Value A salesperson is interested in purchasing a property that abuts a large vacant parcel of agricultural land. The salesperson knows the owner of the vacant land has applied for a zoning change, and if approved, will develop the Exam Study Guide

land as a golf course. The development is deemed a desirable change to the area and could result in the value of the adjoining properties increasing as they will have exposure to the golf course. This disclosure is made to the seller prior to any offer to purchase. Example: Notice of Negotiation for the Subsequent Sale A salesperson has been approached by a developer who is interested in purchasing a property that abuts a property already owned. The developer wants to tear down the structure and use the land to provide additional parking for their existing commercial mall. The developer wants to remain anonymous and has asked the salesperson to purchase the property and then sell the property to the developer. The salesperson discloses the subsequent sale of the property to the seller prior to any offer to purchase. You must obtain a written acknowledgement from the prospective seller or buyer that they have received the required disclosure statement before you can proceed with an offer. A copy is provided to the party and also retained in the brokerage’s transaction file.

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Lesson 2 | Page 6 of 21

When a brokerage is authorized to receive written offers on behalf of a seller or a buyer, the Code requires the offer be conveyed at the earliest opportunity. This is regardless of the identity of the person making the offer, the contents of the offer, or the nature of any arrangement for remuneration. An offer will include an irrevocable time period. Ensuring the offer is presented prior to it expiring is important as the offer will become null and void if not accepted within the irrevocability. However, there may be situations where the brokerage receives written directions from a seller or a buyer to delay receiving an offer. As a salesperson, you must follow these written directions and ensure they are detailed and very clear. You must also ensure the party is fully informed about the implications of these instructions. The given screens detail your obligations as a salesperson when written direction is to be received.

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Lesson 2 | Page 7 of 21

Obligations – Written Direction for Receiving Offers

It is essential that the offer process be fair and transparent. Unless clear, detailed, and express written direction has been obtained from a seller or a buyer, an offer must be conveyed as soon as possible. There may be circumstances where a seller or a buyer provides instructions to a brokerage related to receiving offers. As a salesperson, this is most likely to occur when you are the listing salesperson, however the requirements apply equally when working with a buyer should you receive such instructions. When working with a seller, written direction for receiving offers is typically associated with market conditions where the seller is expecting to receive multiple offers. Under these conditions, the written direction could relate to delaying offer presentations until a specified time and date in anticipation of generating competing offers. In a competing offer situation, a seller could receive an offer with better terms than when there is no competing offer, such as a higher purchase price or fewer conditions. Before you can receive any written direction, you must explain the pros and cons of delaying the offer presentation. Exam Study Guide

• Pros: This strategy could generate interest in their property and potentially result in multiple offers. • Cons: A buyer who does not want to wait for the specified time could decide not to place an offer. If the offer date passes with no offers submitted, buyers may see the property as less desirable or overpriced. Although the instructions to all brokerages will identify a specific time and date for offer presentations, a buyer could provide direction to their salesperson to present the offer prior to that time. Therefore, before obtaining any written direction, as a seller’s salesperson, you are required to discuss the options for handling any pre-emptive offers. The next screen explains pre-emptive offers.

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Lesson 2 | Page 8 of 21

Written Direction for Receiving Offers – Pre-emptive Offers

As part of a marketing strategy, a seller may delay their consideration of offers to a specific time and date when all offers will be presented. A buyer may decide to ignore these instructions and direct their salesperson to present an offer prior to the specified time. This is known as a pre-emptive offer and is submitted before the presentation date in the hope the seller will accept the offer without waiting for the presentation time and date. The irrevocable period for a pre-emptive offer often expires before the presentation date. As a salesperson, prior to receiving written direction for receiving offers, you must explain that a delayed offer presentation might lead to pre-emptive offers. The written directions you receive must explicitly outline how you are to handle pre-emptive offers; however, this can only be done if the seller has been fully informed. To find out how the seller wants to handle pre-emptive offers, you can provide the given options should a pre-emptive offer be received: • Be notified of the offer, but not see the details • See the details of the offer, but not formally consider the offer until the presentation time • Consider all offers received before the presentation date and time • Only consider offers that are above a certain price • Only consider offers that contain a certain term; for example, an offer that provides a deposit that is at or above a specified amount, is submitted by way of a certified cheque, and is submitted with the offer • Only consider offers that do not contain certain terms; for example, an offer that does not include a condition for Exam Study Guide

a property inspection • Not be informed of any offers. A discussion of these points will help the seller make an informed decision. If the instructions are not clear after discussing these options, continue the conversation until the instructions are understood and agreed to. At this point document the instructions, in detail, and provide a copy to the seller and the brokerage. The next screen identifies your obligations if the written direction changes.

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Lesson 2 | Page 9 of 21

Written Direction for Receiving Offers – Changes to the Direction A seller or a buyer can change their direction at any time; however, a new written direction is required to do so. When that happens, the given steps must be taken immediately: • The notes to any listing for the property must be changed to accurately reflect the new offer process. • Notify, in writing, anyone who has expressed an interest in the property of the change to the offer process. This includes anyone who has booked an appointment to view the property, has viewed the property, has informed the seller’s brokerage that they will be submitting an offer on the property, or has submitted an offer on the property. Notification can be by delivered personally, by email, facsimile or text message. Since the aim of delaying offers is to generate interest in the property, it would be in the seller’s best interests to inform those who may have shown an interest in the property of any change in the offer presentation time or process so they may deliver their offer on time. As a salesperson, you must ensure your actions are performed based on fairness, transparency, competence, and good judgement.

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Lesson 2 | Page 10 of 21

REBBA has requirements relating to the retention of an agreement of purchase and sale, with additional requirements for a listing brokerage. As a salesperson, you must be fully aware of the brokerage’s requirements, as you will be the individual responsible for ensuring all documents acquired when you are working with sellers and buyers are submitted to the brokerage as required. In situations where you retain copies of any documents relating to a trade in a personal filing system outside of the brokerage, it is important to ensure that they are safeguarded. All records must also adhere to the requirements of the Personal Information Protection and Electronic Documents Act (PIPEDA) to safeguard the data.

Exam Study Guide

Lesson 2 | Page 11 of 21

Document Retention Requirements Under REBBA

A brokerage has specific requirements under REBBA for retaining all documents and records related to a trade in real estate. A seller’s brokerage has additional requirements when an offer has been received but is not accepted by the seller. As a salesperson, you are the individual who will be involved in offer negotiations. It is your responsibility to ensure all required documents are submitted to the brokerage so that your activities do not cause the brokerage to be in non-compliance. Exam Study Guide

As a salesperson, your activities to ensure compliance include: • An offer must be in writing and signed – this requires you to ensure a buyer’s offer is in writing and signed before indicating there is an offer to anyone. • Copies of written offers received must be retained – as a listing salesperson, this requires you to ensure a copy of every offer received is kept. This includes offers that have been rejected or countered as the seller’s brokerage must retain unsuccessful offers for at least one year. • A summary document can be used for unsuccessful offers – when a buyer’s offer is made through a brokerage, a document containing specific information can be retained by the seller’s brokerage rather than the offer in its entirety. A summary document may not be used when the person making the offer is not a client or a customer of a brokerage. • Accepted offers must be retained in their entirety – this requires you to ensure a copy of a successful offer, whether you are the seller or the buyer’s brokerage, is retained in its entirety and submitted to the brokerage. This document must be retained for at least six years. The offer process is a closed offer process, meaning offers remain confidential. This restricts any information about the terms of an offer being shared by the seller’s brokerage to any person making an offer. However, to promote transparency in the offer process, record keeping, and disclosure requirements are in place. This allows for a buyer or a salesperson to ask a listing brokerage to disclose the number of other offers received.

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Lesson 2 | Page 12 of 21

Safeguarding Information All the information on sellers, buyers, potential transactions, and completed transactions must be kept under secure conditions and should follow the requirements under the Personal Information Protection and Electronics Documents Act (PIPEDA). This applies not only to the brokerage’s records, but also any records that you keep as a salesperson. You may want to keep your own file, or “shadow file”, on potential or completed transactions for convenient access while outside the brokerage. The shadow file may include: • Copies of the relevant documentation • Notes taken during inspections • Copies of emails or other communication with sellers, buyers, and other salespersons Make sure that this type of data collection is allowed by your brokerage and that your activities meet the PIPEDA requirements required to safeguard the information. The following four sections contain information on safeguarding information.

Type of information

Personal information about an identifiable individual is the information that is easily associated with them; for example, their address. Sensitive information includes financial information about the individual. Both types of information are regulated under PIPEDA and must be safeguarded by the brokerage and a salesperson.

Brokerage policies

A brokerage will have internal privacy policies for the handling, retention and destruction of personal and sensitive information. The brokerage will have someone designated to be accountable for privacy compliance.

Creating a mailing list

If asking for personal information from potential sellers and buyers on a web site, clearly state why the information is required and how it will be used. Ask for explicit consent; for example, add a checkbox stating, “I consent to my name being added to a mailing list for promotional materials.” If you require buyers to sign in at an open house for security reasons, ensure this is stated Exam Study Guide

on the sign-in sheet and do not add anyone to a mailing list without explicit consent. You must also ensure your activities comply with anti-spam legislation (CASL).

Implementing safeguards

To help ensure compliance when retaining copies of original brokerage-held documents in a shadow file, consider the given guidelines: • Identify to the seller or buyer how you intend to make use of their personal information. • Obtain data collection permission from the seller or buyer and provide disclosure. Written consent is best • Collect only what is necessary for the uses identified. • Disclose information only for the reason it was collected. • Implement adequate security at your home to ensure no other person has access to the information; for example, a locked file cabinet and password protected computer.

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Lesson 2 | Page 13 of 21

In addition to keeping copies of all offers, for every trade, a transaction file (also referred to as a trade file) will be created. Each trade is uniquely identified with a sequential identifier – often called a trade number. No matter how a brokerage keeps track of its files, it must be able to easily find the transaction files and the associated required reports for these trades. All documents, communications, and details relating to a trade should be included in the transaction file. As a salesperson, it is your duty to make sure the brokerage is given copies of all the documents that you use so they can be included in the transaction file. The most common documents for a transaction file include: • The representation or customer service agreement • The agreement of purchase and sale • Amendments • Notices (such as a notice of fulfillment or waiver) • Receipts for deposits • Communication with lawyers and other brokerages • Trade record sheet The trade record sheet provides an overview of the trade. There are specific requirements under REBBA relating to this. The given screens detail the requirements for a trade record sheet. Exam Study Guide

Lesson 2 | Page 14 of 21

Trade Record Sheet

A transaction file needs to be created for all activities that result in a trade. A trade record sheet is an important part of every transaction file. As a salesperson, you may not be required to prepare a trade record sheet. They are typically done by the brokerage. REBBA identifies specific information that must be included; for example, procedures for the preparation, correction, and signature of the salesperson, as well as the review and signing by the broker of record. A trade record sheet is required whether the brokerage represents the party as a client, or provides services to the party as a customer. A trade record sheet must be completed with the available information when a brokerage receives any payment related to a trade in real estate, including a referral fee or an appraisal fee. Exam Study Guide

Once a trade record sheet is created you, as a salesperson, will be required to review and sign the document. A trade record sheet is prepared by each brokerage involved in a trade. When the listing and sale are in the same brokerage, or two or more salespersons are involved, for privacy reasons a brokerage will prepare separate trade records for each salesperson detailing their individual remuneration distributions. Each trade record sheet will be reviewed and signed by the broker of record. When the brokerage is holding a buyer’s deposit in their statutory trust account, the trade record sheet will include additional deposit information relating to the receipt and disbursement of the funds. In some instances, a brokerage could place a buyer’s deposit into their trust account even though no acceptance of an offer occurs. For example, an offer is being negotiated over several days and the buyer’s deposit was provided along with the offer. The brokerage places the deposit into their statutory trust account. Negotiations do not result in an accepted offer so the buyer’s deposit must be returned. Under these circumstances, a mutual release is not required since the offer was never accepted. The brokerage will still create a trade record sheet to document the receipt and disbursement of the buyer’s deposit. They will also retain a copy of the unaccepted offer along with the trade record sheet to support the trust account activities.

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Lesson 2 | Page 15 of 21

Trade Record Sheet Information

When an offer has been accepted, a trade record sheet is completed by both the listing and co-operating brokerages (if applicable). When there are no remaining conditions to be satisfied, you will be required to review the trade record sheet, make all necessary corrections, initial the corrections, and sign it. When making a change, do not erase or eliminate a previous entry – leave the entry legible. The broker of record will review the trade record sheet and sign it when satisfied that the information is correct. If the broker of record is not satisfied that the information is correct, the trade record sheet is returned to you for corrections prior to being signed. The trade record sheet must have the given information: • Nature of the trade: Identify if the trade involves the sale, lease/rent, exchange, or option • Description of the real estate sufficient to identify it: Provide the municipal address or legal description • True consideration for the trade: Identify the sale price, rent, exchange value, option price or a fee for other transactions, such as a referral fee or appraisal fee

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• Names of all parties to the trade: Include all parties, not just the parties being represented or provided services by the brokerage in instances where there is a listing brokerage and co-operating brokerage • Names and contact information for the lawyers representing the parties: Include the lawyer’s information for both the seller and buyer or the landlord and tenant • Names and contact information of all registrants representing or providing services to the parties: Include the listing brokerage, co-operating brokerage (if applicable) and all salespersons information • Deposit information: Amount of the deposit if it is money, description of the deposit if it is not money (such as the ownership for personal property, like an off-road vehicle or a boat), record of the disbursement or withdrawal of the deposit • Amount of remuneration payable to the brokerage and the name of the party paying it - include the name of the seller and/or buyer • Amount of remuneration payable to another brokerage and the name of that brokerage: Include remuneration payable to a co-operating brokerage and identify the co-operating brokerage • Completion date for the trade - Include the scheduled completion date and any amended completion date when applicable

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Lesson 2 | Page 16 of 21

Additional Information A brokerage may customize the format and add additional information provided that all minimum requirements for trade record sheets are met. A brokerage could include additional information such as: • Date of the trade record sheet • Internal reference number related to the transaction, such as a number provided by a local listing service • Remuneration distribution between the brokerage and the salesperson • Interest earned on a buyer’s deposit • Remuneration trust agreement between the brokerage and the salesperson As outlined earlier, a copy of the trade record sheet will be provided to you once the broker of record has reviewed and signed the document. This can be used as confirmation of the remuneration distribution for the trade. In some instances, the trade record sheet documents the remuneration trust agreement for you as a salesperson. Under the RECO Insurance Program, there is protection in the event of fraud, insolvency, or misappropriation of funds.

Exam Study Guide

Lesson 2 | Page 17 of 21

A salesperson is listing a property owned by a technology company. The salesperson’s spouse has shares in the company. Question #8: What are the salesperson’s requirements for disclosure to the buyer before an offer is made? There are five options. There are multiple correct answers.

1

That they are a registered salesperson

2

Any facts that will affect the value of the real estate involved

3

Disclosure in writing

4

Any negotiation or agreement they have conducted for the sale or disposition of an interest in the real state to any other person

5

Disclosure verbally

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Lesson 2 | Page 18 of 21

The seller has indicated they are thinking about delaying offers until a specific date in order to build interest in the property and attract competitive bids. Question #9: What information should the salesperson provide the seller to help them make the best decision? There are five options. There are multiple correct answers.

1

A buyer who doesn’t want to wait for the presentation time may not make an offer on the property.

2

If no offers are received by the presentation time, buyers may feel that the property is overpriced or that something is wrong with the property.

3

A delayed presentation date may lead to pre-emptive offers.

4 5

The Code requires that all offers be presented as soon as possible regardless of any instructions from the seller. Once a seller gives written instructions to delay offer presentations, in order to provide fairness to all potential buyers, the instructions cannot be changed.

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Lesson 2 | Page 19 of 21

A salesperson’s listing has just been sold by a salesperson from a co-operating brokerage. All copies have been distributed and the deposit has been received by the listing brokerage. Question #10: Based on the requirements under REBBA for trade record sheets, what statements are true about the trade record sheet prepared for each brokerage. There are five options. There are multiple correct answers. 1

The trade record sheet documents the remuneration payable and who is paying

2

The trade record sheet documents the disbursement or withdrawal of the deposit

3

Both the salesperson and the broker of record sign the trade sheet

4

The trade record sheet provides an overview of the trade

5

The trade record sheet is prepared by the brokerage when the transaction is completed

Exam Study Guide

Lesson 2 | Page 20 of 21

A listing salesperson has presented an offer from a co-operating brokerage to their sellers. The seller has accepted the offer and signed the confirmation of acceptance. Question #11: What are the listing and co-operating salespersons required to do with the copies of the agreement in order to comply with REBBA? There are four options. There is only one correct answer.

1 2 3 4

The listing salesperson must give a copy to each of the sellers and must retain a copy of the agreement in their personal files The co-operating salesperson must give a copy to each of the buyers and must retain one for their personal file Since the listing brokerage receives a completed copy, there is no need for the co-operating brokerage to retain a copy If a salesperson elects to retain a shadow copy, they must follow the requirements under the Personal Information Protection and Electronics Documents Act (PIPEDA)

Exam Study Guide

Lesson 2 | Page 21 of 21

Congratulations, you have completed the lesson! There are five sections on this page with a summary of the key topics that were covered in this lesson.

Disclosure of interest

When a salesperson has a direct or indirect interest in a trade, they must disclose this interest to all parties before an offer. The disclosure must be in writing and includes any facts known that could affect the value, any subsequent sale or lease of the property that has been negotiated, and any payment that will be made, other than what is in a listing or service agreement.

Considerations for written directions for receiving offers

All offers must be conveyed as soon as possible unless there are written directions from the seller or the buyer to do otherwise. Delaying the offer conveyance may produce preemptive offers. The seller must specify exactly how they should be handled so that the process is fair and transparent for all potential buyers, and the seller makes a fully informed decision. Any change to the written direction must be in writing and any listing information immediately updated. Anyone who has expressed an interest in the property is to be notified of the change in the written directions.

Document retention

REBBA has requirements for maintaining copies of documents relating to the offer process. As a salesperson, your activities to ensure compliance include the given: • An offer in writing and signed. • Copies of written offers received that must be retained by the seller’s brokerage – this includes an offer that is rejected or countered. The seller’s brokerage must retain unsuccessful offers for at least one year. • A summary document that can be used for unsuccessful offers, but only when a buyer’s offer is made through a brokerage. A summary document may not be used when the person making the offer is not a client or a customer of a brokerage. • Accepted offers that must be retained in their entirety and submitted to the • brokerage. This document must be retained for at least six years. Exam Study Guide

Safeguarding information

Maintaining your own file on potential or completed transactions is known as a shadow file. Ensure this type of data collection is permitted by your brokerage, and if so, your activities meet the requirements required to safeguard the information. The given guidelines will help ensure compliance: • Identify the uses you intend to make of the personal information. • Obtain permission for the data collection and disclosure – written consent is best. • Collect only what is necessary for the uses identified. • Disclose information only for the reason it was collected. • Implement adequate security at your home to ensure no other person has • access to the information.

Requirements for a trade record sheet

All activity that results in a trade requires that a transaction file (also known as a trade file) be created, which includes a trade record sheet. As a salesperson, you may not be required to prepare a trade record sheet as these can be done by the brokerage. However, REBBA identifies specific information that must be included; for example, procedures for the preparation, correction and signature of the salesperson, as well as the review and signing by the broker of record. A brokerage may customize the format and add additional information provided that all minimum requirements are met. A copy of the trade record sheet will be provided to you once the broker of record has reviewed and signed the document. This can be used as confirmation of the remuneration distribution for the trade. In some instances, the trade record sheet documents the remuneration trust agreement for you as a salesperson.

Exam Study Guide

Lesson 3 | Page 1 of 43

Lesson 3: Compliance With Requirements Under FINTRAC

In this lesson, you will review the requirements under FINTRAC for identification verification and documenting a buyer’s deposit. The lesson also describes suspicious activity, mortgage fraud, and your responsibilities as a salesperson under the Code relating to these situations.

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Lesson 3 | Page 2 of 43

Obligations Under FINTRAC

As part of the offer drafting and negotiations, as a salesperson, you must ensure you are in compliance with federal obligations. The Federal Proceeds of Crime (Money Laundering) and Terrorist Financing Act requires all brokerages to comply with various requirements. Certain information must be reported to FINTRAC which administers the Act. Every brokerage must appoint a compliance officer and must develop a compliance program that includes relevant office policies and procedures. You should seek guidance from the brokerage’s compliance officer for all matters related to FINTRAC and the required reporting. In addition to individual obligations such as ‘know your client’ and recordkeeping, you are also required to be vigilant in assessing and reporting any suspicious activity that may relate to criminal or terrorist financing of real estate. This lesson explains how the Act is applied to your activities as a salesperson. Exam Study Guide

Upon completion of this lesson, you will be able to: • List the requirements and procedures for verifying the identity of parties to a trade • Identify the information that should be reported to FINTRAC • Identify suspicious activity that should be reported to FINTRAC • Identify the record keeping requirements for compliance with FINTRAC • Identify leading practices of a salesperson during a transaction with a seller or buyer 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 43

Proceeds of Crime (Money Laundering) and Terrorist Financing Act

The Proceeds of Crime (Money Laundering) and Terrorist Financing Act is administered by the Financial Transactions and Reports Analysis Centre of Canada, commonly known as FINTRAC. The Act sets out compliance requirements for all brokerages, brokers, and salespersons related to the selling and buying of real property. This includes identifying and reporting suspicious transactions or properties that may be owned by terrorists, and retaining, for a specific amount of time, records of all reports submitted and as well as information and reports related to each transaction. The purpose of the Act is to provide law enforcement officials with the information they need to investigate and deter money laundering and terrorist financing activities in Canada and abroad, and the ability to prosecute these criminal activities. As a salesperson, this will require you to understand your client to help: • Identify suspicious transactions or activities • Verify the identity of the individuals who are a seller or a buyer • Confirm the existence of corporations or other entities • Complete ongoing monitoring • Determine if a third party is acting for a transaction • Complete additional specific reports relating to a buyer’s deposit, suspicious activity, or property owned by a terrorist You are required to report certain transactions to FINTRAC and retain records relating to each transaction which can be made available to FINTRAC when requested. Exam Study Guide

Lesson 3 | Page 4 of 43

Compliance Requirements for a Brokerage

Specific requirements are set out that a brokerage is required to comply with. There are five required elements of a compliance program a brokerage must establish and implement. The following five sections contain information on the brokerage requirements.

Compliance officer

Every brokerage must appoint a Compliance Officer to implement all of the elements of the compliance program. The compliance officer is knowledgeable about FINTRAC obligations, business practices, terrorist financing risks and vulnerabilities, and trends and typologies for the sector.

Written policies and procedures

Every brokerage must develop written policies and procedures. The policies and procedures are used to guide decisions and actions to ensure the brokerage and salespersons meet their obligations. These policies must be updated as required and include enhanced measures to mitigate high risks.

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Risk assessment

Every brokerage must complete a written risk assessment of their business activities and relationships. This assessment is an analysis of potential threats and vulnerabilities to money laundering and terrorist financing that the brokerage faces. The brokerage must also implement mitigation strategies associated with the risks, and document the process and results.

Ongoing compliance training

Every brokerage must implement a documented training program that is reviewed and kept up to date. The training is provided to everyone acting on its behalf who are in contact with clients. The training must address all obligations and include an overview, specifics, frequency and methods or steps for each obligation. The brokerage must keep a record of each training event detailing attendees and materials.

Two-year program effectiveness review

Every brokerage must conduct, at a minimum every two years, an evaluation to test the effectiveness of the compliance program. The review also needs to identify gaps so that the program can be adjusted.

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Lesson 3 | Page 5 of 43

Salesperson Obligations A brokerage has specific obligations that must be met by all individuals employed by the brokerage who interact with sellers and buyers. As a salesperson, you will be directly involved in meeting these obligations. It is essential for you to understand the obligations to ensure the brokerage meets all of its requirements. These obligations apply when you receive remuneration for the transaction regardless of whether the seller or the buyer is a client or a customer of the brokerage, or is an unrepresented person, such as a private for sale by an owner. As a salesperson, your obligations can be categorized under three areas: 1. Know your client 2. Reporting 3. Recordkeeping

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Lesson 3 | Page 6 of 43

Know Your Client: Understand Your Client

The term client, for the purpose of this discussion, refers to any party to a transaction and not the relationship a brokerage may have established with the seller or the buyer. Your obligation as a salesperson is to know your client. This means understanding your clients and knowing what their normal transactions and activities are so you can identify any that seem irregular or suspicious. Use questions to help understand who your client is: • Ask why they chose your brokerage – find out if the reputation, remuneration, experience of the salespersons was part of their considerations • Ask how they found you as a salesperson – if they selected you simply by searching the internet and doing no additional investigation about you or your brokerage, this might appear suspicious • Learn about their family – this helps determine if the client is purchasing property that makes sense based on their family • Determine how they are connected to the community – this helps determine if there is an existing connection to the community or if the client is new to your area • Find out what they do for a living – this helps you determine where the money for a purchase is coming from and can help assess if the income is too low to support the purchase price of a property Exam Study Guide

Lesson 3 | Page 7 of 43

Know Your Client: Verify Individual Identity Part of knowing your client includes learning about their identity. Identifying an individual requires viewing certain information using one of the approved methods. The listing brokerage is required to identify the seller and the cooperating brokerage is required to identify the buyer. When the listing brokerage is representing or providing services to both parties, the listing brokerage is required to identify both the seller and the buyer. Typically, the listing salesperson and the selling salesperson will complete this verification, which must be done according to the allowable methods. Identifying an individual directly means you are the person responsible for verification. It does not require you to have a face to face meeting with the individual. The following three sections contain information on the acceptable photo identification documents and the methods for verifying the identity of the individual when you are doing this directly.

Photo identification (Single process method) For this method, photo identification issued by a provincial/territorial or federal government is acceptable. However, photo documents issued by a municipal government are not acceptable. A foreign issued driver’s license or passport is acceptable. The name and photograph on the identification ID must match. The individual must be present when the original document is used to compare the identification with the photo. The recordkeeping must include the date of verification. For recordkeeping purposes, record the given information from the identification document: • The individual’s name • Type of ID document and unique document Exam Study Guide

number identifier • Issuing jurisdiction and country of the ID • Expiry date of the ID

Credit file (Single process method) For this method, a Canadian credit file in existence for at least minimum of three years can be used for verification. The credit file must be from a valid Canadian credit reporting agency such as Equifax or TransUnion provided it meets the given criteria: The name, Address, and Date of Birth of the client must match what information they have provided. If the information does not match, another form of identification must be used. Recordkeeping requires the given information to be obtained from the credit file: • The source of the credit file • A reference number from the credit file This review does not need to be face to face. The recordkeeping must include the date of verification. The search must be conducted at the time you verify the individual’s identity. A previous credit file is not acceptable. The credit report cannot be provided by the individual. A copy must be obtained directly by you from a Canadian credit bureau either directly or by a thirdparty vendor who is authorized to provide it to you.

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Dual process method For this method, two original, valid, and current identification documents or information from independent and reliable sources can be used. The two sources must be different issuers/providers who are well known and considered reputable. Reliable sources can include: • Federal, provincial, territorial, and municipal levels of government – for example, a municipal property tax statement or a notice of assessment from the Canada Revenue Agency • Crown corporations – for example, a statement issued by an employer that is a crown corporation (e.g., Canada Post) • Financial entities – for example, a credit card statement or a bank statement • Utility providers – for example, an electric or natural gas bill You may not rely on the same source for the two documents. If a document does not have an expiry date, it must be a recent version of the document. Original documents must be provided. This includes either the original paper or electronic document the individual received or has obtained from the issuer either through posted mail or electronically. For electronic documents, an individual can email the original electronic document, show the document on their phone, tablet, or laptop, print the electronic document, or show the document in the original format such as a PDF. The documentation must verify the client’s name and Exam Study Guide

contain two out of these three requirements: • Client’s name and date of birth – for example, an original birth certificate • Client’s name and address – for example, utility bill or a property tax assessment • Client’s name and confirmation of a financial bank account – for example, a bank statement, or a credit card statement, or loan with a financial entity Confirm with your brokerage what documents can be used under the dual process method.

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Lesson 3 | Page 8 of 43

Additional Considerations When Verifying Individuals

In some transactions, the circumstances for individuals may require additional or different verification procedures be applied. The following three sections contain information on the verification requirements for each party.

Verifying previously identified clients

A client who has previously transacted with a brokerage and their identity was verified at an earlier time, does not have to be verified again. This is provided they are recognized and the process used at that time was one of the approved methods for verification of identity. Leading practices would be to include a photocopy of the original client identification record in the applicable new transaction file. If any information has changed regarding the individual or entity, then the salesperson should verify their identity and update the client information record.

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Verifying unrepresented individuals

The identity of an unrepresented individual in the trade should also be confirmed. If after reasonable measures an individual refuses, make a note of this refusal, the measures you have taken, the date you took the measures, and why they were unsuccessful. Proceed with the transaction. You may also need to consider any requirement for a Suspicious Transaction Report to FINTRAC for the refusal. Example – Unrepresented Seller: A salesperson who is representing a buyer approaches a seller who is offering their property for sale privately. The salesperson would verify the identity of the seller should a transaction occur on the property. Example – Unrepresented Buyer: A salesperson has a property listed for sale and receives an offer from a buyer who is not being represented or provided any services by a brokerage. The salesperson would verify the identity of the buyer should a transaction occur on the property.

Excluded activities

Specific activities are excluded from the requirements to verify the identity of the individual, corporation, or other entity. Any activity related to property management, such as leases or rental management is excluded. This applies whether the leasing is residential or commercial in nature.

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Lesson 3 | Page 9 of 43

Know Your Client: Verify a Corporation or Entity

When the client is not an individual but a corporation or other entity, such as a trust or partnership, the existence of the corporation or other entity must be verified. Corporation The information required to confirm that the corporation exists, includes: • Name of the corporation • Corporate address • Nature of principal business • Names of all directors

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To confirm the existence of a corporation, as well as its name and address, you can refer to: • The corporation’s certificate of corporate status • A record that confirms the corporation’s existence, such as the corporation’s published annual report signed by an independent audit firm, or a letter or a notice of assessment for the corporation from a municipal, provincial, territorial, or federal government Verification can be done using paper documents or in an electronic version. If received from a paper document, you must retain it or keep a copy of it as your record. If an electronic version is used, you must keep a record of the corporation’s registration number, the type of record referred to, and the source of the electronic version of the record. Electronic confirmation must be from a provincial or federal database that is accessible by the public. For example, you can obtain federal corporation details including directors’ names from the Corporations Canada website (http://corporationscanada.ic.gc.ca). An electronic search of provincial corporations is available if you subscribe to a corporation searching and registration service. Obtain and keep the documentation showing the authority to bind the corporation (from the articles of incorporation or bylaws) to confirm the correct individual is asked to sign any documentation relating to a trade. You will also be required to verify the individual who is acting under the authority of the corporation for the transaction. Entity An entity other than a corporation can include a trust, a fund, a partnership, and an unincorporated association or organization. The information required to confirm the existence of these other entities includes the name and address of the entity, and the articles of association, partnership agreement or similar document. A paper copy or electronic record confirming the entity existence must be retained with the verification form. As with corporations, if the confirmation is electronic, it must be from a public source and must include the entity’s registration number, and the type and source of the record used. Beneficial Ownership Requirements When verifying the identity of an entity, the following information on beneficial ownership must be obtained:

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• For Corporations: Names of all directors of the corporation and names and addresses of anyone who in any way owns or controls 25% or more of the shares of the corporation • For widely held or publicly traded trusts, such as a real estate investment trust (REIT): Names of all trustees and names and addresses of anyone who in any way owns or control 25% or more of the units of the trust • For trusts: Names and addresses of all trustees, beneficiaries, and settlors of the trust • For other entities: Names and addresses of anyone who in any way owns or controls 25% or more of the entity • For all cases: Information confirming the ownership, control, and structure of the entity Additionally, a real estate brokerage or salesperson will have to confirm the accuracy of the information when it is first obtained and keep a record of the information as well as the steps taken to verify the accuracy of the information.

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Lesson 3 | Page 10 of 43

Obtaining Identification Verification on Your Behalf

As a salesperson, there will be circumstances when the identification of an individual, corporation, or other entity is being completed by someone on your behalf, rather than by you directly. This can be done by an agent or a mandatary. • Agent – this would be an individual who is representing the client; for example, a lawyer who is representing the seller or the buyer could verify their identification. • Mandatary – this would be an individual who has been retained specifically to identify the client; for example, a salesperson with a brokerage or a lawyer or notary who is located in the same location as the client. When using an agent or mandatary, there must be a written agreement in place prior to identifying the individual on your behalf.

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Lesson 3 | Page 11 of 43

Required information – Using an Agent or Mandatary

An agent or mandatary is used when you cannot directly verify the identity of the client. This could occur because the client resides outside of Ontario or Canada. The agent or mandatary must use one of the three direct client identification methods described previously – photo ID, credit file, or dual process – to directly verify the client’s identification. FINTRAC requires the brokerage to retain the given information as a record of the identification: • Full name of the agent or mandatary that ascertained client identity • Client identification method used • Information gathered according to the method used • Date the identity of the client was verified • Date the brokerage referred to the client identification information provided by the agent or mandatary • Copy of the agreement with the agent or the mandatary Exam Study Guide

Lesson 3 | Page 12 of 43

Know Your Client: Determine Third Party Involvement

A third party is an individual who you are not interacting directly with, but is providing the instructions or supplying the funds for the purchase. For example, a father is purchasing a property for his daughter to live in while she is at university. The father is abroad, and the daughter is making the purchase. Both the daughter and the parent must be identified for the transaction. The parent would be viewed as a third party. Ensure the relationship between the client and the third party is documented. • Ask the individual you are dealing with if they are conducting the deal on their own or on someone else’s behalf. • Obtain the third party’s name, and address: o If an individual include date of birth and principal business or occupation. o If an entity include principal business. o If a corporation include principal business, incorporation number and place of issue. • Record the relationship between the client and the third party. If you are unable to determine if a third party is involved, but there are reasonable grounds to suspect that this is the case, record your efforts to identify the third party and rationale for doing so.

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Lesson 3 | Page 13 of 43

Risk Assessment – Individual, Corporation, and Other Entities

Brokerages must develop a risk-based approach for each client which includes policies and procedures used by a salesperson to determine the risk category for a client. All clients – whether an individual, corporation, or other entity – are assessed on their level of risk in relation to being involved in money laundering or terrorist financing. The risk level for each client determines how often you must conduct any ongoing monitoring of the client. The assessment can include client groups based on profiles that share similar characteristics as detailed in the brokerage’s policies. This allows a client to be placed in a specific risk category which ranges from low to high risk. If a client does not fall within the brokerage’s client groups, you will need to provide a risk assessment of the client and explain how their level of risk was determined. If a client is high risk, the brokerage may require senior management approval to continue the relationship and/or enhanced measures such as obtaining additional information on the client, their source of funds, and the reasons for the transactions. Consult with the brokerage’s Compliance Officer should there be any concern regarding risk assessment. Exam Study Guide

Lesson 3 | Page 14 of 43

Know Your Client: Monitor Ongoing Business Relationships

A business relationship with an individual, corporation, or other entity must also be identified and documented. A business relationship is effectively established whenever a brokerage is required to verify the identification of a client. Example – Business Relationship Established: An individual sells their current property and at the same time, purchases a new property using the same brokerage. This establishes a business relationship. Example – No Business Relationship Established: An individual leases a residential apartment using the same brokerage. As the leasing does not require identification verification, a business relationship has not been established. The five-year period requirement would begin again, should the brokerage and client complete a transaction at any time during the five years following the latest transaction. For example, a client who last transacted three Exam Study Guide

years ago is now entering into another transaction with the brokerage. The five-year period would start again with the new transaction. When a brokerage has established a business relationship with a client, FINTRAC requires that the brokerage, among other things: 1. 2. 3.

Keep a Purpose and Intended Nature record – this describes the business dealings with the client and will help you anticipate the types of transactions and activities the client may conduct Ensure client information is kept up to date – this requires ongoing, periodic monitoring of the business relationship to keep their information and Purpose and Intended Nature record accurate Keep a record of the measures taken to monitor the business relationship; for example, keeping pertinent records and correspondence on file

Depending on the level of risk determined for the client, the frequency of the ongoing monitoring will vary. Once five years has passed from the last transaction that required you to identify the client, the business relationship no longer exists and does not need ongoing monitoring. Politically Exposed Persons (PEP) and Heads of International Organizations (HIO) If a business relationship is with an individual, then the real estate broker or salesperson must determine if that person is a PEP, foreign or domestic, an HIO, or a family member or close affiliate of one of those persons. A PEP or head of an HIO is someone in a prominent position that can influence decisions and control resources. This action must be done when entering the business relationship and from time to time during the business relationship. Real estate brokers and salespersons must also take action to confirm if a person from whom they receive $100,000 or more, in cash or virtual currency, is a foreign PEP, a domestic PEP, an HIO, or a family member or close associate of any of those individuals or not. A real estate broker or salesperson must also take reasonable action to confirm if they suspect that the person they are in a business relationship with is a foreign PEP, a domestic PEP, an HIO, or a family member or close affiliate of any of them.

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Lesson 3 | Page 15 of 43

FINTRAC requires salespersons and brokerages to confirm the identity of all parties to a trade in real estate. Question #12: After completing a trade with a new client, documenting the business relationship with them is a requirement under FINTRAC. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 3 | Page 16 of 43

FINTRAC requires salespersons and brokerages to confirm the identity of all parties to a trade in real estate. Question #13: While preparing the offer with the buyer in person, asking about the relationship and identity of a person on the phone who seems to be directing the buyer is a requirement under FINTRAC. Identify whether the given statement is true or false. There are two options. There is only one correct answer. 1

True

2

False

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Lesson 3 | Page 17 of 43

FINTRAC requires salespersons and brokerages to confirm the identity of all parties to a trade in real estate. Question #14: When representing the buyer, before proceeding with an offer, verifying the identity of the seller who is selling their home privately is not a requirement under FINTRAC. Identify whether the given statement is true or false. There are two options. There is only one correct answer. 1

True

2

False

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Lesson 3 | Page 18 of 43

FINTRAC requires salespersons and brokerages to confirm the identity of all parties to a trade in real estate. Question #15: Verifying the identity of a previously identified client by ensuring there are no changes to the records is a requirement under FINTRAC. Identify whether the given statement is true or false. There are two options. There is only one correct answer. 1

True

2

False

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Lesson 3 | Page 19 of 43

A salesperson is working with a buyer who lives in England and would like to buy a vacation property in Ontario. How could the salesperson verify the identity of the buyer? Question #16: Indicate which of the given statements is/are correct in regard to the salesperson ascertaining the identity of the buyer. There are four options. There are multiple correct answers.

1

Ask the buyer to fax or email a copy of their photo identification and use that document to verify the individual

2

Ask a mandatary or agent to verify the individual using one of the three direct identification methods

3

Arrange a written contract with a mandatary or agent to verify the identity of the buyer

4

Ask the mandatary or agent to prepare a verbal report on their findings

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Lesson 3 | Page 20 of 43

Your obligations to FINTRAC include reporting large cash transactions, large virtual currency transactions, suspicious transactions, and terrorist properties. As a salesperson, you should be aware of suspicious activity relating to money laundering and terrorist financing. Money laundering disguises the source of money or assets received from criminal activity. In money laundering, the money is moved after a crime has taken place. Terrorist financing supports terrorist activity by using funds obtained through both legitimate and criminal or fraudulent methods. Typically, the money is moved before the crime has taken place.

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Lesson 3 | Page 21 of 43

Required Reports

The Proceeds of Crime (Money Laundering) and Terrorist Financing Act requires a report be submitted to FINTRAC when there are reasonable grounds to suspect that a real estate transaction involves activities related to money laundering and terrorist financing. All reports submitted to FINTRAC must be kept by the brokerage for a minimum period of five years. • Large Cash Transaction Report (LCTR) This report is submitted when funds received by a brokerage are $10,000 or more and the funds are provided in cash. A large cash transaction is a red flag for someone wanting to hide the source of funds from money laundering or terrorist financing. Funds of $10,000 or more received in a method other than cash, such as a certified cheque, bank draft, or money order, do not require this report. o The LCTR must be submitted within 15 days of the transaction. Exam Study Guide

• Large Virtual Currency Transaction Report (LVCTR) This report is submitted when funds received by a brokerage are equal to $10,000 or more in virtual currency. o The LVCTR must be submitted within five working days after the day upon which the currency is received. • Suspicious Transaction Report (STR) This report is submitted when there are reasonable grounds to suspect that the transaction is related to the commission or attempted commission of a money laundering or terrorist activity financing offence. Suspicion might result from one transaction or attempt or a series of transactions There is no monetary threshold associated with the reporting of a suspicious transaction. o The STR must be submitted as soon as practicable after determining a suspicious transaction(s).

• Terrorist Property Report (TPR) This report is submitted when any property is owned or controlled by or on behalf of a terrorist or a terrorist group, or it is believed to be. A report is required when there is a transaction or a proposed transaction relating to that property. o The process for submitting a TPR is different:  Contact the RCMP or CSIS immediately to report any suspicions of terrorist financing activity.  Submit a TPR report without delay to FINTRAC. Also submit a Suspicious Transaction Report if there is a completed or attempted transaction.

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Lesson 3 | Page 22 of 43

Indicators of Suspicious

Behavior is suspicious, not people. There is no one factor for what suspicious behavior looks like. Generally, it is behavior that is unusual for your client or business and often there are many factors that need to be considered. Not all indicators may apply to an interaction with a client. Consult your brokerage’s Compliance Officer for assistance in making this determination. The following four sections contain examples of what might be considered indicators of suspicious activity. The indicators have been loosely grouped into categories and are often interrelated.

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Indicators dealing with payments When obtaining deposits, indicators include: • Client refuses to identify source for funds or provides incorrect or conflicting information (i.e., information keeps changing or contradicts an earlier piece of information or does not make sense) • Client appears to be structuring amounts to avoid reporting thresholds; for example, several cash deposits within a short time period under$10,000 each • Client appears knowledgeable about reporting thresholds when paying a deposit by cash • Unrelated parties with no apparent connection to the person making the purchase provides the deposit for the transaction • Client uses multiple accounts at several financial institutions for no apparent reason • Client arrives at a real estate closing with a significant amount of cash • Client pays substantial down payment in cash and balance is financed by an unusual source or offshore bank

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Indicators dealing with the purchase and sale of properties When drafting an agreement of purchase and sale, indicators include: • Client exhibits a lack of concern about higher than normal transaction costs or fees • Client appears to be purchasing a property that is beyond their financial capabilities • Size or type of transaction is not typical of the client • A sudden change in the client’s financial profile, pattern of activity, or transactions • Client insists on providing a signature on documents by facsimile only • Client purchases property without inspecting it • Client purchases multiple properties in a short time period, and seems to have few concerns about the location, condition and anticipated repair costs, etc., of each property

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Indicators dealing with identification When identifying the person or entity, indicators include: • Client identification is not possible, or their identity creates questions • Client provides misleading, vague, or information that cannot be verified • Client provides copies of identification rather than the original document • Inconsistencies in the information, such as address, date of birth, or phone number • Address is a post office box rather than a physical residence • Client alters the transaction after being asked to verify their identity

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Indicators dealing with behaviour When applying the information obtained through the ‘know your client’ requirements, indicators include: • Client provides false or misleading information that is evident • Client exhibits unusual behaviour, such as being nervous or defensive • Client refuses or is reluctant to provide information • Client is unaware of the details about the transaction • Client uses a third party to act on their behalf when this is not logical based on what you know about the client • Client conducts a transaction while accompanied or directed by another party

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Lesson 3 | Page 23 of 43

Terrorist Property – Reporting Requirements

Terrorists can be an individual, a group, a corporation, or another entity. Your brokerage will have information on accessing the applicable databases to confirm and verify whether the names of clients are on a published list of known terrorists or a terrorist group. If it is known or it is believed that the property is owned or controlled by or on behalf of a terrorist group, report your suspicions right away to the RCMP or CSIS and then submit a Terrorist Property Report to FINTRAC. The report must describe the property and include information about the terrorist, the terrorist group, the individual, corporation, or other entity that has carried out, or attempted to carry out any activity related to the property. If you know that a transaction is related to property that falls under these criteria, also submit a Suspicious Transaction Report to FINTRAC.

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Lesson 3 | Page 24 of 43

You also have recordkeeping obligations under FINTRAC. As a salesperson, you will be responsible for records of all transactions with sellers and buyers, and for other circumstances such as reports submitted to FINTRAC. The records must be kept for a specific amount of time and be available to FINTRAC on request.

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Lesson 3 | Page 25 of 43

Recordkeeping Requirements As a salesperson, you will be responsible for five kinds of records: • • • • •

Client information Receipt of funds All submitted reports Unrepresented party Reasonable measures taken

The following six sections contain information on recordkeeping requirements for each category.

Client information: individual identification record

As described earlier, there is specific information that must be obtained and specific methods used to verify the identification of a client. This information is then contained in a client record that must be retained for five years. Completing these records is required for each seller and buyer for every purchase and sale of real property. A separate record is completed for each seller and each buyer by their respective brokerages. If the listing brokerage is also working with the buyer, they would complete the identification information record for all parties. This includes any unrepresented party. At minimum, identification must be made: • For the buyer, when the offer is submitted, and the deposit is taken • For the seller, when the offer is accepted However, identification can be made earlier if appropriate. Salespersons are strongly encouraged to discuss FINTRAC requirements with their clients as soon as possible to avoid any problems or confusion. The information required for a client record when the client is an individual would include: • Full legal name, address, date of birth, and the nature of their principal business or occupation • The information required based on the method used to verify their identity – Photo ID Exam Study Guide

method, Credit File method, or Dual Process method • Information on unrepresented parties • Verification of third parties • Client risk • Business relationship

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Client information: corporation or other entity identification record

The information required for a client record when the client is a corporation or other entity would include: • Name and address of the corporation or other entity, and the nature of its principal business • Names of directors for a corporation • Names and addresses of all beneficial owners • Type and source of verification record • Registration number of the corporation or other entity • Identify who is shown as having authority to bind the corporation – attach a copy of the document used to confirm this • Information on unrepresented entity • Verification of third parties • Client risk • Business relationship You must keep a record of unrepresented entities. You do not have to keep a client information record if the client is a public body (government agency) or a very large corporation (must meet specific criteria).

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Receipt of funds

A receipt of funds record is required for every real estate transaction to document the receipt of a buyer’s deposit. The given information is required for the record: • The name, address, date of birth, and the principal business or occupation address of the individual who provided the funds • The name, address and nature of their principal business if the funds are received from a corporation or other entity • If received by a corporation, a copy of the official corporate records that provides for the power to bind the corporation; for example, the president, treasurer, vice-president, or comptroller • The amount and currency of the funds received • The type of funds received; for example, cheque, certified cheque, cash, bank draft (if received in cash, how the cash was received, such as in person, by mail, or armoured car) • Date of the transaction • Purpose of the funds; for example, for the deposit on the purchase of a residential property • Information on other individuals or entities involved in the transaction; for example, a deposit cheque received from the parent of the buyer • If funds are withdrawn from or deposited to an account, document the account number, type of account, full name of the account holder A receipt of funds is not required if: • Funds are received from a financial entity (bank, credit union), a public body (government agency), or a very large corporation (must meet specific criteria) • A large cash transaction ($10,000 or more) is involved and a Large Cash Transaction Report is submitted to FINTRAC instead • If the deposit does not go into the brokerage’s statutory trust account; for example, the deposit is paid directly to a lawyer The buyer’s brokerage prepares the receipt of funds record and retains it for a period of five years. In multiple representation instances where only a listing brokerage is involved, that brokerage must complete the record. Exam Study Guide

Submitted reports

Records of all reports submitted to FINTRAC: • Large Cash Transaction Report – kept for five years • Large Virtual Currency Transaction Report –kept for five years • Suspicious Transaction Report – kept for five years • Terrorist Property Report – no timeframe

Unrepresented party

Unrepresented parties should be identified in the transaction.

Reasonable measures

Keep a record when reasonable measures have been taken to comply with the obligations, but they were unsuccessful. The given information is to be documented:

If an unrepresented party cannot be identified, keep a record of measures taken to identify the party and the dates the measures were taken.

• The measures taken • Date • Reasons why the measures were unsuccessful Example: A salesperson asks a client if they are conducting a large cash transaction on behalf of a third party and they refuse to answer. A record must indicate you asked, the date, and the fact that the client refused to answer yes or no.

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Lesson 3 | Page 26 of 43

A salesperson is responsible for records of all transactions with sellers and buyers. Question #17: Verifying the identity of the seller and buyer is only completed after an offer has been accepted. Identify whether the given scenario is a true or false interpretation of FINTRAC record-keeping requirements. There are two options. There is only one correct answer. 1

True

2

False

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Lesson 3| Page 27 of 43

A salesperson is responsible for records of all transactions with sellers and buyers. Question #18: When completing the arrangements for renting a property, the identity of the renter must be verified. Identify whether the given scenario is a true or false interpretation of FINTRAC record-keeping requirements. There are two options. There is only one correct answer. 1

True

2

False

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Lesson 3 | Page 28 of 43

A salesperson is responsible for records of all transactions with sellers and buyers. Question #19: If the entity is a provincial government agency, you do not have to keep a client information record. Identify whether the given scenario is a true or false interpretation of FINTRAC record-keeping requirements. There are two options. There is only one correct answer. 1

True

2

False

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Lesson 3 | Page 29 of 43

A salesperson is responsible for records of all transactions with sellers and buyers. Question #20: Individual identification records must be kept by each brokerage for one year. Identify whether the given scenario is a true or false interpretation of FINTRAC record-keeping requirements. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 3 | Page 30 of 43

A large cash transaction is a red flag for someone wanting to hide the source of funds from money laundering or terrorist financing. Question #21: A brokerage receives a cash deposit of $5,000. The brokerage completes a receipt of funds record to document the receipt of the buyer’s deposit. This means that if you keep the required information and can produce it during a FINTRAC examination, you do not need to create a new record to meet your obligations. Identify whether the given scenario is true or false interpretation of FINTRAC requirements for receiving funds. There are two options. There is only one correct answer. 1

True

2

False

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Lesson 3 | Page 31 of 43

A large cash transaction is a red flag for someone wanting to hide the source of funds from money laundering or terrorist financing. Question #22: A brokerage receives a cash deposit of $15,000. The brokerage completes a receipt of funds record to document the receipt of the buyer’s deposit and completes a Large Cash Transaction Report to send to FINTRAC. Identify whether the given scenario is true or false interpretation of FINTRAC requirements for receiving funds. There are two options. There is only one correct answer. 1

True

2

False

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Lesson 3 | Page 32 of 43

A large cash transaction is a red flag for someone wanting to hide the source of funds from money laundering or terrorist financing. Question #23: A brokerage receives a $50,000 deposit by way of a certified cheque. The brokerage reports these funds to FINTRAC on the Large Cash Transaction Report. Identify whether the given scenario is true or false interpretation of FINTRAC requirements for receiving funds. There are two options. There is only one correct answer. 1

True

2

False

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Lesson 3 | Page 33 of 43

A large cash transaction is a red flag for someone wanting to hide the source of funds from money laundering or terrorist financing. Question #24: A brokerage receives a $20,000 electronic funds transfer from a bank which is deposited directly into the brokerage’s Trust Account. The brokerage completes a receipt of funds record to document the receipt of the buyer’s deposit. Identify whether the given scenario is true or false interpretation of FINTRAC requirements for receiving funds. There are two options. There is only one correct answer. 1

True

2

False

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Lesson 3 | Page 34 of 43

Salespersons and brokerages are required to report suspicious activity to FINTRAC. Question #25: Identify which of the given statements is/are an indicator of suspicious activity. There are four options. There is only one correct answer. 1

The new buyer client is questioning the purpose of identification verification as the salesperson completes the process

2

A buyer client who has provided misleading information about their funds in a foreign bank that cannot be verified

3

A buyer client is purchasing two properties and seems unconcerned about any details about a problem in one property that will require repair

4

A buyer client who is providing multiple cash deposits of $8,000 each spread over alternating days

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Lesson 3 | Page 35 of 43

Real estate, by its very nature, presents opportunities for criminals or terrorists to take advantage of sellers and buyers for financial gain. Illegal activities in a real estate transaction can include: • Identity theft • Artificially inflated property values • Falsifying information on mortgage applications • Falsifying documents that are registered on the title to a property that could transfer title and register a mortgage This could all happen without the knowledge of the true owner. Salespersons, through diligent professional practices, can identify potential fraud and help minimize this type of activity.

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Lesson 3 | Page 36 of 43

Mortgage Fraud

Mortgage fraud happens when the personal and financial information of an individual and/or the information relating to the property is falsified so that an approval for mortgage funding can be obtained. Mortgage fraud can include: • Falsifying information on a mortgage application about income, work status, or other employment information • Stating the borrower will reside in the residence when they will not • Obtaining monetary compensation to obtain a mortgage from a specific lender • Being offered an interest rate or mortgage amount that appears very competitive when the borrower has been declined by other lenders

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Lesson 3 | Page 37 of 43

Types of Mortgage Fraud Mortgage fraud can take place in various ways and can include several criminals working together. Successful counter measures require the combined effort of those involved – brokerages, lawyers, appraisers, and lenders – all working along with law enforcement agencies. The following four sections contain information on the types of mortgage fraud.

Straw buyers

A common form of mortgage fraud is when an individual is paid to apply for a mortgage on someone else’s behalf. This individual is known as the “straw buyer” and they unknowingly become liable for the mortgage and responsible to make the mortgage payments.

Falsifying information

Falsifying information on a mortgage application to qualify for a larger mortgage than your income or credit history would allow is a form of mortgage fraud. This could also include non-disclosure of a second mortgage to the primary lender – the lender believes the borrower has a larger down payment – when in fact, the money is borrowed. The second mortgage may or may not be registered to conceal this from the primary lender.

Identity theft

Homeowners could have their identity stolen and then used by someone else to obtain a new mortgage on a property. Once the mortgage funds are advanced, the deceiver does not make any mortgage payments, and the lender will subsequently take steps against the true homeowners for a mortgage they did not arrange. Identity theft can also result in the deceiver transferring a mortgage-free property into their name and selling the property. Once the funds have been paid and the transaction completed, the true homeowners must take legal action to regain ownership of their property.

Value fraud

This involves purchasing a property and then selling it to another purchaser at an artificially inflated price. This includes deceiving a mortgage lender or potential buyer about the value of the property by providing a false appraisal about the estimated value or falsifying the value or the extent of any renovations completed. Exam Study Guide

Lesson 3 | Page 38 of 43

Identifying Fraud Fraud is often difficult to casually detect, but telltale clues are present. Anyone involved with real estate or mortgage transactions should watch for key signals. However, warning signs are cumulative in nature. Obviously, no single factor will indicate fraud potential, but the more that appear, the more vigilant and diligent you need to be. The following five sections contain information signs that may indicate potential mortgage fraud.

Value is not supported by market data If the listing price or sale price of a property is not supported by the market data, the individual could use a falsified listing data sheet or agreement of purchase and sale to sell the property or obtain a mortgage.

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Things don’t add up Be sensitive to situations that don’t make sense: • A buyer who has a significant down payment but no tangible assets • An individual with limited employment history who has accumulated significant assets • A buyer who has a drastic increase in their income due to a raise or new employment • A seller who provides a large credit to the purchase price to offset improvement allowances when no such improvements are required

Unusual circumstances Be aware of out-of-the-ordinary situations: • One person acting on behalf of another in a transaction • A buyer not wishing to personally see the property, nor have it appraised or inspected

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Close connections Large fraud schemes typically require complicity. Circumstances that might indicate this possibility include the same professionals for a transaction providing services to the same buyer; for example, a lawyer, lender, and appraiser. Circumstance could also include various corporations shown as a buyer on several transactions, however the same individual is shown as having signing authority for those corporations.

Unusual requests/facts Many possibilities exist: • The buyer wants the property removed from the listing service immediately and the sale price is not reported • The property information does not align with the facts; for example: o The square footage of the home is overstated

o The extent of renovations or the time period between a previous transaction closing and the property being listed for sale is too short to complete the renovations o No supporting market data to validate any increase in value • The buyer requests that the deposit be held by someone other than the listing brokerage for no apparent reason Exam Study Guide

• The seller or buyer instructs you not to speak to a particular party involved with the transaction

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Lesson 3 | Page 39 of 43

Steps to Deter Mortgage Fraud

As a real estate professional, you have the responsibility to be vigilant about mortgage fraud and help deter potential fraud. Consider the given steps to deter fraud: • Verify identification – know your clients • Keep client information secure and discuss identity theft with clients, and how it can lead to mortgage fraud • Advise a buyer to only provide a deposit to a lawyer or a brokerage, and ensure it is held in trust • Ask the seller for copies of documents that an owner would have; for example, the deed, survey, property tax bill, or a notice of assessment – exercise caution if they cannot be provided • Research the ownership history of the property, including previous listing and selling prices to assess if this history is logical for the market conditions • Provide copies of the agreement of purchase and sale to the lender or appraiser to ensure the correct version of the agreement is being used

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• Educate your sellers and buyers about suspicious situations that could lead to mortgage fraud, including: o Being asked to inflate (overstate) their income on a mortgage application, indicate they plan to live in a property being purchased as a rental property, or provide other false statements o Being asked to sign documents that contain blanks or asked not to complete certain sections of a form or document o Being offered a fee for the use of their name and credit information o Being discouraged from visiting the property, having the property appraised, or inspecting the property they are purchasing

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Lesson 3 | Page 40 of 43

Requirements to Ensure Accuracy and Ethical Practice in a Trade As a salesperson, you have the responsibility to ensure that you do not knowingly make incorrect statements regarding a trade in real estate and to use your best efforts to prevent error, misrepresentation, fraud or any unethical practice. The following two sections contain information on the requirements to ensure accuracy and ethical practice.

Inaccurate representation

As a salesperson, you must not knowingly make an inaccurate representation about a trade or the services provided. Knowingly providing false or misleading information about a property can contribute to mortgage fraud. Example: A seller asks you to round up the square footage of the home to 2,000 square feet from the current 1,825 so that the information supports a higher listing price. If this was complied with, it would be considered an inaccurate representation about the property.

Prevent error, misrepresentation, and fraud

As a salesperson, not only must you avoid fraud, error, or misrepresentation but you must take steps to prevent it. Example: A buyer is completing a mortgage application and in conversation with their salesperson states they would like to provide an income based on both spouses being employed, even though one spouse is currently unemployed and looking for a new job. If this was allowed to be submitted, the salesperson would be in non-compliance of preventing fraud, error, or misrepresentation.

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Lesson 3 | Page 41 of 43

Salespeople should be aware of, and try to prevent, mortgage fraud. Question #26: Which of the given scenarios is/are an indication of potential mortgage fraud? There are four options. There are multiple correct answers. 1

A buyer wants to purchase a property without personally seeing the property or having it appraised or inspected

2

A buyer asks a salesperson for a contact for finding the lowest mortgage rate possible

3

A buyer claims the property is for their use, but they actually intend to use it as a rental property

4

A buyer with no visible income source or assets is able to provide a significant down payment

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Lesson 3 | Page 42 of 43

Salespeople are required to abide by the Code of Ethics in all their dealings. Question #27: Identify which one/ones of the given scenarios describe a salesperson abiding by the Code. There are four options. There are multiple correct answers. 1

A salesperson provides a copy of the Agreement of Purchase and Sale to the lender or appraiser to ensure the correct version of the agreement is being used.

2

A salesperson lists a property and asks the seller for copies of documents that an owner would typically have, e.g., the deed, survey, property tax bill, or a notice of assessment.

3

A salesperson ignores discrepancies in the buyer’s identification.

4

A salesperson lists a home with an area of 1,795 square feet. The salesperson agrees to the seller’s request to round it up to 2,000 square feet so that the information supports a higher listing price.

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Lesson 3 | Page 43 of 43

Congratulations, you have completed the lesson! There are eight sections on this page with a summary of the key topics that were covered in this lesson.

FINTRAC compliance requirements

A brokerage must ensure the five required elements of a compliance program are established and implemented. These include having a Compliance Officer, written policies and procedures, completing a risk assessment, written ongoing training, and a review of the effectiveness of the program at least every two years. As a salesperson, your obligations can be categorized under: 1. Know your client 2. Reporting 3. Recordkeeping When completing a trade, you must ensure you are complying with the requirements under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. This includes: • Verifying the identity of the seller and the buyer • Confirming the existence of a corporation or other entity • Preparing a client identification report, verifying third parties, and verifying the identity of unrepresented parties • Preparing a receipt of funds record for the money received • Completing and submitting to FINTRAC a large cash and virtual currency transactions report when funds received are in cash or virtual currency and total $10,000 or more or the virtual currency equivalent • Completing and submitting to FINTRAC a suspicious activity report or a terrorist property report • Assessing the risk of client relating to committing money laundering or terrorist financing • Documenting and monitoring a business relationship once it has been established • Maintaining records: Exam Study Guide

o Client information o Receipt of funds o All submitted reports, unrepresented party o Reasonable measures taken

Methods used to verify the identity of an individual

The identity of the seller and buyer involved in the trade must be verified and documented. This can be done directly by you as a salesperson, or an agreement can be signed with an agent or mandatary to do this on your behalf. The allowable methods of verifying an individual include: • Photo identification – using a driver’s license or passport • Credit file – this must be obtained from a valid Canadian credit reporting agency and not the individual • Dual process – this involves two original, valid, and current documents from independent and reliable sources

Verification of a corporation or other entity

When the client is a corporation, you must verify the corporation exists by confirming: • Name of the corporation, corporate address, nature of principal business, and the names of all directors, and the names of all beneficial owners When the client is another entity, such as a trust, a fund, a partnership, and an unincorporated association or organization, you must verify the entity exists by confirming: • Name and address of the entity, the articles of association, partnership agreement or similar document, and the names and address of all beneficial owners of the entity Verification can be done using paper documents or an electronic version.

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Identify suspicious activity

When there are reasonable grounds to think a transaction is related to money laundering or terrorist financing, a suspicious transaction report must be submitted to FINTRAC. There are many indicators of suspicious activity, but it is generally behaviour that is unusual for your client or business. Indicators of suspicious activity can be grouped under various categories: • Indicators dealing with payments – this focuses on buyer activities when providing a deposit • Indicators dealing with the agreement of purchase and sale – this focuses on specific behaviour when preparing or negotiating an offer • Indicators dealing with identification – this focuses on both seller and buyers when • verifying their identity • Indicators dealing with behaviour – this focuses on unusual behaviour by a seller or a buyer throughout a transaction As a salesperson, you must be diligent in monitoring and assessing situations to determine any suspicious activity.

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Mortgage fraud

Mortgage fraud can include: • Falsifying information on a mortgage application about the income, work status, or other employment information • Stating the borrower will reside in the residence when they will not • Obtaining monetary compensation to obtain a mortgage from a specific lender • Being offered an interest rate or mortgage amount that appears very competitive when the borrower has been declined by other lenders Types of mortgage fraud include straw buyers, falsifying information, identity theft, and value fraud.

Leading practices to identify mortgage fraud

Fraud is often difficult to casually detect, but telltale clues are present. These include: • Value is not supported by market data • Things don’t add up • Unusual circumstances • Close connections • Unusual requests or inconsistent facts

Steps to deter mortgage fraud

As a salesperson, you have the responsibility to be vigilant about mortgage fraud and help deter potential fraud. Consider the given steps to deter fraud: • Verify identification • Keep client information secure and discuss how identity theft can lead to mortgage fraud • Advise a buyer to only provide a deposit to a lawyer or a brokerage, and ensure it is held in trust • Ask the seller for copies of documents that an owner would have • Research the ownership history of the property • Provide copies of the agreement of purchase and sale to the lender or appraiser • Educate your sellers and buyers about suspicious situations that could lead to mortgage fraud Exam Study Guide

Ensuring accuracy and ethical practices

As a salesperson, you must not knowingly make an inaccurate representation about a trade or the services provided. You must not only avoid fraud, error, or misrepresentation, but you must take steps to prevent it.

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Lesson 4 | Page 1 of 27

Lesson 4: Putting it all Together – A Residential Agreement of Purchase and Sale

This lesson reviews leading practices for the offer process and presents four residential transactions which detail the necessary considerations when preparing an offer. The emphasis is on ensuring any pre-set clause or any clause added to the agreement of purchase and sale that can be fully explained to a seller or a buyer.

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Lesson 4 | Page 2 of 27

Putting it all Together – A Residential Agreement of Purchase and Sale

This lesson describes leading practices for you, as a salesperson, when drafting an offer and preparing for the offer presentation. As a salesperson, the core of your responsibilities is navigating the complexities of preparing an offer and the negotiations that follow. This requires a full understanding of the pre-set clauses, any terms or conditions added to or removed from the offer, and the impact to the seller and the buyer of the negotiated offer prior to being accepted. This lesson will help you put it all together to ensure you can provide competent and professional service and advice to sellers and buyers. Upon completion of this lesson, you will be able to: • Identify leading practices of a salesperson regarding the offer process • Identify distinct challenges for a salesperson when explaining agreements of purchase and sale to a seller or a buyer Exam Study Guide

Lesson 4 | Page 3 of 27

Leading Practices for the Offer Process The offer process can be detailed and complex – and as a new salesperson – an exciting and nerve-wracking time. The given leading practices can help you develop key skills required during the offer process. The following four sections contain information on leading practices to prepare for the offer process.

Practice presenting the offer

Presentation skills are developed through active practice, not just reading or thinking about the event. Draft various offers using different scenarios and practice presenting these to your family and friends so when it’s time to present an offer to a seller or buyer, you are comfortable with your presentation. Ask another salesperson or a manager at your brokerage to role-play the offer process with you so that you can explore more of the details in your responsibility when working with a seller or a buyer. Attend any brokerage training courses that will help you to prepare for the offer process.

Explain the clauses in simple terms

You must be able to explain each pre-set clause on the agreement of purchase and sale thoroughly and in terms that are understandable. Practice explaining the pre-set clauses as well as any clause that could be added to a schedule. Analyze each clause and prepare an explanation in your own words. You don’t need to explain every line of the clause, but you will need to ensure the important aspects of each is explained and understood. Write out each explanation and practice delivering it. Use your family as your audience. Practice referring to the offer as though a seller or buyer were sitting opposite you and reviewing it. The means the offer will be upside down to you. You should be able to know what part of the offer the seller or buyer is referring to without looking at your own copy. You should not only be comfortable with what the clause says, but where it is situated on the offer. Exam Study Guide

Have the offer reviewed before it is signed

Although you may be extremely careful when drafting an offer, have a manager or broker of record review your offer to ensure it is: • Complete • Accurate • Addresses the needs of a buyer • Complies with any brokerage requirements relating to the wording of any terms or conditions included The offer must be correct before asking a buyer to sign as the offer can become a binding agreement upon acceptance. An offer that is incomplete or contains errors can place a buyer in an unwanted or unanticipated situation. When you are representing a seller, the offer you receive could be presented outside of the brokerage’s office location and during evening or weekend hours. This should not result in an offer presentation that is without guidance or advice. Ask another salesperson or manager to join you on several offer presentations to assist you if needed. Or, ensure there is a manager or broker of record available by phone to assist you during the offer presentation time. To prepare in advance, ask to join another salesperson when they are presenting an offer to a seller to gain insight into the offer process from the point of view of a seller.

Sufficient copies for offer signing

When the offer is being presented in person, or you are providing the offer to the seller’s salesperson for presentation, ensure there are sufficient copies for all parties. Check with your brokerage to see if there are any policies or preferences regarding a summary document that can be used in lieu of the listing brokerage retaining a copy of an unsuccessful offer in its entirety. Under the Code, the given requirements relate to copies of offers. • A copy for each party to the agreement must be provided at the earliest opportunity. This requires a copy for each seller and each buyer. • A copy for each brokerage. When an offer is being sent electronically, the party is deemed to have received and retained a copy of the agreement. Exam Study Guide

Lesson 4 | Page 4 of 27

Preparing and negotiating an offer is one of the most important aspects of your role as a salesperson. Sellers and buyers will rely on your knowledge and professionalism to guide them through one of the most critical and complex tasks of selling or buying a property – achieving an accepted offer that has been negotiated fairly, ethically, and protects their best interests. Sellers and buyers expect you to be able to provide advice when submitting or receiving an offer, and to ensure the terms and conditions of any agreement are fully understood before signing an offer. To do this, an understanding of how the pre-set clauses on an agreement of purchase and sale can impact a seller or a buyer is critical. Four residential transactions are described on the remaining screens in this lesson to illustrate the complexities of an offer.

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Lesson 4 | Page 5 of 27

Transaction 1: The Easement

The property listed for sale is two acres in size and features a one acre bush area and ravine. The site is developed with a single family home and an attached garage. The home is located within a cleared section of the site, offset to the easterly portion of the property. The listing indicates there is an easement on the property, however there is no description identifying the specific location of the easement. The buyer is interested in purchasing the property as the additional lot area provides enough space for the buyer to construct an outbuilding without needing to clear any additional land. The building will be used to house machinery, a boat, two recreational vehicles, and a snow mobile. The ability to construct such an outbuilding is an important part of the buyer’s decision to purchase the property.

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Lesson 4 | Page 6 of 27

Drafting an Offer As a salesperson representing the buyer, based on your knowledge of the buyer’s intention to construct the building, there are several aspects of this property that need to be investigated. If the buyer were to place an offer without the due diligence being completed, there could be ramifications to both the seller and the buyer. The buyer may find, because of the location and size of the easement, they are unable to do what they would like to with the property. Let’s review the applicable parts of an agreement of purchase and sale that impacts this proposed transaction. The following two sections contain information on the applicable clauses.

Legal description The legal description should include the easement that is identified, including as much information as possible. In addition to the size of the easement, the location and a description of the purpose of the easement should be stated. From OREA Form 100: Agreement of Purchase and Sale. ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

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Title The clause relating to the title to the property includes a provision that requires the buyer to accept title when certain encumbrances are registered on the property. Depending on the type of encumbrance, the easement on the property might be included under this clause. From OREA Form 100/Clause 10: Agreement of Purchase and Sale. ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

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Lesson 4 | Page 7 of 27

Considerations for an Offer

The purpose of the easement that encompasses about 25% of the property needs to be confirmed because certain easements must be accepted; meaning a buyer, whether informed about the easement or not, must complete the sale. The easements that must be accepted include a minor easement for the purpose of supplying utilities and telecommunication services for the property or adjoining properties, and other minor easements such as drainage, sewer, cable television lines etc., provided that they do not materially affect the property; meaning that the easement does not impact the use of the property. The due diligence for this transaction would need to identify the given: • The purpose of the easement • The size and location of the easement • Whether the easement is considered minor in nature The size and location of the easement would be criteria used to determine whether the easement is minor, or if it materially affects the use of the property. Questions to ask: • Where is the easement in comparison to the intended location of the outbuilding? • If the easement location is where the outbuilding is to be constructed, is there another suitable location on the Exam Study Guide

property for the outbuilding? A title search completed by the buyer’s lawyer will reveal any easement registered on title. Based on the specific easement, the buyer could use this as an objection to title, which would allow the offer to be terminated. Circumstances which would allow for an objection to title include: • An easement that materially affects the use of the property • An easement for any purpose other than drainage, sewer, utilities, and telecommunication (i.e., those reasons specified in the pre-set clause), if the buyer has not been made aware of the easement As a salesperson, you should ensure an agreement of purchase and sale clearly identifies any easement(s) affecting the property, and an acknowledgement by the buyer accepting the easement. If not identified properly, a buyer could purchase the property, find out during the title search that there is an easement that would restrict the buyer from continuing with their plans, and use the easement as an objection to title resulting in a terminated sale.

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Lesson 4 | Page 8 of 27

Key Takeaways Given are the key takeaways from Transaction 1: The Easement. • Identify the purpose of the easement and see if the easement is one that a buyer is obligated to accept • Identify if the easement is considered minor in nature, or if it materially affects the use of the property • Include any acknowledgement in the offer as required • Include any condition in the offer as required to allow the buyer to perform the required due diligence • Explain the ramifications to both a seller and a buyer should the easement not be properly investigated or documented: o For a seller, the offer might be terminated o For a buyer, the offer might be binding which results in the purchase of a property that does not meet their requirements

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Lesson 4 | Page 9 of 27

Transaction 2: The Mortgage

The cottage property listed for sale has been owned by the family for decades. In 1990, the mortgage was paid in full, and the owners received the papers from the lender showing proof the mortgage had been repaid. The sellers had saved for years, and when the final documents arrived celebrated by “burning the mortgage”. They lit a fire in the fire pit located on the property and tossed the mortgage papers in. When the sellers listed the property for sale, the salesperson asked if a mortgage would need to be discharged when the transaction closed. The sellers were happy to say, “No, there is no mortgage on our property.” The buyer is considering two properties. They select this property and are anxious to have the transaction completed right away so they can still enjoy the property during the summer months. The owners of the other property they are considering will not agree to a completion date before mid-September. To ensure a transaction can be completed in such a short time, the salesperson contacts the buyer’s lawyer. The lawyer says, “Yes, as long as there are no Exam Study Guide

surprises. It will help if they have a survey.” The salesperson enquires about a survey and is immediately provided a copy. The survey was completed a few years earlier and the sellers state there have been no new structures or other improvements added since. The salesperson drafts an offer and inserts a date for the title search to be completed, which does not allow for much time if any problems arise. Knowing there is no mortgage to be discharged and having an existing survey on hand, the buyer is confident the transaction will be completed as scheduled. The ability to use the property during the summer is an important part of the buyer’s decision to purchase the property.

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Lesson 4 | Page 10 of 27

Drafting an Offer As a salesperson representing the buyer, there are three areas of the offer that could impact the buyer’s goal of occupying the property this summer. Let’s review the applicable parts of an agreement of purchase and sale that impacts this proposed transaction. The following three sections contain information on the applicable clauses.

Completion date The completion date is when the property will transfer from the seller to the buyer. The completion date cannot be a Saturday, Sunday, or a statutory holiday. The buyer is anxious to take ownership as soon as possible, so after speaking to the buyer’s lawyer, the earliest completion date possible is inserted by their salesperson. OREA Form 100/Clause 2: Agreement of Purchase and Sale. ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

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Title search A title search is completed by the buyer’s lawyer within a specified time period prior to the completion of the transaction. The lawyer will examine title to the property to ensure the seller’s interest in the property can be transferred, identify any easements affecting the property, and search for any mortgages or other encumbrances, such as a lien for property taxes not paid. A title search will also confirm the property’s legal description and the name(s) of the registered owner(s). The date inserted for the title search to be completed by is referred to as the Requisition Date. Additional searches will be completed to confirm certain non-title issues, such as work orders, deficiency notices, zoning, and insurance. From OREA Form 100/Clause 8: Agreement of Purchase and Sale. ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

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Documents and discharge The agreement of purchase and sale identifies the obligations of the seller to provide certain documents related to the property to the buyer. The seller is obligated only to provide a document that is in their possession. If a buyer requests a copy of any sketch or survey the seller has, the seller is obligated to provide this as soon as possible and prior to the Requisition Date. If the buyer wants a current, up to date survey, a clause would be included in the schedule of the offer. The seller only has to provide a survey in their possession. The clause also addresses situations where a seller’s mortgage is to be discharged from title. In some instances, the discharge of the charge/mortgage could occur several days following the completion of the sale. The agreement states the buyer will agree to accept the seller’s lawyer’s personal undertaking (a promise) to register the discharge on title within a reasonable time after closing. This means until the mortgage is discharged, the buyer owns the property with the seller’s mortgage still registered. In this example, the seller has stated that there is no mortgage registered on the property. From OREA Form 100/Clause 12: Agreement of Purchase and Sale. ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

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Lesson 4 | Page 11 of 27

Considerations for an Offer

The buyer’s lawyer has indicated they can complete the transaction with the reduced amount of time provided there are no issues raised during the title search and the non-title search time periods. The lawyer is required to complete the title search prior to the Requisition Date, and must provide any concerns to the seller’s lawyer at that time. Based on the seller’s statement there is no mortgage. The legal investigations should result in no issues that need to be addressed. It would appear that the title and non-title searches should result in no concerns. The survey that has been provided was completed a few years ago and a discussion with the sellers indicates there have been no changes to the property since then. It would appear that the documents required by the buyer have been provided. The due diligence for this transaction appears to have been completed prior to the offer being submitted: • The lawyer has confirmed the transaction can be completed with a reduced time period for the legal investigations, assuming there are no issues • The sellers have owned the property for many years, and have assured the salesperson the mortgage was paid in Exam Study Guide

full • A copy of the survey was provided, along with a statement from the sellers indicating it is up-to-date Two weeks before the transaction is to close, the buyer receives a phone call from their lawyer. It appears there are a few problems: • The title search indicates a mortgage is still registered on title. Apparently, the sellers did not register the discharge on title, but mistakenly burnt the document when celebrating being mortgage-free. • The sellers must obtain a copy of the discharge so it can be registered on title, however the lender was a private mortgagee who must be located to confirm the mortgage was paid in full and provide a second discharge document to be registered. • Although the clause in the agreement of purchase and sale would allow for a mortgage to be discharged off title after the transaction is completed by having the seller’s lawyer provide a personal undertaking, but this only applies to institutional mortgages. The seller’s lawyer would not likely provide this under these circumstances. There is nothing to identify there is no money owning. The lawyer would be concerned if there actually is an amount owed on a mortgage and it is more than the proceeds of the sale. • The survey that was provided by the sellers was recent, however when the lawyer was reviewing the survey, an encroachment is noted – the sellers state that this concern was addressed after the survey was done and the encroachment no longer exists. • The lawyer recommends a new survey be obtained or other documentation showing the removal of the encroachment be received. • The completion date for the transaction is now delayed by at least two to four weeks so the appropriate documentation can be obtained.

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Lesson 4 | Page 12 of 27

Key Takeaways

Given are the key takeaways from Transaction 2: The Mortgage. • Although the sellers indicated there is no mortgage on the property, mistakes and misunderstandings can occur • Although a survey can appear up-to-date, reviewing the survey can identify unexpected concerns which may have been dealt with, but not documented as a buyer might require • A title search date that is close to the completion date does not allow for time to identify and resolve any problems • Include any condition in the offer as required to allow the buyer to perform the required due diligence; in this instance a review of the survey • Explain the ramifications to both a seller and a buyer due to the problems that arose: o For a seller, the buyer does not have to agree to extend the completion date – if the seller cannot provide clear title, the offer might be terminated, or compensation might need to be paid to the buyer in exchange for extending the completion date o For a buyer, if the offer is terminated, there might not be any other properties available; the occupancy Exam Study Guide

of the property during the summer was a key aspect of the transaction

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Lesson 4 | Page 13 of 27

Transaction 3: The Redevelopment Project

The property is located in one of the oldest areas of the city. The large home is in poor condition and the landscaping is overgrown but the property is desirable. The lot is almost twice the size of the typical property in the city. The buyer knows exactly what the property needs. They have been carrying around plans just waiting for such a property to be available to purchase. The house is to be torn down and the property is to be severed into two parcels. Then two new structures are to be built and sold. This is the buyer’s first revitalization project and if this goes well, they plan on pursuing other properties for redevelopment.

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Lesson 4 | Page 14 of 27

Drafting an Offer As a salesperson representing the buyer, there are five areas of the offer that could impact the redevelopment project. Let’s review the applicable parts of an agreement of purchase and sale that impacts this proposed transaction. The following five sections contain information on the applicable clauses.

Title search A title search and non-title search is completed by the buyer’s lawyer. In this scenario, the ownership is not a concern. The buyer is most concerned about any encumbrances, such as an easement. The buyer is also impacted by the zoning search which is part of the non-title searches the lawyer will complete. The present use of the property is a single-family dwelling, but that is not the buyer’s intended future use. From OREA Form 100/Clause 8: Agreement of Purchase and Sale. ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

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Future use The buyer intends on redeveloping the property and has no intention of retaining the home. The clause identifies there is no warranty that the intended future use will be legal unless a clause is specifically added to the offer. From OREA Form 100/Clause 9: Agreement of Purchase and Sale. ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

Planning Act An agreement of purchase and sale must comply with the Planning Act, or the transaction will not be completed. Although this clause will not likely impact the buyer when purchasing, the future use of the property includes a severance and sale of two distinct properties. This will impact the buyer’s ability to resell the properties at a later time as the contract must be based on a lawful object. From OREA Form 100/Clause 15: Agreement of Purchase and Sale. ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

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UFFI This clause indicates the seller is providing a warranty that any building does not, nor has it ever, contained insulation containing urea formaldehyde. Even though the home is being torn down, the seller is providing a warranty that if not true, is a misrepresentation of the property. The presence of UFFI in a home can impact the value of a property and as such, this warranty is made. From OREA Form 100/Clause 23: Agreement of Purchase and Sale. ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

Legal, accounting, and environmental advice This is the buyer’s first redevelopment project, so the buyer is likely unaware of all the potential issues that could impact their plans. This clause identifies the brokerage is not providing the advice that other professionals should be consulted for. From OREA Form 100/Clause 24: Agreement of Purchase and Sale. ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

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Lesson 4 | Page 15 of 27

Considerations for an Offer

The buyer’s inexperience and future plans for the property creates a heightened level of due diligence for this offer. Although the condition of the home is not a concern to the buyer, older homes may contain finishes that are an environmental concern and can increase costs for demolition and disposal. The severance of the property must be applied for and approval must be received for the redevelopment project to proceed. Part of the approval process will include a zoning search. This impacts not only the ability to sever the property to meet minimum lot size requirements, but also identifies the type of development permitted. The due diligence for this transaction would need to include the given: • The environmental aspects of the structure and the lot should be investigated as this can impact the value of the property • The legal aspects which includes confirming if any easement is located on the property as this would impact the location of any structure • The severance must be approved for the property to be sold as two parcels. A condition in the offer should be included which allows for the approval to be obtained

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• The condition for a severance must be written as a true condition precedent which provides only for a notice of fulfillment to be used rather than a waiver when providing notice to the seller • The zoning will need to be searched to see if the severance and the building plans would comply as the future intended use is different from the property’s present use • The property is located in an older area of the city which could mean there is no plan of subdivision on the property. This could require the severed parcels to be registered in two different names. Otherwise the properties remain as one property • The financial and tax aspects of the project should be investigated; for example, if the two properties must be registered in different names, how does this impact the buyer

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Lesson 4 | Page 16 of 27

Key Takeaways

Given are the key takeaways from Transaction 3: The Redevelopment Project. • Fully explain the warranties contained within the pre-set portion of an agreement of purchase and sale. A misrepresentation, even though it may appear inconsequential, can impact a party • Rely on third-party professionals related to the legal, financial, and environmental aspects of a transaction • When changing the use of a property, fully investigate the legal aspects of the transaction to ensure the intended future use of the property can be attained • Environmental concerns can be associated with older structures as the products and building materials used in the past were not as regulated as those being used in more recent construction • Explain the ramifications to both a seller and a buyer should the due diligence not be completed: o For a seller, the warranty in the offer could have financial consequences o For a buyer, the property could be purchased and the intended use, if not approved, would result in owning a property that does not meet their requirements

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Lesson 4 | Page 17 of 27

Transaction 4: The Non-Resident Seller

The property is listed for sale with ABC Real Estate Inc. and is located on a small lake in a rural area not far from the city. The area is developed with a mixture of year-round and seasonal homes, and is serviced with municipal water and sewers. The home is older, but the sellers have completed major renovations over the last year. The sellers live in Arizona and had planned on spending the summers in Ontario, but their plans have now changed and they have decided to sell the property. The buyers are also being represented by a salesperson at ABC Real Estate Inc. for the purchase. The buyer would like to submit an offer that is conditional upon arranging financing, obtaining insurance, and having the property inspected to ensure they are satisfied with the condition of the structure. The offer will be conditional for 10 days.

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Lesson 4 | Page 18 of 27

Drafting an Offer As a salesperson, whether representing the sellers or the buyers, there are seven areas of the offer that should be fully understood. Let’s review the applicable sections of an agreement of purchase and sale that impacts this proposed transaction. The following seven sections contain information on the applicable clauses.

Notices This identifies how a notice can be given and received. In this instance, the brokerage is operating under multiple representation; the brokerage is not authorized to give or receive the notices. As the seller is a non-resident, obtaining a fax number or email address from the seller would be a more efficient way to address any notice required. Otherwise, the notice must be sent to the address for service under the acknowledgment section; which in the case of the seller would be Arizona. From OREA Form 100/Clause 3: Agreement of Purchase and Sale. ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

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Inspection The buyers should understand that the clause only states they have had an opportunity to inspect the property prior to an offer being submitted. For the offer to be conditional upon a property inspection, a clause must be added to the Schedule A. From OREA Form 100/Clause 13: Agreement of Purchase and Sale. ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

Insurance The buyers will be required to obtain their own insurance for the property as insurance cannot be transferred. For the offer to be conditional upon obtaining insurance, a clause must be added to the Schedule A. The sellers are only required to maintain their insurance, if any, on the buildings until completion. In the event of substantial damage, this clause would allow a buyer to either terminate the agreement or use the proceeds of any insurance and complete the sale. From OREA Form 100/Clause 14: Agreement of Purchase and Sale. ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

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Residency The sellers are non-residents of Canada and the sale of the property can be impacted by the Income Tax Act. The buyers will be required to ensure any capital gains tax owed by the sellers is submitted to the Minister of National Revenue. This will be done by giving the buyers a credit for the amount owed, if any, and then the buyers’ lawyer will ensure the required tax is submitted. If the sellers deliver a certificate showing any tax owed has been paid, the buyers will not receive a credit. From OREA Form 100/Clause 17: Agreement of Purchase and Sale. ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

Property assessment The sellers have completed extensive renovations to the home which could likely increase the value of the property. Should the property be reassessed and the taxes increase, the buyers are being given notice there can be no claim made against any party. From OREA Form 100/Clause 19: Agreement of Purchase and Sale. ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

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Time and date The sellers live in Arizona, which is in a different time zone than where the property is located. The sellers will need to understand that when a time or date is referenced in the agreement of purchase and sale, it refers to the time and date for the property’s location and not their location in Arizona. From OREA Form 100/Clause 27: Agreement of Purchase and Sale. ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

Information on brokerages ABC Real Estate Inc. is representing both the sellers and the buyers. The information will only indicate the listing brokerage and the name of either salesperson can be inserted. From OREA Form 100: Agreement of Purchase and Sale. ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

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Considerations for an Offer

The seller’s non-residency status will affect the transaction, and the due diligence on their part for this transaction would need to include the given: • The sellers should seek advice on any tax implications prior to listing the property for sale • Confirmation that all required permits for the renovations were obtained and any required inspections completed • Confirmation that appropriate insurance is placed on the structure as the policy coverage should be sufficient based on the renovations that were completed • Confirmation on whether the property has been reassessed after the renovations were completed The buyers’ offer contains three conditions which must be addressed within a 10-day period. The due diligence on their part for this transaction would include the given: • Immediately proceed to arrange the necessary financing as an appraisal might need to be obtained which can take several days to arrange, complete and be reviewed by the lender

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• Contact a property inspector and arrange for the inspection to be completed; providing copies of any information relating to the improvements would assist the inspector when at the site • The existing insurance on the property cannot be transferred to the buyer and a rural property can pose unique factors that can impact the ability to obtain insurance or the cost; for example, distance from a fire hall is one contributing factor • Depending on how the notices relating to the conditions are to be sent to the sellers, the due diligence should be completed quickly to allow for any delays in obtaining approval or ensuring the sellers receive the notice on time; remember, the time and date is where the property is and not the seller’s location, in Arizona • Review the property assessment and taxes to see if any reassessment of the property has already been done, or estimate how the improvements could increase the property taxes

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Lesson 4 | Page 20 of 27

Key Takeaways

Given are the key takeaways from Transaction 4: The Non-Resident Seller. • Non-resident sellers have obligations related to capital gains tax that will impact the net proceeds from the sale; this should be investigated prior to listing the property • Most renovations require a building permit; ensure these were obtained • Properties are reassessed periodically and renovations completed can increase the assessed value resulting in an increase in property taxes; ensure the buyer is aware of this potential • Completing the due diligence should be immediately started after an offer has been accepted to allow time should any problems arise for the condition to be completed within the agreed upon time period in the offer • When a brokerage is operating under multiple representation, the brokerage may not give or receive notices on behalf of the seller and the buyer; obtain their personal information to assist in the delivery of notices • Explain the ramifications to both a seller and a buyer should the due diligence not be completed: o For a seller, the tax obligations result in lesser net proceeds; had this been known in advance, it would have impacted their decision to sell o For a buyer, if the due diligence is not completed early enough and notices have not been received by the sellers on time, this could result in the offer becoming null and void

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Lesson 4 | Page 21 of 27

Obligations as a Salesperson Your obligations under the Code will guide your activities as a salesperson. The previous scenarios are examples of residential transactions that you can be involved in. Understanding the complexities of a situation, ensuring a seller and a buyer fully understand the terms of any offer, and transacting in a fair and ethical manner is the basis of your role as a salesperson. The following four sections contain information on four obligations under the Code.

Best interests

All activities undertaken by a salesperson must be to promote and protect the best interests of their client. Some examples of working in the best interests of the seller or buyer have been illustrated in the previous scenarios when: • Ensuring information about an easement is discovered before a binding agreement of purchase and sale is made • Including the appropriate due diligence conditions in an offer • Advising that third-party professionals be obtained relating to various matters that are beyond the knowledge, skill, judgement, or experience of a salesperson

Conscientious and competent service

A salesperson must provide conscientious and competent service to all sellers and buyers, regardless of a client or customer relationship. Some examples of providing conscientious and competent service have been illustrated in the previous scenarios when: • Including an acknowledgement in an offer to ensure there is no misunderstanding by one or both of the parties • Advising the non-resident sellers about potential capital gains tax issues prior to listing the property for sale • Explaining any pre-set clause on an agreement of purchase and sale and the impact this might have to ensure a seller and a buyer are making informed decisions related to the transaction

Exam Study Guide

Services from others

This requires all salespersons, when they are not able to provide the services with knowledge, skill, judgement, and competence, to seek the services from another person. This obligation applies regardless of the length of time being registered to trade in real estate and whether the brokerage has a client or customer relationship established. Some examples of recommending services from others have been illustrated in the previous scenarios when: • A property inspector is retained to complete an inspection of the property • A lawyer provides advice related to an encroachment noted on a survey • An environmental company retained to assess any environment contamination or concerns related to a property or a structure

Material facts

The extent of a salesperson’s obligations will differ depending on whether a client or customer relationship has been established with the brokerage. The previous scenarios related to client relationships which required the salesperson to determine the material fact, complete the necessary due diligence related to the material fact, and disclose this to the client. Some examples of determining and disclosing material facts have been illustrated in the previous scenarios when: • The location, size, and purpose of the easement must be determined as the ability to construct the outbuilding was an important aspect of purchasing the property • Confirming with a lawyer that a transaction could be completed within a short time period as owning the cottage during the summer months was an important aspect of purchasing the property • Ensuring zoning will allow a severance and the construction of two new structures as the redevelopment of the property was an important aspect of the purchase

Exam Study Guide

Lesson 4 | Page 22 of 27

A new salesperson has just joined a brokerage and is asking you for guidance with the offer process. Question #28: Identify which one/ones of the given suggestions would be useful for the new salesperson. There are four options. There is only one correct answer.

1

Practice locating and explaining the clauses using an agreement form that is facing the client and upside down to you

2

Ask the manager to check your first couple of offers before asking the clients to sign

3

Send all offers electronically so that you don’t have to make copies

4

Practice the offer process with another salesperson at your brokerage or with your manager and receive feedback

Exam Study Guide

Lesson 4 | Page 23 of 27

It is imperative that a salesperson understands and be able to explain clauses contained in an agreement of purchase and sale. Question #29: The title search clause identifies the time period for the buyer’s lawyer to examine title to the property, identify any easements, conduct searches for mortgages or other encumbrances and confirm the legal description of the property and the names of the registered owners. Identify whether the given statement is true or false. There are two options. There is only one correct answer. 1

True

2

False

Exam Study Guide

Lesson 4 | Page 24 of 27

It is imperative that a salesperson understands and be able to explain clauses contained in an agreement of purchase and sale. Question #30: The documents and discharge clause identifies that the seller must provide an up-to-date survey and if applicable, how the seller’s mortgage will be discharged. Identify whether the given statement is true or false. There are two options. There is only one correct answer. 1

True

2

False

Exam Study Guide

Lesson 4 | Page 25 of 27

It is imperative that a salesperson understands and be able to explain clauses contained in an agreement of purchase and sale. Question #31: The title clause includes a provision that requires the buyer to accept title including all encumbrances that are registered on the property. This provision includes all easements such as minor and major restrictions to the property. Identify whether the given statement is true or false. There are two options. There is only one correct answer. 1

True

2

False

Exam Study Guide

Lesson 4 | Page 26 of 27

It is imperative that a salesperson understands and be able to explain clauses contained in an agreement of purchase and sale. Question #32: If a property is being sold by a seller who resides outside of Canada, the residency clause is used to explain to sellers and buyers how the sale of the property may be impacted by the Income Tax Act. Identify whether the given statement is true or false. There are two options. There is only one correct answer. 1

True

2

False

Exam Study Guide

Lesson 4 | Page 27 of 27

Congratulations, you have completed the lesson! There are two sections on this page with a summary of the key topics that were covered in this lesson.

Leading practices for offer preparation

Preparing for the offer process requires a thorough understanding of the agreement of purchase and sale and the ability to explain all pre-set and inserted clauses. Leading practices include: • Practice presenting the offer • Explaining the clauses in simple terms • Having the offer reviewed before it is signed • Ensuring sufficient copies of the offer are prepared

Residential transactions

Sellers and buyers expect you to be able to provide advice when submitting or receiving an offer, and to ensure the terms and conditions of any agreement are fully understood before signing an offer. To do this, an understanding of how the pre-set clauses on an agreement of purchase and sale can impact a seller or a buyer is critical. Four residential transactions were described in this lesson to illustrate the complexities of an offer. Transaction 1 – The Easement – Key Takeaways: • Identify the purpose of the easement and see if the easement is one that a buyer is obligated to accept • Identify if the easement is considered minor in nature, or if it materially affects the use of the property • Include any acknowledgement in the offer as required • Include any condition in the offer as required to allow the buyer to perform the required due diligence Transaction 2 - The Mortgage – Key Takeaways: • Although the sellers indicated there is no mortgage on the property, mistakes and Exam Study Guide

misunderstandings can occur • Although a survey can appear up-to-date, reviewing the survey can identify unexpected concerns which may have been dealt with, but not documented as a buyer might require • A title search date that is close to the completion date does not allow for time to identify and resolve any problems • Include any condition in the offer as required to allow the buyer to perform the required due diligence; in this instance a review of the survey Transaction 3 – The Redevelopment Project – Key Takeaways: • Fully explain the warranties contained within the pre-set portion of an agreement of purchase and sale as a misrepresentation, even though it may appear inconsequential, can impact a party • Rely on third-party professionals related to the legal, financial, and environmental aspects of a transaction • When changing the use of a property, fully investigate the legal aspects of the transaction to ensure the intended future use of the property can be attained • Environmental concerns can be associated with older structures as the products and building materials used in the past were not as regulated as those being used in more recent construction Transaction 4 – The Non-Resident Seller – Key Takeaways: • Non-resident sellers have obligations related to capital gains tax that will impact the net proceeds from the sale; this should be investigated prior to listing the property • Most renovations require a building permit; ensure these were obtained • Properties are reassessed periodically, and renovations completed can increase the assessed value resulting in an increase in property taxes; ensure the buyer is aware of this potential • Completing the due diligence should be immediately started after an offer has been accepted to allow time should any problems arise for the condition to be completed within the agreed upon time period in the offer • When a brokerage is operating under multiple representation, the brokerage may not Exam Study Guide

give or receive notices on behalf of the seller and the buyer; obtain their personal information to assist in the delivery of notices

Exam Study Guide

Lesson 5 | Page 1 of 15

Lesson 5: Summary Practice Activities

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

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Lesson 5 | Page 2 of 15

Summary Practice Activities

This lesson is an opportunity for you to practice applying your learning from the entire module.

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Lesson 5 | Page 3 of 15

A brokerage has specific requirements under REBBA for retaining documents and records related to a trade in real estate. Question #33: A summary document may be retained for successful offers. Identify whether the given statement is true or false. There are two options. There is only one correct answer. 1

True

2

False

Exam Study Guide

Lesson 5 | Page 4 of 15

A brokerage has specific requirements under REBBA for retaining documents and records related to a trade in real estate. Question #34: All offers must be in writing and signed. Identify whether the given statement is true or false. There are two options. There is only one correct answer. 1

True

2

False

Exam Study Guide

Lesson 5 | Page 5 of 15

A brokerage has specific requirements under REBBA for retaining documents and records related to a trade in real estate. Question #35: All offers must be retained for at least six years. Identify whether the given statement is true or false. There are two options. There is only one correct answer. 1

True

2

False

Exam Study Guide

Lesson 5 | Page 6 of 15

A brokerage has specific requirements under REBBA for retaining documents and records related to a trade in real estate. Question #36: The listing brokerage must retain a summary document or copy of the offer for all unsuccessful offers. Identify whether the given statement is true or false. There are two options. There is only one correct answer. 1

True

2

False

Exam Study Guide

Lesson 5 | Page 7 of 15

Waivers and notices of fulfillment are both used to remove conditions to create a firm and binding agreement. It is imperative that the receipt of these forms be acknowledged within the time limits specified on the condition. Question #37: A co-operating brokerage’s buyer signs a waiver to remove a financing condition and it is forwarded to the listing brokerage. In the given scenario, the seller or the listing brokerage is an appropriate party to sign the receipt of the form. Identify whether the given statement is true or false. There are two options. There is only one correct answer. 1

True

2

False

Exam Study Guide

Lesson 5 | Page 8 of 15

Waivers and notices of fulfillment are both used to remove conditions to create a firm and binding agreement. It is imperative that the receipt of these forms be acknowledged within the time limits specified on the condition. Question #38: A seller accepted an offer that included a seller take back mortgage conditional on the seller satisfying themselves as to the credit worthiness of the buyer. After checking the buyer’s credit, the seller signs a waiver to remove the condition and it is forwarded to the buyer customer’s brokerage. In the given scenario, the buyer is an appropriate party to sign the receipt of the form. Identify whether the given statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

Exam Study Guide

Lesson 5 | Page 9 of 15

Waivers and notices of fulfillment are both used to remove conditions to create a firm and binding agreement. It is imperative that the receipt of these forms be acknowledged within the time limits specified on the condition. Question #39: A buyer signs a notice of fulfillment for a home inspection condition and gives it to the brokerage that is representing both the seller and the buyer. In the given scenario, the buyer’s brokerage is an appropriate party to sign the receipt of the form. Identify whether the given statement is true or false. There are two options. There is only one correct answer. 1

True

2

False

Exam Study Guide

Lesson 5 | Page 10 of 15

Waivers and notices of fulfillment are both used to remove conditions to create a firm and binding agreement. It is imperative that the receipt of these forms be acknowledged within the time limits specified on the condition. Question #40: A private seller signs a notice of fulfillment for their condition to be able to change the closing date of their new house purchase and gives it to the brokerage that is representing the buyer. In the given scenario, the seller is an appropriate party to sign the receipt of the form. Identify whether the given statement is true or false. There are two options. There is only one correct answer. 1

True

2

False

Exam Study Guide

Lesson 5 | Page 11 of 15

Complete a Waiver

Oliver Matthew Fisher and Ava Lily Chen have signed a representation agreement with XYZ Realty Ltd. Their salesperson is Nyla Zhang. They placed an offer on the property at 7619 Bedford Road in the City of AnyCity, AnyRegion, on June 20th, 2019. The offer was accepted the same day. The closing date is August 21, 2019. Andrei Petro who is also from XYZ Reality Ltd., (Tel: 555-233-2900) represents the seller, Violet Amber Garrison. On June 26, 2019, the buyers receive notice from the lender that they are approved for the mortgage, but the interest rate will be 3.95% instead of 3.75%. Nyla indicates this will increase their monthly mortgage payment by less than $ 21 per month. The buyers agree to these mortgage terms and will waive the condition in the agreement of purchase and sale.

Exam Study Guide

Lesson 5 | Page 12 of 15

From Form 100: Schedule A –Agreement of Purchase and Sale. ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

The background shows OREA Form 100: Schedule A – Agreement of Purchase and Sale. Five sections are highlighted. 1. The buyer name is Oliver Matthew Fisher and Ava Lily Chen. The legal names of the buyers must be included on the waiver as cross-reference to the agreement of purchase and sale. 2. The seller name is Violet Amber Garrison. The legal names of the seller must be included on the waiver as cross-reference to the agreement of purchase and sale. 3. For the purchase and sale of 7619 Bedford Road, AnyCity: The address of the property must be included on the waiver as cross-reference to the agreement of purchase and sale. 4. Dated the 20 day of June 2019: The date on the agreement and purchase and sale must be included n the waiver as cross-reference to the agreement of purchase and sale. 5. This Offer is conditional upon the Buyer arranging, at the Buyer's own expense, a new first Charge/Mortgage for not less than one hundred ninety thousand dollars ($190,000.00), bearing interest at a rate of not more Exam Study Guide

than 3.75% per annum, calculated semi-annually not in advance, repayable in blended monthly payments of about nine hundred and seventy three dollars and eighty-six cents ($973.86)Oliver, including principal and interest, and to run for a term of not less than 5 years from the date of completion of this transaction. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than 9:00 p.m. on June 27, 2019, that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. This condition is included for the benefit of the Buyer and may be waived at the Buyer's sole option by notice in writing to the Seller as aforesaid within the time period stated herein. The applicable clause to be waived must be copied in full onto the waiver.

Exam Study Guide

Lesson 5 | Page 13 of 15

Complete a Waiver

From Form 123: Waiver – Agreement of Purchase and Sale. ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

Nyla completes the waiver on OREA form 123 using the information from Schedule A on the agreement. Exam Study Guide

Nyla completes the rest of the form with the buyers and sends to the seller at 5:30 p.m. on June 26, 2019. The seller acknowledges receipt at 10 a.m. on June 27, 2019. The following information is entered in the rest of the form along with the seller acknowledgement. • Waived at AnyCity, Ontario, at 5:30 p.m. this 26th day of June 2019. These are the details on where and when the waiver document was signed. • Signed, sealed, and delivered in the presence of NZhang, in witness whereof I have hereunto set my hand and seal: OMFisher June 26, 2019. Signed, sealed, and delivered in the presence of NZhang, in witness whereof I have hereunto set my hand and seal: ALChen June 26, 2019. These are the buyers’ signatures and date and their salesperson can be a witness. • Receipt acknowledged at 10 a.m. this 27th day June 2019 by Violet Garrison. • The waiver must be sent directly to the seller. The seller acknowledges receipt by recording the time and date on the document and signing it. The waiver must be received before the end of the irrevocable time associated with the condition or the offer will be null and void. The parties and the brokerage receive copies of the fully signed waiver.

Exam Study Guide

Lesson 5 | Page 14 of 15

Scenario: Complete a Waiver Oliver Matthew Fisher and Ava Lily Chen have signed a representation agreement with XYZ Realty Ltd. Their salesperson is Nyla Zhang. They placed an offer on the property at 7619 Bedford Road in the City of AnyCity, AnyRegion, on June 20th, 2019. The offer was accepted the same day. The closing date is August 21, 2019. Andrei Petro who is also from XYZ Reality Ltd., (Tel: 555-233-2900) represents the seller, Violet Amber Garrison. On June 26, 2019, the buyers receive notice from the lender that they are approved for the mortgage, but the interest rate will be 3.95% instead of 3.75%. Nyla indicates this will increase their monthly mortgage payment by less than $ 21 per month. The buyers agree to these mortgage terms and will waive the condition in the agreement of purchase and sale.

Exam Study Guide

Lesson 5 | Page 15 of 15

Congratulations, you have completed the lesson!

Exam Study Guide

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 the module!

This lesson will present a summary of learning objectives.

Exam Study Guide

Module Summary | Page 3 of 3

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

Additional salerelated documents

Additional documents can be part of the offer transaction when an offer is accepted. An amendment to the agreement of purchase and sale is a proposal for a change to a previously accepted term such as a closing date. If the change is not accepted, the original term remains. When the agreement has conditions, specifically a condition precedent or true condition precedent clause, and when the condition is fulfilled, a fulfillment notice is provided to the other party. If the condition precedent clause includes a waiver provision and the condition is being waived rather than fulfilled, a waiver notice is provided. When the accepted offer becomes null and void, a mutual release must be signed by the buyer, the seller, and brokerage releasing them from any obligations and claims in the agreement, and detailing how to release the deposit funds. Completion of this lesson has enabled you to: • Identify key aspects of, and complete, an amendment to an agreement of purchase and sale • Identify when to use, and complete, a notice of fulfillment of conditions • Identify when to use, and complete, a waiver • Identify when to use, and complete, a mutual release

Requirements under REBBA relating to a trade

REBBA requirements relating to a trade: • Disclosure obligations when a salesperson has or will have direct or indirect interest in a property • Obligations when a brokerage has received written instructions from a seller about receiving offers and obligations when the instructions change • Requirements for a brokerage to retain documents related to a trade and for the listing brokerage to retain all offers related to a trade including unsuccessful ones • Requirements for a brokerage to complete and retain a trade record sheet for every trade All records with personal information must comply with the Personal Information Protection and Electronic Documents Act. Exam Study Guide

Completion of this lesson has enabled you to: • Identify the disclosure obligations when the salesperson is party to a trade • Identify considerations regarding written directions from a seller for receiving offers • Identify the requirements under REBBA and other legislation regarding document retention and privacy • Identify requirements under REBBA regarding a trade record sheet

Compliance with the requirements under FINTRAC

Salespersons play an important role in detecting, deterring and preventing money laundering and terrorist financing. Brokerages and salespersons must comply with the obligations under the Proceeds of Crime (Money Laundering) and Terrorist Financing Act. Brokerage obligations include: naming a Compliance Officer who is responsible for brokerage compliance, having written compliance policies and procedures, and providing training to everyone acting on its behalf. The brokerage must also complete an assessment of risks and threats and carry out a review of program effectiveness every two-years. Salespersons have three obligations: 1. Know your client: o Understand your client to identify irregular/suspicious activity or transactions o Ascertain client identity: verify individuals and verify the existence of corporations/entities o Determine third party involvement: identify the third party or report on measures taken for identification if unable to do so o Monitor ongoing business relationships to: update identification information, reassess the risk level of activities and transactions, and ensure activities and transactions make sense with what you know about them 2. Reporting to FINTRAC: o Suspicious Transaction Report

o Large Cash Transaction Report

o Large Virtual Currency Transaction Report o Terrorist Property Report

Exam Study Guide

3. Recordkeeping: o Client information o Receipt of funds o All submitted reports o Unrepresented party o Reasonable measures taken Completion of this lesson has enabled you to: • List the requirements and procedures for verifying the identity of parties to a trade • Identify the information that should be reported to FINTRAC • Identify suspicious activity that should be reported to FINTRAC • Identify the record keeping requirements for compliance with FINTRAC • Identify leading practices of a salesperson during a transaction with a seller or buyer

Putting it all together - a residential agreement of purchase and sale

Use leading practices to ensure you are able to explain to a seller or buyer any pre-set clause or clause added to the agreement of purchase and sale. This includes providing advice when submitting or receiving an offer, and explaining how a clause can impact a seller or buyer. Completion of this lesson has enabled you to: • Identify leading practices of a salesperson regarding the offer process • Identify distinct challenges for a salesperson when explaining agreements of purchase and sale to a seller or a buyer

Exam Study Guide

Appendix | Page 1 of 2

Appendix Answer Key

Question #1: 2 Question #2: 2 Question #3: 1 Question #4: 2 Question #5: 1, 2, 3, 4, 5 Question #6: 2, 4 Question #7: 1, 2, 3, 5 Question #8: 1, 2, 3 Question #9: 1, 2, 3 Question #10: 1, 2, 3, 4 Question #11: 4 Question #12: 1 Question #13: 1 Question #14: 2 Question #15: 1 Question #16: 2, 3 Question #17: 2 Question #18: 2 Question #19: 1 Question #20: 2 Question #21: 1 Question #22: 2 Question #23: 2 Question #24: 1 Question #25: 2, 3, 4 Exam Study Guide

Appendix | Page 2 of 2

Question #26: 1, 3, 4 Question #27: 1, 2 Question #28: 1, 2, 4 Question #29: 1 Question #30: 2 Question #31: 2 Question #32: 1 Question #33: 2 Question #34: 1 Question #35: 2 Question #36: 1 Question #37: 1 Question #38: 1 Question #39: 2 Question #40: 2

Exam Study Guide

Module: Introducing Residential Condominiums This is a study guide to help you prepare for the qualifying exam. There are multiple study guides that are provided for preparation. Each study guide contains several decision points to test your knowledge. The answer key to these decision points is present in the “Appendix” section at the end of the guide. Please use Adobe Acrobat Reader (Recommended version 9 or above) to navigate through this PDF. Real Estate Pre-Registration 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 PreRegistration Program learner.

Exam Study Guide

Module: Introducing Residential Condominiums

Introduction to Condominiums Condominiums are an attractive option for residential buyers. Condominium living appeals to a wide demographic; for example, young first-time buyers, active adults, retirees and many other groups. While owning a condominium is similar in many respects to owning other types of real estate, condominium owners face unique considerations. To make informed recommendations to buyers, a salesperson should be familiar with the many issues that are exclusive to condominium living. This module presents essential knowledge for anyone involved in the listing, marketing, buying, and sale of new residential condominiums including: • Key terms and definitions related to condominiums • Condominium ownership types and structures • Considerations of the condominium lifestyle and niche markets • Legal requirements and governance • Legislation and regulations for new condominiums

Exam Study Guide

Menu: Introducing Residential Condominiums Number of Lessons Lesson Number

7 Lessons Lesson Name

Lesson 1

Introduction to Condominiums

Lesson 2

The Condominium Lifestyle and Niche Markets

Lesson 3

Condominium Legal Requirements and Governance

Lesson 4

Legislation and Regulations for New Condominiums

Lesson 5

Key Considerations When Selling a New Condominium

Lesson 6

Summary Practice Activities Module Summary Appendix

Exam Study Guide

Lesson 1 | Page 1 of 31

Lesson 1: Introduction to Condominiums

This lesson defines key terms related to condominiums and introduces the basic structures, types, and characteristics of residential condominiums

Exam Study Guide

Lesson 1 | Page 2 of 31

Key Terms Associated with Condominiums

To be an effective salesperson, it is essential to understand the basic terms associated with condominiums. The lesson introduces key terms relating to residential condominium ownership, structure, and governance. The terms introduced in this lesson are discussed in greater detail later in the module. Upon completion of this lesson, you will be able to: • Define key terms and definitions for condominiums • Describe the types of condominium corporations • Describe the components of a structure and the various styles of a residential condominium Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

Exam Study Guide

Lesson 1 | Page 3 of 31

Introduction to Key Terms Associated with Condominiums

The term “condominium” refers to a type of property ownership. Condominium owners hold title to their private living space (unit) and share ownership jointly of the common areas (common elements) with other owners in the condominium corporation. A condominium corporation is a legal entity that represents the collective interests of its property owners. Owners and other residents are obligated to comply with the rules and bylaws established by the condominium board which are designed to secure the assets of the corporation and ensure residents live harmoniously.

Exam Study Guide

Lesson 1 | Page 4 of 31

Types of Condominium Ownership Condominium ownership can be broadly grouped into leasehold or freehold. The information presents simple definitions of these types of condominium ownership. You will learn more about forms of ownership later in this module. The following five sections contain information about the types of condominium ownership.

Freehold – standard Owners own their unit and an interest in the property’s common elements which cannot be separated from the ownership of the unit.

Exam Study Guide

Freehold – common element Contains no units but has common elements such as roads or a community centre. Owners own their house and the land it sits on, and share in the ownership and expenses of the common elements.

Freehold – vacant land A builder can register the corporation before the condominium units are constructed and sold.

Exam Study Guide

Freehold – phased A builder sells units in the property and reserves the right to create additional units or common elements in future stages of development under the same condominium corporation.

Leasehold A “leasehold” condominium is a condominium that is constructed on leased land. The developer is not the owner of the land but has a lease that permits a condominium development. All the developer can “sell” is the right to lease the land. The condominium corporation is a tenant and the rental payments to the actual owner of the land are included in the common expense contributions paid by the unit owners of the condominium. Buyers buy a leasehold interest in units and common elements but do not own the land. The Condominium Act treats leasehold condominiums much like freehold condominiums. The term of a lease can range from 40 to 99 years versus a freehold condominium is on land owned by the condominium corporation.

Exam Study Guide

Lesson 1 | Page 5 of 31

Condominium Structure

Most residential condominium corporations are structured in the same way, divided into units and common elements. The unit is the private living space to which the owner holds sole title. The common elements consist of all property within the corporation that is not defined as a unit. Elevators, hallways, and gardens are examples of common elements. The costs of maintenance and repairs of the common elements are shared among the owners.

Exam Study Guide

Lesson 1 | Page 6 of 31

The Condominium Act

All condominium corporations in Ontario are subject to the Condominium Act, 1998, S.O. 1998, c. 19 which regulates the creation, governance, and bylaws of condominiums in the province. In 2015, the Condominium Act was revised and these amendments, to be implemented in phases, mark the first significant change in the province's condominium laws in over 16 years. The Protecting Condominium Owners Act, 2015, S.O. 2015, c. 28 - Bill 106 amends the Condominium Act and the Ontario New Home Warranties Plan Act, R.S.O. 1990, c. O.31. It implements the Condominium Management Services Act, 2015, and makes changes to other related legislation. The Protecting Condominium Owners Act establishes two delegated administrative authorities, the Condominium Authority of Ontario and the Condominium Management Regulatory Authority of Ontario. You will learn more about the provisions of the Protecting Condominium Owners Act and the role of the two authorities later in this module. Exam Study Guide

Lesson 1 | Page 7 of 31

Registering a Condominium Corporation

Condominium corporations are legally created when the declarant (usually a builder) files a declaration and description at the Land Registry Office. The declaration contains information required by the Condominium Act including the boundaries of each suite and the owner’s share of common expenses. The description includes a series of plans and surveys describing the property and structures that are part of the condominium corporation. The process of filing the declaration and description is known as registering the condominium corporation.

Exam Study Guide

Lesson 1 | Page 8 of 31

Condominium Governance

The board of directors oversees the business matters of the condominium corporation and ensures its operations comply with the Condominium Act. The board has the authority to create and enforce condominium rules and bylaws. Rules are directives and regulations developed by a condominium corporation. Bylaws are documented standard procedures and requirements related to a condominium’s internal operations. All business of the corporation is conducted at meetings of the board of directors. The governance structure of condominiums has been likened to a fourth level of government. Owners elect members of the board of directors who are given the authority to create and enforce bylaws and rules to ensure the good operation of the corporation.

Exam Study Guide

Lesson 1 | Page 9 of 31

A salesperson with a local real estate brokerage is meeting with a first-time buyer who is interested in putting in an offer on a residential apartment in a standard freehold condominium. The buyer has a number of questions about the distinction between units and common elements. Question #1: Which one of the following explanations about units and common elements in a standard freehold condominium is correct? There are four options. There is only one correct answer.

1

The buyer would have exclusive ownership of both her unit and the condominium common elements.

2

The buyer would own her unit exclusively and share ownership of the common elements with the other owners.

3

The buyer would not have sole title to the unit but would have exclusive use of both the unit and the common elements.

4

On purchasing a standard freehold condominium unit, the buyer would own shares in both her unit and the common elements. An occupancy agreement with the condominium corporation would give her the right to occupy the unit and common elements.

Exam Study Guide

Lesson 1 | Page 10 of 31

A buyer is interested in purchasing a residential condominium unit in a high-rise building that was registered ten years ago as an investment. The buyer has never owned or lived in a condominium before and has some questions about the role of the condominium board of directors. Question #2: Which of the following statements about a standard freehold condominium corporation board of directors are correct? There are four options. There are multiple correct answers.

1

They are elected by the condominium unit owners.

2

The board is responsible for the day to day running of the condominium including such tasks as preparing financial statements.

3

The board ensures the registration of the declaration and description to create a standard condominium corporation.

4

A condominium board of directors has a responsibility to create and enforce condominium bylaws and rules.

Exam Study Guide

Lesson 1 | Page 11 of 31

A buyer is in her early 70s and is now retired, living on a limited income. She is aware that there are a variety of types of condominium ownership and after much research believes the best choice is to buy into a leasehold condominium. Question #3: Which one of the following statements about leasehold condominiums is correct? There are four options. There is only one correct answer.

1

A buyer owns the unit and has an interest in the property’s common elements including the land.

2

A leasehold condominium corporation is registered before the completion of any buildings on the land.

3

A leasehold condominium is a condominium on a piece of land that is rented for a term from 40 years to 99 years.

4

In a leasehold condominium there are no units. The condominium consists solely of interests held by the owners in the specified common elements.

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Lesson 1 | Page 12 of 31

A buyer is interested in buying a residential unit in a newly built standard freehold condominium that has not yet been registered. The buyer has done some online research to learn more about condominium life, but has questions regarding how condominiums are registered and governed. Question #4: Which of the following statements are true? There are five options. There are multiple correct answers. 1

Condominium declarations are directives and regulations that promote the safety, security and welfare of owners, as well as the property and assets of the corporation.

2

Condominium description is submitted at registration, this package contains plans, surveys describing the property and structures in the condominium corporation.

3

Rules are information submitted in a document at registration that, among other things, outlines what percentage of the common expenses is payable by each unit.

4

Bylaws describe how the condominium corporation will govern its internal operation and the management of the property and its assets.

5

Board of directors are elected by the unit owners; they are responsible for many things including drafting the corporation’s rules and bylaws.

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Lesson 1 | Page 13 of 31

Condominium Corporations in Ontario

Building on an understanding of basic condominium terms, this topic elaborates on the various types of condominium corporations. It presents more detailed information on the kinds of condominium corporations that exist in Ontario and what makes each of them unique. Also discussed are shared facilities agreements. These are agreements struck between condominium corporations, developers and other parties who share services, land or other property. A knowledge of the different condominium types helps a salesperson match a buyer to the property that best suits their needs. Each type of condominium has its own market appeal. The Condominium Act defines two main types of condominium corporations in Ontario, freehold and leasehold. Freehold condominium corporations come in four variations, standard, common element, vacant land, and phased. In leasehold condominiums, Exam Study Guide

purchasers buy a leasehold interest in the corporation.

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Lesson 1 | Page 14 of 31

Freehold: Standard Condominium A freehold – standard condominium corporation is the most common residential type in the province. A standard condominium is defined as a freehold property that is not either a common element or a vacant land condominium. Standard condominiums are defined as a building of any size that is divided into condominium units. High-rise or mid-rise buildings or row or stand-alone townhouses can all be standard condominiums. The standard condominium owner has ownership of a specified unit and an interest in the common elements and assets of the property. The interest in the common elements cannot be separated from the ownership of the unit. All owners share in the maintenance costs of the common property usually in proportion to the square footage of their individual unit.

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Lesson 1 | Page 15 of 31

Freehold: Common Element Condominium

Common element condominiums have no units and consist solely of interests held by the owners in specified common elements. A golf course, ski hill, community centre or local roads are typical examples of the shared property. All owners in the community share ownership and jointly fund the maintenance, repair and any modifications made to the common elements. A common element condominium corporation must be a freehold and not a vacant land or a phased condominium. The owners of a common element corporation must own a freehold parcel of land located within the same Land Registry Office area as where the corporation is registered. The registration of the condominium declaration and description will indicate that each owner owns a piece of land and the building on it, and also has a part ownership in the common elements in the condominium, referred to as a Parcel of Tied Land (POTL). Like a traditional condominium, owning a POTL means you’re responsible for your share of the expenses related to the operation and maintenance of the common elements. The use of the common elements or amenities is also shared with other owners. An important thing to remember is that your property will be permanently “tied” to the land of the common elements condominium, meaning your property cannot be sold separately from its interest in the condominium corporation. Exam Study Guide

Lesson 1 | Page 16 of 31

Freehold: Vacant Land Condominium

A freehold – vacant land condominium allows the development and sale of units in the corporation without the completion of all the buildings in the plan. A developer can install the services and related infrastructure, sell land to buyers, and register the corporation prior to any construction occurring on individual land units. The declarant must construct the buildings and structures on common elements prior to registration or provide a bond to guarantee subsequent construction. Once all buildings, structures, facilities, and services are completed and approved, the developer’s security is released. Title is transferred to buyers with the commitment that homes and other structures will be built at a later time. The declaration contains restrictions concerning future construction such as building size, design, standards, and the approximate completion dates. The owner’s share of interest in the condominium corporation is based on the size of their land unit.

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Lesson 1 | Page 17 of 31

Freehold: Phased Condominium

Freehold – phased condominium corporations are freehold condominiums in which the owners hold title to their individual units. The declarant has the right to add new units or common elements in future stages of development under the same condominium corporation. The additional units and common elements are created by the registration of an amendment to the original declaration and the description of the corporation. The phased corporation type gives builders flexibility in the development process. They can add successive units and common elements under a single corporation by amending the original registration. This avoids the need to create a new condominium corporation for each new phase or to have several boards of directors in a large-scale development. Coordinating the development phases can also generate costs savings for the developer who is able to coordinate the purchase of services (such as utilities) and supplies to maximize efficiency. Exam Study Guide

Lesson 1 | Page 18 of 31

Leasehold Condominium Corporations

In addition to freehold condominium corporations—standard, common element, vacant land, and phased—the Condominium Act also defines leasehold condominiums. In a leasehold condominium, lease purchasers buy a leasehold interest in the corporation’s units and common elements, but they do not own the land on which the unit or common elements are located. A portion of the owner’s common expense fee is rent payable to the landowner who is not the condominium corporation. The leasehold owner can sell, transfer, and mortgage the unit without the consent of the landowner. When the ground lease expires, the owner’s right to occupy the unit is automatically terminated. Leasehold condominiums are attractive to buyers who want some of the benefits of freehold ownership (the ability to sell, transfer, and mortgage the unit) without having to invest funds in owning land, which is often the costliest part of a real estate purchase. This is a popular option for retirees and other buyers on fixed or reduced incomes. Exam Study Guide

Lesson 1 | Page 19 of 31

Shared Facilities Agreements

A common type of condominium development, especially in the urban core, is a mixed-use building. Typically, in these structures, the residential units are located above retail or commercial spaces at street level. There can be other situations in which a residential corporation shares the use of land, services or facilities with a commercial property. In these cases, the residential unit owners can be forced to pay a disproportionate share of the utility, maintenance, or repair costs for the shared facilities. For example, the builder of a mixed-use building may not install separate utility meters for the residential and commercial spaces. An underground parking area is likely to be used much more heavily by the coffee shop customers than by the condominium owners in the same building. While it is currently not mandatory under the Condominium Act, it is a good idea for a condominium corporation sharing land, services and facilities with a developer to enter into a shared facilities agreement with the developer. A shared facilities agreement is designed to ensure the costs of joint facilities or utilities are paid by each unit owner in proportion to the amount of use. It is important for a salesperson to confirm a shared facilities agreement is in place for mixed-use properties to help protect a buyer from inflated condominium fees. Exam Study Guide

Lesson 1 | Page 20 of 31

A first-time buyer is interested in purchasing a condominium unit, but is not sure which type of condominium is best for them. They have questions about the various types of condominiums. Question #5: Which of the following statements are true? There are five options. There are multiple correct answers.

1

Freehold – standard contains no units but has shared common elements such as roads, a golf course, or a community centre.

2

Freehold – common element owners own their unit and have tenants in common interest in the property’s common elements.

3

In freehold – vacant Land, the condominium corporation can be registered before any buildings or structures are constructed on any of the units within the condominium development.

4

In freehold – phased, the builder registers a condominium corporation but still has the right to add more units and common elements to the corporation at some time in the future.

5

In leasehold, purchasers buy an interest in units and common elements but do not own the land they are situated on.

Exam Study Guide

Lesson 1 | Page 21 of 31

A buyer is considering the purchase of a standard freehold condominium unit in a new residential high-rise building that has several retail shops including a restaurant located on the ground floor. The developer of the condominium has retained ownership and leases out the ground floor retail space which is not part of the condominium that occupies the rest of the building. The buyer is on a tight budget and is especially concerned about the costs of utilities included in the condominium fees. The salesperson representing the buyer obtains a copy of a shared facilities agreement between the developer, who owns the ground floor space, and the residential condominium corporation. Question #6: Which of the following statements about this shared facilities agreement would be correct? There are four options. There are multiple correct answers.

1

While it is currently not mandatory under the Condominium Act, it is a good idea for a condominium corporation sharing land, services and facilities with a developer to enter into a shared facilities agreement with the developer.

2

The Condominium Act requires the registration of a shared facilities agreement between condominium corporations, developers and other parties who share services, land or other property in order to split the utility costs evenly.

3

The Condominium Act mandates that a shared facilities agreement may only be entered into between two separate condominium corporations. Therefore, the shared facility agreement between the developer and the condominium corporation cannot be effectively enforced.

4

A shared facilities agreement between the developer and the condominium corporation could allow for separate utility meters to be installed for the residential and commercial spaces.

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Lesson 1 | Page 22 of 31

Structure and Styles of Residential Condominiums

The structural components—units and common elements—are what make condominiums different from other residential options. The combination of holding sole title to a unit and shared ownership of the common elements is unique to condominiums and essential to their nature. A salesperson must understand these terms and how they impact buyers. For example, it is essential for a salesperson to confirm the location and the specific dimensions of a unit as well as the details of the property’s common elements such as a parking space or storage locker. To fail to do so could have significant consequences for a client who becomes an owner. Exam Study Guide

Lesson 1 | Page 23 of 31

Condominium Building Styles Based on Structure While high-rise buildings are the structure most people identify with condominiums, they can come in a wide range of building types including apartment buildings, single homes, or a complex of multiple homes. The variety of building types suggest that condominiums are better understood not as any one structural type but rather as a form of property ownership. The following six sections contain information about the different types of condominium structures.

Apartment style condominiums A building in which each residential unit is a condominium unit. High-rise buildings are five or more storeys in height and equipped with elevators. Low-rise buildings are usually up to four storeys and may or may not be equipped with elevators.

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Townhome condominium A complex of several houses that are either attached or built close together in which each unit is a separate condominium unit.

Detached house condominium A house that is free standing and not attached to another house, and is a condominium unit.

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Semi-detached house condominium A house that is attached on one side to another house and is a condominium unit.

Rowhouse condominium A complex of three or more houses joined side by side in which each house is a separate condominium unit.

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Duplex/Triplex condominium A single building divided into two (or three) residences with separate entrances in which each unit is a condominium unit.

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Lesson 1 | Page 24 of 31

Distinction Between Units and Common Elements A condominium corporation is divided into units and common elements (the exception is a common element condominium). The unit is the private living space to which the owner holds sole title and enjoys exclusive use. Units are defined in the corporation’s declaration by boundaries such as walls, land, structures, and fixtures. The common elements consist of all property within a condominium corporation other than the units. Elevators, hallways and main lobbies, gardens, pools, and party rooms are all examples of common elements. Parking and storage facilities (discussed later) are common elements that may or may not be included with ownership of a unit. Otherwise, the ownership of common elements property is shared jointly by all owners as tenants in common— undivided interest. Every unit owner has an unrestricted claim to access and use of the common elements of the property and no one owner has exclusive claim to any single asset or part of the property unless otherwise specified in the condominium’s declaration.

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Lesson 1 | Page 25 of 31

Exclusive Use Common Elements

In addition to the common elements shared by all owners, there can be exclusive use common elements. These elements are areas of the building or wider property to which only some owners have access. Usually the owners of a unit (or units) that are adjacent to the element have access to it. Exclusive use common elements can include balconies, patios, front and back yards, or rooftop terraces on townhouses. They can enhance both the enjoyment and the value of the adjacent unit. The condominium corporation is responsible for the cost of maintenance and repairs to regular common elements. In the case of exclusive use common elements, these costs are usually the responsibility of the unit owners who have the exclusive use of the space. Owners are usually allowed to make additions, alterations, and improvements. For example, they might install a fence or patio stones in a garden beside their unit. The changes may require board approval and are usually completed at the expense of the unit owner. Exam Study Guide

Lesson 1 | Page 26 of 31

Condominium Parking and Storage

Condominium parking and storage are examples of common elements that are not typically shared. The parking or storage may be located inside a unit, as part of the common elements, or as an exclusive use common element of the property. The details of the parking and storage facilities, including the location, dimensions, and type of ownership are presented in the corporation’s declaration.

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Lesson 1 | Page 27 of 31

Types of Parking and Storage A salesperson should carefully research the parking and storage specifications for a buyer’s unit and confirm the details for each. An assigned parking spot may be located far from the elevator entrance or in a location that makes it difficult to access. The developer and corporation typically have the right to re-assign spots (this can be confirmed by consulting the declaration) which may mean that a promised parking spot turns out to be in an inconvenient location. There may also be restrictions on parking recreational vehicles, trailers, boats, and other stored items within the parking space. Generally, parking spaces and storage lockers are one of four types. The following four sections contain information about the different types of parking and storage.

Freehold Parking: The unit owner owns the parking space, either as part of the unit description or with separate title. If it is separately titled, it can usually be sold to another owner in the complex at fair market value. Storage: The owner owns the storage locker.

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Leasehold Parking: The condominium corporation holds ownership of the parking and leases them to unit owners. Storage: The corporation retains ownership and leases to unit owners.

Exclusive use common element Parking and Storage: The condominium corporation owns the parking or storage spaces. It gives unit owners the right to use specific spaces as described in the declaration.

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Allocated or assigned Parking and Storage: The condominium corporation owns the parking or storage spaces and assigns them to unit owners on a discretionary basis.

Exam Study Guide

Lesson 1 | Page 28 of 31

A buyer is interested in buying a unit in a new standard freehold condominium development. The salesperson representing the buyer is showing them the common elements in a residential building they particularly like. Question #7: Which of the following statements about common elements within a standard freehold residential condominium is correct? There are four options. There is only one correct answer.

1

The common elements of a condominium include each owner’s unit as well as the facilities in the condominium.

2

The common elements of a condominium consist of all property within the condominium corporation, except the units.

3

Condominium owners share equally in the ownership and expenses of the condominium common elements as joint tenants.

4

Common elements refer to anything within the condominium building itself that is not the unit. The parcel of land that the building sits on is owned by the condominium corporation but would not form part of the common elements that the unit owners have an interest in.

Exam Study Guide

Lesson 1 | Page 29 of 31

A buyer is interested in buying a residential unit in a new standard freehold condominium development. The salesperson representing the buyer is showing them a unit in a building they like. The salesperson points out that the balcony is an exclusive use common element. Question #8: Which of the following statements about exclusive use common elements in a standard freehold condominium are correct? There are five options. There are multiple correct answers.

1

An owner of a condominium unit is not allowed to make any changes to their exclusive use common elements.

2

Hallways, elevators, and the lobby area of a building are typical exclusive use common elements.

3

Exclusive use common elements may include balconies, patios, front and backyards and rooftop terraces on townhouses.

4

Maintenance and repairs to exclusive use common elements are usually the responsibility of the unit owner who has the exclusive use of the space.

5

In most cases, the condominium corporation is typically responsible for the maintenance and repairs to exclusive use common elements.

Exam Study Guide

Lesson 1 | Page 30 of 31

A salesperson is showing a buyer client a residential unit in a standard freehold condominium building. The buyer asks the salesperson whether the unit has a storage locker and parking space. Question #9: Which of the following statements are correct regarding the types of parking and storage lockers that a buyer might encounter? There are four options. There are multiple correct answers.

1

In freehold, the unit owner owns the parking or storage locker.

2

In leasehold, unit owners rent the parking and storage locker from the condominium corporation.

3

In exclusive use common element, parking or storage locker spaces are provided to unit owners for their use.

4

In allocated/assigned, owners have the exclusive right to use a specific parking space or storage locker which would be part of the common element.

Exam Study Guide

Lesson 1 | Page 31 of 31

Congratulations, you have completed the lesson! There are four sections on this page with a summary of the key topics that were covered in this lesson.

Condominium definition

“Condominium” refers to a type of property ownership in which an owner holds title to their private living space (unit) and shares ownership jointly of the common elements with other owners in the corporation.

Types of condominium corporations

There are several types of freehold condominiums: Standard, Common Element, Vacant Land, and Phased. There are also leasehold where buyers purchase a leasehold interest in units and common elements and pay rent to the owner of the land on which the condominium is located.

Condominium structure

Most residential condominiums are structured into units (private living spaces) and common elements. A condominium corporation is legally created when the declarant (builder) files a declaration and description at the Land Registry Office. This process is known as registering the condominium corporation.

Styles of residential condominiums

Condominiums come in a wide range of building types including high-rise apartment-style buildings to single homes or a complex including multiple homes. Condominiums are better understood not as a structural type but rather as a form of property ownership.

Exam Study Guide

Lesson 2 | Page 1 of 22

Lesson 2: The Condominium Lifestyle and Niche Markets

This lesson outlines the appeal and potential limitations of condominium living. It also identifies niche markets for condominium ownership.

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Lesson 2 | Page 2 of 22

The Condominium Lifestyle and Niche Markets

Condominium living can offer many attractive benefits for owners, but it can also present serious limitations. The relative affordability of condominiums can make it possible for first-time buyers to break into an urban market. Mature adults can live close to recreational facilities or family members in the suburbs. Urban condominiums are a good option for those wanting shorter commute times. Investors can benefit from the strong demand for rental units and the appreciation of equity usually associated with owning property in a central location. Living in close proximity to others, however, or paying for seldom-used amenities can create tensions among owners. Similarly, not having individual control over the corporation’s expenditures and restrictions on renovations to a unit can make condominium life less inviting. Upon completion of this lesson, you will be able to: • Identify the appeal of condominium living • Identify the limitations and potential difficulties associated with condominium living • Identify niche markets for condominium ownership and the appeal of each Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented. Exam Study Guide

Lesson 2 | Page 3 of 22

The Appeal of Condominium Living

Some condominium developments are tailored specifically to suit the needs of a particular lifestyle or a group such as retirees or vacationers. Most condominiums offer facilities and features that make them attractive to a wider range of buyers including maintenance-free living, enhanced security, and a variety of on-site facilities. This topic reviews some of the reasons condominiums are a popular choice in Ontario’s real estate market.

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Lesson 2 | Page 4 of 22

Customized for Specific Lifestyle Groups

New condominium developments are often customized to suit a specific lifestyle group. Almost every aspect of these developments can be tailored to suit the needs of a particular group. Adult lifestyle developments with bungalows or two storey townhouses with freehold and leasehold ownership options can be a popular choice for seniors. High-rise developments in the urban core can be attractive to millennials who want access to a gym or media room. Retirees may be willing to trade square footage in the suburbs for a central location close to parks or restaurants. Hobbies or recreational pursuits can be the focus of amenities such as a marina, golf course, or chalet property. Developers design amenities to appeal to the buyers they are targeting. Exam Study Guide

Lesson 2 | Page 5 of 22

Maintenance-Free Living

Condominium owners enjoy a greater degree of maintenance-free living than homeowners. They are responsible for maintaining their own units but do not have responsibility for maintaining the wider property. The common elements are typically maintained by the corporation employees or by contractors. The maintenance costs are part of the monthly fee paid by all unit owners. Major repair and equipment replacement are also shared. All condominium corporations in Ontario are required to have a reserve fund. A reserve fund is like an emergency fund for the corporation. A portion of the monthly fees is set aside to cover major repairs or replacements to common elements such as elevators, hallways, roofs, and recreational facilities. The result of these arrangements is that the property is kept in the best possible condition while owners enjoy more time to themselves. Exam Study Guide

Lesson 2 | Page 6 of 22

Security Condominium security can be appealing to prospective owners. Enhanced security features are an advantage for many owners including those who prefer a higher level of personal safety or those who travel frequently. Security systems can include: • Monitoring cameras • Entrance gates and security system • Monitoring alarms and smoke sensors • Key card or key fob entry to parking and recreational facilities • 24-hour front desk security person The range of security features provided in a condominium setting is superior to most home monitoring services and the costs for these services are shared among all owners. A property is also made safer through mandated regular inspections of fire protection systems and other safety components of the common elements.

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Lesson 2 | Page 7 of 22

On-Site Amenities

Part of the appeal of condominium living is that owners have access to on-site amenities. This is especially attractive if amenities are included in common expenses or can be used for a reasonable additional fee. Owners appreciate access to on-site amenities, such as a sauna or swimming pool, which they otherwise might not be able to afford. Some of the most common condominium amenities are: • Gym • Rooftop Terrace • Party or games room • Pool • Library • Movie Theatre • Visitor suites and parking

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Lesson 2 | Page 8 of 22

Insurance: Condominium Corporation Versus Unit

Owners may find insuring a condominium property substantially less expensive than insuring a house. A unit is likely to be smaller and less valuable than a house and usually does not have the same potential liabilities such as falling trees or slippery sidewalks. However, owners should be aware of the distinction between the condominium corporation's insurance versus the unit owner's insurance. The corporation will have a master insurance policy paid for by the condominium fees, but buyers cannot assume this coverage is all-encompassing. The corporation will insure for all standard components of a unit as defined in the declaration. Any modifications or upgrades to a unit must be covered by the owner’s personal insurance policy. Owners also require separate coverage for theft and liability and for special assessments or lawsuits that the corporation’s master insurance policy or reserves fail to cover. Coverage is also advised for storage lockers and parking spaces, if they are owned separately from the corporation. To ensure adequate coverage and to address any overlaps or gaps, buyers should be encouraged to seek advice from an insurance professional. They can determine what is and isn’t included in the corporation’s insurance and advise owners on purchasing supplemental coverage, if necessary.

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Lesson 2 | Page 9 of 22

A buyer has asked the salesperson they are working with to draft an offer on a residential unit located in a standard freehold condominium. The seller bought the unit directly from the builder and has not made any changes to it. While going over the draft offer with the salesperson, the buyer asks about condominium insurance. Question #10: Which of the following statements about insurance for a residential unit in a standard freehold condominium are correct? There are four options. There are multiple correct answers.

1

The condominium corporation’s insurance policy is sufficient as it would cover the buyer’s unit, possessions, personal liability as well as the common elements. There is no need for additional coverage.

2

If the buyer makes any modifications or upgrades to the unit he is purchasing, they would need to be covered by his personal insurance policy.

3

The condominium corporation must have insurance coverage for the common elements as well as all the standard unit components of the buyer’s unit as defined in the declaration.

4

If the buyer purchases the unit and makes modifications or upgrades to a standard unit component, the condominium’s insurance will still cover that modification or upgrade providing the board approved the change.

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Lesson 2 | Page 10 of 22

Obligations and Limitations of Condominium Living

Although condominium living offers many benefits for owners, it is important that a salesperson be aware and advise buyers about the obligations and limitations that are also part of the life. Buyers must understand that condominium ownership comes with several real obligations. Some buyers may feel the specific circumstances of condominium life and the related responsibilities are a burden. A salesperson must be aware of the rules and regulations that come with living in a condominium and be prepared to advise buyers if the property they are considering suits their lifestyle preferences.

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Lesson 2 | Page 11 of 22

Condominium Fees

Condominium unit owners are obligated to pay the full cost for the upkeep of their unit. In addition, they must also pay the common expense fees in the proportion specified in the declaration. The fees should be enough to cover ongoing building equipment, maintenance and expenses. Condominium fees are mandatory and non-negotiable under the Condominium Act. This is true even if the owner: • Has waived or abandoned the right to use the common elements • Is making a claim against the corporation • Is restricted from using the common elements by the declaration, bylaws or rules Amenities are a welcome part of condominium living only if they are of interest to a buyer. Owners who do not make use of some or all of the facilities can come to regret the costs to maintain and repair them. Through an understanding of a buyer’s lifestyle priorities a salesperson can advise on whether a specific property and its amenities are a good fit for the buyer. If an owner defaults in the obligation to contribute to the common expenses or reserve fund, the corporation can register a lien against the owner’s unit. The corporation would seek compensation for the unpaid fees plus interest, legal costs, and expenses incurred to collect the unpaid amount. Suspension of voting rights may also result from non-payment of fees. The corporation may even have the right to sell the unit to recover the money it is owed. Condominium owners should be aware that not paying fees could result in severe consequences. Exam Study Guide

Lesson 2 | Page 12 of 22

Personal Liability of Unit Owners

A portion of the monthly condominium fees is assigned to the reserve fund to cover major repairs or replacements to common elements. If a corporation’s reserve fund is insufficient to cover unexpected expenses, owners are liable for the costs of special assessments by installments determined by the board. Underfunded reserve funds can mean an unexpected increase in the cost of ownership. In the case of resale condominiums, buyers should be encouraged to have the corporation’s reserve fund reviewed by a real estate lawyer or other professional prior to firming up an offer to ensure the fund is sufficient. Owners have the right to request that management provide the most recent reserve fund study. A reserve fund study determines how much money needs to be in the fund to ensure the repairs can be paid for in the future. It must be prepared by a specialist such as an engineer. The board of directors is responsible for commissioning reserve fund studies and for informing owners of the results of the studies. Exam Study Guide

Lesson 2 | Page 13 of 22

Disharmonious Condominium Management and Community

In most cases, living in a condominium means sharing space and expenses with other people. There can be situations in which owners may disagree with one another, with the property management, or with the board of directors. The condominium board has the power to make important decisions without the owners’ input. The board can decide to increase the operating budget or raise the balance of the reserve fund. They may be faced with an unexpected repair or cost overrun on a scheduled repair. These conditions can trigger a special assessment on owners. While the board and some owners may feel the expenses are necessary, other owners may not want to pay the increased costs. The board itself may not be in compliance with the Condominium Act. It may fail to hold regular annual general meetings, or it may not be properly overseeing the condominium management. There are remedies for aggrieved owners including requesting a special board meeting to vote on issues or, in extreme cases, to vote to remove the board. These situations can cause tension and anxiety that reduces the quality of life for residents. You will learn more about the responsibilities of the condominium corporation board of directors later in this module. Exam Study Guide

Lesson 2 | Page 14 of 22

Impact of Rules, Bylaws, and Use Restrictions on Condominium owners

The condominium corporation has a duty to take all reasonable steps to ensure that the owners comply with the Condominium Act, the declaration, the bylaws and the rules. The board of directors can make, amend or repeal rules and bylaws that are reasonable. Owners must be notified of the proposed changes and the date that the change is proposed to become effective. The notice must also indicate that 15% of the owners can request a meeting within 30 days after the receipt of the notice to vote on the proposed change. If a meeting is held, there will be a vote on the proposed change. The change will only become valid if the majority of the owners at the meeting vote in favour of it. If no meeting is requisitioned within that period, the rules automatically become effective. Buyers must be aware of the rules and bylaws of a condominium they are considering because they can directly impact the use and enjoyment of the property. For example, rules can control how visitors use common elements, prevent owners from using their unit as short-term rentals, prohibit pets, or limit the number or size of pets an owner can keep. A salesperson has a role in helping buyers understand whether the condominium rules and bylaws suit the buyer’s lifestyle. Exam Study Guide

Lesson 2 | Page 15 of 22

Limits to Making Changes

The Condominium Act limits the freedom of owners to make alterations within their unit or to exclusive use common elements. The Condominium Act requires owners to obtain the approval of the board if they want to make changes to exclusive-use common elements such as balconies, plumbing, or parking spots. Owners must enter into an agreement with the corporation that holds the owner responsible for purchasing insurance against personal liability and for restoration of the alterations in the event of damage. Cosmetic changes such as light or plumbing fixtures do not require board approval. This provision is designed to ensure that no owner will have to pay for the costs related to a change made by another owner. For example, if an owner wants to enclose their balcony, they would have to obtain approval for the change from the board and then enter into an agreement with the corporation. This agreement may be registered on the title of the unit and appear on the unit’s status certificate. Similar rules can apply to renovations made within an owner’s unit. For example, condominium corporations often require that if laminate flooring is installed, it must include an acoustic barrier to reduce the noise of foot traffic in adjacent units. Exam Study Guide

Lesson 2 | Page 16 of 22

A buyer has just viewed a residential unit in a standard freehold condominium building. She tells the salesperson representing her that she intends to renovate the unit and change the flooring on the balcony. Question #11: Which one of the following statements would be correct with respect to making changes to a condominium unit and its balcony? There are four options. There is only one correct answer.

1

The Condominium Act strictly forbids owners from making alterations to exclusive use common elements such as the balcony.

2

The Condominium Act does not allow a condominium corporation to interfere or put restrictions on an owner’s right to make changes to the owner’s unit. This means owners of condominium units do not need to inform or receive approval from a condominium corporation when it comes to making changes to a unit.

3

Changes to an exclusive use common element such as new flooring on a balcony would require the approval of the condominium board.

4

A buyer would need to search title to see if there had been an agreement for changes made to a unit’s exclusive use common element such as a balcony because the agreement would not appear on the status certificate given it is a privacy issue.

Exam Study Guide

Lesson 2 | Page 17 of 22

A buyer’s offer on a residential unit in a standard freehold condominium has just been accepted. The offer was conditional for 14 days on the condominium corporation’s documents being reviewed and being found satisfactory by his lawyer. The buyer is reviewing the status certificate with the salesperson who represents them. The buyer notices that the certificate states there is two million dollars in the reserve fund. Question #12: Which of the following statements about standard freehold condominium reserve funds are correct? There are four options. There are multiple correct answers.

1

The reserve fund is created to help pay for the condominium’s ongoing maintenance and expenses including paying for utilities.

2

The reserve fund is used to pay for major repairs or replacements to common elements.

3

Owners of units in a condominium have no personal liability if the reserve fund has insufficient money to pay for necessary expenses. It is the condominium corporation that has the liability.

4

All condominium corporations are required to put a portion of the monthly condominium fees into a reserve fund.

Exam Study Guide

Lesson 2 | Page 18 of 22

A buyer is retired and looking to scale down their living expenses by selling their house and purchasing a condominium for a lot less money than they will receive on the sale of their house. They are enthusiastic about being a condominium owner, but they are concerned about the financial responsibilities that it entails. The buyer has some questions they want to ask the salesperson representing them. Question #13: Which of the following statements about the financial responsibilities of condominium owners are correct? There are four options. There are multiple correct answers.

1

All unit owners pay monthly common expense fees, a portion of which is placed into the reserve fund.

2

If a corporation’s reserve fund is not sufficient to cover necessary expenses, condominium owners are personally liable to pay for the extra expense of a lump-sum special assessment.

3

If an owner defaults in the obligation to contribute to the common expenses or reserve fund, the condominium corporation can register a lien against the owner’s unit.

4

A condominium owner can negotiate with the corporation to a pay lower common expense fee if in fact they do not use or rarely use the amenities provided for in the condominium.

Exam Study Guide

Lesson 2 | Page 19 of 22

Niche Markets for Condominium Ownership

In recent years, niche market condominiums have gained in popularity and now represent an important segment of the Ontario market. These condominiums are a specialized sector of the market appealing to specific segments of buyers. This topic provides an overview of niche market condominiums.

Exam Study Guide

Lesson 2 | Page 20 of 22

Niche Market Condominiums: Factors Niche condominiums are defined either by the potential buyer or by the type of property. Developers of these properties focus on a profile of potential buyers and cater to their priorities and financial circumstances in the location, design, and amenities included in the project. Niche condominiums provide a buyer with more than an opportunity for housing and investment. The following three sections contain information about the range of niche market condominiums.

Niche factor: Geography

For many niche market buyers, location is the most important factor whether it is in the urban core, on the beach, or near the ski hill. The lifestyle a specific location provides can be the deciding factor in purchasing a condominium property.

Niche factor: Demographics

Niche market developments can be designed to appeal to specific demographics. The amenities may be tailored to attract first-time buyers, singles, young professionals, retirees, active adults or a combination of these groups.

Niche factor: Style

The style or structure of the condominium can define some niche developments especially loft high-rise or townhome properties that provide specific lifestyle benefits to owners.

Exam Study Guide

Lesson 2 | Page 21 of 22

The buyers are a middle-aged couple looking to buy a condominium outside the city where they currently live. They want a second home that they can use on weekends and during vacations. Both are active in playing tennis and golf during their downtime. They are working with a salesperson who has a great deal of experience in finding niche market condominiums for buyer clients. Question #14: Which of the following statements about niche market condominiums are correct? There are four options. There are multiple correct answers.

1

They are designed to appeal to specific segments of condominium buyers.

2

The location of a condominium is one of the features that would not be an important consideration for niche market condominium buyers.

3

Niche markets are defined by the preferences of the potential buyer and not by the type of condominium property.

4

Developers of niche market condominiums focus on the profile of potential buyers and cater to their lifestyle priorities and financial circumstances when building the condominium complex.

Exam Study Guide

Lesson 2 | Page 22 of 22

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were covered in this lesson.

Appeal of condominium living

Condominium living offers advantages including reduced maintenance work, enhanced security, and on-site amenities that are not typical of home ownership. The costs of major repairs and equipment replacement is shared among owners which reduces sudden, unexpected expenses.

Limitations of condominium living

Condominium living comes with specific obligations and limitations. For example, owners must pay fees toward shared facilities even if they do not use them. They may also have personal liability for reserve fund deficiencies that can require immediate payment of special assessment charges. Condominium rules and bylaws can restrict an owner’s use and enjoyment of their residence.

Condominium niche markets

Niche market condominiums may appeal to buyers who are seeking a development that attracts like-minded people or offers certain amenities or is built in a location that suits their lifestyle.

Exam Study Guide

Lesson 3 | Page 1 of 35

Lesson 3: Condominium Legal Requirements and Governance

This lesson reviews the basics of condominium legal requirements and governance including the role of the Condominium Act and the responsibilities and scope of authority of the board of directors and the condominium manager.

Exam Study Guide

Lesson 3 | Page 2 of 35

Condominium Legal Requirements and Governance

The Condominium Act established fundamental requirements for all condominiums including the compliance of condominium builders, the management of the corporation, and the rights and responsibilities of unit owners. Following a comprehensive review, the original Act was updated in 2015. The Protecting Condominium Owners Act, 2015, S.O. 2015, c. 28 - Bill 106 amends both the original Act and the Ontario New Home Warranties Plan Act, R.S.O. 1990, c. O.31. The reforms contained in the amendments will be implemented through regulations and by new administrative authorities, the Condominium Authority of Ontario and the Condominium Management Regulatory Authority of Ontario. Throughout the lesson, ‘Condominium Act’ refers to the original Act and the amendments to it contained in the Protecting Condominium Owners Act. This lesson focuses on the legal requirements and principles of governance presented in the Condominium Act. It is especially important for a salesperson to understand the sections of the Condominium Act that provide protection to consumers. Upon completion of this lesson, you will be able to: • Identify key considerations of the Condominium Act in regulating a condominium corporation • Describe the responsibilities and scope of authority of the board of directors • Describe how condominium bylaws and rules are established

Exam Study Guide

• Describe the responsibilities, scope of authority, and statutory requirements of a condominium manager Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

Exam Study Guide

Lesson 3 | Page 3 of 35

The Condominium Act

The following screens provide an overview of key sections of the Condominium Act that regulate condominium corporations in Ontario. Specifically, the role of the Condominium Act in the registration, governance, purchase, and sale of condominiums, and describes the role of the Condominium Authority of Ontario and the Condominium Authority Tribunal.

Exam Study Guide

Lesson 3 | Page 4 of 35

Role of the Condominium Act in Registration and Governance

A condominium corporation is created in law when both the declaration and the description are registered by the declarant (builder) who holds the freehold or leasehold interest in the land on which the development is to be built. The declarant invokes the Condominium Act through the registration process. The Act defines the governance structure of condominium corporations. It outlines the duties of the board of directors who are responsible for managing the affairs of the corporation. It details the number of board members, how they are elected, qualified, and disqualified from board service. The Act stipulates that the corporation has a duty to effect unit owner compliance under the Condominium Act, the declaration, and the bylaws.

Exam Study Guide

Lesson 3 | Page 5 of 35

Disclosure Statement

The Condominium Act gives a new condominium buyer the right to receive a disclosure statement. This package, also known as the condominium documents, provides information to enable a buyer to decide whether to proceed with the purchase or not. If a buyer decides to purchase a unit in a new project, they are required to provide a deposit and to sign an Agreement of Purchase and Sale (APS). A deposit made on a new unit must be held in trust by the developer. The buyer’s signature on the APS triggers an obligation for the builder to deliver a current disclosure statement. Buyers can rescind the agreement and have any deposits refunded without penalty within 10 days of receiving the disclosure statement. The 10 days is known as the “cooling-off” period. Buyers can cancel for any reason within this period but they must provide written notice of cancellation. This option to rescind an agreement without any questions is unique within real estate transactions. Buyers can also cancel an agreement within 10 days after any significant (or “material”) change to the disclosure statement. A developer is not permitted to terminate an Exam Study Guide

agreement without the buyer’s consent unless by way of a court order.

Exam Study Guide

Lesson 3 | Page 6 of 35

Role of the Condominium Authority of Ontario

The 2015 amendments to the Condominium Act created the Condominium Authority of Ontario, to focus on consumer protection and supporting healthy condominium communities across Ontario. It operates as an independent and selffunded administrative authority with the goal to improve services and resources for owners, residents and directors by providing: • Information and public education to help owners and residents understand their rights and responsibilities • Mandatory training for directors on their role and responsibilities • Resources to help owners and residents resolve common issues • A registry of information on corporations in the province • Online dispute resolution service through the Condominium Authority Tribunal The Condominium Authority of Ontario provides a salesperson, owner, director, and the general public with authoritative, independent and objective information about condominiums.

Exam Study Guide

Lesson 3 | Page 7 of 35

Role of the Condominium Authority of Ontario

One of the goals of the amended Act is to provide a faster, more effective, and less costly process to resolve disputes between owners and the corporation’s board of directors. This responsibility is delegated to the Condominium Authority of Ontario who administers the Condominium Authority Tribunal. The tribunal has a mandate to resolve disputes through case management, mediation, and adjudication. Regulations define the nature of the disputes to be heard by the tribunal which can include: • Enforcement of declarations, bylaws, and rules • Procurement processes • Access to records • Procedures for requisitioning a meeting of owners The tribunal provides an online dispute resolution process designed to help settle disputes quickly and conveniently. The tribunal has the authority to make binding decisions that are as enforceable as court orders. Its decisions can be appealed on questions of law to the divisional court level. Currently, the condominium disputes that the tribunal is involved in relates to disputes over access to records, which is a common area of conflict between the owners and the board of directors, and enforcing settlement agreements in which once a case is here and there is a settlement, Exam Study Guide

if one party does not follow the agreement (settlement), the other party may have to file a case online under this category. Over time, the tribunal will handle additional types of condominium disputes.

Exam Study Guide

Lesson 3 | Page 8 of 35

Impact of the Condominium Act on Condominium Ownership Even after a buyer takes possession of a unit, the Condominium Act continues to influence ownership in several important ways. The following seven sections contain information about how specific sections of the Condominium Act affect ownership.

Right of entry

The Condominium Act states that, with reasonable notice, a person authorized by the corporation may enter a unit or the exclusive use common elements at any reasonable time to perform duties or exercise the powers of the corporation. Reasonable notice is not required for emergencies, such as to investigate a leak.

Loss of owner’s right to

The Condominium Act prohibits an owner from voting on corporate decisions if they are 30 days or more in arrears on their common element fees.

vote Changes made by owners

The Condominium Act allows an owner to make an addition, alteration, or improvement to exclusive use common elements providing they obtain board approval for the changes and enter into an agreement with the corporation that holds the owner responsible for insurance, liability, and restoration of the change after damage.

Lien upon default

The Condominium Act provides that if an owner fails to pay their common expense fees, the condominium corporation can place a lien on the title of the unit for the amount owing plus interest and legal costs.

Meetings

The Condominium Act provides guidance on meetings of owners including the procedures and requirements for the annual general and special meetings. The Act gives owners who hold at least 15% of the units the right to call a meeting at any time. Typically, these meetings are in response to rule changes, a special assessment, or changes to the common elements but also can be for the purpose of removing board members under certain circumstances. Exam Study Guide

The Act defines the quorum requirements for the annual general and other special meetings of the owners.

Owners’ contribution

The Condominium Act outlines an owner’s obligation to pay their share of the common element fees as specified in the declaration. An owner must pay these fees even if they choose not or are restricted from using the facilities or are making a claim against the corporation.

Bylaws and rules

The Condominium Act gives the board the right to make, amend or repeal bylaws that govern the corporation. It also gives the board the right to make, amend or repeal bylaws that regulate the day-to-day operation of the corporation.

Exam Study Guide

Lesson 3 | Page 9 of 35

A salesperson must be familiar with the Condominium Act, to be able to effectively advise condominium sellers and buyers. Question #15: Which of the following statements regarding the Condominium Act are correct? There are four options. There are multiple correct answers.

1

The Condominium Act outlines the duties of the condominium board and how board members are elected, qualified and disqualified.

2

The Condominium Act allows condominium unit owners to call a meeting providing that the meeting is requested in writing by at least 50% of the owners of the units in the condominium.

3

The Condominium Act protects a condominium owner’s rights to quiet enjoyment by preventing a condominium corporation from entering an owner’s unit without their permission at any time or for any reason.

4

The Condominium Act gives the buyer of a new condominium the right to receive a disclosure statement and rescind their APS with the builder within 10 days of receipt of both that disclosure statement and a fully signed copy of the APS.

Exam Study Guide

Lesson 3 | Page 10 of 35

A buyer who has made an offer to purchase a new condominium unit within a high-rise building has been accepted by the developer. The developer subsequently provides the buyer the required disclosure statement. Question #16: Which of the following statements regarding a disclosure statement are correct? There are four options. There are multiple correct answers.

1

It would contain the proposed condominium’s declaration, bylaws and rules.

2

The disclosure statement must be provided to a potential buyer before that buyer makes an offer to a developer.

3

A disclosure statement is strictly only required to be given by a developer to a buyer when a condominium building is completed and registered.

4

The disclosure statement must include a budget for the first year after the condominium’s intended registration.

Exam Study Guide

Lesson 3 | Page 11 of 35

Condominium Board of Directors

The Condominium Act centers around the governance of a condominium by the corporation’s board of directors. The following screens explore the board of directors’ responsibilities and scope of authority.

Exam Study Guide

Lesson 3 | Page 12 of 35

Condominium Board of Directors

Within 10 days of the condominium being registered, the declarant (builder) is required to appoint a board of directors. The first board, consisting of at least three people, must call a meeting by the later of: (a) the 30th day after the day by which the declarant has transferred 20 percent of the units in the corporation; or (b) the 90th day after the declarant transfers the first unit in the corporation. At this meeting, the owners may elect two directors to the board who hold office in addition to those appointed by the declarant. Exam Study Guide

Lesson 3 | Page 13 of 35

Declarant’s Obligations at Turnover Meeting The goal of the turnover meeting is to transfer control of the condominium corporation from the declarant (builder) to the owners. It must be called no more than 21 days following the time when the declarant ceases to be the registered owner of the majority of units. At the turnover meeting, a board of directors comprised of owners is elected in accordance with the Condominium Act and the corporation’s bylaws. The declarant is responsible for providing several items to the board of the corporation. The following four sections contain information about what happens at the first turnover meeting and during the period shortly afterwards.

Delivery of corporate documents

The declarant delivers the seal of the corporation and the minute book which includes the registered declaration, registered bylaws, current rules, and minutes of the owner’s and board meetings.

Delivery of related documents

The declarant delivers copies of all existing agreements, such as management contracts, deeds, leases, licences and easements, copies of all insurance policies, insurance trust agreements, memoranda, and related items. Also included are bills of sale or transfers for items that are assets of the corporation, but not part of the property and records concerning owners, mortgagees, and leasing of units.

Documents to be delivered within 30 days

The declarant delivers: • As-built architectural, structural, engineering, mechanical, electrical, plumbing, and underground site service plans • Existing warranties or guarantees on equipment and fixtures included in the sale of units or common elements • Documentation relating to the Ontario New Home Warranties Plan Act • Statement of owner/corporation responsibilities concerning repair after damage and maintenance • Details of what constitutes a standard condominium unit Exam Study Guide

• Corporation financial records • All reserve fund studies completed or required to be completed • Most current disclosure statement • Other materials as required by the Condominium Act

Documents to be delivered within 60 days

Audited financial statements as of the last day of the month in which the turnover meeting is held.

Exam Study Guide

Lesson 3 | Page 14 of 35

Condominium Corporation Board of Directors

The condominium corporation board of directors is elected at the turnover meeting and consists of at least three persons or more as specified in the bylaws. Directors are required to be 18 years of age and must not be bankrupt, have a lien relating to the payment of common expenses or be mentally incompetent. Board appointments are for three years or less as specified in the bylaws. To remove a director, a majority of all owners must vote in favour of dismissal either in person or by proxy. Owners may elect any person qualified to be a member of the board to serve the remaining time in the term. Directors must adhere to a standard of care and perform their duties with care, diligence, and skill. They cannot be found liable for a breach of duty if the breach arises as a result of relying in good faith on financial statements, reports or opinions of relevant experts (e.g., accountants, lawyers or engineers). Condominium bylaws may protect directors from exposure to liability and reimburse them for legal fees and other costs. However, these protections are void if the director is proven to have acted dishonestly or not in good faith. Exam Study Guide

Lesson 3 | Page 15 of 35

Roles and Responsibilities of the Board of Directors The owners elect a board of directors to oversee the business affairs of the condominium corporation. The main responsibility of the board of directors is to ensure the corporation is run in compliance with the Condominium Act. The following six sections contain information about the roles and responsibilities of the board of directors.

Regular meetings

All business of the corporation is conducted at regular meetings of the board of directors which typically occurs once a month, though they can be more or less frequent. Board meetings must have a quorum consisting of the majority of the number of directors. Meetings may be held by teleconference, if necessary.

Rules and bylaws

The board can propose changes to the condominium bylaws which require the approval of a majority of unit owners to take effect. The board also enacts rules to promote the safety, security, and welfare of all owners.

Property maintenance

The board ensures all required maintenance and repairs are carried out to the corporation’s common elements.

Finance

The board is responsible for tracking the corporation’s financial performance and ensuring the reserve fund study is updated every three years.

Communication with owners on finances

Board members are to provide regular communication with the owners and access to the corporation’s financial and other records. The board is also responsible for preparing an annual budget covering operating accounts and the reserve fund.

Disclosures

Prior to being elected, board candidates must make several disclosures including any convictions for an offence under the Condominium Act and any interest in a contract or a legal proceeding in which the condominium corporation is also a party. Once elected, board members are subject to ongoing disclosure requirements for the duration of the term. Failure to meet these disclosure requirements can result in immediate disqualification as a director. Exam Study Guide

Lesson 3 | Page 16 of 35

Condominium Authority of Ontario Director Training Program

Within six months of being appointed, directors are required to take online training in finance and corporate processes provided by the Condominium Authority of Ontario. The Director Training Program, which is online and free of charge, is also available to condominium owners, residents, managers and the broader condominium community. The Director Training Program covers important topics relevant to board directors including: • Fundamentals of condominium corporations and their legal framework • Role and responsibilities of board members • Financial management • Repair and maintenance, modifications and procurement • Information and status certificates Exam Study Guide

• Role of the Condominium Authority of Ontario and the Condominium Authority Tribunal

Exam Study Guide

Lesson 3 | Page 17 of 35

A buyer purchases a newly constructed condominium from a plan three years ago. They have been living in the unit during the past four months. Over that time period, they have expressed an interest in serving on the board of directors for the condominium. They have now been informed that the condominium will be registered tomorrow. Question #17: Which of the following statements about the first board of directors for a condominium are correct? There are four options. There are multiple correct answers.

1

Must be appointed by the declarant within 10 days after registration.

2

The first board of directors is elected for a minimum period of three years.

3

The first board must call a meeting by the later of: (a) the 30th day after the day by which the declarant has transferred 20 percent of the units in the corporation; or (b) the 90th day after the declarant transfers the first unit in the corporation.

4

Prior to a turnover meeting, only the declarant can elect a director.

Exam Study Guide

Lesson 3 | Page 18 of 35

A buyer purchased a condominium unit on plan four years ago. She has been living in the unit during the past 10 months. Over that time period, she has expressed an interest in serving on the board of directors for the condominium. Question #18: Identify the statement with the best wording, which deals with some of the basics of a condominium board. There are three options. There is only one correct answer.

1

Elected by the owners at the time of registration, the condominium board of directors must consist of at least seven persons. Board appointments are for a maximum of seven years. To remove a director, at least 80 per cent of all owners must vote in favour of dismissal. The remaining directors may elect any person qualified to be a member of the board to serve the remaining time in the term.

2

Elected by the owners at the registration of the condominium corporation, the condominium board of directors must consist of at least four persons. Board appointments are for a maximum of five years. To remove a director, at least 60 per cent of all owners must vote in favour of dismissal. The president of the board may elect any person qualified to be a member of the board to serve the remaining time in the term.

3

Elected by the owners at the turnover meeting, the condominium board of directors must consist of at least three persons. Board appointments are for a maximum of three years. To remove a director, a majority of all owners must vote in favour of dismissal. The owners may elect any person qualified to be a member of the board to serve the remaining time in the term.

Exam Study Guide

Lesson 3 | Page 19 of 35

A condominium owner has owned and lived in his unit for several years and a number of unit owners in the building are urging him to run for election to the board. He has been talking to one of the current directors about the responsibilities and liabilities of a board director. Question #19: Which one of the following statements is correct with respect to the liability of a member of a condominium corporation’s board of directors? There are four options. There is only one correct answer.

1

A director would not be liable for a breach of duty as a result of that director relying in good faith on the opinion of a lawyer.

2

A director is required by the Condominium Act to purchase their own insurance to cover breaches of duty.

3

A condominium corporation’s bylaws may provide that a director is to be indemnified against any breach of duty irrespective of how that breach occurred.

4

A director on a condominium board does not have any liabilities because this is a volunteer position. Only the condominium corporation has liability.

Exam Study Guide

Lesson 3 | Page 20 of 35

Establishing Condominium Bylaws

The following screens will provide an overview of how condominium bylaws and rules are established in accordance with the Condominium Act. Some governance issues do not require bylaws or rules and are addressed in policies created by the condominium board. For example, a policy on maintenance service contracts requiring the board to get three quotes before awarding the work to ensure the best price. Policies do not directly affect owners. A salesperson familiar with these provisions is in a better position to advise and represent condominium buyers.

Exam Study Guide

Lesson 3 | Page 21 of 35

Condominium Bylaws

Along with the declaration that defines the structure of the condominium, the developer is responsible for drafting the corporation’s bylaws and rules. The initial bylaws, which must be consistent with the Condominium Act and the declaration, are registered by the declarant in the Land Registry Office and are valid until replaced. Bylaws govern the corporation’s internal operations and the management of the property and its assets. In particular, bylaws address: • Board of directors election process • Assessment and collection of common expense contributions • Maintenance of common elements and units • When and how the corporation can borrow money • Process to approve and amend new and existing bylaws and rules Bylaws are made, amended or repealed by the board of directors. Bylaws are not effective unless the owners of the majority of units vote in favour. A copy must be registered in the Land Registry Office. Registered bylaws made by Exam Study Guide

the owners are valid until replaced.

Exam Study Guide

Lesson 3 | Page 22 of 35

Condominium Rules

In addition to the bylaws, the developer also establishes the initial corporation rules. Rules are directives and regulations that focus on promoting the safety, security, and welfare of owners, as well as the property and assets of the corporation. Rules prevent unreasonable interference with the use and enjoyment of common elements. Each condominium’s rules are different, however, most relate to pets, parking, noise levels, number of occupants per unit, decoration, and modifications to units. The board of directors can make, amend or repeal rules that are reasonable concerning the common elements. The board must provide owners with a copy of the new, amended or repealed rules, the effective date and notice that owners may requisition a meeting. Rules are not effective until approved by the owners who have 30 days for a requisition for a meeting. If no meeting is requisitioned within that period, the rules are not effective until the day after that 30th day, but the management can pick a date that is more than 30 days late. Exam Study Guide

Lesson 3 | Page 23 of 35

A young professional has just had an offer on a new condominium unit accepted by the developer who has provided her with the required disclosure statement. The statement includes the proposed declaration, bylaws and rules. Question #20: Identify the statement with the best wording that deals with the declaration, bylaws and rules. There are three options. There is only one correct answer.

1

The developer is responsible for drafting the corporation’s bylaws and rules. Both must be consistent with the declaration and the Condominium Act. The bylaws govern the corporation’s internal operations and the management of the property and its assets, whereas the rules focus on promoting the safety, security and welfare of owners. Examples of bylaws include establishing how the board is elected and how common expenses are assessed. The rules often include directions on pets, parking and noise levels.

2

The developer is responsible for drafting the corporation’s bylaws and rules. Both must be consistent with the developer’s disclosure statement and the Condominium Act. The rules govern the corporation’s internal operations and the management of the property and its assets, whereas the declarations focus on promoting the safety, security and welfare of owners. Examples of rules include establishing how the board is elected and how common expenses are assessed. The declarations often include directions on pets, parking and noise levels.

3

The developer is responsible for drafting the corporation’s bylaws and rules. Both must be consistent with the developer’s status certificate and the Condominium Act. The declarations govern the corporation’s internal operations and the management of the property and its assets, whereas the bylaws focus on promoting the safety, security and welfare of owners. Examples of declaration include establishing how the board is elected and how common expenses are assessed. The bylaws often include directions on pets, parking and noise levels.

Exam Study Guide

Lesson 3 | Page 24 of 35

Role of the Condominium Management Regulatory Authority of Ontario The Condominium Act amendments set clear mandatory standards to ensure a level of competence and integrity among condominium corporation managers. Until this point, Ontario had no minimum requirements for a condominium management firm or someone working as a manager. These limitations are addressed by the Condominium Management Services Act, 2015 and its regulations that establish: • A compulsory licensing system for managers and management providers • Training and education requirements for managers • A code of ethics for managers and management providers The aim of the Condominium Management Regulatory Authority of Ontario is to build trust in management services and protect the interests of the province’s condominium communities. It imposes fines or imprisonment for managers and management firms convicted of violating its provisions. The Licence Appeal Tribunal hears appeals against licensing decisions and a disciplinary committee reviews alleged code of ethics violations.

Exam Study Guide

Lesson 3 | Page 25 of 35

Public Registry

The Condominium Management Regulatory Authority of Ontario maintains the Public Registry which contains information on managers and management companies licensed to provide condominium management services in Ontario. This database, which is searchable by name or by licence number, provides information prescribed in the Condominium Act and submitted by condominium corporations to the Condominium Authority of Ontario through the filing of returns and notices of change. Licencees are required to keep their information accurate and current. The registry (and the Condominium Management Regulatory Authority of Ontario web site) are invaluable resources to verify that the information provided by the seller (or in the listing for a salesperson representing a buyer) about the management company is still valid and that the licence is in good standing. For example, knowing the fiscal year end will help to confirm that the maintenance fee amount noted on listings is current. It is important for a salesperson to understand the basic management licensing structure and requirements when helping clients to sell or to buy a condominium property unit or a Parcel of Tied Land or POTL. When a salesperson contacts the management office to inquire about fees, reserve fund, or planned projects, it is important to realize that a licensed manager should be the only person answering these questions. Administrators and others involved in condominium management are not qualified because they are not licensed and not involved in the day-to-day Exam Study Guide

operations.

Exam Study Guide

Lesson 3 | Page 26 of 35

Insurance for Management Companies

The Condominium Management Regulatory Authority of Ontario also governs the insurance that management providers must hold including the types of insurance and the minimum amounts for which they must be insured under each type of insurance. For example, a condominium management provider must have errors and omissions insurance. They also require fidelity insurance to protect clients from losses that arise from the dishonesty of a condominium manager. Before entering into a proposed contract with a client to provide condominium management services, a Licensee must provide information on the type and amount of insurance coverage held by the condominium management provider and the condominium manager. If a licensee does not have any insurance coverage or the licensee’s insurance coverage changes or ends during the term of the contract, they must notify the client within 15 days.

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Lesson 3 | Page 27 of 35

Condominium Management Regulatory Authority of Ontario Licence Types The Condominium Management Regulatory Authority of Ontario issues licences for individual managers and companies in the condominium management field. Each licence has specific qualifications, application requirements, conditions, and obligations. All licences must be renewed annually. The following four sections contain information about the requirements for each licence type.

General Licence – individuals

General licensees can provide condominium management services without any supervisory requirements specified under regulation. General licensees must have provided condominium management services for two or more years (2,920 hours). They must have completed the educational requirements for a general licence and can act as a supervising licensee (supervise a Limited Licensee). A general licensee can also act as the principal condominium manager for a licensed condominium management provider company. An individual must hold either a Limited Licence or Transitional General Licence before they can apply for a General Licence. A General Licensee cannot be employed by more than one licensed condominium management provider unless the licensee has obtained the consent, in the form or manner approved by the registrar, of all condominium management providers that employ the licensee. A General Licensee may work directly for a condominium corporation without being employed by a condominium management provider, but only if the General Licensee is employed by no more than three condominium management providers and the General Licensee cannot work as an independent contractor.

Transitional General Licence – individuals

Transitional General Licensees can provide condominium management services without any supervisory requirements specified under regulation. Transitional General

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Licensees must have provided condominium management services for two or more years (2,920 hours). They can act as a supervising licensee (supervise a Limited Licensee) and can act as the principal condominium manager for a licensed condominium management provider company. Transitional General Licensees are time limited. The last day to apply for a Transitional General Licence was March 30, 2018 and they have until June 30, 2021 to complete the educational requirements and obtain a General Licence. A Transitional General Licensee cannot be employed by more than one licensed condominium management provider unless the licensee has obtained the consent, in the form or manner approved by the registrar, of all condominium management providers that employ the licensee. A Transitional General Licensee may work directly for a condominium corporation without being employed by a condominium management provider, but only if the Transitional General Licensee is employed by no more than three condominium management providers and the Transitional General Licensee cannot work as an independent contractor.

Limited Licence – individuals

Limited licence is an entry level licence. Limited Licensees can provide condominium management services only under the supervision of a General Licensee or Transitional General Licensee (“supervising licensee”) and only if they are employed by a licensed condominium management provider (business). Limited Licensees do not require condominium management work experience but must work under supervision. They can provide condominium management services only under the employment of a licensed condominium management provider and cannot be employed directly by a condominium corporation. A limited licence has specific conditions and restrictions. Limited Licensees may apply for a General Licence after they have completed the required work experience and education. These requirements must be completed within five years of applying for the General Licence. The work experience requirements for a Limited Licensee to obtain a General Licence is that they must have obtained at least two years of work experience (2,920 hours) and must have performed the following activities under the supervision of one or more supervising licensees: planned and participated in meetings of the board of

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directors of a client; planned and participated in meetings of owners, including at least one annual general meeting within the meaning of the Condominium Act; participated in the preparation of a budget for a condominium corporation that the licensee has presented to the board of directors of a client; interpreted financial statements for a client, prepared under Section 66 of the Condominium Act and presented them to the board of directors of the client; have overseen the maintenance or repair of units and common elements within the meaning of the Condominium Act or client assets, if any. A condominium manager who holds a General Licence or a Transitional General Licence may supervise someone who holds a Limited Licence.

Condominium Management Provider Licence – companies

Under legislation, any business (corporation, partnership, sole proprietor, association or other organization or entity) that provides condominium management services to condominium corporations is required to hold a Condominium Management Provider Licence. Holders of a Condominium Management Provider Licence must designate a principal condominium manager that holds a General Licence or Transitional General Licence. Every licensed condominium management provider (business), regardless of size, must maintain the insurance coverage for errors and omissions insurance that includes coverage for every condominium manager that the provider employs; Fidelity insurance, including against losses that a client of the provider suffers and that arise from dishonesty of condominium managers that the provider employs or of other employees, directors, and officers of the provider. A licensed condominium management provider may be required to provide the registrar with any information about the company’s insurance details.

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Lesson 3 | Page 28 of 35

Role and Responsibilities of a Condominium Manager

The Condominium Management Services Act, 2015 establishes a condominium manager's range of responsibilities which may include: • Collecting common expense fees • Keeping records for the corporation • Responding to owner complaints • Ensuring maintenance and repair of the property • Hiring and monitoring service companies, and overseeing staff and contractors • Preparing draft annual budgets and overseeing the reserve fund • Implementing an emergency management plan and responding to emergencies • Preparing status certificates • Issuing meeting notices and reporting on the affairs of the corporation • Organizing board meetings and overseeing administration of all owners' meetings • Monitoring the corporation’s insurance Exam Study Guide

• Preparing financial reports and arranging for audits • Advising the board of directors on how to comply with the Condominium Act and with legislated or government-mandatory repairs and on its financial responsibilities (e.g. contributions to the reserve fund, long-term reserve fund planning

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Lesson 3 | Page 29 of 35

Obligations of Condominium Managers The Condominium Management Services Act, 2015 and its regulations set out obligations and requirements for condominium managers. The following seven sections contain information about some of the obligations of condominium managers.

Working for multiple firms or corporations

A licensed condominium manager must not be employed by more than one management firm unless they have obtained the written consent from all firms that employ them. A manager who holds a General Licence or a Transitional General Licence must not be directly employed by more than three condominium corporations.

Certificate of licence

Condominium managers must carry their most recently issued Certificate of Licence when providing management services and produce it for inspection upon request.

Ontario-based

All condominium management firms and managers must maintain an Ontario address for service from the Condominium Management Regulatory Authority of Ontario.

Services contract

Every licensee providing services must have a written contract governing the services and must not provide the services except in accordance with the contract.

Records transfer, retention, and storage

Upon termination of a contract for condominium management services, licensees must immediately transfer to the client all records and documents relating to the client. Licensees must keep records for at least six years relating to issues including education, exams, employment, and disclosures required under the Condominium Act. Storage of records in a dwelling must be pre-approved by the Condominium Management Regulatory Authority of Ontario.

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Client records

A licensee handling client records must make and retain copies for contracted purposes, transfer records at termination of contract, keep records secure, not use or disclose records unless necessary for purposes set out in Sections 35(4) (a) and (b) of the General Regulation under the Condominium Management Services Act.

Information notifications

All licensees are expected to keep their profile information up to date with the Condominium Management Regulatory Authority of Ontario including address, email address, phone number, and legal name. Licensees must notify the Registrar within five days of a change in address for service and any commencement or termination of employment by a condominium management firm or corporation.

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Lesson 3 | Page 30 of 35

Information Certificates

The General Regulations under the Condominium Act set out the timing and the content for information certificates. These certificates help to ensure that owners receive ongoing information about their corporation throughout the year. There are three types of information certificates: • Periodic Information Certificates are sent twice per fiscal year to all owners and include key information about the corporation’s board, finances, insurance, reserve fund, legal proceedings, and other matters. • Information Certificate Updates are sent to owners within 30 days of certain key changes before the next scheduled Periodic Information Certificate, such as changes in the directors or officers of the corporation. • New Owner Information Certificates are sent to new owners within 30 days after the owner provides written notice stating their name and the unit that they own in the corporation. A New Owner Information Certificate covers the most recent Periodic Information Certificates and any subsequent Information Certificate Updates. Condominium corporations are required to provide these certificates, to improve transparency of the board of directors and communication with owners. A salesperson may ask to view these certificates as part of the listing preparations, or even include them as an attachment to a listing. Exam Study Guide

Lesson 3 | Page 31 of 35

Record Keeping Requirements

The Condominium Management Services Act, 2015 imposes obligations and procedures relating to how a corporation must retain records, and how owners, mortgagees, and purchasers (or their agents) can access a corporation’s records. The Condominium Authority Tribunal has exclusive jurisdiction to resolve most disputes about record retention and access. The Act identifies two types of records, core and non-core, that a condominium corporation must retain. The Act also establishes: • Time frame for retention • Processes to request records • Cost (if any) to obtain or view them • Timeframe for the board of directors to respond • Requirements for how and where records must be maintained • Minimum retention periods for each type of record A salesperson should be aware of the basic structure of condominium records so that they could advise buyers on what they are entitled to view and request. Exam Study Guide

Lesson 3 | Page 32 of 35

A condominium owner has lived in her condominium for nine years and has just been elected to the condominium board of directors for the first time. She will be going to the Condominium Authority of Ontario’s Condominium Director Training Program where she will learn about the obligations of a condominium manager. Question #21: What are some of the obligations of a condominium manager under the Condominium Management Services Act, 2015? There are four options. There are multiple correct answers.

1

When a condominium management services contract is terminated, a condominium manager is required to return all relevant records and documents to the condominium corporation within three months of that termination.

2

When providing condominium management services, a licensed condominium manager must carry their licence with them.

3

A licensed condominium manager does not require consent from all management providers to be employed by more than one condominium management provider.

4

A licensed condominium manager is expected to keep a record of employment and any disclosures required under the Condominium Act for at least six years.

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Lesson 3 | Page 33 of 35

A condominium owner has lived in her condominium for nine years and has just been elected to the condominium board of directors for the first time. She will be going to the Condominium Authority of Ontario’s Condominium Director Training Program where she will learn about insurance requirements under the Condominium Management Services Act. Question #22: Which of the following statements about insurance requirements under the Condominium Management Services Act, 2015 are correct? There are four options. There are multiple correct answers. 1

The Act requires that all licensees including condominium managers and condominium management providers maintain insurance covering their services.

2

If there is a change to the condominium management company’s insurance during the term of a contract, they must notify the client within 15 days.

3

Before entering into a contract with a client to provide condominium management services, a condominium management provider must provide information regarding their insurance, including the type and amount of insurance, to that client held.

4

Before entering into a contract with a client to provide condominium management services, a condominium management provider must provide information regarding their employee’s insurance including the type and amount of insurance held by each employee.

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Lesson 3 | Page 34 of 35

A condominium owner has lived in her condominium for nine years and has just been elected to the condominium board of directors for the first time. As required under the Condominium Act, she will make an application to enrol in the free of charge online Director Training Program provided by the Condominium Authority of Ontario (CAO) which covers important topics that are relevant to condominium board directorship such as the role and obligations of a condominium manager. Question #23: Identify the statement with the best wording regarding the role of the Condominium Management Regulatory Authority of Ontario. There are four options. There is only one correct answer.

1

As a regulatory body providing oversight of condominium managers and management companies, the Condominium Authority of Ontario ensures condominium managers and management companies are licensed, meet minimum education requirements, and comply with the Code of Ethics. Each licence has specific qualifications, application requirements, conditions, and obligations. All licences must be renewed annually.

2

As a regulatory body providing oversight of condominium managers and management companies, the Condominium Authority of Ontario ensures condominium managers and management companies are licensed, meet minimum citizenship requirements, and comply with the uniform standards of practice and behaviour. Each licence has specific qualifications, application requirements, conditions, and obligations. All licences must be renewed every two years.

3

As a regulatory body providing oversight of condominium managers and management companies, the Condominium Authority of Ontario ensures condominium managers and management companies are licensed, meet minimum income requirements, and comply with the Real Estate and Business Brokers Act. Each licence has specific qualifications, application requirements, conditions, and obligations. All licences must be renewed bi-annually. Exam Study Guide

4

As a regulatory body providing oversight of condominium managers and management companies, the Condominium Authority of Ontario ensures condominium managers and management companies are licensed, meet minimum university requirements, and comply with the Property Management Act, 2016. Each licence has specific qualifications, application requirements, conditions, and obligations. All licences must be renewed every five years.

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Lesson 3 | Page 35 of 35

Congratulations, you have completed the lesson! There are four sections on this page with a summary of the key topics that were covered in this lesson.

The Condominium Act – Legal requirements and governance

The Condominium Act defines the legal structure and governance of all condominiums in Ontario. Recent changes to the Act are designed to provide greater consumer protection including the creation of the Condominium Authority of Ontario, the Condominium Authority Tribunal’s streamlined dispute mechanism, and the strengthening of the condominium management.

Responsibilities and scope of authority of the board of directors

The condominium board of directors is responsible for the operation of a condominium corporation. The Condominium Act sets the requirements for the election and training of the board and defines the liabilities, terms, and terminations for board members.

Condominium bylaws and rules

The Condominium Act defines the governance of condominiums through the processes to develop and modify condominium bylaws and rules.

Responsibilities, scope of authority, and statutory requirements of condominium managers

The Condominium Management Services Act creates the Condominium Management Regulatory Authority of Ontario and defines the roles, responsibilities, and scope of authority of condominium managers as well as the requirements for education, insurance, and licensing of managers and management companies.

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Lesson 4 | Page 1 of 23

Lesson 4: Legislation and Regulations for new condominiums

This lesson outlines the key considerations of the Planning Act, construction requirements, and the condominium registration process for the new condominium salesperson.

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Lesson 4 | Page 2 of 23

Legislation and Regulations for New Condominiums

The Condominium Act sets the standards for condominiums in Ontario defining condominium ownership, structure, and governance. Other legislation and regulations also play a significant role in shaping new condominiums including the Planning Act, R.S.O. 1990, c. P.13 and the Building Code Act, 1992, S.O. 1992, c. 23. This lesson focuses on how the legislation impacts the activities of a salesperson for pre-construction and new-build condominiums. On completion of this lesson, you will be able to: • Identify key considerations of the Planning Act in the context of selling new condominiums • Describe the condominium registration process • Identify the impact of construction requirements on the sale of new condominiums Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented. Exam Study Guide

Lesson 4 | Page 3 of 23

Application and Approval of New Condominiums

The Planning Act, sets the guidelines for land use planning in Ontario. All new condominium projects begin with obtaining the required approvals set out in the Planning Act. Applications are processed under Sections 51, 51.1 and 51.2 of the Planning Act and in accordance with Ontario Regulation 544/06. The approvals are granted by the relevant municipal or provincial authority. The plan approval process begins when the draft plans are submitted to approval authorities for assessment. These groups are established through the Planning Act. They have the authority to award draft or final approval, extend approval timelines, make minor revisions, or set conditions of draft approval.

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Lesson 4 | Page 4 of 23

Impact of Zoning Bylaws and Official Plan on Condominium Development

All condominium properties must comply with the Building Code Act, the legislative framework governing the construction, renovation, and conversion of buildings. The Ontario Building Code is a regulation under the Building Code Act that establishes detailed technical and administrative requirements as well as minimum standards for building construction including new-build condominiums. An official plan states the general policies for land use in a municipality. The Official Plan is implemented through zoning bylaws that contain specific requirements that are legally enforceable. Zoning bylaws identify the permitted land uses and basic standards, such as lot sizes, building height, parking requirements, and setback from the property lines. These standards vary according to the land use guidelines for different areas of the municipality. Construction of a new development cannot start until a building permit is issued. A permit is only issued once the application complies with the appropriate planning, zoning, and other municipal regulations.

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Lesson 4 | Page 5 of 23

Impact of Zoning Bylaws and Official Plan on Condominium Development

If an application does not meet zoning bylaws, an appeal can be made to the Committee of Adjustment. The Planning Act gives these committees the power to grant minor variances. A minor variance amends the zoning regulation for the specific property. Developers of residential new-build condominiums must also meet requirements of the Tarion Warranty Corporation. On successful completion of the process, the final development plans are approved. With an approved condominium development plan, the builder can proceed with construction. In time, with the construction phase mostly complete and the building declared fit for occupancy, buyers can start to take occupancy of their units. The move-in process usually begins with a limited number of suites or floors being available (usually on lower floors). The builder continues construction to complete the remaining units and the common elements of the property. Exam Study Guide

Lesson 4 | Page 6 of 23

A CEO leads a company that has a great reputation for developing and building commercial office towers and shopping malls. He has decided to diversify and is interested in purchasing land to develop a high-rise condominium building. He is working with a real estate brokerage that has a lot of experience selling condominium developments. Question #24: Which of the following statements about legislation that impacts condominium development is/are correct? There are four options. There are multiple correct answers.

1

Condominium development is strictly regulated by the Condominium Authority of Ontario.

2

An official plan states the general policies for land use in a municipality and is implemented through zoning bylaws.

3

The Condominium Act, 1998 establishes the minimum building and renovation standards for the construction of new condominiums and condominium conversion projects.

4

Zoning bylaws identify the permitted land uses and basic standards such as lot sizes, building height, parking requirements, and setback from the property lines.

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Lesson 4 | Page 7 of 23

The Condominium Registration Process

Registration, the next stage in the condominium development process, makes them distinct from other property types. It marks the point where the corporation is legally created. The buyer becomes the owner and, in doing so, takes on new responsibilities. Condominiums, like houses, are real estate that have value. But condominiums come with unique conditions and obligations. The documents presented at registration define many features of a new condominium including the owner’s responsibilities. A person involved in selling pre-construction or new-build condominiums should be knowledgeable about the registration process. The information it provides is essential to be able to assess whether a property is suitable for a buyer. The following screens will outline the registration process including the declaration, description, automatic formation of a condominium corporation, and the owner’s responsibilities to tenants upon registration.

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Lesson 4 | Page 8 of 23

Condominium Corporation Founding Documents: Declaration

A condominium corporation becomes a legal entity when the declarant (builder) registers the declaration and description at the Land Registry Office. The declaration presents the details of the new corporation’s ownership and governance. The description presents the plans for the property as approved in the development application process. Referred to as the constitution of the condominium, the declaration establishes the legal structure of the corporation. The contents of the declaration are defined in the Condominium Act. Required information includes: • Statement that the Condominium Act governs • Consent of all registered mortgagees • Proportionate share of common elements assigned to each unit • Proportionate contribution of unit owners to common expenses • Common elements for designated units (exclusive use common element), if applicable • Corporation address for service • Any conditions required by approving authority Exam Study Guide

Lesson 4 | Page 9 of 23

Condominium Corporation Founding Documents: Description

The description is submitted along with the declaration at registration. The description usually includes surveys, architectural drawings, and structural plans. For example, the description sets out the exact shape, dimensions, boundaries, and location of each unit in the corporation. The plans are accompanied by certificates confirming compliance and accuracy. The description usually includes: • Plan of survey depicting legal boundaries • Architectural plans and certificate of architect • Unit boundaries, shape, dimension, and location • Definitions of common elements and exclusive use common elements • Proportion each unit pays in condominium fees • Structural plans, certificate of engineer, Ontario Land Surveyor certificate • All interests pertaining to the land that is included in the property The wealth of information in the founding documents – declaration and description – make them a very valuable source of data for salespersons. Exam Study Guide

Lesson 4 | Page 10 of 23

Automatic Formation of a Condominium Corporation

When the declaration and description are filed, and the condominium is registered, a corporation without share capital is automatically formed. It is a corporation in which members are the unit owners (except in a common element condominium. The land registrar for the applicable Land Registry Office gives the corporation a name based on the location of the registry office and a sequential number. If the condominium corporation was created on or after May 5, 2001, the legal name must also include the corporation’s type such as Standard, Common Elements, or Vacant Land. Examples of these identifiers are Durham Standard Condominium Corporation No. 123 and Peel Common Elements Condominium No. 345. The goals of the corporation are focused on managing the property and protecting the assets of the corporation. The corporation has a duty to effect unit owner compliance under the Condominium Act, the declaration, and the bylaws, and has the power to own, acquire, encumber, and dispose of real and personal property according to its bylaws. The corporation does not provide limited liability, so the unit owners are personally liable for all the debts and obligations of the corporation. Exam Study Guide

Lesson 4 | Page 11 of 23

Condominium Corporations Index

The Condominium Act mandates the creation and maintenance of the Condominium Corporations Index. All land registrars in the province are required to keep an index of corporations registered in their area. The Condominium Authority of Ontario maintains a searchable public registry in accordance with the Condominium Act. The registry, accessible on the authority’s web site, displays information on each registered project based on regularly submitted returns and notices of change. The registry contains documentation relevant to: • Corporation Name • Registration Date • Name of Declarant • Type of Corporation • Address for Service • Municipal Address • Total Number of Units • Total Number of Voting Units Exam Study Guide

• Condominium Corporation Fiscal Year and Annual General Meeting Dates • Board of Directors • Management Company Under Contract with the Corporation • Management Individuals Under Contract with the Corporation or Employees of Above-Listed Company • Compliance Orders

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Lesson 4 | Page 12 of 23

Buyers Who Want to Rent Their Unit

Condominium buyers may want to purchase a unit for rental purposes, particularly in locations where low vacancy rates create a tight rental market. When an owner rents their condominium unit, they become a landlord and enter a landlord-tenant relationship regulated by the Residential Tenancies Act, 2006 (RTA), that gives rights and responsibilities to both parties. Owners can rent their units during the occupancy period prior to registration or after registration when they take title. A tenant who rents a new unit during the occupancy period cannot be evicted by the owner simply because the unit is subsequently registered. The Act specifies that the registration is not grounds to serve notice of termination to a tenant under the RTA. In accordance with the Condominium Act, Section 83, an owner who enters into or renews a lease on their unit must notify the corporation within 10 days. The owner must provide the corporation with the tenant’s name, the owner’s address and a copy of the lease or renewal agreement. If a lease is terminated or not renewed, the owner must notify the corporation in writing within 10 days. Exam Study Guide

Lesson 4 | Page 13 of 23

A CEO leads a company that has a great reputation for developing and building commercial office towers and shopping malls. A few years ago, he decided to diversify and has now developed and completed the building of a high-rise condominium building. He is about to create the building’s condominium corporation. Question #25: Identify the statement with the best wording that deals with the creation of a condominium corporation. There are four options. There is only one correct answer.

1

As defined by the Condominium Act, the description establishes the legal structure of the condominium corporation and the declaration presents a diagrammatic presentation of the property. When these two documents are filed at the Registry Office the condominium becomes a declarant and a corporation without share capital is automatically formed in which members are the declarants.

2

As defined by the Condominium Act, the declaration establishes the legal structure of the condominium corporation and the description presents a diagrammatic presentation of the property. When these two documents are filed at the Registry Office the condominium becomes registered and a corporation without share capital is automatically formed in which members are the unit owners.

3

As defined by the Condominium Act, the disclosure statement establishes the legal structure of the condominium corporation and the plan of survey presents a diagrammatic presentation of the property. When these two documents are filed at the Registry Office the condominium becomes an approval authority and a corporation without share capital is automatically formed in which members are the directors.

4

As defined by the Condominium Act, the bylaws establish the legal structure of the condominium corporation and the architectural drawings presents a diagrammatic presentation of the property. When these two documents are filed at the Registry Office the condominium becomes licensed and a corporation without share capital is automatically formed in which members are the lien holders. Exam Study Guide

Lesson 4 | Page 14 of 23

A salesperson, who works mostly with condominium sellers and buyers, has an appointment for a listing presentation in a condominium she has not yet sold in. She is searching for information in the Land Titles registry and on The Condominium Authority of Ontario’s website. The information she is able to obtain is mandated by the Condominium Act. Question #26: Which of the following statements are correct with respect to information that must be maintained as a requirement of the Condominium Act? There are four options. There are multiple correct answers.

1

The Condominium Authority of Ontario maintains an online searchable public registry that contains information about each registered condominium including the names of the board of directors and total number of units.

2

The Condominium Authority of Ontario is required under the Condominium Act to keep a condominium register that contains the declaration, description and by laws of each condominium that has been registered.

3

The land registrar is required by the Condominium Act to maintain an index of all condominium corporations and a database that contains information such as the number of units in a condominium, the number of units leased as well as the condominium’s latest financial statements.

4

All land registrars in the province are required to keep an index of condominium corporations registered in their area.

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Lesson 4 | Page 15 of 23

A buyer is interested in purchasing a new-build condominium with the view to rent it out to tenants, for investment purposes, and asks the salesperson for guidance in becoming a landlord and dealing with tenants, condominium corporations, and leases. Question #27: Which of the following statements are correct? There are five options. There are multiple correct answers.

1

Condominium buyers cannot rent their units prior to registration.

2

When an owner rents their condominium unit, they enter a landlord-tenant relationship regulated by the Condominium Act.

3

The registration of a condominium corporation is not grounds to serve notice of termination to a tenant.

4

An owner who leases or renews a lease on their unit must notify the condominium corporation of this within 10 days of entering into the lease or the renewal.

5

An owner who enters into a lease must provide the tenant’s name, the owner’s address and a copy of the lease or renewal agreement to the condominium corporation.

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Lesson 4 | Page 16 of 23

Warranty Requirements for New Condominiums

In addition to the legislation and regulations discussed, new condominiums are subject to the warranty requirements for new homes in Ontario. A new-build condominium must meet or surpass the structural requirements and health and safety standards of the Ontario Building Code. And like all new homes in Ontario, a condominium is protected by mandatory warranties provided by the builder and supported by the Tarion Warranty Corporation. Tarion is a private corporation that ensures that Ontario homeowners receive the warranty coverage outlined in the Ontario New Home Warranties Plan Act, R.S.O. 1990, c. O.31. This section reviews the coverage and required compliance under the warranty program for the units and common elements of new and condominium conversion projects. Exam Study Guide

Lesson 4 | Page 17 of 23

Ontario New Home Warranties Plan Act

The Ontario New Home Warranties Plan Act defines warranty coverage (and exclusions) for new homes and condominiums. It considers a condominium unit as a home, including the common elements of the corporation. Warranty coverage begins on the date of possession of a condominium unit and remains in effect until the end of the warranty period, even if the unit is sold to a subsequent purchaser before the warranty expires. The Ontario New Home Warranties Plan Act for condominium units provides: • Protection for deposits • Compensation for delays in closing or occupancy • Protection against unauthorized substitutions • One and two-year warranties for certain defects in work and materials • Seven-year warranty for major structural defects • Coverage for condominium common elements

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Lesson 4 | Page 18 of 23

Warranty Coverage for Common Elements

The warranty on the common elements of a corporation begins at registration. Common elements are covered for the lesser amount of $50,000 times the number of units or $2.5 million. There is no warranty coverage for the common elements that are part of a common elements or vacant land condominium. The details of the warranty on common elements are presented in Tarion’s Construction Performance Guidelines for Common Elements of Residential Condominiums. As is the case of all warranties, there are qualifications and exclusions that affect coverage of the units and common elements. Exam Study Guide

Lesson 4 | Page 19 of 23

Warranty Coverage for Conversions

A residential condominium conversion project adapts an existing non-residential building into condominiums. Often elements of the original building, such as the foundation or façade, are incorporated into the new building design. The Protecting Condominium Owners Act and Ontario New Home Warranties Plan Act extend most aspects of the new home warranty plan coverage to residential condominium conversion projects. A significant difference for conversion projects is that the original building elements are not covered by the one-year workmanship and materials warranty that applies to new buildings. The original elements are often made with old materials and techniques. As such, the original parts of a converted structure cannot be certified to be comparable to the newly constructed areas. All other aspects of the one-year warranty, including compliance with Ontario Building Code regulations, apply to both the original and new elements of the conversion. After the first year, the new and original elements are covered for two years against water penetration as well as defects in work and materials in the electrical, plumbing, and heating systems. The seven-year warranty against major structural defects applies equally to conversion projects. Exam Study Guide

Lesson 4 | Page 20 of 23

Deposit Protection and Delayed Closing Compensation

A buyer purchasing a pre-construction condominium is required to place a deposit with the builder to hold the specific unit until it is ready to be occupied. Under the Condominium Act, all deposits paid on pre-construction properties, regardless of the amount, must be kept in trust by the builder’s lawyer or another trustee. In the event that the builder does not complete the sale of the unit, pre-construction buyers are protected against the loss of their deposit to a maximum of $20,000 per unit. New condominium builders must also provide a warranty to buyers at the time the purchase agreement is signed against delays in occupancy. This provision is designed to ensure a unit will be ready for the Occupancy Date (or an extension) agreed on by both the builder and buyer. A statement on the delayed closing warranty is attached to all Agreements of Purchase and Sale for new condominiums. Builders are required to provide a buyer with a specific Occupancy Date and to state whether it is tentative or firm: • Tentative Occupancy Date – An estimated date a unit is expected to be ready for occupancy

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• Firm Occupancy Date – A specified date a unit will be ready for occupancy and with which the builder is confident • Outside Occupancy Date – This is the latest date a builder expects to be able to provide a buyer with occupancy to the unit. If occupancy has not been given to the buyer by that date, the buyer can elect to terminate the transaction and all monies paid by the buyer are to be returned with interest, and the buyer will be entitled to Delayed Occupancy Compensation. A builder may extend the occupancy date multiple times without paying compensation to the buyer, however, you must be given a 90 days’ written notice of each extension. If the unit is not ready for occupancy on the Firm Occupancy Date, the builder is required to compensate the buyer. A Delayed Occupancy compensation is payable if the Firm Occupancy Date is not met or occupancy is delayed beyond the Outside Occupancy Date and a buyer has terminated the purchase agreement. The builder must provide a date on which the Purchaser’s Termination Period begins. Within 30 days, if occupancy has not occurred, a buyer can apply for delayed occupancy compensation. Compensation is awarded for daily living expenses including food and accommodation to a maximum of $7,500. A salesperson should ensure a buyer is aware of potential costs as disclosed in the APS that can arise at final closing. The costs, which can be substantial, may include delayed taxes, development levies and charges, meter charges, legal fees, and additional common element fees toward the reserve fund. As a rule, in pre-construction condominiums, the maintenance fee rates outlined at the time of purchase are much lower than the actual ones charged upon registration.

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Lesson 4 | Page 21 of 23

A buyer is interested in purchasing a condominium unit. There are two units they like. One is in a pre-construction condominium building and the other is located in a building that will be converted from its current office use to residential usage. The salesperson working with the buyer has given them a brochure that deals with the provincial warranty program for both brand new and conversion projects. Question #28: Identify the statement with the best wording that relates to the provincial warranty program for new condominium buildings and to condominium conversion projects. There are four options. There is only one correct answer.

1

The provincial warranty coverage for condominium units begins on the date of registration and remains in effect until the unit is resold to a new purchaser. The warranty on the common elements of a condominium corporation begins on the date of the turnover meeting. In conversion projects, the original building elements are covered by the one year workmanship and materials warranty that applies to new buildings.

2

The provincial warranty coverage for condominium units begins on the date of possession and remains in effect until the end of the warranty period. The warranty on the common elements of a condominium corporation begins on the date of registration of the condominium corporation. In conversion projects, the original building elements are not covered by the one year workmanship and materials warranty that applies to new buildings.

3

The provincial warranty coverage for condominium units begins on the date of receiving the disclosure statement and remains in effect until the first reserve fund study is done. The warranty on the common elements of a condominium corporation begins one year after occupancy. In conversion projects, the original building elements are not covered by the seven year workmanship and materials warranty that applies to new buildings.

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4

The provincial warranty coverage for condominium units begins on the date of the purchase of the unit and remains in effect until the end of the second year after the condominium is registered. The warranty on the common elements of a condominium corporation begins one year after occupancy. In conversion projects, the original building elements are covered by the seven year workmanship and materials warranty that applies to new buildings.

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Lesson 4 | Page 22 of 23

A buyer has made an offer to purchase a pre-construction condominium unit in a townhouse complex. The offer has just been accepted by the developer. The buyer provided a deposit with the offer and has been given a signed copy of the APS together with the delayed occupancy warranty. Question #29: Which of the following statements are correct with respect to deposits on preconstruction purchases and warranties on delayed occupancy from the provincial warranty program? There are five options. There are multiple correct answers.

1

Under the Condominium Act, deposits on pre-construction properties can only be kept in a real estate brokerage’s trust account.

2

The Condominium Act allows for deposits on pre-construction properties to be kept in a trust account held by the builder’s lawyer.

3

A delayed occupancy warranty must provide the buyer with a firm occupancy date at the time the purchase agreement is signed.

4

If a builder cannot provide occupancy by the tentative occupancy date set out in the warranty provided, then the buyer would be entitled to compensation.

5

If occupancy is delayed by the builder beyond the outside occupancy date, then the buyer would be entitled to terminate the APS.

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Lesson 4 | Page 23 of 23

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were covered in this lesson.

Impact of the Planning Act on new condominiums

In addition to the Condominium Act, the Planning Act also has a significant impact on condominium developments by establishing the guidelines for land use planning in the province.

The Ontario Building Code and the Ontario New Home Warranties Plan

The Ontario Building Code governs the detailed technical and administrative requirements, as well as minimum standards for building construction in the province including for new-build condominiums. The Ontario New Home Warranties Plan Act defines warranty coverage (and exclusions) for new homes including the units and the common elements of a condominium corporation. Most aspects of the new home warranty plan coverage also extend to condominium conversion projects under the Protecting Condominium Owners Act.

The condominium registration process

A condominium corporation becomes a legal entity when the declarant (builder) registers the declaration (details of ownership and governance) and the description (plans for the property as approved in the development application process) at the Land Registry Office. The Condominium Authority of Ontario maintains a searchable public registry accessible on its website that displays information on each registered project based on regularly submitted returns and notices of change.

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Lesson 5 | Page 1 of 25

Lesson 5: Key Considerations When Selling a New Condominium

This lesson summarizes the responsibilities of a salesperson with a new condominium buyer. It reviews key documentation provided by a developer and the salesperson’s role when assigning an Agreement of Purchase and Sale during the pre-construction phase of development.

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Lesson 5 | Page 2 of 25

Pre-Construction and New Condominiums

Pre-construction and new condominiums are different from resale units in many ways. They are an attractive option in that they usually offer an opportunity to purchase a unit at a lower price than will be available at the time of occupancy. However, pre-construction and new-build properties come with distinct considerations that salespersons must be familiar with. Upon completion of this lesson, you will be able to: • Identify key documentation a developer must provide to a buyer of a new condominium unit • Identify the potential risks associated with purchasing a new condominium unit • Describe a salesperson’s role when assigning an Agreement of Purchase and Sale during the pre-construction phase of a condominium development • Distinguish between interim occupancy and possession Exam Study Guide

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 25

Key Documentation – New Condominium Buyer

The following screens explore the key documentation a developer must provide to a buyer of a new condominium unit. The focus is on the function and content of the disclosure statement with an overview of the APS for new condominiums. You will learn more about Agreements of Purchase and Sale for new and resale condominiums later.

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Lesson 5 | Page 4 of 25

Disclosure Statement

The disclosure statement, required by the Condominium Act and drafted by the builder, lists the rules and financial status of the corporation. It also includes information on the condominium’s features and amenities, the corporation’s governing documents (declaration, bylaws, and rules), and a budget for the first year after registration. It demonstrates that the builder has satisfied all statutory requirements and is an important part of consumer information and protection. Along with the builder’s agreement, disclosure statements are the most important documents for new condominium buyers. Disclosure statements are to new condominiums what status certificates are to resale condominiums. Exam Study Guide

Lesson 5 | Page 5 of 25

Ten-Day Cooling-Off Period

Buyers of new, pre-construction condominiums have the right to cancel the purchase within 10 days of receiving a copy of the fully signed APS or the disclosure statement, whichever comes later. This 10-day “cooling-off” period provides an opportunity for a buyer to re-consider the purchase and, if they decide to cancel the contract, receive a refund of the deposit held in trust by the builder. The cooling-off period applies only to the purchase of new condominium units, not resale condominiums or freehold homes. A buyer or their lawyer must provide written notice of the cancellation to the declarant (or their lawyer) within 10 days of receiving the disclosure statement or APS, whichever is later. A buyer also has the right to cancel a sales agreement within 10 days if there has been any “material change” or significant modification to the information contained in the disclosure statement. The Condominium Act defines material change as anything significant enough to have caused a reasonable purchaser to not enter into or to cancel an agreement. If a buyer exercises the right to cancel, the developer must refund the deposit held in trust plus any interest. Exam Study Guide

Lesson 5 | Page 6 of 25

Agreement of Purchase and Sale (APS)

The APS is a contract for the sale and purchase of a particular property. It is the document that defines the terms and conditions of the agreement to purchase. The APS for new condominiums is known as a builder’s agreement. It must be in writing and it typically contains information on parking, storage, common expenses, deposits, occupancy fees, and warranties. Although most Agreements of Purchase and Sale are generally legally binding from the moment they are signed, buyers who purchase a pre-construction condominium from a builder have the cooling-off period to reconsider. A salesperson should recommend that buyers perform a thorough and detailed review of the builder’s agreement and disclosure statement during the cooling-off period. The buyer should have a real estate lawyer review the documents. The buyer’s lawyer can determine if the agreement allows the builder to extend the occupancy date or permits negotiating a cap on the builder adjustment fees or whether assignment agreements are allowed and if so, under what terms. This review is an opportunity to carry out all necessary due diligence and negotiate items with the builder to ensure the buyer’s protection. If a buyer is an investor planning to rent a unit or owns multiple properties, they should seek the advice of a tax specialist experienced in pre-construction condominiums, who can Exam Study Guide

clarify potential tax implications of a purchase.

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Lesson 5 | Page 7 of 25

A buyer is very excited about her purchase of a pre-construction condominium unit located in the downtown core where she works. Before signing the offer on this unit, the salesperson representing her had explained her right to a 10-day cooling-off period. Question #30: Which of the following statements regarding the 10-day cooling-off period are correct? There are four options. There are multiple correct answers.

1

A buyer has the right to cancel her purchase within 10 days of receiving a copy of the fully signed APS or the disclosure statement, whichever comes later.

2

A buyer has the right to cancel her agreement to purchase within 10 days of signing the offer to purchase.

3

A buyer should have a real estate lawyer review the APS and disclosure statement within the 10-day cooling-off period.

4

If a buyer wishes to terminate the agreement within the 10-day cooling-off period, she must notify the builder verbally of the termination and have a legitimate reason for doing so.

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Lesson 5 | Page 8 of 25

A buyer is very excited about her purchase of a pre-construction condominium unit. She has just received a copy of her fully signed APS and the builder’s disclosure statement. Question #31: Which option contains the statements with the best wordings that deals with a disclosure statement and the APS? There are four options. There is only one correct answer. 1

The disclosure statement is a contract between the condominium builder and the buyer. It is the document that defines all the terms and conditions agreed to between the condominium builder and the buyer that will result in a transfer of title. The Agreement of Purchase and Sale, drafted by the builder provides important information about proposed condominium corporation and includes the corporation’s proposed first year budget, declaration, bylaws, and rules.

2

The status certificate is a contract between the condominium builder and the buyer. It is the document that defines all the terms and conditions agreed to between the condominium builder and the buyer that will result in a transfer of title. The provincial warranty addendum, drafted by the builder provides important information about proposed condominium corporation and includes the corporation’s proposed first year budget, declaration, bylaws, and rules.

3

The provincial warranty addendum is a contract between the condominium builder and the buyer. It is the document that defines all the terms and conditions agreed to between the condominium builder and the buyer that will result in a transfer of title. The status certificate, drafted by the builder provides important information about proposed condominium corporation and includes the corporation’s proposed first year budget, declaration, bylaws, and rules.

4

The Agreement of Purchase and Sale is a contract between the condominium builder and the buyer. It is the document that defines all the terms and conditions agreed to between the condominium builder and Exam Study Guide

the buyer that will result in a transfer of title. The disclosure statement, drafted by the builder provides important information about proposed condominium corporation and includes the corporation’s proposed first year budget, declaration, bylaws, and rules.

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Lesson 5 | Page 9 of 25

Risks of Purchasing a New Condominium

New unit buyers are usually committing to a property sight unseen and must make important decisions based solely on floor plans, artist renderings, and model suites. There can be deficiencies in the units as well as the common elements of a new-build condominium meaning that facilities may be incomplete or inoperable due to delays in construction. This topic outlines the risks associated with purchasing a new condominium unit.

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Lesson 5 | Page 10 of 25

Discrepancies Between Pre-Construction Plans and Actual Construction The most notable difference between new and resale condominiums is that clients can view a resale unit, whereas new units are typically purchased during the pre-construction phase. Buyers are committing to a property they can’t see or feel or experience other than in renderings or specification data. Occasionally, when the development is close to completion, buyers can view unsold units. However, most buyers make decisions based on floor plans, artist renditions and model suites. Given that these sources are not exact or that the builder may make changes during construction, there is a real potential for buyers to feel disappointed and even misled about their new residence. Specific risks can include changes in building amenities or in unit layout. More than one building could be built within the complex or adjacent to it that blocks a view. Delays in completing construction and arriving at final occupancy can create problems for buyers who are selling other properties. There may be unanticipated noise or disturbance from nearby businesses. These are potentially serious issues that are almost impossible to anticipate in pre-construction condominiums. A real estate lawyer should review the builder’s agreement to ensure there are no clauses allowing for changes to the unit, or any spaces, at the builder’s discretion. A salesperson can recommend a buyer include floor plans as a schedule to the APS to confirm layout of the unit. Make sure a buyer completes a pre-delivery inspection with the builder before taking possession of the unit. This is an opportunity to identify defects or problems, such as missing, incomplete, damaged items or items not working properly. Advise a buyer to look over the unit’s drawings and specifications to be clear about the floor measurements. Condominium units are normally measured from the exterior of outside or corridor walls and from the middle of walls that separate one unit from another. As a salesperson, you can confirm the square footage of the unit and the format of measurement used.

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Lesson 5 | Page 11 of 25

Discrepancies Between Pre-Construction Plans and Actual Construction

In addition to discrepancies in the owner’s unit, there can be deficiencies in the common elements in a newly built condominium. Aspects of the common elements may be incomplete such as unfinished floors, walls, electrical wiring, missing light fixtures, and construction waste on the floors. Some common elements such as pools, gyms, and hot tubs may not yet be operable. These amenities are often not part of a pre-delivery inspection so new owners may be surprised to learn of the deficiencies. The likelihood of unfinished common elements is greater for owners who are among the first to take occupancy. Advise a buyer that Tarion’s common elements warranty eventually can address these issues (except in common elements and vacant land condominiums). The builder has a specified time to make the repairs. If the builder does not repair or resolve all warranted items during the initial builder repair period, the corporation can request a conciliation inspection by Tarion to determine whether the items are warranted. If there are items covered by the warranty, the builder is responsible to correct them. Exam Study Guide

Lesson 5 | Page 12 of 25

Interim Occupancy

Buyers of new condominiums do not officially own their unit until the condominium is registered and the title is transferred from the builder to the buyer. Buyers often take occupancy before the corporation is registered. The period between occupancy and ownership is known as interim occupancy. During the interim occupancy period, the unit buyer pays occupancy fees which may include interest on the unpaid balance of the purchase price, a projected common expense contribution, and an estimate of the municipal taxes for the unit. These payments are similar to paying rent – they do not go toward retiring a mortgage. The interim occupancy period ends when the condominium is registered with the Land Registry Office and a buyer receives the title to the property. The balance of the purchase price and any adjustments must be paid to the builder before a buyer takes ownership of the unit. At that point, the mortgage is registered against the unit, the builder receives compensation, and a buyer begins making mortgage payments. Possession marks the start of the Tarion-sponsored warranty coverage. During the interim occupancy period, the builder is usually still completing construction and coordinating the move-in process for the new owners. Buyers who move into a condominium project early are likely to be living in a partial construction zone. There may be further work required within the unit and, more likely, the common elements will not be completed or operable in the initial period of occupancy. Residents will have to endure the noise, dust and other annoyances associated with building construction. Exam Study Guide

Lesson 5 | Page 13 of 25

Phased or Delayed Construction Deadlines on New Developments

Delays in completing construction and arriving at final occupancy can create more direct problems for buyers. Some financial institutions will not provide a mortgage on an unregistered condominium. Mortgage funds are only advanced once the builder registers or transfers title. A delay in closing the purchase may expose owners to higher mortgage rates which make the property more expensive to own than originally anticipated. In the case of phased condominiums, the project is developed in stages. The developer can build and sell the first phase and reserve the right to build further phases at a later time. The phased condominium provides flexibility for builders, but early buyers will likely have to live through subsequent stages of development. The Condominium Act includes rules for the procedure and time limits that apply to the development of a phased condominium. It requires that the builder provide the buyers specific information on the planned stages including details of future phases, when they are expected to be built, and the locations of buildings. Exam Study Guide

Lesson 5 | Page 14 of 25

A buyer purchased a pre-construction condominium unit four years ago. He has just received a written notification that his unit is now ready for occupancy. The common elements still require finishing and, as a result, the condominium is likely several months away from being registered. Question #32: Which of the following statements is correct with respect to interim occupancy? There are four options. There is only one correct answer. 1

The buyer’s unit will be transferred to him once the period for interim occupancy starts and he moves in.

2

While interim occupancy can take place prior to the condominium corporation being registered, it cannot take place until all the units and common elements in the condominium have been fully completed.

3

During the interim occupancy period, a builder can charge the buyer a monthly occupancy fee based on three amounts including the estimate for how much the unit could rent for.

4

During the interim occupancy period, a builder can charge the buyer a monthly occupancy fee based on three amounts including the interest calculated on a monthly basis on the unpaid balance of the purchase price of the unit.

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Lesson 5 | Page 15 of 25

A buyer is interested in buying into a standard freehold residential condominium. He is not sure whether he wants to buy a resale unit in a building that is registered or whether buying a unit in the pre-construction phase would be better. He does have some real concerns about buying from a plan. Question #33: Assuming the buyer purchases a pre-construction condominium unit, which of the following statements are correct with respect to that purchase? There are four options. There are multiple correct answers.

1

Once a disclosure statement is provided to the buyer, the builder of a pre-construction condominium cannot make changes to the features, construction or proposed declaration and bylaws.

2

The buyer is entitled to terminate the agreement of purchase and sale if the builder is not able to complete the construction of the condominium unit by the outside occupancy date.

3

The buyer will have an opportunity to complete a pre-delivery inspection prior to taking possession of the unit he has purchased.

4

If the buyer occupancy is set for six months prior to the completion of the construction and registration of the condominium, the buyer will be forced to live in the condominium while construction is going on to complete the common elements and other units.

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Lesson 5 | Page 16 of 25

A buyer is interested in buying into a standard freehold residential condominium. He is not sure whether he wants to buy a resale unit in a building that is registered or whether buying a unit in the pre-construction phase would be better. He does have some real concerns about buying from a plan. Question #34: Assuming the buyer purchases a pre-construction condominium unit, which of the following statements are correct with respect to that purchase? There are four options. There are multiple correct answers. 1

During an interim occupancy period, the buyer would have to pay an occupancy fee that would include, amongst other things, the estimated cost of the unit’s municipal taxes and the projected monthly common expenses for that unit.

2

Financial institutions will only advance mortgage funds to a buyer once the corporation has been registered and ownership of the unit has been transferred to the buyer.

3

The provincial warranty pre-delivery inspection of the buyer’s unit and the common elements takes place at or just before he is given occupancy of his unit. The warranty for the unit and common elements starts from the date of occupancy.

4

Any payments that are made by the buyer with respect to interim occupancy fees are held in trust by the builder and on registration of the condominium corporation go towards reducing the amount of mortgage required by the buyer.

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Lesson 5 | Page 17 of 25

Assignment

The following screens outline the process to assign an APS for a new condominium during the pre-construction phase. An assignment agreement transfers and assigns one person’s benefits or rights over property to another. Its purpose is to hand over contractual rights and responsibilities of the original contract, while protecting the legal rights and obligations of both the seller and buyer.

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Lesson 5 | Page 18 of 25

Condominium Assignment Agreements

Condominium assignment agreements occur when the original buyer, the assignor, sells their contract or APS for a unit to a new buyer, the assignee. The timing of the registration has a direct impact on assignments. The ownership of a unit cannot pass to a buyer until the condominium is registered and the title is transferred. Delays in registering a condominium can impact both the assignor and assignee. Most Agreements of Purchase and Sale for resale condominiums do not prohibit assignment which means the agreement may be assigned without the seller’s consent. If there is no prohibition, a buyer has the right to assign the contract. In pre-construction builder contracts, the builder usually prohibits assignment. As part of the salesperson’s due diligence, you should confirm whether the builder permits assignments and, if requested by the buyer, add an assignment condition to the agreement. Similarly, a salesperson should understand all requirements, restrictions, and limitations, including format and timing of the request to assign, fees payable, and advertising restrictions that affect marketing of the unit. Consequences for ignoring builder requirements, restrictions, and limitations may be severe.

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Lesson 5 | Page 19 of 25

Risks of Assigning an Agreement

There are risks associated with assignment agreements for pre-construction condominiums. For instance, the person taking over the contract (the assignee) may not qualify for financing or they may not be eligible for the Harmonized Sales Tax rebate from the builder. Harmonized Sales Tax is included in the pre-construction condominium purchase price. First-time buyers of new condominiums receive a rebate for the purchase of a pre-construction unit, but only if they are eligible and their intention is to live in the new unit upon closing. If the assignee is unable to close the property, the assignor may be subject to loss of deposit or builder fees. They may also be required to pay the HST rebate to the builder. It is always best to advise buyers to seek expert guidance from a real estate lawyer and a tax professional if they are considering assignment.

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Lesson 5 | Page 20 of 25

Tax Implications

A salesperson has the responsibility of informing buyers of the potential tax implications from assigning an APS. Investors, and those involved in multiple condominium assignments, may face additional HST expenses at closing, whether they are assignees or assignors. The Canada Revenue Agency (CRA) may require the assignor to repay the HST obtained when they closed the assignment agreement. Condominium buyers may owe capital gains tax if the unit is sold before closing and the CRA considers it an investment property. When the purchase closes, the Provincial Land Transfer Tax must be paid. If the unit is located in Toronto, the Municipal Land Transfer Tax must also be paid. With a pre-construction assignment agreement, the assignee usually pays the applicable Land Transfer Tax.

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Lesson 5 | Page 21 of 25

Salesperson’s Role in Assignment

A salesperson’s role during the assignment process is to assist clients to complete the assignment. Assignment agreements are legally binding contracts that can be complex to navigate. A salesperson should be knowledgeable about assignments and, if not, consider working alongside an experienced colleague. There are potential risks for all parties. It’s important to review the original builder’s agreement with the assignor. Confirm permission to assign, any associated assignment fees and review the builder development closing fees, such as levies, utility connection fees, and legal fees. Ensure the assignor is aware of all the extra charges that may arise at closing, and that the assignment agreement clearly outlines who is responsible for paying the builder adjustment and any assignment or closing fees. After an assignment agreement for a pre-construction condominium is completed, the builder will communicate exclusively with the assignee and the assignee’s lawyer. The assignor may not know when the condominium closes. To protect your assignor client, you may include a clause in the assignment agreement ensuring that the assignand the assignee’s lawyer remain in communication with the assignor and the assignor’s lawyer regarding the final closing date. Exam Study Guide

It’s critical to understand the assignment process, its impact on a trade and how to complete the applicable documents. Failing to do so can create risks for sellers, buyers, and salespersons. Errors can result in tax liabilities, unforeseen payments and fees, loss of deposits, and more. There is also the risk that the assignee does not complete the agreement. In these cases, the owner may face claims by the builder.

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Lesson 5 | Page 22 of 25

Assignment Agreement Form A standard form for an assignment agreement should include several items. The following six sections contain information about the contents of an assignment agreement form.

Total assignment purchase price

Original purchase price plus the profit or assignment agreement fee (assuming that the market has gone up)

Deposit paid by assignee

Deposit payable by the assignee for the assignment agreement

Original purchase price

Original price paid for the unit by the assignor

Deposits paid by

Builder’s agreement Schedule C deposits paid by the assignor

assignor Payments

Payments Assignee Pays Assignor – deposits paid by assignor plus the assignment agreement fee/profit Assignee Payment for Assignment Agreement – separate from the deposits paid by the assignor to the builder as part of the original APS

Balance of payment

Deposits paid by the assignor minus the deposit paid for the assignment agreement

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Lesson 5 | Page 23 of 25

Helping Find the Right Property New condominiums present special challenges for a salesperson. The best way to serve a buyer interested in buying a new condominium is to understand the conditions that are unique to purchasing a new or pre-construction condominium and to make a buyer aware of them. Start a dialogue that will highlight a buyer’s lifestyle choices. Then consider how the buyer’s priorities relate to condominium rules and restrictions. These conversations will help you search for properties that meet the buyer’s criteria, not just in terms of layout or features, but compatibility with their lifestyle priorities. Consider the following: • Review building features and understand the development, its target market, and the surrounding neighbourhood • Assess transportation options and businesses that may enhance or diminish the enjoyment or the value of a property • Stay abreast of future plans for the neighbourhood via the municipal planning office • Research the builder online through Tarion’s Ontario Builder Directory and other sources Advise buyers to seek the advice of a real estate lawyer experienced in pre-construction or new condominiums and a tax specialist if the purchase is an investment.

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Lesson 5 | Page 24 of 25

Three years ago, a buyer bought a pre-construction condominium unit. The condominium is still several months away from registration. He has now been offered a teaching position in England. The buyer has decided that he would like to sell the unit now and use the money from the sale to pay for his costs in relocating and purchasing a property in England. He has contacted a salesperson who works for a local brokerage that has sold a lot of new condominium units in the area. The salesperson talked to him on the phone about the possibility of a condominium assignment agreement. Question #35: Based on the given scenario, which one of the following statements regarding an assignment is correct? There are four options. There is only one correct answer.

1

An assignment agreement allows for the buyer to be able to sell his unit and transfer title to the buyer prior to the condominium being registered.

2

In a typical assignment agreement, an assignee would pay to the buyer the amount of the deposits the buyer had paid to the builder as well as any profit or fee contained in the purchase price for the assignment agreement.

3

The Condominium Act provides that all buyers and assignees are eligible for HST rebates from the builder.

4

The Provincial Land Transfer tax does not apply to the purchase of a new condominium unit where the contract for the sale of that unit has been assigned to another person prior to registration.

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Lesson 5 | Page 25 of 25

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were covered in this lesson.

Key documents provided by the developer

The disclosure statement includes information on the condominium’s features and amenities, the corporation’s governing documents (declaration, bylaws and rules), and a budget for the first year after registration. The APS is a contract between the condominium builder and a buyer for the sale and purchase of a particular property, and for new condominiums typically includes information on parking, storage, common expenses, deposits, occupancy fees, and warranties.

Potential risks for buyers of new condominium units

New unit buyers make important decisions based solely on floor plans, artist renderings, and model suites. There can be discrepancies between preconstruction plans and the actual construction. In addition, facilities may be incomplete or inoperable due to delays in the construction phase.

Assigning an APS during pre- It is not unusual for pre-construction condominium builder contracts to prohibit assignments. If assignment is not prohibited, a buyer has the right to assign the construction contract. It is part of the salesperson’s due diligence to confirm that the builder permits assignments.

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Lesson 6 | Page 1 of 9

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 9

Summary Practice Activities

This lesson provides summary practice activities. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented. Scenario Jason Sewell, a salesperson with the broker age XYZ Realty Ltd., has been contacted by Melanie, a middle-aged senior manager in the food industry interested in purchasing a condominium. Melanie explains she is not experienced in real estate and will need Jason’s assistance in making the right decisions. Melanie is hoping to live in the near suburbs, close to transit and shopping. She likes the idea of having access to shared amenities and grounds included in the property. Owning a condominium appeals to her because of its potential to grow equity, its enhanced security, and its maintenance-free lifestyle which will give her time to pursue her hobbies of hiking and Exam Study Guide

nature photography.

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Lesson 6 | Page 3 of 9

At his first meeting with Melanie, Jason learns about her lifestyle priorities and why she wants to buy a condominium. Question #36: What’s the most appropriate type of condominium for Jason to recommend to Melanie? There are three options. There is only one correct answer.

1

Freehold – common element

2

Freehold – standard

3

Leasehold

Exam Study Guide

Lesson 6 | Page 4 of 9

Melanie is aware of the advantages of condominium life. She is especially attracted to its maintenance-free lifestyle, enhanced security, and access to amenities in a condominium property. Jason feels he needs to provide her with a more balanced view to ensure condominium living is the right choice for her. Question #37: Which limitations associated with condominium living should Jason raise and why are they important?

Exam Study Guide

Lesson 6 | Page 5 of 9

Condominium Documents Jason works with Melanie to find a suitable pre-construction property. After paying the deposit, Melanie receives the condominium documents, which contain the following information: 1. Description: • Survey showing boundaries of the property • Diagrams showing shape and dimensions of each unit • Definitions of common elements and exclusive use common elements The description is one of the documents that legally creates a new condominium corporation (along with the declaration). The builder prepares these documents and files them in the Land Registry Office as part of the process of registering the condominium. 2. Declaration: • Street and mailing addresses of the condominium • Amount each unit pays towards common expenses • Description of which parts of the property will be exclusive use common elements The declaration is one of the documents that legally creates a new condominium corporation (along with the description). The builder prepares these documents and files them in the Land Registry Office as part of the process of registering the condominium. 3. Bylaws: • How directors are elected • How common expenses are assessed • When and how the condominium can borrow money Bylaws outline how the condominium corporation governs itself. Bylaws must be consistent with the Condominium Act and registered in the Land Registry Office. Exam Study Guide

4. Rules: • Define how visitors can use the common elements • May limit owners from using their units as short-term rentals • May prohibit pets or limit the number or size of pets allowed in the condominium Buyers should be aware of the rules of a property they are considering because they can directly impact their personal use and enjoyment of the property

Exam Study Guide

Lesson 6 | Page 6 of 9

The documents for a pre-construction condominium provided by the builder indicate that the property includes a few retail spaces at street level. Question #38: Which of the following can be consulted to get information on the retail spaces? There are four options. There is only one correct answer.

1

Status certificate

2

Disclosure statement

3

Shared facilities agreement

4

Public registry

Exam Study Guide

Lesson 6 | Page 7 of 9

The condominium documents refer to the interim occupancy period. Question #39: Which of the following statements about interim occupancy is correct? There are four options. There are multiple correct answers.

1

Interim occupancy refers to tenants temporarily renting a condominium unit from its owner.

2

Interim occupancy is the period between when a buyer places a deposit on and takes possession of a new condominium unit.

3

Interim occupancy begins when a buyer takes occupancy of a new condominium unit and ends when they receive title to it.

4

During the Interim occupancy period, the builder can charge fees to buyers which may include interest on the purchase price balance, condominium fees, and property taxes.

Exam Study Guide

Lesson 6 | Page 8 of 9

As construction on Melanie’s condominium nears completion, she is offered a senior position within her company which requires her moving to another city. She considers leasing the unit, but decides she will need the funds for her new life, and turns to Jason for information on assignment agreements. Condominium assignment agreements occur when the original buyer sells their contract to purchase a condominium unit to a new buyer. Question #40: Which of the following statements on assigning the purchase contract for a new condominium are correct? There are five options. There are multiple correct answers.

1

Delays in registering a condominium can have an impact on assigning the contract to purchase

2

Pre-construction condominium contracts usually prohibit assignment without builder’s consent

3

If assignment is not restricted by the builder in the condominium documents, a buyer has the right to assign the contract

4

Buyers may receive an HST rebate

5

If the new buyer fails to close the purchase, there are no consequences for the original buyer

Exam Study Guide

Lesson 6 | Page 9 of 9

Congratulations, you have completed the lesson!

Exam Study Guide

Module Summary | Page 1 of 3

Module Summary

This lesson contains a summary of the entire module.

Exam Study Guide

Module Summary | Page 2 of 3

Congratulations, you have completed this module!

This lesson will present a summary of learning objectives.

Exam Study Guide

Module Summary | Page 3 of 3

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

Introduction to Condominiums

This lesson defined key terms related to condominiums and described the different structures and types of condominium ownership. Completion of this lesson has enabled you to: • Define key terms and definitions for condominiums • Describe the components of a condominium structure and the various styles of a residential condominium • Describe the types of condominium corporations

The Condominium Lifestyle and Niche Markets

Condominium living can offer owners many benefits including relative affordability, central locations, recreational facilities, shorter commute times, strong demand for rental units, and equity appreciation. However, condominium living can also mean living in close proximity to others, paying for seldom-used amenities, and not having individual control over the expenditures and renovations. Completion of this lesson has enabled you to: • Identify the appeal of condominium living • Identify the limitations and potential difficulties associated with condominium living • Identify niche markets for condominium ownership and the appeal of each

Condominium Legal Requirements and Governance

A variety of legislation including the Condominium Act, the Protecting Condominium Owners Act, and the Ontario New Home Warranties Plan Act shape the creation and governance of condominiums in Ontario. Completion of this lesson has enabled you to: • Identify key considerations of the Condominium Act in regulating a condominium corporation • Describe the responsibilities and scope of authority of the board of Exam Study Guide

directors • Describe how condominium bylaws and rules are established • Describe the responsibilities, scope of authority, and statutory requirements of a condominium manager

Legislation and Regulations for New Condominiums

The Planning Act and the Building Code Act both have significant impact on newbuild condominiums. This lesson focuses on how the legislation impacts the activities of a salesperson for pre-construction and new-build condominiums. Completion of this lesson has enabled you to: • Identify key considerations of the Planning Act in the context of selling new condominiums • Describe the condominium registration process • Identify the impact of construction requirements on the sale of a new condominium

Key Considerations When Selling a New Condominium

Pre-construction and new condominiums can be an attractive option for buyers but there are several considerations salespersons must be familiar with. Completion of this lesson has enabled you to: • Identify key documentation a developer must provide to a buyer of a new condominium unit • Identify the potential risks associated with purchasing a new condominium unit • Describe a salesperson’s role when assigning an APS during the preconstruction phase of a condominium development

Exam Study Guide

Appendix | Page 1 of 2

Appendix Answer Key Question #1: 2 Question #2: 1, 4 Question #3: 3 Question #4: 2, 4, 5 Question #5: 3, 4, 5 Question #6: 1, 4 Question #7: 2 Question #8: 3, 4 Question #9: 1, 2 Question #10: 2, 3 Question #11: 3 Question #12: 2, 4 Question #13: 1, 2, 3 Question #14: 1, 4 Question #15: 1, 4 Question #16: 1, 4 Question #17: 1, 3 Question #18: 3 Question #19: 1 Question #20: 1 Question #21: 2, 4 Question #22: 2, 3 Question #23: 1 Exam Study Guide

Appendix | Page 2 of 2 Question #24: 2, 4 Question #25: 2 Question #26: 1, 4 Question #27: 3, 4, 5 Question #28: 2 Question #29: 2, 5 Question #30: 1, 3 Question #31: 4 Question #32: 4 Question #33: 2, 3 Question #34: 1, 2 Question #35: 2 Question #36: 2 Question #37: Condominium rules and bylaws may restrict the owner’s use and enjoyment of their property especially if they want to make alterations within their unit or to exclusive use common elements. It is always advisable to have a lawyer review the condominium documents. Common elements fees must be paid by owners regardless of whether they use the amenities or not. An incompetent or disharmonious management or board of directors may result in situations in which owners disagree with one another, with the condominium management, or with members of the board of directors. If a corporation’s reserve fund is not enough to cover unexpected expenses, condominium owners are liable for the costs of lump-sum special assessments determined by the board which can mean an unexpected increase in living costs. Question #38: 3 Question #39: 3, 4 Question #40: 1, 2, 3, 4

Exam Study Guide

Module: Transactions Involving Residential Multi-Unit Dwellings This is a study guide to help you prepare for the qualifying exam. There are multiple study guides that are provided for preparation. Each study guide contains several decision points to test your knowledge. The answer key to these decision points is present in the “Appendix” section at the end of the guide. Please use Adobe Acrobat Reader (Recommended version 9 or above) to navigate through this PDF. Real Estate Pre-Registration 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 PreRegistration Program learner.

Exam Study Guide

Module: Transactions Involving Residential Multi-Unit Dwellings

This module reviews the differences between residential multi-unit dwellings and residential single-family dwellings, including considerations when buying or selling these property types. You will learn about the key features of multiunit dwellings and accessory dwelling units and the applicable regulations and requirements for a legal multi-unit. To better identify if units are compliant, you will be introduced to the parts of the Ontario Building Code, Ontario Fire Code, and zoning that apply specifically to multi-unit dwellings. As a salesperson, it is important for you to understand these regulations and your obligations for disclosure, as a unit that is non-compliant can become a serious problem in the sales transaction. You will review how to prepare a multi-unit dwelling for sale and considerations for showing the property to potential buyers including how to support the seller or buyer in dealings with tenants. Finally, you will learn how to complete an agreement of purchase and sale including using clauses relevant and specific to multi-unit dwellings that protect the interests of the seller or buyer.

Exam Study Guide

Menu: Transactions Involving Residential Multi-Unit Dwellings Number of Lessons Lesson Number

9 Lessons Lesson Name

Lesson 1

An Introduction to Multi-Unit Dwellings

Lesson 2

Special Considerations for a Property Containing a Multi-Unit Dwelling

Lesson 3

Requirements for Due Diligence and Disclosure

Lesson 4

Develop a Working Relationship with Tenants

Lesson 5

Key Factors to Consider When Estimating the Value of a Multi-Unit Residential Property

Lesson 6

Considerations When Showing a Tenanted Multi-Unit Property and Providing Advice on Properties of Interest

Lesson 7

Considerations for an Offer When Selling a Tenanted Property

Lesson 8

Summary Practice Module Summary Appendix

Exam Study Guide

Lesson 1 | Page 1 of 11

Lesson 1: An Introduction to Multi-Unit Dwellings

This lesson focuses on the differences between a single-family dwelling and a multi-unit dwelling, as well as key features, standard terms, and zoning and safety requirements related to multi-unit dwellings.

Exam Study Guide

Lesson 1 | Page 2 of 11

An Introduction to Multi-Unit Dwellings You may find yourself working with sellers or buyers of single-family or multi-unit residential properties. What differentiates these properties is the concept of a “dwelling unit”: a self-contained housing unit with one or more habitable rooms containing at minimum a kitchen, bathroom facilities, a sleeping area, and entrance/exit from the building (self-contained living space). Single-family dwellings have one self-contained dwelling unit or living space, while multi-unit dwellings have more than one. Single-family residential properties can include varied structures such as bungalows, two-storey, and split-level homes and purpose-built multi-unit structures such as duplexes, triplexes, and fourplexes.

Exam Study Guide

To market a property as a multi-unit dwelling, the property must meet Ontario Building Code requirements. If the property is not compliant, the unit may not be a legal multi-unit and cannot be marketed or sold as a multi-unit. As a salesperson, you must recognize the requirements for a multi-unit and exercise enhanced due diligence when trading in multi-unit dwellings. Upon completion of this lesson, you will be able to: • Identify the differences between a single-family dwelling and a multi-unit dwelling • Identify key requirements of a multi-unit dwelling Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

Exam Study Guide

Lesson 1 | Page 3 of 11

Common Terms Used to Describe a Multi-Unit Dwelling

Multi-unit dwellings come in various forms. Some of the most common descriptions used for these dwellings are: • Self-contained unit – housing unit with a private kitchen, bathroom facilities, and sleeping area and exit from the building. If a house has another self-contained unit, then it has two residential units. A basement apartment in a single-family dwelling is an example. Exam Study Guide

• Multi-family or multiple unit – broadly described as a housing unit with two or more self-contained units (i.e., generally equivalent to a single-family home). A duplex or triplex are examples of multi-family unit dwellings. • Secondary or accessory dwelling units – self-contained structures that have been added for one purpose such as a single-family dwelling. The additional structure may be part of the original structure or part of the property (e.g., above a laneway garage). These are also known as garden suites and granny suites. A secondary or accessory dwelling unit is part of a single-family residence. A self-contained unit is a general term, which does not only apply to single-family residences.

Exam Study Guide

Lesson 1 | Page 4 of 11

Requirements to Classify a Living Space as a Residential Dwelling Unit To be classified as a residential dwelling unit, a living space must meet the following requirements: • Consist of a self-contained set of rooms in a building or structure • Be used (or intended for use) as a residential premises, and contain kitchen and bathroom facilities and sleeping area that are for the use of that unit • Have a separate exit and entrance to the outside of the building A single-family detached dwelling may be described as a building comprised of one dwelling unit, while multi-unit dwellings are comprised of more than one dwelling unit. This description applies to residential zoning bylaws, which treat single and multi-unit dwelling types differently. You will review municipal requirements for multi-units, including how municipalities address accessory dwelling units in their bylaws, later in this module.

Exam Study Guide

Lesson 1 | Page 5 of 11

The province of Ontario has outlined what a residential dwelling unit must have in order to be considered a unit. Question #1: What are the requirements for a residential unit? There are five options. There are multiple correct answers.

1

Ingress and egress can be through an adjoining unit

2

Consist of a self-contained set of rooms in a building or structure

3

Must be used (or intended for use) as residential premises, and contain kitchen and bathroom facilities that are for the use of that unit

4

May have a shared kitchen and bathroom

5

Must have separate means of ingress to the unit and of egress to the outside of the building

Exam Study Guide

Lesson 1 | Page 6 of 11

Types of Properties Considered as Multi-Unit Dwellings A structure that has more than one living space is considered a multi-unit dwelling. The following four sections contain information about the different types of multi-unit dwellings.

Detached/semidetached/row house

A structure built for one purpose as a one dwelling unit on a single lot that has been subdivided with a secondary or accessory dwelling unit included on the property, such as a basement apartment.

Duplex

A building that is divided horizontally or vertically into two attached dwelling units on a single lot, each of which has a private entrance or is accessible directly from a common vestibule.

Triplex

A building that is divided either horizontally and/or vertically into three separate dwelling units on a single lot, each having a separate entrance or accessible through a common vestibule.

Fourplex

A building that is divided either horizontally and/or vertically into four separate dwelling units on a single lot, each having a separate entrance or accessible through a common vestibule.

Exam Study Guide

Lesson 1 | Page 7 of 11

Multi-unit dwellings come in various forms. It is important to know the terms associated with them. Question #2: Which of the following statements are correct? There are five options. There are multiple correct answers.

1

Self-contained units come with a private kitchen, bathroom facilities, and sleeping areas.

2

A dwelling unit is a housing unit that has one or more habitable rooms as self-contained living quarters.

3

Accessory dwelling units are self-contained residential units within dwellings or within structures additional to a dwelling.

4

Detached unit is a building comprised of one dwelling unit. This unit cannot be subdivided with a secondary or accessory dwelling unit included on the property.

5

Triplex is a building that is divided either horizontally and/or vertically into three separate dwelling units, each having a separate entrance or accessible through a common vestibule.

Exam Study Guide

Lesson 1 | Page 8 of 11

Additional Requirements for Multi-Unit Dwellings Zoning bylaws are specific to each municipality and set out permitted land uses, building structures, and other regulations. The bylaws typically divide a municipality into classifications of general uses, e.g. residential, commercial, agricultural, industrial, institutional, and open space. The classifications are further divided into classes or zones. Multi-unit residential is a specific class of dwelling addressed in the residential classification in the zoning bylaw. For a multi-unit dwelling to be legal, it must be on land that has been zoned for multi-unit dwellings and meet all other zoning requirements. As a salesperson, you would ensure the multi-unit is in zoning for multi-units by checking with the planning department of the local municipality.

Exam Study Guide

Lesson 1 | Page 9 of 11

Additional Requirements for Multi-Unit Dwellings In addition to meeting the zoning requirements, multi-units must comply with requirements for building safety and fire protection. Some of the requirements specific to multi-unit dwellings are as follows: • There must be a dedicated means of ingress and egress to each unit. • Each unit must be equipped with an operable smoke alarm, carbon monoxide detector, and fire extinguisher. • There must be fire separation between units. Fire separation is a fire prevention method using fire resistant walls, floors, and doors to protect buildings so fire does not spread into adjoining areas for a designated period of time. • Basement units must meet minimum window size. The windows must allow light and be able to be used as an emergency exit if no other means of egress is present. • Bedrooms must have a regulation sized window, which is specified in the Ontario Building Code. • The unit must be registered with the municipality. This requirement only applies to accessory dwelling units. Because of the added risk in multi-unit dwellings compared with single-unit dwellings, municipalities define additional regulations that will limit the exposure of occupants to fire hazards through the installation of fire detection systems and the use of building designs and fire resistant materials that limit or delay the spread of fire so that occupants can escape. These regulations encompass the Ontario Building Code, Ontario Fire Code, and Electrical Safety Code. Compliance involves building permits, inspections and approval of installations and work for each requirement by the authorized inspectors for the municipality. As a salesperson for the seller or buyer, you would seek copies of the approvals to ensure the multi-unit dwelling is compliant. You will review details on the building and safety requirements in the next lesson.

Exam Study Guide

Lesson 1 | Page 10 of 11

A multi-unit dwelling must adhere to building and fire codes, as well as meet municipal guidelines. Question #3: Identify the basic adherences needed for multi-unit dwellings. There are six options. There are multiple correct answers.

1

Adheres to a minimum size of windows for basement dwellings.

2

There must be fire separation between units that delay the spread of fire so that occupants can escape.

3

A permitted means of ingress and egress to each unit.

4

The unit is registered with the province.

5

Each unit is equipped with an operable smoke alarm and carbon monoxide detector as per the Ontario Fire Code.

6

May have a single point for both entry and exit.

Exam Study Guide

Lesson 1 | Page 11 of 11

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were covered in this lesson.

Differences between a single-family dwelling and a multi-unit dwelling

A dwelling unit is a self-contained living space with one or more habitable rooms containing at minimum a kitchen, bathroom facilities, a sleeping area, and entrance/exit from the building. Single-family dwellings have one self-contained dwelling unit or living space, while multi-unit dwellings have more than one.

Common terms for multi-unit dwellings

Some common terms for multi units are: • Self-contained dwelling unit • Multi-family or multiple unit dwelling • Secondary units or accessory dwelling units (ADU) • Detached, semi-detached, row houses with a secondary unit or accessory dwelling unit, duplex, triplex, fourplex

Key requirements of a To be a legal multi-unit: multi-unit dwelling • The zoning must permit multi-units. • The multi-unit must comply with all requirements under the Ontario Building Code and Fire Code.

Exam Study Guide

Lesson 2 | Page 1 of 43

Lesson 2: Special Considerations for a Property Containing a Multi-Unit Dwelling

This lesson focuses on the requirements for a legal multi-unit dwelling. You will review zoning, as well as amendments made to the Planning Act that impact accessory dwelling units. The applicable Ontario Building Code and Fire Code requirements will be outlined. Lastly, other considerations are reviewed, such as insurance, financing, and the tax implications for multi-unit dwellings.

Exam Study Guide

Lesson 2 | Page 2 of 43

Special Considerations for a Property Containing a Multi-Unit Dwelling There are a number of special considerations for multi-unit dwellings, specifically the Building Code, Fire Code, and zoning. As a salesperson, you must be able to identify the key requirements needed for a unit to comply with these codes and conform to all municipal requirements. Upon completion of this lesson, you will be able to: • Identify zoning requirements for multi-unit dwellings • Identify key Building Code requirements for multi-unit dwellings • Identify key Fire Code requirements for multi-unit dwellings • Identify considerations related to an accessory dwelling unit within an existing structure and purpose-built multi-unit structures Throughout this lesson, you will participate in interactive activities and decision points to test your knowledge on the topics presented. Exam Study Guide

Lesson 2 | Page 3 of 43

Zoning Requirements

Zoning at the local municipal level controls primary land use to ensure development is orderly and compatible with specific areas (zones). Zoning is key to most property negotiations as the scope of uses typically translates directly into property value. In this first topic we will review how zoning impacts multi-unit dwellings. This discussion will include the amendments made to the Planning Act to allow for affordable housing through accessory dwelling units.

Exam Study Guide

Lesson 2 | Page 4 of 43

Affordable Housing Through the Development of Accessory Dwelling Units

The Planning Act provides the statutory framework for land development. Based on the act, municipalities develop the regulations specific to local land development. Both municipal and provincial governments have been working to address the growing need for affordable housing in Ontario. The introduction of The Strong Communities through Affordable Housing Act, 2011, or Bill 140, facilitated a change in traditional zoning requirements to allow for an accessory or secondary dwelling unit on one property where it might otherwise have been prohibited. This zoning will help multi-generational families living under one roof and buyers looking to make the housing more affordable for themselves.

Exam Study Guide

The amendment to the act has resulted in an increased number of configurations of secondary or accessory dwelling units now becoming more common, such as garden suites, granny suites, and basement apartments. Even though Bill 140 facilitates the zoning, adhering to the Ontario Building Code and the Ontario Fire Code is also required. Unless an accessory dwelling unit meets all requirements and is registered, you may not market the property as having two legal dwelling units. Without registration the property is considered a single dwelling unit. If you discover a property has a non-legal dwelling unit, you must disclose this fact to a potential buyer.

Exam Study Guide

Lesson 2 | Page 5 of 43

The introduction of The Strong Communities through Affordable Housing Act, 2011 (Bill 140) is facilitating traditional zoning to allow for an accessory dwelling unit on one property. Question #4: Which of the following statements are true regarding Bill 140? There are four options. There are multiple correct answers.

1

Bill 140 will help multi-generational families living under one roof.

2

Bill 140 enables an accessory dwelling to be created without having to adhere to the Ontario Building Code.

3

Bill 140 will help buyers looking to make a house more affordable for themselves.

4

Under Bill 140, an accessory dwelling unit does not have to be registered in order to be sold as a multiunit property.

Exam Study Guide

Lesson 2 | Page 6 of 43

Municipal Zoning Bylaws

Zoning bylaws are the guidelines that municipalities use to control the use of land. Each municipality has its own bylaws, and as a salesperson you must become familiar with the bylaws that govern the areas where you are trading. Bylaws can change based on changes to government legislation or municipal requirements. Bill 140 is an example of government legislation that facilitated changes to municipal zoning to allow the development of accessory dwelling units single dwelling structures such as single detached, semi-detached, and row house dwellings. Municipalities can also make zoning changes that may affect whether a property is a legal multi-unit dwelling. As a salesperson you need to keep up to date with any changes to the bylaws in your trading area so you can correctly assess compliance for a multi-unit dwelling. Exam Study Guide

Lesson 2 | Page 7 of 43

Zoning Provisions for Accessory Dwelling Units

The Planning Act specifies that official plan policies and zoning bylaws should permit: • Accessory dwelling units in detached, semi-detached, and row houses if an ancillary building or structure does not contain an accessory dwelling unit • Accessory dwelling units in a building or structure ancillary to these housing types provided the primary dwelling does not contain an accessory dwelling unit However, no regulations accompanied this legislation and the municipalities are permitted to establish accessory dwelling unit regulations based on local conditions. Every municipality has their own bylaws surrounding accessory dwelling units that reflect their specific situation. If, for example, a municipality has limited housing types such as only single detached dwellings, accessory dwelling units would only be authorized for that housing type. Exam Study Guide

Lesson 2 | Page 8 of 43

Municipal Zoning for Multi-Unit Dwellings

The municipal zoning bylaws address where multi-unit dwellings may be situated, the lot sizes and dimensions, where buildings and other structures on the land can be located, the types of buildings, the building heights and setbacks from the street, and the amount of parking required. Zoning bylaws also regulate the construction and safety of the building and its occupants through the application of the Ontario Building Code, Fire Code, and Electrical Safety code.

Exam Study Guide

In addition, Bill 140 allowed accessory dwelling units that may not have been permitted under traditional zoning. It is important to remember that zoning regulations for fire safety and building construction also applies to these units and compliance is also mandatory. Many municipalities have different zoning requirements such as a minimum size required for their units. It is therefore critically important to keep up to date on zoning and compliance issues to ensure you are providing the proper guidance to sellers and buyers.

Exam Study Guide

Lesson 2 | Page 9 of 43

Zoning Requirements for Multi-Unit Dwellings

An area zoned for multi-unit dwellings may have more restrictive zoning requirements as the number of units in a dwelling increases. As density increases, the provision for facilities or services is also included in the zoning. Municipalities might classify both lot sizes and the density permitted for a multi-unit zoned area. The lot size classifications relate to minimum lot frontage, depth, and area. Density classifications relate to the number of units permitted in a given area. The more units on a single lot, the higher the density. Not every municipality will have the same classifications, but they will have various density allocations. As a salesperson, you will use due diligence when working with investment buyers looking to purchase a property they want to subdivide into additional units. To exercise care in a transaction of this nature, you need to find the necessary information through the municipality’s online portal (if available) or by calling the planning department. Exam Study Guide

Lesson 2 | Page 10 of 43

While Bill 140 amends traditional zoning, it is important to know that zoning is still important in detached units. Question #5: What are some of the zoning considerations a salesperson must keep in mind? There are four options. There are multiple correct answers.

1

Coverage or unit size

2

How many occupants can live in a building

3

Enough parking for the new secondary units

4

Density permitted for the multi-family zoned area

Exam Study Guide

Lesson 2 | Page 11 of 43

Zoning Compliance for a Permitted Dwelling Unit

To be permitted as a dwelling unit, all zoning requirements must be met. These requirements apply regardless of who is occupying the property. There is no difference to a municipality in terms of zoning compliance if the unit is rented to a family member or some other non-related individual. It also does not matter if rent is being charged or not. The units must meet all the compliance requirements. This means if a property is purchased with three units paying rent but one of the units is not compliant, the city has full discretion to demand the non-compliant unit be removed, resulting in a potential loss of income. As a salesperson, when a seller indicates they have multiple dwelling units, you would investigate to ensure each dwelling unit is permitted. Exam Study Guide

Lesson 2 | Page 12 of 43

Salespeople must be familiar with the requirements for zoning compliance when dealing with multi-unit properties. Question #6: Which of the following statements are true in regard to zoning compliance? There are four options. There are multiple correct answers.

1

Provided that an accessory unit is occupied by a direct family member, zoning compliance is not required.

2

Zoning compliance is not required if no rent is being charged to the occupant of an accessory unit.

3

Even though an accessory unit is being occupied by a family member and they are not paying rent, zoning compliance is still required.

4

If a property has three units paying rent but one of the units is not permitted, the city has full discretion to demand the unpermitted unit be removed.

Exam Study Guide

Lesson 2 | Page 13 of 43

Introduction to Key Building Code Requirements

The Ontario Building Code sets out minimum standards for building design and requirements for safety, fire protection, and structural sufficiency. As a salesperson, it is important to be familiar with the Ontario Building Code requirements when dealing with multi-unit dwelling transactions. It is not enough for a seller to tell you a dwelling unit is compliant. It is important to know what to look for and which questions to ask to exercise your due diligence. ©Queen’s Printer for Ontario, 2012. Reproduced with permission.

Exam Study Guide

Lesson 2 | Page 14 of 43

The Ontario Building Code

The Ontario Building Code is a regulation under the Building Code Act, 1992. The Ontario Building Code sets out minimum requirements for multi-unit dwellings to ensure that the structural strength and integrity of the building is safe, that the building complies with fire resistance standards, has acoustic separation, has adequate means of ingress and egress, has adequate sanitary conditions, and uses appropriate construction materials to prevent heat loss, water intrusion, and moisture. The Ontario Building Code applies to the construction of new buildings, alterations, additions, and changes in use within existing buildings and includes all fire safety and electrical safety compliance requirements. Part 3 of the Ontario Building Code addresses issues such as fire resistance, fire separations and closures, firewalls and flame spread ratings, all of which apply directly to multi-units. The Ontario Building Code is reviewed and amended on a regular basis, every five years or so, to update requirements to reflect changes in technology and emerging health issues. Exam Study Guide

Lesson 2 | Page 15 of 43

Building Code Requirements for Multi-Unit Dwellings Most construction techniques for multi-unit dwellings mirror those for single-detached homes and are governed by Part 9 of the Ontario Building Code for smaller residential structures three storeys and under. However, additional requirements apply concerning factors such as fire separation, construction of common hallways, stairwells, and party walls in multi-unit dwelling properties. As a salesperson, you need to be familiar with the specific regulations that apply to your trading area. The following seven sections contain information about the key requirements for multi-unit dwellings.

Independent entrance/exit

The Ontario Building Code sets down the minimum requirements for the location and dimensions of exit doors for a unit to be permitted. Doors must be large enough and positioned to provide a barrier-free and safe entrance and exit to the outside of the property. If the units have a common exit, the units must have a fire separation with a minimum fire resistance time of 30 minutes to permit egress.

Fire separation between units

Fire resistant materials with a specified fire resistance rating must be used in the walls and floors between units to provide fire separation between units for a specific amount of time.

Smoke alarms

The Ontario Building Code requires that smoke alarms are contained within each unit, on every storey, in any hallway serving bedrooms, and in every bedroom. As of 2015, alarm systems must have a visual component, such as a flashing strobe, to serve the needs of the hearing impaired. Carbon Monoxide detectors are also mandatory in any residential unit with a fuelburning appliance or a storage garage.

Natural light

The Ontario Building Code sets down the minimum requirements for the location and dimensions of windows, in order for a unit to be permitted. Windows must be a minimum size based on the size of the room to provide natural light and if in a basement apartment, a window must also be a minimum size to provide an emergency exit when Exam Study Guide

no other means of exiting is available. The window well at this egress point must also be a minimum size and situated within three feet of grade to allow room to crawl out safely.

Fire separation around common areas

In order to limit the spread of fire and permit occupants to escape, floors and walls of common areas such as stairwells and halls must be built out of fire resistant materials with a specific resistance rating to serve as fire separations.

Unit size and heating systems

Section 9.5 of the Ontario Building Code provides the standard minimum requirements for unit dimensions. This includes all spaces within the unit, such as bedrooms, living and dining areas, kitchens, and bathrooms. The building blueprints will indicate whether there is sufficient space to create an additional dwelling unit. Inspections by accredited professionals will determine the status of a property if the spatial dimensions are unknown. For homes less than five years old, separate heating systems are required. Homes older than five years may have a single system servicing all units.

Electrical safety

Electrical work requires a permit or work notification to begin the work and once completed, must be inspected by the Electrical Safety Authority (ESA) to ensure the work meets the safety standards. An ESA Certificate of Inspection is issued to the notification holder.

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Lesson 2 | Page 16 of 43

Building Permits A person cannot construct or demolish a building as defined in the Ontario Building Code unless a permit has been obtained. Requirements for new construction, additions, alterations, renovations, relocations, and repairs or rehabilitation of a building or structure will vary. Building permits are typically required for a variety of projects in multi-unit dwellings including: • Finishing previously unfinished spaces, typically attics or basements • Construction of accessory buildings in excess of a specified square footage Each municipal council appoints a chief building official and a number of building inspectors to enforce the provisions of the Ontario Building Code. The chief building official issues permits for proposed construction or demolition unless the proposal is contrary to the Building Code Act, the Ontario Building Code, or any other applicable law.

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Lesson 2 | Page 17 of 43

Building permits are required for a variety of circumstances. Question #7: Which of the following statements are true regarding a building permit? There are four options. There are multiple correct answers.

1

If a property owner wishes to demolish an existing building and construct a new one, a building permit will be required.

2

A property owner who wishes to create an accessory apartment in his unfinished basement will require a building permit.

3

A building permit is required for construction of a new multi-unit building but not for a simple conversion of an existing building.

4

Provided that drawings submitted to a municipal building department conform to zoning bylaws, a building permit is optional when converting an unfinished basement to an accessory apartment.

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Lesson 2 | Page 18 of 43

The Building Inspector

A building inspector is a person who is employed by either a city, township, or region. They are usually certified in one or more disciplines qualifying them to make a professional judgement about whether a building meets Building Code requirements. They are permitted to enter onto the lands subject to a building permit at any reasonable time to inspect the building. Building permits detail the project location, scope of work, conditions imposed regarding the work, and the building inspections required, depending on the project size. If a violation is found, the inspector is authorized to make an order that corrective action must be taken immediately or within a specified period of time. If work is not completed in accordance with the order, a stop work order may be issued. Inspectors are also authorized to enter upon land and into buildings at any reasonable time without a warrant to inspect for unsafe conditions. An order can then be issued requiring that remedial steps be taken, once again within a specified time period. The order may require immediate repairs in the case of an emergency situation. Once all inspections are completed and the Ontario Building Code requirements are met, an occupancy permit is Exam Study Guide

issued by the municipality. The unit cannot be occupied until the occupancy permit is issued.

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Lesson 2 | Page 19 of 43

A building inspector is a person who is employed by either a city, township, or region. They are usually certified in one of more disciplines qualifying them to make professional judgement about whether a building meets Building Code requirements. Question #8: Which of the following statements are true regarding the authority of a building inspector? There are four options. There are multiple correct answers.

1

A building inspector can enter onto the lands subject to a building permit at any reasonable time to inspect the building.

2

If a violation is found, they are permitted to make an order for corrective action and complete the work themselves.

3

If work is not completed in accordance with an order for corrective action, a building inspector can issue a stop work order.

4

Enter upon land and into buildings at any reasonable time without a warrant to inspect for unsafe conditions.

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Lesson 2 | Page 20 of 43

Introduction to Key Fire Code Requirements

The Ontario Fire Code is a set of minimum requirements relating to fire safety. As part of the Ontario Building Code, it is applied to new construction and renovations of multi-unit dwellings. However, the Fire Code is also applied separately to existing structures. As a salesperson, you need to understand these different applications and how they impact multi-unit dwellings.

©Queen’s Printer for Ontario, 2012. Reproduced with permission.

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Lesson 2 | Page 21 of 43

Ontario Fire Code Applied to Multi-Unit Dwellings

The Fire Protection and Prevention Act provides the legislative framework for the Ontario Fire Code and sets out the responsibilities for fire protection services, the duties and rights of the fire marshal, entry in emergencies, investigations and related orders, offences and enforcement, and recovery of costs. The Ontario Fire Code provides for the safety of occupants in multi-unit dwellings through the following: • Elimination or control of fire hazards in and around buildings • Maintenance of life safety systems in buildings • Establishment of a fire safety plan in those buildings where necessary

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Responsibilities for installing and maintaining fire safety systems, and regular fire extinguisher checks belong to the landlord or owner. The tenant is required under the law to avoid tampering with the fire safety systems. Fines are imposed on both landlords and tenants when there are violations.

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Lesson 2 | Page 22 of 43

A salesperson must be familiar with the Ontario Fire Code. Question #9: Identify the best wording for the definition of what the Ontario Fire Code provides? There are three options. There is only one correct answer.

1

The Ontario Fire Code provides for the building standards in existing buildings, through the elimination or control of building hazards in and around buildings, the proper means of egress in buildings, and establishing access to fire services in those buildings where necessary.

2

The Ontario Fire Code provides for the safety of occupants in existing buildings, through the elimination or control of fire hazards in and around buildings, the maintenance of life safety systems in buildings, and establishing of a fire safety plan in those buildings where necessary.

3

The Ontario Fire Code provides for the landlord compliance in existing buildings, through the elimination or control of life safety systems in and around buildings, the space and containment in buildings, and the installation of sprinkler systems in those buildings where necessary.

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Lesson 2 | Page 23 of 43

How Ontario Fire Code Requirements Are Applied • The Ontario Fire Code, as a subset of the Ontario Building Code, is applied to construction of new multi-unit dwellings, alterations, additions and changes of use within existing buildings. • The Ontario Fire Code also regulates fire safety in existing multi-unit structures including two-unit dwellings (accessory dwelling units and secondary units) that are not undergoing renovation or construction. The purpose of the Ontario Fire Code is to assess how a building will react in a fire and ensure the safety of the occupants by applying the requirements in the Ontario Fire Code. However, the Ontario Fire Code has changed over time and the changes can apply retroactively. Multi-unit dwellings need a certificate of compliance from the fire department in order to be legally compliant. Fire prevention provisions in existing units therefore may need to be upgraded before a certificate can be approved.

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Lesson 2 | Page 24 of 43

Ontario Fire Code Requirements for Two-Unit Residential Dwellings

Section 9.8 of the Ontario Fire Code applies to the compliance requirements for a detached house, semi-detached house, or row house containing two existing dwellings units, where the building is three storeys or less in building height, the building area does not exceed 600 metre square and one dwelling unit or a portion of a dwelling unit is situated above another dwelling unit, or two dwelling units side by side share a common interior means of escape. The requirements focus on separation and containment provisions for each dwelling unit. The containment features provided under this subsection are intended to provide protection for the occupants living in a dwelling unit from a fire occurring in another portion of the building, outside of their control. A continuous separation with a 30-minute fire resistance rating is required between dwelling units and between units and other areas. This may be provided by existing membrane of lath and plaster or gypsum board. Openings in fire separation shall be protected Exam Study Guide

with rated doors installed in hollow metal or solid wood frames and equipped with self-closing devices. Lesser degrees of fire resistance rating may be acceptable with the provision of interconnected smoke alarms or sprinkler protection. The homeowners have various options to comply with the regulations. Compliance involves two separate inspections: one for electrical safety and the other from the local fire department. Failure to comply may involve significant fines. As a salesperson, you need to exercise caution in assessing the legality of these units.

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Lesson 2 | Page 25 of 43

Ontario Fire Code Requirements for Multiple Residential Units Up to Six Storeys

Section 9.5 of the Ontario Fire Code applies to buildings up to and including six storeys in building height with residential occupancies, and containing more than two dwelling units, also known as a triplex and fourplex. This section of the Ontario Fire Code sets out requirements including: • Fire separations between dwelling units and corridors: a construction assembly that acts as a barrier against the spread of fire and may or may not have a fire resistance rating or a fire protection ring • Two means of escape (egress) • Separated storage rooms inside the dwelling Exam Study Guide

• Hard-wired smoke alarms with battery back-up in each sleeping room in a home and large building • Integrated sprinkler and fire alarm systems in multi-unit residential buildings • Fire extinguishers • Fire separation between fuel-fired appliance service rooms and the remainder of the building • Stairway separations and exit signs • Fire escapes and emergency lighting

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Lesson 2 | Page 26 of 43

Life and Fire Safety Systems Units in multi-unit dwellings must meet all of the Ontario Building Code and Ontario Fire Code requirements for life and fire safety systems. The following three sections contain information about these requirements.

Smoke alarms Requirements

• Required to be contained within each unit, on every storey, in any hallway serving bedrooms, and in every bedroom not within a dwelling unit.

On or after April 6, 1998

Before April 6,

• Must be hardwired • Must be interconne cted within the suite • Must have a strobe light

• May be battery operated • May be interconne cted (wireless)

1998

The Ontario Building Code requires that smoke alarms are contained within each unit, on every storey, in any hallway serving bedrooms, and in every bedroom not within a dwelling unit. Smoke alarm requirements on or after Apr 6, 1998: • Must be hardwired • Must be interconnected within the suite • Must have a strobe light Smoke alarm requirements before Apr 6, 1998: • May be battery operated • May be interconnected (wireless) As of 2015, alarm systems must have a visual component, such as a flashing strobe, to serve the needs of the hearing impaired (Section 9.10.19).

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Fire extinguishers and sprinkler systems All portable fire extinguishers should be inspected monthly and have the security tag attached showing the maintenance and recharge date, agency, and signature of the service person. In multi-unit residential buildings, sprinklers are now mandatory if they are more than three storeys high and were built after April 1, 2010.

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Carbon monoxide detectors Requirements • Required when a fuel burning appliance is located in any suite or if there is an attached garage • Must be installed adjacent to all sleeping areas • Installed per manufacturers instruction, or in absence of that, on or near the ceiling

On or after August 6, 2001 • Must be mechanically fastened • Must be hardwired • Must be interconnect ed within the suite

The Ontario Building Code requires carbon monoxide Before Aug 6, alarms whenever a fuel-burning appliance is present. 2001 The alarms must be located adjacent to any sleeping • May be areas that are adjacent to the service room housing battery the appliance. The Building Code also sets down operated requirements for how the alarm is to be installed and or powered. These are: plugged • Required when a fuel-burning appliance is into an located in any suite or if there is an attached electrical garage outlet • Must be installed adjacent to all sleeping areas • Installed per manufacturers instruction, or in the absence of that, on or near the ceiling Carbon monoxide detectors requirements on or after Aug 6, 2001: • Must be mechanically fastened • Must be hardwired • Must be interconnected within the suite Carbon monoxide detectors requirements before Aug 6, 2001: • May be battery operated or plugged into an electrical outlet • Required when a fuel-burning appliance is located in a suite or if there is an attached garage This table includes the minimum requirements in accordance with the Building Code (Section 9.33.4)

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Lesson 2 | Page 27 of 43

Section 9.5 of the Ontario Fire Code applies to buildings up to and including six storeys in building height with residential occupancies and containing more than two dwelling units. Question #10: What are the requirements of the Ontario Fire Code regarding these types of buildings? There are five options. There are multiple correct answers.

1

The requirement for smoke alarms in each sleeping room in a home and large building to be battery operated.

2

The requirement for each dwelling unit to have two means of escape (egress).

3

The requirement for fire extinguishers.

4

The requirement for sprinkler systems in multi-unit residential buildings over three storeys built after April 1, 2010.

5

The requirement for fire separations between dwelling units and corridors.

Exam Study Guide

Lesson 2 | Page 28 of 43

Multi-unit dwellings are only permitted if they meet the Ontario Building Code and Ontario Fire Code requirements. Question #11: Which of the following statements are true regarding the Ontario Building Code? There are four options. There are multiple correct answers.

1

Smoke alarms are to be installed within each unit, on every storey, in any hallway serving bedrooms and in every bedroom.

2

Smoke alarms do not currently require a visual component such as a flashing strobe light.

3

Carbon monoxide detectors are required when a fuel-burning appliance is located in any suite or if there is an attached garage.

4

In multi-unit residential buildings sprinklers are now mandatory if they are more than three storeys high and were built after April 1, 2010.

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Lesson 2 | Page 29 of 43

Electrical Safety Compliance Electrical safety is an integral part of fire prevention and safety. All electrical installation, repair, and replacement work needs to be done in compliance with the Ontario Electrical Safety Code. Virtually all electrical work requires a permit from the Electrical Safety Authority (ESA). When electrical work is completed, an electrical inspection provides owners with a record that all electrical work in the multi-unit dwelling complies with the requirements defined in the Ontario Electrical Safety Code. The Electrical Safety Authority will issue a certificate of inspection to the permit holder to confirm that the electrical work is in compliance with the Ontario Electrical Safety Code. Owners must provide the Electrical Safety Certificate to the municipality when registering their accessory dwelling unit. No dwelling is permitted without this certificate.

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Lesson 2 | Page 30 of 43

Inspections by the Fire Marshal and Fire Inspectors

The fire marshal is an individual appointed by the Lieutenant Governor in Council in accordance with Part III of the Fire Prevention and Protection Act. Any dwelling including accessory dwelling units must be inspected by a fire marshal before anyone is permitted to move into the unit. The fire marshal will ensure a building is in compliance and that all the life systems are in order. There is a fee associated with the inspection and any requirement for repeat inspections will involve additional costs. The fire inspector is an individual that inspects buildings to locate hazardous conditions and Ontario Fire Code violations, such as accumulations of combustible material, electrical wiring problems, and inadequate or nonfunctional fire exits. Exam Study Guide

Items the fire marshal and inspectors will check are: • Clear paths of egress • Fire extinguishers • Emergency exit lights • Fire alarm panels • Fire suppression sprinklers • Maximum occupancy limits • Overloading of sockets and uses of extension cords • Electrical panels Both the fire marshal and inspectors may, without a warrant, enter and inspect a premises for the purposes of assessing fire safety. They may be accompanied by a police officer to assist in the inspection. They must produce identification and state their purpose for entry.

Exam Study Guide

Lesson 2 | Page 31 of 43

The fire marshal is an individual appointed by the Lieutenant Governor in Council. Fire inspectors work for the fire marshal and inspect buildings to locate hazardous conditions and Ontario Fire Code violations. Question #12: Which of the following statements are true regarding the duties of the fire marshal and the fire inspectors? There are four options. There are multiple correct answers.

1

The fire marshal will ensure a building is in compliance and all the life systems are in order prior to anyone moving into an accessory unit.

2

In order for an inspector to enter premises for the purpose of assessing fire safety, a warrant must be obtained.

3

Items the fire marshal and inspectors will check include fire extinguishers, emergency exit lights, and whether there are clear paths of egress.

4

Fire inspectors look for violations of the Ontario Fire Code such as accumulations of combustible material and inadequate or non-functional fire exits but not electrical wiring problems as they fall under the Building Code.

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Lesson 2 | Page 32 of 43

Considerations Related to an Accessory Dwelling Unit

When reviewing a property with an accessory dwelling suite, your sellers or buyers need to consider the following items: • Insurance • Reliance on income for financing • Tax obligations (e.g., income tax, capital gains tax, ability to deduct certain expenses, etc.)

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Lesson 2 | Page 33 of 43

Insurance for an Accessory Dwelling Unit

Many insurance companies have a questionnaire to obtain coverage. Part of your due diligence to protect your buyer is to be aware of potential problems a property has, which might impact the buyer’s insurance. For example, a roof that is nearing its end of life will likely require replacement for the insurance company to approve a buyer. The insurance questionnaire might ask a question around the age of the roof to uncover this type of issue and cost for the buyer. To help a buyer, you will be best prepared by becoming familiar with standard insurance questions so you can spot potential issues with a property that may impact insurance coverage. If your buyer plans to live in the property, their home insurance policy only covers the property of their main dwelling, contents and personal liability, and that of their spouse and dependents. When they have an accessory

Exam Study Guide

dwelling on their property, failure to provide full disclosure relating to occupancy may void their home insurance policy. The main home insurance does not include their tenant’s contents, or the tenant’s personal liability. Should a fire destroy their tenant’s belongings, the owner may be held responsible. They may need to provide compensation for that person’s lost or damaged contents if they are found liable for the fire.

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Lesson 2 | Page 34 of 43

A buyer who plans to purchase and live in a home with an accessory dwelling unit will need to arrange for insurance coverage for the property. Question #13: Which of the following statements are true regarding insurance? There are five options. There are multiple correct answers.

1

A typical home insurance policy only covers the property of the main dwelling, contents and personal liability, and that of their spouse and dependents.

2

The main home insurance does not include their tenant’s or boarder’s contents and personal liability.

3

Inspection certificates are not necessary to obtain insurance for the property.

4

Should a fire destroy their tenant’s belongings, the owner may be held responsible.

5

If an owner does not provide full disclosure to the insurer relating to the occupancy of the accessory unit, it may void their home insurance policy.

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Lesson 2 | Page 35 of 43

Insurance for Duplex, Triplex, and Fourplex

For larger multi-unit properties such as a duplex, triplex, and fourplex, an owner will need an insurance policy specifically for each property they own. A basic policy covers damage to the property including walls, flooring, fixtures, landlord’s appliances, heating, and cooling systems. Subject to the terms of their policy, coverage may also include the following: • Furniture (furnished rentals only) • Replacement of lost rental income if tenants vacate the premises due to damage from an insured loss • Defence costs in the event of a lawsuit should tenants or their guests suffer injury or damages on the property Exam Study Guide

Lesson 2 | Page 36 of 43

For larger multi-unit properties such as a duplex, triplex, and fourplex, an owner will need a separate insurance policy. This separate insurance policy may cover a variety of risks under their terms but not all. Question #14: Which of the following risks would an owner typically want covered under an insurance policy for a duplex, triplex, and fourplex? There are six options. There are multiple correct answers.

1

Tenants’ belongings

2

Defence costs in the event of a lawsuit

3

Lost rental income if tenants must vacate the premises due to damage from an insured loss

4

Damage to the property including the owner’s fixtures and appliances

5

Damage to the property including heating and cooling systems

6

Furniture in furnished and unfurnished rentals

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Lesson 2 | Page 37 of 43

Reliance on Income for Financing Dwelling Units

Most lenders will take some or all of the income generated from dwelling units into account when calculating the amount of money a buyer can borrow. Accessory dwelling units may only have 50% of the income generated considered. This calculation is done once it is confirmed that the dwelling units on a property conform to all government standards and regulations. The income generated from a dwelling unit may be key to financing the property. Each mortgage lender will specify their precise requirements, but generally these include: • Evidence of the rent derived from a rented dwelling unit, i.e. a written lease • Expenses made for upkeep or to improve the dwelling unit Exam Study Guide

• Any vacancies • Any additional income that may be attributed to the rented dwelling unit, such as parking, laundry, or storage Tax returns or another recognized proof of rental income, such as a lease agreement, helps assure the lender that the rented dwelling unit is a stable source of rental income and that this arrangement is likely to continue. Documentation of annual expenses for maintaining the dwelling unit, as well as any additional income accruing from it, will also be factored in when qualifying for a mortgage. Whether the dwelling unit has been vacant for a period of time will also need to be disclosed. You will learn more about this later in this module.

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Lesson 2 | Page 38 of 43

The income generated from a dwelling unit may be key to financing the property. Each mortgage lender will specify their precise requirements. Question #15: Indicate what information is considered a requirement by lenders for financing. There are four options. There are multiple correct answers. 1

Evidence of the rent derived from a rented unit

2

Expenses made to upkeep or improve the unit

3

Any vacancies

4

Additional income that may be attributed to the rented unit, such as parking or storage

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Lesson 2 | Page 39 of 43

Tax Obligations

Rental income is usually a welcome supplement to the cost of home ownership. However, buyers should keep in mind this extra income is taxable. Landlords must report the rental income received. A landlord is permitted to make certain deductions for housingrelated expenses from the gross rent, which means that if the landlord is renting out one-third of a home, the landlord is allowed to subtract one-third of certain expenses from the rent collected. Landlords are also entitled to deduct expenses that relate specifically to the rental unit. You will need to remind a buyer that a property with rental income will have capital gains tax. Any tax advice should be provided by a third-party professional.

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Lesson 2 | Page 40 of 43

Buyers who purchase a home to live in with an accessory dwelling unit should be aware of any income tax implications. Question #16: Which of the following statements are true related to income tax when dealing with an accessory dwelling unit? There are four options. There is only one correct answer.

1

Provided that the owner is occupying the primary dwelling, any rent from the accessory dwelling unit is not taxable as it goes to helping pay the monthly expenses such as the mortgage.

2

If the accessory dwelling unit comprises one-third of the area of the building, the owner is allowed to deduct one-third of certain expenses from the income.

3

All income from an accessory dwelling unit is taxable. If the owner is occupying the primary dwelling, there are no deductions for expenses.

4

Owners are restricted to claiming 25% of the expenses from the income generated by the accessory dwelling unit regardless of the size of the unit.

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Lesson 2 | Page 41 of 43

The Ontario Building Code is a regulation under the Building Code Act, 1992. It is a set of minimum requirements respecting the safety of buildings regarding public health, fire protection, and structural sufficiency. All dwelling units must adhere to three sets of guidelines. Question #17: Which statement is true regarding code or compliance as per their definition? There are three options. There is only one correct answer.

1

The Ontario Building Code verifies that the installations such as the plugs, lights, breaker panel, and wiring in a home comply with the legislated requirements.

2

The Ontario Fire Code regulates safety in existing structures requiring items such as smoke and carbon monoxide detectors (including two-unit residential occupancies).

3

Electrical Safety Compliance applies to construction of new buildings, alterations, additions, and changes in use within existing buildings.

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Lesson 2 | Page 42 of 43

Fines may be imposed when there are violations of the Ontario Fire Code. Question #18: Which of the following statements are true? There are four options. There are multiple correct answers.

1

A landlord is responsible for installing and maintaining fire safety systems in a rented dwelling.

2

A tenant is required under the law to avoid tampering with fire safety systems.

3

The Ontario Fire Code only applies to tenanted buildings of three storeys or less.

4

Fines may be imposed on both landlords and tenants when there are violations of the Ontario Fire Code.

Exam Study Guide

Lesson 2 | Page 43 of 43

Congratulations, you have completed the lesson! There are four sections on this page with a summary of the key topics that were covered in this lesson.

Zoning requirements for multi-unit dwellings

Zoning bylaws are unique to each municipality and can change. Due diligence is required by the salesperson to ensure compliance is in place each time a multi-unit dwelling is involved. Municipalities throughout the province may approach zoning for additional units differently. Zoning compliance requirements change as the number of unit dwellings increase. To be identified as a legal unit, all zoning requirements must be met.

Ontario Building Code requirements for multi-unit dwellings

In this lesson the key Ontario Building Code requirements for residential multi-unit dwellings were identified. You learned how the Ontario Building Code applies when building an accessory dwelling and any differences as the number of units increase.

Ontario Fire Code requirements for multi-unit dwellings

In this lesson you reviewed key Ontario Fire Code requirements for multi-unit dwellings.

You reviewed how the Ontario Building Code connects with both the Ontario Fire Code and the Electrical Safety Code. You learned about the building inspector and applying for building permits.

You learned about the landlord and tenant responsibilities in adhering to the Ontario Fire Code including provisions that apply retroactively to residential multi-unit dwellings. You reviewed the role of the fire marshal and fire inspector along with the requirement for an Electrical Safety Certificate.

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Considerations related to an accessory dwelling unit

In this lesson you identified considerations for insurance for multi-unit dwellings, how financing relies on income, and the tax obligations that apply to rental properties as related to accessory dwelling units.

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Lesson 3 | Page 1 of 16

Lesson 3: Requirements for Due Diligence and Disclosure

In this lesson you will review your due diligence as a salesperson for verifying information and your disclosure obligations to help clients make informed decisions.

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Lesson 3 | Page 2 of 16

Requirements for Due Diligence and Disclosure As a salesperson, listing a multi-unit residential property, you need a clear picture of the property you are selling as well as the tenancies involved. This means you will document the physical condition of the property as you conduct an inspection of all units. You will obtain tenant information and document the terms under which each of them holds possession of their unit. It is also important to be aware of your responsibilities to disclose and your obligations to ensure the accuracy of information you provide. Upon completion of this lesson, you will be able to: • Identify key tasks as part of conducting due diligence requirements of a salesperson • Describe a salesperson’s obligations to ensure accuracy of information • Describe a seller’s obligations for disclosure when selling a property containing multi-units 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 16

Key Tasks of a Salesperson to Conduct Due Diligence

As a salesperson, part of your due diligence is to ensure the information provided on the property and its dwelling units is accurate. In the section that follows, you will be covering these points: • Documenting the physical condition of all dwelling units • Documenting tenants’ possession of their dwelling unit • Gathering tenants’ information that impacts the marketing and sale of the property • Verifying legal and financial considerations affecting the property Exam Study Guide

• Disclosing information and material latent defects

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Lesson 3 | Page 4 of 16

Documenting the Physical Condition of All Dwelling Units When listing a property it is important to do a walk-through of the units to familiarize yourself with the physical condition of the property. As part of the walkthrough, you will want to confirm that the seller warrants all the life safety systems are working and attests to the general upkeep of the property. You would also suggest that the seller provide a current fire inspection report so that it can be provided to potential buyers. If the seller has been performing maintenance on the property, the seller will have a good idea of the condition of the property, the safety systems, and any appliances owned by the seller. If a maintenance company has been used, they will have information on the condition of the property. Any offer will likely contain a clause allowing for a physical inspection of the property by a qualified professional.

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Lesson 3 | Page 5 of 16

Documenting Tenants’ Possession of Their Dwelling Unit

As a salesperson, you want to obtain and document the terms under which each tenant holds possession of their dwelling unit. For example, is it a fixed-term lease agreement (e.g., a 1 year lease) or a month-to-month tenancy agreement? You will want to know how long they have been there and whether or not you can ascertain future tenant need (i.e., do they want to continue with their month-to-month tenancy or renew their lease at the end of the term). The given factors can play a part in the financing and refinancing of a property. The lender may require proof that there is a tenancy agreement in place. This is a fairly common practice.

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Lesson 3 | Page 6 of 16

Tenant Information That Impacts the Marketing and Sale of the Property

Beyond the general state of the property and the types of tenancies, it is also important to gather general information on the tenants without intruding on their privacy. Caution and tact are needed in these situations. There is a fine line between what is an intrusion on privacy and what is not. Inquiring about smoking and pets in a dwelling unit is important for a well-rounded picture of the property. There are costs for cleaning and sanitizing spaces for rental. Factors, such as smoking and pets can impact the sale for health and allergy reasons. The clean-up required may be a deterrent or a factor in the pricing considering the type of work that needs to be done. However, asking questions about private information such as marital status, children or current employment of Exam Study Guide

tenants is not permitted under the Ontario Human Rights Code and Personal Information Protection and Electronic Documents Act. Any situations where tenants are in arrears of rent or currently in a dispute with the landlord should be documented as these can greatly impact the saleability of the property. A seller may wish to resolve these issues before listing the property for sale.

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Lesson 3 | Page 7 of 16

As a salesperson you must document the physical condition of all dwelling units, tenants’ information and possession of their unit. Question #19: What actions must you take in the process of gathering information and documenting? There are four options. There are multiple correct answers.

1

Obtain and document the terms under which each tenant holds possession of their unit

2

Document any instances where tenants are in arrears of rent or in dispute with the landlord

3

Inspect each unit to become familiar with the physical condition of the property

4

Ask the tenants their marital status and number of children

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Lesson 3 | Page 8 of 16

Collecting True and Accurate Financial Documents and Information

Information you may collect when listing a multi-unit property can include copies of the deed, leases, rent rolls, utility costs, tax bills, as well as expenses, such as lawn maintenance and snow removal. A good rule of thumb is to obtain three years of information for any investment property you are listing. Expenses fluctuate over time. Getting a three-year average gives a more accurate picture with respect to income and expenses. Information collection is all part of your due diligence, required by the Code of Ethics. It is critical to confirm what you are being told. The documentation must be verifiable. You are also obliged to take reasonable steps to determine and disclose material facts relating to the property to your seller. You should gather whatever information is needed to obtain a full and complete picture of the property. Exam Study Guide

It is important to know the privacy considerations when sharing financial information and tenant information with potential buyers. To protect yourself from liability, when dealing with a co-operating brokerage or a buyer, you want to ensure you convey accurate information about the property. Consequently, you should advise the seller the information they are providing must be true and verifiable. Advising the seller of this requirement will help limit liability should something go wrong. A co-operating brokerage has the same obligation to discover and disclose material facts to their buyer client.

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Lesson 3 | Page 9 of 16

As a salesperson you will need to verify the information you are given to provide accurate data. Question #20: What kind of documents need to be gathered to verify the information provided? There are four options. There are multiple correct answers.

1

Tax bill

2

Copies of leases

3

Copy of the deed

4

Financial records

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Lesson 3 | Page 10 of 16

A salesperson must use their best efforts when gathering financial information about an investment property they are trying to sell. Question #21: With this in mind, when reviewing financial documents, how far back should a salesperson go? There are four options. There is only one correct answer.

1

Six months

2

One year

3

Two years

4

Three years

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Lesson 3 | Page 11 of 16

Disclosing a Seller’s Financial Information

Potential buyers will likely request to see financial information detailing the income and all related expenses for the rented premises. This information would reflect the list of income and expenses given to the Canada Revenue Agency (CRA) by the seller. You want to ensure that you are doing your due diligence, verifying information, and confirming what is true and accurate. This information is private information and not public. As a result many sellers will ask for a non-disclosure (or confidentiality) agreement from a buyer. A non-disclosure agreement protects the party who is sharing information and prohibits the other party from revealing the information to anyone else who should not have access to it. This can also be addressed by adding a confidentiality clause to any offer for a property. As an example, the following clause could be used for this purpose: Exam Study Guide

The Buyer will hold in strict confidence any knowledge about the rent review situations of the property, financial documents, leases, and such other records of the property which the Buyer obtains from this Agreement or any other source, subject only to the use of such information in order to obtain professional advice and in the application or appeal process concerning rent review. OREA RENT-2 Confidentiality of Disclosed Rental Information Clause. ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

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

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Lesson 3 | Page 12 of 16

Disclosing Tenant Information

Providing information about a tenant is limited to the documents that have been signed and acknowledged by the tenant. This could include documents such as a copy of the lease, the tenant acknowledgement form, and photo consent form. Residential leases include information on rent payment, lease duration, information on collecting and returning deposits, receipts and returns of deposit, post-dated cheques or form of payment, fees and procedures for returned cheques and late fees, locks, landlord entry, sublets and assignments, renewals and termination, rent increases, withholding rent for repairs or compensation for damages, notice, disputes on late payments and eviction, pets and/smoking. Residential leases are governed by the Residential Tenancies Act, or RTA, which could take precedence Exam Study Guide

over the signed lease. You will learn more about the impact of the RTA later in this module. The tenant acknowledgement form is often required by lenders as proof of rents. It outlines the unit and the rent being paid, and is confirmed in writing by the tenant. The photo consent form gives permission to a salesperson or prospective buyers to take pictures of the unit. The tenant is entitled to their privacy and has the right to say no photographs. This documentation may be disclosed at the time of the listing and all disclosures must be done in writing.

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Lesson 3 | Page 13 of 16

It is your responsibility as a salesperson to disclose information to potential buyers accurately and confidentially when financial information and tenant information is involved. Question #22: What actions can a salesperson take as part of due diligence and disclosure of information? There are three options. There are multiple correct answers.

1

Gather information on income and expenses from the seller and disclose this to potential buyers.

2

Limit disclosure of tenant information to the documents that have been signed by the tenant such as a copy of the lease and the tenant acknowledgement form.

3

Have the seller or property manager sign photo consent forms to permit photos being taken inside the units.

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Lesson 3 | Page 14 of 16

Disclosure of Latent Defects

Another type of disclosure that you will need to make in a multi-unit dwelling transaction is one of latent defects. Defects can be patent (obvious and clearly visible) or latent (hidden, not apparent and potentially not discoverable). You are obligated under REBBA, to disclose any and all latent defects you discover to your seller or buyer. Examples of latent defects include: • Structural deficiencies, such as excessive balcony deterioration, foundation cracks, leaks in the roof, etc. • Environmental concerns, such as asbestos wrapping on boiler pipes, underground oil tanks, mould, etc. Patent defects, which are clearly visible and obvious, do not need to be disclosed by the seller or their representative. These are items that are visible to a potential buyer’s naked eye, or that can be determined during a home inspection. On the other hand, any known latent defects, which are not apparent and may not be discoverable, must be disclosed to potential buyers if the defect could be deemed a serious risk to health and safety of those who live in the home. Exam Study Guide

Lesson 3 | Page 15 of 16

One of your duties as a salesperson is to disclose latent defects relating to a property. Question #23: Which of the following items would be considered a latent defect requiring disclosure? There are four options. There are multiple correct answers.

1

Mould behind the drywall of a finished basement

2

Asbestos insulation

3

A water stain on the ceiling

4

Mould found in the shower enclosure in bathroom

Exam Study Guide

Lesson 3 | Page 16 of 16

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were covered in this lesson. There are a number of documents and information to gather when selling multi-unit Key tasks of a salesperson to conduct properties. You will be doing a walk-through of the units, documenting what you find and discover about the property, and tenancies. This will include: due diligence • The physical condition of the property after conducting a thorough inspection of all units

• The terms under which each tenant holds possession of their unit • Information specifically about the tenant that could impact the marketing and sale of the property It is important for you, as a salesperson, to do your due diligence with the Obligations to ensure accuracy of information information you are given. You need to ensure what you are given and what you provide to potential buyers is verifiable and accurate.

It is important to know how and what financial information you can disclose. The information you obtain from the seller and provide to potential buyers will be Seller’s obligations for disclosure when selling what they base their decisions on. Therefore, it is critical that any known material latent facts are disclosed. a multi-unit dwelling

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Lesson 4 | Page 1 of 9

Lesson 4: Develop a Working Relationship with Tenants

In this lesson you will review applicable sections of the Residential Tenancies Act (RTA) that establish rights and responsibilities of landlords and tenants during the trade of a property. You will review how to give proper notice, and how to communicate clearly and with respect to tenants to build a good working professional relationship with them.

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Lesson 4 | Page 2 of 9

Develop a Working Relationship with Tenants

In this lesson, you will learn how to build relationships with sellers, buyers and tenants as part of trading in residential multi-unit properties. Understanding and adhering to the Residential Tenancies Act is critical to ensure you are following the law and are aware of the notice requirements for tenants when a brokerage wishes to show a tenanted property. It is also important to know the basics of the Residential Tenancies Act in order to provide accurate information to sellers and buyers you work with.

Exam Study Guide

A strong working relationship with tenants based on clear communication and respect will help you when you need to show a unit. As a salesperson you often communicate with them on behalf of your seller, so it is important to know how to build a professional working relationship in order to market the property to its best advantage. Upon completion of this lesson, you will be able to: • Identify tenancy considerations impacting the selling of a multi-unit dwelling • Identify the importance of maintaining professional interactions with tenants when listing a multi-unit property for sale 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

Dealing with Tenants on Behalf of the Seller

The Residential Tenancies Act (RTA) addresses the rights and responsibilities of residential landlords and tenants. It is important to know what the seller, or their current or future tenants, may and may not do because as part of providing the best level of service, you will need to provide some basic information and support around residential tenancies. Ensuring you are aware of the landlord and tenants’ rights and responsibilities is critical to making sure the information and support you provide to your sellers or buyers is accurate and within the law. Entry to a property for sale with and without notice is the most relevant to you as a salesperson. According to the Residential Tenancies Act, a 24-hour written notice must be given to enter a unit to show it to a prospective buyer. Any notice given must include the reason for entry, the day, and time. The time of entry must be between the hours of 8 a.m. and 8 p.m. The Residential Tenancies Act states that the landlord would provide the notice but this could be delegated to the brokerage with the landlord’s permission. Entry without notice can only be done if the tenant agrees to it in advance. Exam Study Guide

Lesson 4 | Page 4 of 9

The Residential Tenancies Act (RTA) addresses how a salesperson can enter a unit to show it to a prospective buyer. Question #24: What must a salesperson do to gain lawful entry to a unit under the RTA? There are six options. There are multiple correct answers.

1

Provide a reason for entry

2

Give 24 hours’ notice

3

Enter between 8 a.m. and 5 p.m.

4

Give verbal notice

5

Give 48 hours’ notice

6

Enter between 8 a.m. and 8 p.m.

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Lesson 4 | Page 5 of 9

Providing Proper Notice for a Tenant to Vacate

When listing properties with tenants, it is important to ensure your sellers and prospective buyers understand how tenants can be given proper notice to vacate. In Ontario, vacant possession may be acquired in one of two ways. As per the Residential Tenancies Act, one way is through an agreement between the tenant and the landlord. A tenant may voluntarily agree to vacate the premises before the end of the lease. The other way is if the buyer or their immediate family member requires the unit for their own use. For properties with three or less units, If the buyer is planning to live in a unit, the buyer or family member (i.e., spouse, child, parent, spouse’s child or spouse’s parent or care giver for the buyer or family member) must occupy the unit for a Exam Study Guide

minimum period of 12 months. The appropriate form for the notice must be used and the prescribed time limits for delivery of the notice must be followed. However unless the tenant agrees to leave sooner, the existing lease must be honoured and vacant possession can only be obtained at the end of the fixed term by giving 60 days prior notice. Even if the unit is under a month-to-month tenancy and the buyer requires the unit for themselves or a family member, the tenancy can only be terminated with 60 days’ notice. The appropriate form for the notice must be used and the prescribed time limits for delivery of the notice must be adhered to. Whichever tenancy arrangement is in place, the seller would be responsible for completing and delivering the appropriate notice and having the tenant sign it. All of this must also be done without harassment in accordance with the Residential Tenancies Act.

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Lesson 4 | Page 6 of 9

A buyer is purchasing a unit that is currently occupied by a tenant with a lease that expires in seven months. The closing date of the transaction is in three months. Question #25: According to the Residential Tenancies Act, at what point can the buyer legally get vacant possession of the unit for the buyer’s own occupancy? There are four options. There are multiple correct answers. 1

In seven months’ time provided that proper written notice is given to the tenant.

2

Since the closing date is three months away, the buyer could give 60 days’ written notice to the tenant and get vacant possession on closing.

3

If the tenant voluntarily agrees to terminate the lease in three months, the buyer could get vacant possession on closing.

4

The buyer could give the tenant 60 days’ notice which would result in the unit being vacant for one month prior to closing. In this way the buyer would be assured of vacant possession on closing.

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Lesson 4 | Page 7 of 9

Positive Working Relationships with Tenants

Positive interaction with tenants is important. When preparing to market and show a unit, it is best practice to have a conversation with the current tenant. You will want to develop a good working relationship and rapport with them. The relationship will enable you to have easier access to the property and allow you to have reasonable co-operation during the sales process. Advise the tenant of the brokerage’s process for booking appointments. When possible, you will want to provide tenants with verbal and written notice of an upcoming visit. As a courtesy, advise them that they are not required to leave their unit during the visit. A tenant may wish to limit the time periods during which showings may take place; for example, only between 6 p.m. and 8 p.m. and no Sunday appointments. Exam Study Guide

During this time it is a good idea to advise the seller to speak to their tenants to take down or remove any personal or expensive items for the sake of privacy, safety or loss/theft. You also want the property to show well. So when discussing an upcoming visit with the seller, approach the topic of asking the tenant to keep the unit clean and tidy for prospective buyer showings or open houses, delicate and with respect. The tenants are not required to prepare their unit, so it is important to be friendly and respectful at all times. Giving them sufficient and required advance notice is a legal requirement and will allow them the time to take whatever steps they need to prepare their unit.

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Lesson 4 | Page 8 of 9

When selling a property with tenants, developing a good working relationship with them is in your best interest and the best interest of your seller. Question #26: Which of the following actions are appropriate for a salesperson to take when building a proper relationship with a tenant? There are four options. There are multiple correct answers.

1

Provide tenants with written notice of an upcoming visit

2

Inform the tenant that the unit must be kept clean and tidy for visits for the times provided

3

Advise the tenant that they must not be present for the visit

4

Have the seller suggest to the tenant that any personal or expensive items that they don’t want anyone to see should be taken down or removed

Exam Study Guide

Lesson 4 | Page 9 of 9

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were covered in this lesson.

Residential Tenancies Act: Giving notice

Gaining entry with and without notice is the most relevant to you as a salesperson. The landlord must give 24 hours written notice to a tenant in order to enter a unit to show it to a prospective buyer. Any notice given must include the reason for entry, the day, and time. Entry must be between the hours of 8 a.m. and 8 p.m. When working with a seller, you must clearly state these requirements to any interested parties. If working with a buyer, take the time to explain that this is likely the case for any multi-unit residential property of interest. Entry without notice can only be done if the tenant agreed to it in advance and a reasonable effort has been made to inform them of the intention to show their unit. If working with a seller, ensure there is written agreement from the tenant to the effect; also, advise any prospective buyers or their representatives if you were unable to inform the tenant of a scheduled showing.

Ways to get vacant possession

Vacant possession, if needed, can be achieved in two ways: One way is through an agreement between the tenant and the landlord. The other is the buyer or an immediate family member or caregiver can move into the unit and remain there for a period of 12 months. All of this must be done without harassment in accordance with the Act.

Exam Study Guide

Communications with tenants

When selling a property with tenants, developing a good working relationship with them is in your best interest and the best interest of your seller. You want to make the process as easy for tenants as possible by providing notice and being respectful of their time and space. When discussing visits with tenants, advise them to remove any personal or expensive items they wouldn’t want others to see. It is important to be friendly and respectful at all times, especially when addressing the need to keep the unit clean and tidy for showings.

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Lesson 5 | Page 1 of 12

Lesson 5: Key Factors to Consider When Estimating the Value of a Multi-Unit Residential Property

In this lesson you will identify your obligations as a salesperson to verify the income and expenses reported by the seller when providing an opinion of value. You will review the methods of valuation you can use to estimate the value of a multi-unit residential property.

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Lesson 5 | Page 2 of 12

Key Factors to Consider When Estimating the Value of a Multi-Unit Residential Property The mindset for purchasing a multi-unit residential property versus a single-family property is often different. A buyer looking for a multi-unit property may be looking for an investment, and will base their decisions on the return on investment. However, you could also work with buyers who want to both live in the property and supplement their income. In these cases, the decision may be more complex and depend on both lifestyle and investment needs. As such, you may be asked by a buyer for an opinion about the value of a property. As a salesperson, you are not providing an appraisal but rather an estimate of value. The buyer should understand this distinction and be advised to seek the services of a professional third party for an appraisal. Property value estimate requires a full picture of the property. For multi-unit residential properties this includes a fulsome review and understanding of revenue and expenses, along with all the supporting documentation. To estimate the value, you must break it down into some unit of comparison. The methods of comparison vary from a direct approach, an income approach, and a multiplier approach. Upon completion of this lesson, you will be able to: Exam Study Guide

• Identify the salesperson’s obligation to verify the income and expenses reported by the seller when providing an opinion of value • Describe the methods of valuation to use when estimating the value of a property containing a multi-unit dwelling 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 12

Documenting the Revenues As a salesperson, you need to obtain and review a number of key documents when providing an opinion of a property’s value. In some cases if the seller has not kept detailed records, it may be necessary to give a best estimate. However, It is important to confirm the information provided is accurate and verifiable and any estimates should be cross referenced with other information provided. If the estimate cannot be cross-referenced, you may not be able to value the property. The three key documents to collect are: 1. Rent roll: This official document is a register of rents and includes the names of tenants and the amount of rent they pay. It is a confirmation of who is renting which units. 2. Income statements: This is the seller’s core financial statement that includes a summary of the property’s revenues, expenses, profits, and losses over a period of time. 3. Leases: A lease is a contract between a landlord and a tenant. When a lease is not available, you need to confirm or verify that they are in fact a month-to-month tenancy, and when that took place. For example, Tenant 1 occupied the premises of apartment 201 in January 2014 and he’s still there five years later, but he never signed a new lease so he would be deemed a month-to-month tenant. The fundamental difference between fee simple and leasehold estates is time. In fee simple, ownership is for an indeterminate period of time while in leasehold, the interest in land is for a specific amount of time.

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Lesson 5 | Page 4 of 12

Operating Expenses and Supporting Documentation As a salesperson you will be collecting a great deal of information. In addition to the revenue-focused documentation, you will want to obtain from the seller a detailed list of the operating expenses of the property with supporting documentations. The expense documents you want to include are: • Property taxes • Insurance (property, flood insurance if applicable) • Repairs and maintenance • Janitor and wages • Property management • Utilities that are not covered by the tenants (For example, hydro, heating, water, internet, TV ) • Professional fees (accountants, lawyers, appraisers, etc.) • Condominium fees if applicable • Mortgage • Advertising • Garbage collection • Miscellaneous expenses

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Lesson 5 | Page 5 of 12

Methods of Valuation

When valuing a property, gather the documentation and numbers for similar properties so you can compare them against the subject property to determine a value. To do this, you can use three different approaches depending on the factors that are most important to your client. • A direct comparison approach, unit mix or room mix • Income approach • Income multiplier approach

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Lesson 5 | Page 6 of 12

The Direct Comparison Approach: Unit Mix

The direct comparison approach uses the information on similar type properties that have sold recently to compare to your subject property. If you are dealing with a triplex building, you will try to find sales of comparable buildings. For example, in this table there are three multi-unit properties you are directly comparing and their sale price per unit ranges from $283,333 to $291,666. You then look at other factors of each building, such as location, age, and condition to see which one comes the closest to resembling the subject property your client wants to buy or sell. To establish the price of the property under consideration, you would use the chosen sample property’s unit price and multiply it by the number of units. For example, if the subject property had a total of three units and was judged to be most similar to Sale #3, then the estimated value would be $287,500 x 3 = $862,500.

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Lesson 5 | Page 7 of 12

The Direct Comparison Approach: Room Mix

The direct comparison approach can also be used to calculate value using a room mix. Instead of comparing units, it compares the rooms in each property and gives a sale price per room. When using a room mix comparison, rooms such as bathrooms and closets are not taken into consideration. Only major rooms like the living room, dining room, kitchen, and bedrooms are part of the equation. In the table provided, the sale price per room ranges from $60,526 to $62,500. You would compare the subject property under consideration to the property that best matches it in terms of factors like location, age, and condition. You would then apply the price per room to the number of rooms in the subject property to estimate its value. Note: You can factor elements like expense adjustments as well. This would bring into account things like gas heating, etc., but that is beyond the scope of this lesson. Exam Study Guide

Lesson 5 | Page 8 of 12

The Income Approach

The income approach is a capitalization of net revenue into a value. However, generally in smaller multi-unit buildings this approach may not apply. The capitalization rate is the rate of return on a real estate investment property based on the income that the property generates or could generate. Under the traditional income approach, you would take revenue less expenses which would create a Net Operating Income. The Net Operating Income is then capitalized based on market cap rates into an estimated value, or sale price of the property. For valuation purposes, the goal is to establish which property best compares with the subject property and then use its Capitalization Rate to help you estimate the value, or sale price, of the subject property. To estimate the value of a property you must take the Net Operating income and divide it by the Capitalization rate. Exam Study Guide

Example: A registrant is trying to estimate the value of a multi-unit residential property. The property’s net operating income is $51,500. Considering the given sales information, the appraiser uses a market cap rate of 5.6 per cent. Therefore, the estimated value of the subject property is $51,500 ÷ .056 (5.6 per cent) = $919,642, which is rounded to $920,000.

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Lesson 5 | Page 9 of 12

Sale #

1

2

3

A

Sale price

1,150,000

975,000

895,000

B

Gross income

71,720

63,950

68,750

C

Vacancy

1,434

1,279

1,375

D

Effective Gross income

70,286

62,671

67,375

E

Operating Expenses

17,393

15,512

16,673

F

Net Operating Income

52,893

47,159

50,702

G

Capitalization Rate

4.60%

4.84%

Question #27: Calculate the capitalization rate for the third multi-unit property. Please note: Round up your final answer to two digits after the decimal. There are four options. There is only one correct answer.

1

5.67%

2

4.82%

3

6.18%

4

4.49%

Lesson 5 | Page 10 of 12

The Income Multiplier Approach

Sale #

1

2

3

4

950,000*

850,000*

900,000*

750,000*

A

Sale price

B

Gross Income

71,720

63,950

68,750

58,750

C

Vacancy/collection loss

1,434

1,279

1,375

1,175

Estimated 2 per cent D

Effective Gross Income

70,286

62,671

67,375

57,575

E

Effective Gross Income Multiplier

13.52

13.56

13.36

13.03

Effective Gross Income: B - C = D Effective Gross Income Multiplier: A ÷ D = E *Sale price has been rounded to the nearest $1,000 While a salesperson can use the Gross Income Multiplier method, it is important to keep in mind it is considered a very rough estimate of potential value. A Gross Income Multiplier does not take into account the complexities of the income and expense ratios. It only provides an estimate of the property’s potential value based on the sale price divided by the effective Gross Income to give you the Gross Income Multiplier. To achieve a Gross Income Multiplier using example 1 in the table, you would establish the Effective Gross Income first by deducting the vacancy from the Gross Income.

Exam Study Guide

You would then take the Effective Gross Income and multiply it by the Effective Gross Income Multiplier to arrive at a value estimate for the property. Example: A salesperson is trying to estimate the value of a property using the income multiplier approach. She has calculated the effective gross income as $64,320 and based on the given four sales, has selected an income multiplier of 13.50. Therefore, the estimated value of the subject property is $64,320 x 13.50 = $868,320.

Exam Study Guide

Lesson 5 | Page 11 of 12

Sale #

1

2

3

A

Sale price

1,150,000

975,000

895,000

B

Gross income

71,720

63,950

68,750

C

Vacancy

1,434

1,279

1,375

D

Effective Gross income

70,286

62,671

67,375

16.36

15.56

Effective Gross income multiplier

E

EGIM

Question #28: Calculate the effective gross income multiplier for the third multi-unit property. There are four options. There is only one correct answer.

1

13.28

2

12.95

3

14.02

4

14.55

Exam Study Guide

Lesson 5 | Page 12 of 12

Congratulations, you have completed the lesson! There are two sections on this page with a summary of the key topics that were covered in this lesson.

Obligation to verify the income and expenses reported by the seller when providing an opinion of value

To estimate a property value it is important to gather financial information. This includes obtaining both revenue and expenses from the seller with all their supporting documentation.

Methods of valuation to estimate the value of a property containing a

There are three methods of valuation commonly used in the industry:

multi-unit dwelling

You need to collect samples of the documents to verify the information.

The direct comparison approach is used to value a subject property based on the sale prices of similar properties that have sold recently after taking into account the differences that exist between the comparables and the subject. With the income approach, the goal is to establish which property best compares with your subject property and then use the Capitalization Rate to help you estimate the value of the property. The multipliers method is used as a quick estimation tool and deals with sale price divided by the effective Gross Income to give you the Gross Income Multiplier. To estimate the value of a property you would take the Effective Gross Income and multiply it by the Income Multiplier.

Exam Study Guide

Lesson 6 | Page 1 of 13

Lesson 6: Considerations When Showing a Tenanted Multi-Unit Property and Providing Advice on Properties of Interest

This lesson is a review of the salesperson’s responsibilities when preparing to show a tenanted multi-unit property to a buyer. You will also review considerations related to respecting a tenant’s rights while showing a multi-unit property.

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Lesson 6 | Page 2 of 13

Considerations When Showing a Tenanted Multi-Unit Property and Providing Advice on Properties of Interest As a salesperson, you need to identify a buyer’s intended use of a property. Each buyer has their own investment philosophy and risk tolerance. You will want to know when a purchase is solely for an investment. Once a buyer purchases a multi-unit residential property with the goal of renting one or more units to a tenant, they will become landlords. They will be accountable for the full gamut of landlord responsibilities. This is known in the industry as the “burden of management” and it should not be underestimated. The buyer who becomes a landlord will also be running a business. Are they familiar with the accounting and tax considerations involved? Are they aware of all relevant legislation, including the Residential Tenancies Act, the Ontario Human Rights Code, and the Ontario Fire Code? Do they know about the Landlord and Tenant Board’s dispute

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resolution process? Will they be a hands-on landlord, or elect to hire a property manager to take care of all matters for them? As a salesperson, you need to be familiar with these matters to help your buyer make the best possible decision about a property. Your obligations require due diligence in verifying legal and financial considerations affecting the property and disclosing all relevant information to the buyer. You also need to understand how to deal with tenants when showing the property to your buyer and ensure you respect the rights and privacy of the tenant and provide the appropriate amount of notice for showings. Upon completion of this lesson, you will be able to: • Identify salesperson’s responsibilities when preparing to show a property containing a multi-unit dwelling to prospective buyers • Identify considerations related to interactions with a tenant while showing a property containing a multi-unit dwelling Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

Exam Study Guide

Lesson 6 | Page 3 of 13

Multi-Unit Properties

Multi-unit residential properties are an increasingly attractive investment option for many in the residential housing market, whether purely for investment purposes or to live in and rent out other units in the property. Have a conversation with buyers about their investment philosophy and their risk tolerance. Discuss with your buyers the Residential Tenancies Act (RTA) which outlines the landlords’ and tenants’ rights and responsibilities. Urge them to seek the expert advice of a lawyer well versed in these trades, and in the RTA. An early key task that will affect each subsequent step in the buying process is identifying and understanding what your clients’ expectations are. This would include: • What they can afford • Their tolerance for dealing with tenants • Their knowledge of the Residential Tenancies Act Exam Study Guide

• Expectation of return on investment

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Lesson 6 | Page 4 of 13

Intended Use and Need for Vacant Possession

In general, a tenancy will be considered valid and will continue unaffected when properties change ownership, unless otherwise specified by the buyer. In that case, the regulations of the RTA must be adhered to. The termination of the tenancy must be for a valid reason and the appropriate form of notice and time period for the delivery of the notice must be complied with. Under certain circumstances, a buyer may include a clause requiring vacant possession. Valid reasons include the buyer’s intentions to use it for: • Themselves • An immediate family member Exam Study Guide

• A caregiver In addition, a buyer may require vacant possession if they intend on carrying out extensive repairs or renovations. It is important to note that once renovations are complete, the apartment must be offered back to the tenant at the rent they were paying. If a buyer wishes to use a rented unit for their own personal use, they can include a clause in the agreement of purchase and sale requiring the seller to properly notify the tenant of their need to vacate the unit on the grounds that the buyer wants the property for their personal use, provided that the property has no more than three units. Month-to-month tenants have 60 days from the end of the current rental period to vacate the premises provided proper notice is given. Tenants are within their rights to appeal their termination. If there is a valid lease in place, the tenant has the right to remain in the unit until the expiry of the lease. Notice to vacate must be given on the correct form and at least 60 days prior to the expiry date.

Exam Study Guide

Lesson 6 | Page 5 of 13

Under certain circumstances, a buyer may include a clause in an agreement of purchase and sale requiring vacant possession of a unit in a multi-unit building of three units or less. Any notice to vacate must comply with the Residential Tenancies Act (RTA) to be valid. Question #29: Identify which of the following scenarios would be a valid reason for providing a notice to vacate a unit. There are four options. There are multiple correct answers.

1

The buyer wants to hire a building manager and have them occupy one of the units.

2

Either the buyer or a member of their immediate family is going to move into one of the units.

3

The buyer feels that the rent being charged is too low and has found someone else who is willing to pay more.

4

The buyer wants to carry out an extensive renovation.

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Lesson 6 | Page 6 of 13

Buyer Expectations When Selecting an Investment Property

It is necessary to be as clear as possible with your client about their intended use. This will guide your steps as you gather the necessary documentation, and interact with the listing salesperson and existing tenants.  When a buyer is interested in a property strictly for investment, you will want to discuss expectations such as: • Tenure of tenants • Location of property • Vacancy rates within the building • General maintenance and upkeep • Financing of the property • Type of units in the building Exam Study Guide

All or a combination of these factors play a role in the buyer’s return on investment.

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Lesson 6 | Page 7 of 13

Due Diligence: Legal and Financial Considerations

Ensuring your client has a clear understanding of the legal and financial status of the multi-unit is a key responsibility. As you learned earlier in this module, you will need to verify the legal status of the multi-unit property, determine if there are any legal disputes between the landlord and tenants, whether the rents are legal or if any rents are in arrears. You will also need to confirm the terms of existing tenancies, whether this is through lease agreements and/or a rent roll. Ensure accuracy in these matters as this may affect your buyer’s financing options. You may also include a clause in an offer to have the seller provide, to the best extent possible, completed tenant acknowledgement forms on closing. These forms are completed by the tenants, at their discretion, and are used to confirm what the landlord discloses about a tenancy. Tenants may be reluctant to fill these out or may provide misleading information, but Exam Study Guide

they may still be useful. Other documents you can expect and will need to review can include: • Operating statements going back at least three years • A schedule of all capital improvements made to the property during the time the landlord has owned the property • Details of any rent deposits (last month’s rent) • Any service contracts and warranties • Copies of insurance policies

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Lesson 6 | Page 8 of 13

Due diligence is critical when reviewing a multi-unit property’s documentation. These documents will provide a buyer with a good understanding of the building’s current financial condition. Question #30: Identify all the documents you can expect and will need to review during your due diligence. There are six options. There are multiple correct answers.

1

Copies of tenant insurance policies

2

Tenant acknowledgement forms signed by every tenant

3

Operating statements going back at least three years

4

Details of any pre-paid rents (last month’s rent)

5

Rent Roll

6

Any service contracts and warranties

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Lesson 6 | Page 9 of 13

Considerations When Dealing with Multi-Unit Properties When dealing with multi-unit properties, your buyer needs to understand the parameters for interacting with tenants. Although the listing brokerage may take care of the arrangements for showings, there may be scheduling restrictions in terms of timing and amount of notice. If the buyer wishes to terminate a tenancy for their own use, they must recognize the tenant’s rights and how to address them appropriately.

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Lesson 6 | Page 10 of 13

Interaction with Tenants and Respecting Their Rights

As explained earlier in the module, tenants must receive 24 hours written notice of a showing. The showing can only be booked within the 8 a.m. to 8 p.m. time period. Generally, the listing brokerage will arrange the booking though in some instances, appointments will be made by the owner of the property. The tenant may or may not be present at the showing. The Code of Ethics mandates that you treat everyone with fairness, honesty and integrity. While your efforts are focused on your fiduciary duties to best serve your buyers’ needs, being courteous and respectful of tenants is important should there be any interaction with the tenants during a showing of the property. Tenants are often willing to talk about the building they are living in. You should instruct your buyer to be careful during conversations around the building. Instruct your buyer to ask building or property questions, if the tenant is open to having a conversation. They need to avoid personal questions, such as asking about marital status or number of children. These are considered violations of human rights. Exam Study Guide

Lesson 6 | Page 11 of 13

Notice Requirements to End a Tenancy

Specific rules exist for how a buyer can arrange for vacant possession of a tenanted property. Whether the tenant is month-to-month or on a lease, a tenant must be duly notified of the intention to end their tenancy. The “Landlord and Tenant Board Form N12 - Notice to Terminate the Tenancy” is required to notify the tenant that the landlord or the buyer requires the unit for their own use, for an immediate family member, or for the use of a person who will provide care services to the landlord or buyer who is living in the same building or complex. The date for the termination of tenancy must be at least 60 days after the date the notice has been provided to the tenant and must be on the last day of the rental period or the last day of the fixed term. Once notice has been provided, the tenant may end the tenancy on an earlier date by giving at least 10 days’ written notice, It is important to keep a copy of the notice as provided to the tenant. To terminate the tenancy immediately, the landlord or the buyer can make an application to the Landlord Tenant Exam Study Guide

Board (LTB) after giving the appropriate notice to the tenant, by providing Form L2 (Application to end a tenancy and evict a Tenant), a copy of the Form N12 (Notice to end a tenancy) that was given to the tenant and a Certificate of Service to tell the LTB when and how notice was given to the tenant. Application must be no later than 30 days after the termination date noted on the Form N12.

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Lesson 6 | Page 12 of 13

Caution Against Illegal Notice for a Tenant to Vacate

It is illegal to terminate a tenancy by falsely claiming that a buyer or landlord requires the rental unit(s) for personal use when the reality is they want to rent it to someone else, often in order to increase the rent. Both the buyer and you, as their salesperson, could be sued by the former tenant for moving costs and the higher rent paid at their new home. Moreover, the Ontario Rental Housing Enforcement Unit takes these allegations very seriously and may investigate the matter. The Ontario Landlord and Tenant Board has the power to impose fines. A tenant, who believes that they were given a notice of termination in bad faith can file a complaint with the Landlord and Tenant Board.

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You should always clearly inform your clients that they should be aware of their rights and responsibilities with respect to terminating existing tenancies for their own use. As a salesperson involved with the buying and selling of multi-unit properties, you should be familiar with the Residential Tenancies Act. However, if situations arise that go beyond your expertise, your buyer should be advised to consult with their lawyer or with the Landlord and Tenant Board.

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Lesson 6 | Page 13 of 13

Congratulations, you have completed the lesson! There are two sections on this page with a summary of the key topics that were covered in this lesson.

Preparing to show a multi-unit dwelling to a buyer

It is your responsibility to ensure that you identify a buyer’s intended use of a property. If a buyer is planning to use the unit and needs vacant possession, you need to discuss expectations when selecting properties of interest.

Interactions with a tenant while showing a multiunit dwelling

You must let your buyers know that in accordance with the Residential Tenancies Act tenants are entitled to be given 24-hour notice in writing before a showing. When viewing a property, you must respect the privacy and personal rights of tenants. Specific rules govern how a buyer can arrange for vacant possession of a tenanted property. When a buyer has entered into an agreement of purchase and sale for a property with no more than three units, they may terminate existing tenancies on the grounds they need the property for personal use. False claims about personal usage are illegal and punishable by fines. The termination date of the tenancy will vary depending on whether the tenancy is month to month or a fixed term under a lease arrangement.

You must verify legal information and financials affecting the property and provide this information to the buyer.

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Lesson 7 | Page 1 of 45

Lesson 7: Considerations for an Offer When Selling a Tenanted Property

In this lesson you will identify key aspects of an agreement of purchase and sale for a multi-unit residential property. You will also learn how to protect your client’s interests when using clauses specific to these transactions.

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Lesson 7 | Page 2 of 45

Considerations for an Offer When Selling a Tenanted Property

Although the offers for multi-unit dwellings are similar to offers for single-family dwellings, there are special considerations to specifically deal with requirements such as chattels, tenants and in some cases, vacant possession. You need to recognize these requirements and in the offer, identify and use clauses that address and protect the interests of your seller or buyer. As a salesperson, depending on the brokerage you join, you may have access to standard forms and clauses provided by the Ontario Real Estate Association (OREA). These are widely used by real estate professionals across the province. Although not all salespersons choose to be a member of the Ontario Real Estate Association (OREA), the forms and clauses provided by OREA are commonly used in real estate transactions. This lesson will reference OREA clauses and forms for illustrative purposes. Images of the OREA form and clauses have been Exam Study Guide

created with permission from OREA. Upon completion of this lesson, you will be able to: • Identify and explain key aspects of an agreement of purchase and sale for a multi-unit dwelling • Recognize and use clauses for a multi-unit dwelling • Identify the steps required to draft an offer for a multi-unit dwelling • Draft an offer for a multi-unit dwelling that includes conditions and other clauses • Identify how signing would be completed by a seller and a buyer when there is a counter offer that is being accepted 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 45

Agreement of Purchase and Sale for a Multi-Unit Dwelling

When completing an offer for a multi-unit dwelling, you need to be able to identify and use clauses to protect your buyer’s interests. Since you are dealing with tenanted properties, you need to be familiar with the appropriate clauses that apply to your buyer’s requirements, such as clauses that address tenancy, representations, permissions to enter, and rent. These are just a few examples of aspects of multi-unit dwellings that may need to be addressed. You also need to apply due diligence when gathering additional financial information and documents that will accompany the agreement.

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Lesson 7 | Page 4 of 45

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Agreement of Purchase and Sale Form and Clauses

Agreement of Purchase and Sale Form and Clauses Although we will use the OREA Agreement of Purchase and Sale Form 100 for illustrative purposes in this lesson, not all brokerages will use this form. Ask your broker of record which form to use for a multi-unit property trade. Often, the same form used for an agreement of purchase and sale for a single residential property, is used for multi-unit

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properties with four or less units. There are many pre-printed clauses that have specific considerations applicable to multi-unit properties: • Completion date: Need to take into account tenancy versus requirements for vacant possession • Chattels: A tenant may own the appliances • Fixtures: A tenant may have installed fixtures that would be removed when the tenant vacates • Documents and discharge: More documentation is required because of confirmations of leases, tenancy agreements, and rent deposits • Inspection: May need inspections for life safety systems as well as property • Residency: Different parameters if the investor is a non-resident • Adjustments: May need to include calculations for rents held on deposit OREA Form 100 Agreement of Purchase and Sale. ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

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Lesson 7 | Page 5 of 45

When dealing with multi-unit properties you will find some pre-printed clauses in an agreement of purchase and sale that will be affected by the property type. It is important to make note of them and include clauses in Schedule A to address them. Question #31: Identify the pre-printed clauses in an agreement of purchase and sale that are affected in a multi-unit transaction. There are six options. There are multiple correct answers.

1

Legal, accounting, and environmental advice

2

Adjustments

3

Inspection

4

Chattels

5

Completion date

6

Title

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Lesson 7 | Page 6 of 45

Clauses for Schedule A of a Purchase and Sale Agreement

You may also need to add additional conditions or clauses that address the specific requirements of your client when submitting offers for multi-unit properties. Categories of clauses to be included in Schedule A of the Agreement of Purchase and Sale for multi-unit property could include: • • • • • • •

Permissions to enter and showing times Providing financial information and documents Representations and warranties Vacant possession clauses Tenant leases and rents (including deposits) Rent increases and collection Zoning Exam Study Guide

Lesson 7 | Page 7 of 45

In addition to the regular residential items, there is a need for additional conditions or clauses when putting together an offer for multi-unit properties. Question #32: Which of the following categories of clauses are to be included in Schedule A of the Agreement of Purchase and Sale for multi-unit? There are four options. There are multiple correct answers.

1

Permissions to enter and showing times

2

Tenants Assumption Clauses

3

Tenant leases and rents (including deposits)

4

Property assessment

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Lesson 7 | Page 8 of 45

Due Diligence Documents Required by the Buyer

To perform due diligence for the buyer, you will require specific documents from the seller. These documents can either be requested from the seller through the listing brokerage before an offer is made or a clause can be included in an offer stating that the seller agrees to provide the requested documentation within a specified time limit. The required documents include: • Copies of leases • Copy of the rent roll • Confirmation of deposits in trust • Expense history information: generally spanning three years Exam Study Guide

Lesson 7 | Page 9 of 45

Most offers on multi-unit properties will be conditional upon the buyer performing due diligence. This typically involves the buyer and/or the buyer’s solicitor or accountant examining documents supplied by the seller and being satisfied with the results. A number of documents are typically required from the seller in order to perform due diligence. Question #33: Which of the following documents listed would typically be required? There are five options. There are multiple correct answers.

1

Confirmation of deposits in trust

2

A tenant profile listing marital status, number of children plus their ages for all tenants

3

Copy of the rent roll

4

Expense history information

5

Copies of leases

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Lesson 7 | Page 10 of 45

Clauses to Include with an Offer for a Residential Multi-Unit Property

The clauses that are added to Schedule A on the Agreement of Purchase and Sale address the specific requirements of the buyer. Some clauses such as those for due diligence may remain standard and the wording will require little or no adjustment. Other clauses that deal with particular, such as tenancy and zoning, will need to be adjusted according to the property. You need to be familiar with the clauses that relate to multi-unit properties and how they are used. The clauses are grouped according to basic purpose: • Inspection clauses • Environmental clauses • Due diligence clauses • Finance and insurance clauses Exam Study Guide

• Representation and warranty clauses • Rent clauses • Vacant possession, chattels, and zoning

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Lesson 7 | Page 11 of 45

Inspection Clauses

Unlike single-family residential properties where you likely have a straight forward inspection by a third-party home inspector, a residential multi-unit property inspection may take significantly more time and co-ordination. You will have tenants to co-ordinate with, a higher cost, and you may need to bring in more than one third-party professional. It will take longer to perform the due diligence necessary. The following six sections contain information about the various clauses that would apply to inspections. This is a universal clause applicable to both single-family and multi-unit residential Inspection of property – third party property. What is different is the process. The third-party inspector will be inspecting

the multiple units in the building. The broad clause does not specify what type of report you will obtain. This allows you to inspect and bring in the third-parties necessary to inspect. Amendment: You could be specific about the systems being inspected, such as mechanical systems, electrical systems, structural or roof, etc. It is best to leave it broad to cover your scope.

As an example, the following clause could be used for this purpose: This Offer is conditional upon the inspection of the subject property by and the obtaining of a report satisfactory to the Buyer at the Buyer’s own expense. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than p.m. on the day of_______, 20___ , that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. The Seller agrees to co-operate in providing access to the property for the purpose of this Exam Study Guide

inspection. This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein.

Retrofit Ontario Fire Code Inspection of property – general inspection

Retrofit is legislation 9.8 contained in the Ontario Fire Code is designed to bring existing buildings up to a reasonable level of life safety. Residential buildings with two dwelling units must meet the retrofit safety regulations and is the responsibility of the owner of the property to comply with the legislation. An APS should be conditional on the buyer obtaining an inspection report of the property (OREA clause INSP-09) to ensure the property is in compliance with the Fire Protection Act, 1997 and the retrofit legislation. As an example, the following clause could be used for this purpose: This Offer is conditional upon the inspection of the subject property at the Buyer’s own expense, and the obtaining of a report satisfactory to the Buyer in the Buyer’s sole and absolute discretion respecting retrofitting pursuant to and in compliance with the Fire Protection and Prevention Act, 1997, and its regulations as amended from time to time. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than ________ p.m. on the________ day of ___________, 20______, that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. The Seller agrees to co-operate in providing access to the property for the purpose of this inspection. This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein.

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Retrofit electrical inspection of property - general inspection

Electrical safety is one of the five requirements in the retrofit legislation. To ensure the electrical wiring is safe and complies with the retrofit legislation. An APS should be conditional on the buyer obtaining an inspection of the property (OREA clause INSP10) conducted by the Electrical Safety Authority (ESA) to ensure the property is in compliance. As an example, the following clause could be used for this purpose: This Offer is conditional upon the inspection of the subject property at the Buyer’s own expense, and the obtaining of a report satisfactory to the Buyer in the Buyer’s sole and absolute discretion respecting retrofitting pursuant to and in compliance with the Electricity Act, 1998, and its regulations as amended from time to time. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than p.m. on the day of _ , 20 _, that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. The Seller agrees to co-operate in providing access to the property for the purpose of this inspection. This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein.

Inspection of systems

Universal to both single-family and multi-unit dwellings, this clause is about giving consent for professionals to inspect the systems. It is used in conjunction with INSPEC7. Amendment: You may include other components of a building, i.e., roof or structural components. As an example, the following clause could be used for this purpose: Upon acceptance of this Offer, the Buyer shall be allowed to enter the premises, from time to time, after permission from the Seller, for the purpose of obtaining information about heating and electrical systems, maintenance, and any other related Exam Study Guide

utility service for the building.

Seller’s consent for photos and videos

Unlike single-family, the seller may not sign this consent. Landlords and salespersons are not allowed to take pictures of a property while it is occupied by a tenant unless the tenant provides their express consent. It is required that the landlord gets each tenant to fill in a consent and include it with the agreement in order to take photos of their unit. NOTE: This clause may be added to an inspection condition (e.g., appraisal, home inspection, when there is an expectation that photos/videos will be taken by the third party). Amendment: The seller is permitted to give consent to the outside and hallways. As an example, the following clause could be used for this purpose: The Seller(s) acknowledge(s) and consent(s) to a third party taking photographs/videos of the property as required for the purpose of an inspection.

Right of inspection and re-inspection

This clause allows access for third-parties to go through the property prior to completion. If the inspection(s) is/are required to assist in fulfilling conditions, the clause should state that the inspection(s) will take place prior to expiry of the conditions. A second clause gives the buyer the right to go back through the property. As an example, the following clauses could be used for this purpose: This clause provides for the buyer and third party individuals to have access to the property as required for the buyer to fulfil the conditions contained in the APS. From INSP-14: Right of inspection ©2019 Ontario Real Estate Association. All rights reserved. Used under license. The right to inspect the property prior to closing is the buyer's last chance to verify that: 1) the home is in the same condition as when the buyer last saw it, Exam Study Guide

2) the appliances and major systems work properly, 3) the seller didn't remove any fixtures or other items that were identified to be included in the APS.

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Lesson 7 | Page 12 of 45

Environmental Clauses Environmental clauses help determine whether environmental laws and regulations have been complied with such as: • No hazardous conditions or substances exist on the land • No limitations or restrictions affecting the continued use of the property exist • No pending litigation respecting environmental matters exists • No outstanding Ministry of Environment orders, investigation, charges or prosecutions respecting environmental matters exist, etc. These clauses should also seek co-operation of the seller for environmental site assessment. They seek authorization to obtain information from any specific ministry regarding the property. The buyer would be required to return the property to its original condition following the investigation. The following three sections contain information about the various clauses that ensure you provide adequate time and scope for environmental clauses.

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All environmental laws complied with

This clause is for ensuring all environmental laws have been complied with. In multiunit residential, this would include old oil tanks that are often seen in rural communities. As an example, the following clauses could be used for this purpose: This Offer is conditional upon the Buyer determining, at the Buyer’s own expense that all environmental laws and regulations have been complied with, no hazardous conditions or substances exist on the land, no limitations or restrictions affecting the continued use of the property exist, other than those specifically provided for herein, no pending litigation respecting Environmental matters, no outstanding Ministry of Environment Orders, investigation, charges or prosecutions respecting Environmental matters exist, there has been no prior use as a waste disposal site, and all applicable licenses are in force. The Seller agrees to provide to the Buyer upon request, all documents, records, and reports relating to environmental matters in possession of the Seller. The Seller further authorizes (insert appropriate Ministry), to release to the Buyer, the Buyer’s Representative or Solicitor, any and all information that may be on record in the Ministry office with respect to the said property. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than p.m. on the day of , 20 _, that the preceding condition has been fulfilled, this Offer shall become null and void and the deposit shall be returned to the Buyer in full without deduction. This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein.

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Environmental legislation – lawyer’s approval and acknowledgement

This clause ensures that environmental legislation is complied with. This would impact a buyer who wants to buy property in a protected area and plans to expand to make another unit. Due diligence would be needed to ensure that it is possible. As an example, the following clauses could be used for this purpose: This Offer is conditional upon the approval of the terms hereof by the Buyer’s Solicitor. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than__p.m. on the _ day of , 20 , that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein. The Buyer and Seller hereby acknowledge that enactments and proposed enactments by the Federal, Provincial and Municipal Governments may have an impact on the use of land. The Buyer and Seller hereby acknowledge that the foregoing condition is inserted specifically to allow the Buyer to obtain legal advice as to the potential impact of Federal, Provincial and Municipal laws and enactments and Regulations made thereto that may affect the subject property, presently or in the immediate future. The Buyer and Seller further acknowledge that such opinions fall outside the qualifications and ability of the Brokerage and accordingly, the Buyer and Seller hereby agree that they shall hold harmless and indemnify the Brokerage from any claims, actions or causes of action that may be the result of such Legislation or future enactments.

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Environmentally protected zone, flood plain, or hazard land

This clause is to ensure that the due diligence is done to ensure that protected zones are respected and the buyer is aware of them. In a multi-unit property this may prohibit expansion to make another unit. As an example, the following clauses could be used for this purpose: This Offer is conditional upon the Buyer determining, at the Buyer’s own expense, that no portion of the property has been designated as hazard land, flood plain, or an environmentally protected zone. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than p.m. on the _ day of , 20 , that this condition has been fulfilled, this Offer shall become null and void and the deposit shall be returned to the Buyer in full without deduction. This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein.

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Lesson 7 | Page 13 of 45

Due Diligence Clauses As a salesperson, due diligence is your duty according to the Code of Ethics, Section 5. These due diligence clauses are universal to single-family and multi-unit residential dwellings. In the case of multi-unit dwellings, you will want to include both the seller and the buyer clauses to ensure: • Parties carry out the appropriate level of due diligence • The seller provides the appropriate due diligence documents The following two sections contain information about the clauses that apply to due diligence.

Lawyer’s approval – Buyer

This clause allows the buyer to speak with a lawyer. This would be used to provide insight in regards to an item or concern the buyer may have about the clauses that have been inserted. As an example, the following clauses could be used for this purpose: This Offer is conditional upon the approval of the terms hereof by the Buyer’s Solicitor. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than___p.m. on the___day of ____, 20 ___, that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. This condition is included for the benefit of Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein.

Lawyer’s approval – Seller

This clause allows the seller to speak with a lawyer to provide insight in regards to an item or concern the seller may have about the clauses that have been inserted. As an example, the following clauses could be used for this purpose: This Offer is conditional upon the approval of the terms hereof by the Seller’s Solicitor. Unless the Seller gives notice in writing delivered to the Buyer or to the Buyer’s address as hereinafter indicated personally or in accordance with any other provisions for the Exam Study Guide

delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than p.m. on the day of _ , 20 , that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. This condition is included for the benefit of Seller and may be waived at the Seller’s sole option by notice in writing to the Buyer as aforesaid within the time period stated herein.

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Lesson 7 | Page 14 of 45

Finance and Insurance Clauses Inclusion of mortgage and insurance clauses with an offer are universal to all transactions. Since arranging financing and insurance for a multi-unit property can be more complicated, the given clauses allow the buyer flexibility to find solutions that best suit their needs. The following two sections contain information about the clauses that apply to financing and insurance.

Arranging new mortgage satisfactory to buyer

This clause is broadly used due to the flexibility it allows for multi-unit financing. The clause will stipulate a time frame in order to negotiate terms, appraisal, and other requirements a lender may have. NOTE: Sellers should be aware that this condition does not contain any specific terms of the proposed financing buyers wish to arrange and thus provides buyers with more latitude in declining financing. Buyers using this clause should be advised they have an obligation to make a “good faith” effort to arrange the necessary financing and should not use this clause inappropriately as a means to cancel the transaction. As an example, the following clauses could be used for this purpose: This Offer is conditional upon the Buyer arranging, at the Buyer’s own expense, a new Charge/Mortgage satisfactory to the Buyer in the Buyer's sole and absolute discretion. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than____p.m. on the___day of___, 20___, that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein.

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Arranging insurance

The requirement for insurance coverage for multi-unit dwellings may have complexities. There may be outdated systems that may need to be upgraded in order to qualify for insurance. This clause allows the buyer to nullify the transaction should the property be uninsurable or the cost of the premium be unacceptable to the buyer. As an example, the following clauses could be used for this purpose: This offer is conditional on the Buyer arranging insurance for the property satisfactory to the Buyer in the Buyer’s sole and absolute discretion. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than________ p.m. on the________ day of ___________, 20______, that this condition is fulfilled, this offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. The Seller agrees to co-operate in providing access to the property, if necessary, for any inspection of the property required for the fulfillment of this condition. This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein.

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Lesson 7 | Page 15 of 45

Representation and Warranty Clauses Representation is an assertion of fact. The warranty is a promise of protection if it is false. Warranties are key to ensure the seller is being truthful. As a result, clauses for representation and warranties are an important part of due diligence and are key clauses to include. The following two sections contain information about the clauses that that would apply to representation and warranties.

Seller representations An important clause related to the condition of the property. The seller is representing and warranting that on closing, the components listed are in good condition. The – General representation only applies to the condition of the components on completion. If damage is discovered on closing, the buyer’s right to recourse against the seller under the warranty would continue after closing. However, if the components developed damage after closing, the warranty would not apply. As an example, the following clauses could be used for this purpose: The Seller represents and warrants that on completion: (e.g., There is no known damage to the basement, roof, or elsewhere caused by water seepage or flooding.) The Parties agree that these representations and warranties shall survive and not merge on completion of this transaction, but apply only to the state of the property at completion of this transaction.

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Warranties – Survive completion

Unless stated otherwise, warranties and representations merge on completion, meaning that they no longer apply. In order to prevent that from happening, this clause could be added to an agreement. The seller should be cautioned that this clause would make them liable indefinitely. It is unlikely that a seller would agree to this. Amendment: In a multi-unit situation, if you can’t produce the documentation to confirm a representation in the agreement, you don’t want the seller’s warranty to apply to the property indefinitely. In this situation you would add the words “but apply only to the state of the property at completion of this transaction”. As an example, the following clauses could be used for this purpose: The Parties agree that the representations and warranties stated herein shall survive and not merge on completion of this transaction.

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Lesson 7 | Page 16 of 45

The buyer, Talia, would like assurances that the appliances included in the purchase are in good working condition. The salesperson inserts the following clause in the offer. “The seller represents and warrants that the appliances included in the agreement are in good working condition and this representation and warranty shall survive and not merge on completion of this transaction”. Question #34: If the offer is accepted, what effect does this clause have on

the seller of the property? There are four options. There is only one correct answer.

1

The seller would be liable for the condition of the appliances up until closing but not after.

2

The seller would be responsible for the condition of the appliances indefinitely.

3

The representation that the appliances are in good working condition would survive completion but the buyer’s ability to have recourse against the seller would be extinguished at completion.

4

Regardless of the wording of the clause, under contract law, all representations and warranties end on the completion date.

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Rent Clauses Rent clauses are specific to multi-unit residential properties. They ensure: • Due diligence • Confirmation of the information • Representations from the seller are true • Confirmation of the revenue and expense estimates The following six sections contain information about rent.

Rent increases

In a situation where rents will be increased prior to the closing, this clause is necessary. Otherwise the rents cannot be changed until the buyer takes possession of the property. Another clause is used in a situation when tenants are in place and no rent increases will be implemented prior to completion. 1. As an example, the following clauses could be used for this purpose: The Seller shall, at the earliest legally permitted time prior to completion, give notices of rent increases, at the statutory rate or as otherwise agreed between the Buyer and the Seller, and provide the Buyer with proof of proper service thereof. 2. Pending completion, the Seller shall not give any notices of rent increases.

Notices to tenants The seller has agreed to advise the tenants that a new owner is taking over the property of new owner and that all future rents will be paid to the buyer. NOTE: Lawyers for parties will treat rent deposits and interest thereon as part of the adjustment process. As an example, the following clause could be used for this purpose:

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Upon completion, the Seller shall provide the Buyer with a notice to all tenants advising them of the new owner and requiring all future rents to be paid as the Buyer directs. The Seller will pay to the Buyer any rent paid to the Seller in error or in violation of the direction for a period of months following completion, after which period the Seller may refuse to accept rent from tenants or return it to them.

No warranty re legality of rents

This clause confirms the unit numbers, what a tenant currently pays, and when the last rent increase took place. This information is important to cross check rent rolls and ensure the due diligence is done and information is accurate. NOTE: Additional categories may be used to expand tenancy information: Apartment Number, Tenant Name, Type of Tenancy, Expiry Date, Rent Due Date, Prepaid Rent, and Tenancy Particulars (Items included in Rent). NOTE: The actual lease documents should be attached as a schedule to the agreement. If there are too many documents, consider making the offer conditional upon inspection of tenancy agreement. As an example, the following clause could be used for this purpose: The Seller represents and warrants, to the best of the Seller’s knowledge and belief, that the current actual rents are: Unit Current Rent Last Increase (Date /Amount) _ _ _ The Parties agree that this representation and warranty shall survive and not merge on completion of this transaction, but apply only to those circumstances existing at completion of this transaction. The Parties also agree that the warranty given is as to actual rents only, and does not extend to the legality of the rents.

Rent – General warranty by seller

This is a warranty by a seller that they have complied with any legislation or relevant rent review increases. As an example, the following clause could be used for this purpose: Exam Study Guide

The Seller represents and warrants, to the best of the Seller’s knowledge and belief that, during the period of the Seller’s ownership, the property has been rented in accordance with Landlord and Tenant legislation and that any rent increase has been effected in accordance with relevant rent review legislation. The Parties agree that this representation and warranty shall survive and not merge on completion of this transaction, but apply only to those circumstances existing at completion of this transaction. This is a warranty by a seller that there have been no disputes with tenants. It is an Seller warranty regarding disputes affirmation of the quality of the relationship a landlord has with their tenants. As an example, the following clause could be used for this purpose: The Seller represents and warrants, to the best of the Seller’s knowledge and belief, that there are no disputes between the Seller as landlord and any tenant as to the state of repair of the leased premises, the payment of rents, contravention of applicable rent review legislation for residential tenancies, or other material items concerning the tenants’ lease agreements other than as specifically set out in this Agreement of Purchase and Sale. The Parties agree that these representations and warranties shall survive and not merge on completion of this transaction, but apply only to those circumstances existing at completion of this transaction.

Renegotiation of leases

This clause ensures the seller does not renegotiate any tenancy agreement without the buyer’s consent or instruction. Another clause gives the seller the authority to renegotiate a lease on behalf of the new buyer. As an example, the following clause could be used for this purpose: 1. Unless otherwise agreed between the Buyer and the Seller, the Seller shall not renegotiate any leases after this Agreement becomes unconditional. 2. The Seller shall make reasonable attempts to renegotiate leases with current tenants [for terms not to exceed years] as agreed between the Buyer and Seller.

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Lesson 7 | Page 18 of 45

Other Clauses Applicable to Multi-Unit Dwellings The given clauses are not unique to multi-unit dwellings. They are typical of any agreement of purchase and sale. What is unique to these clauses is the amount of detail and process associated with them. Vacant possession is not as simple as a single-family residential transaction. Tenants are involved who are owed due process and notice. With chattels there are more components included such as multiple water heaters, furnace rentals, appliances, etc. Zoning is affected by the number of units and what the municipality has zoned the area for. Compliance is mandatory. Without it there is the possibility a unit may not be permitted. The following four sections contain information about additional clauses that apply to multi-unit residential properties. Should a buyer plan to move into a unit, this is a clause that would be needed. Vacant possession/notices NOTE: Due to the current state of Landlord and Tenant Law, the seller will not be able to “guarantee” vacant possession on completion if a tenant refuses to vacate. As an example, the following clause could be used for this purpose: The Buyer hereby authorizes and directs the Seller, and the Seller agrees, when this Agreement becomes unconditional, to give to the tenant(s) the requisite notices under the Residential Tenancies Act, requiring vacant possession of the property for use by the Buyer or the Buyer’s immediate family, effective as of the ___day of ___, 20 ___, and the seller agrees to deliver copies of the requisite notices to the Buyer immediately after service of the notices upon the tenant. The Buyer and the Seller hereby agree in the event that the tenant fails to vacate the property prior to completion of the transaction, the Buyer agrees to assume the existing tenant upon completion of this transaction. Upon vacant possession being provided to the Buyer, the Buyer or the Buyer’s immediate family agrees to take possession of and occupy the property forthwith thereafter. The Buyer agrees to provide the Seller with a written indemnity on completion, indemnifying the Seller from all actions, causes of action, claims and demands of any kind whatsoever, that may occur in the event that the Buyer does not take possession of and occupy the property as aforesaid. Exam Study Guide

Chattels – good working order

This clause is to have the seller represent and warrant that all the chattels will be in good repair, fully functional, and without any liens on closing. Another clause is to have the seller represent and warrant that all the equipment will be in good repair and fully functional. Amendment: This clause should be amended as required. Delete the equipment that doesn’t apply. As an example, the following clauses could be used for this purpose: 1. The Seller represents and warrants that the chattels and fixtures as included in this Agreement of Purchase and Sale will be in good working order and free from all liens and encumbrances on completion. The Parties agree that this representation and warranty shall survive and not merge on completion of this transaction, but apply only to the state of the property at completion of this transaction. 2. The Seller warrants that all the mechanical, electrical, heating, ventilation, air conditioning systems, air compressors, elevators, conveyor systems, sprinkler systems, boilers, and all other equipment on the real property shall be in good working order on completion. The Parties agree that this warranty shall survive and not merge on completion of this transaction, but apply only to those circumstances existing at the completion of this transaction.

Chattels – fixtures and rental items

This clause is to confirm that the fixtures installed are included with the property. Amendments: You would amend this if a tenant has installed a fixture and it will not be included in the sale of the property. This clause identifies any rental items on a property and that they are not included in the purchase price. NOTE: A variety of items may be rentals (e.g., hot water tank, air conditioner, water softener, furnace, furnace burner, etc.). Care must be taken to ensure all rentals are documented. As an example, the following clauses could be used for this purpose: 1. All lighting fixtures on the premises are included in the purchase price and are to be Exam Study Guide

in good working order on completion. 2. The following equipment is rented and not included in the Purchase Price. The Buyer agrees to assume the rental contract(s) if assumable: (item) having a payment of $

Zoning

, (monthly, quarterly, etc.)

Although universal, there are unique applications of this clause to multi-unit residential properties. These would include situations where there is an accessory dwelling unit requiring compliance with Building, Fire, and Electrical Codes and multi-residential zones such as duplex, triplexes, and fourplexes. As a result of these types of properties, zoning becomes very important because it allows for confirmation of permitted uses that will apply to those property types. NOTE: This clause is often used in conjunction with No warranty re legality of rents. 1. As an example, the following clause could be used for this purpose: 2. The Seller warrants that the lands are zoned as of .

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under bylaw

for the municipality

Lesson 7 | Page 19 of 45

Talia, the buyer, wants to move in to the main floor unit where a tenant is currently living on a month-to-month basis. She will keep renting the second floor unit to the existing tenant. Question #35: What clauses should Rita, the salesperson, include in the agreement of purchase and sale to address the buyer's use of the main floor and the second floor units? There are five options. There are multiple correct answers.

1

Vacant Possession/Notices

2

Increase of Rent With Notices Prior to Completion of Sale

3

Seller warranty regarding disputes

4

Notices to tenants of new owner

5

Seller to Renegotiate Leases

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Overview of an Offer Plan When your buyers are ready to make an offer, a leading practice is to begin by drafting an offer plan to use as the framework for the offer. The offer plan is a tool that will help you save time and reduce errors by identifying any gaps in the information you have before you begin the agreement.

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The Offer Plan Preparing an offer plan for a multi-unit residential property is very similar to the process for a single-family property. The plan is an outline of the key information without all of the details. As salesperson for the buyer, the plan may point out areas that are not clear and where you need to do your due diligence to gain a better understanding or to gather more documentation. The whole purpose is to ensure you are able to represent your client’s best interests on the agreement of purchase and sale. To illustrate the offer plan, begin by reading the scenario.

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Maisie Phine and Peter Allesius have been looking for a multi-unit for several months. They want a duplex or triplex that they can live in and receive rent from tenants to off-set their mortgage. They are represented by Casia Hamakin of ABC Real Estate Inc. at 1499 North Street, AnyCity, AnyRegion (tel: 555-393-1110 or fax: 555-333-1213). It has taken a while, but they have finally found a property that Maisie and Peter are interested in. It is a duplex, with two units side by side with separate entrances. The property addresses are 1455 and 1457 Main St., AnyCity, ON. The duplex is 15 years old and currently has two tenants. Because Maisie and Peter would like to live in one unit, one of the tenants will need to vacate. Both tenants are on a month-by-month rental arrangement. The monthly rental for each unit is $1500 plus utilities which are billed directly to the tenant. The property is owned by Harry Formont. He is represented by Lora Vereese of XYZ Realty Ltd., at 555 End Street, AnyCity, AnyRegion, (tel: 555-441-1121 or fax: 555-666-1001). Harry has made sure the property was well maintained. The appliances in each unit (fridge, stove and built-in dishwasher) were all replaced with new ones three years ago. The tenant at 1455 has been renting the unit for the past three years, has an excellent payment record and would like to continue the rental arrangement. The tenant at 1457 has only been renting for the past year, has an irregular payment history and has expressed doubts that they will stay much longer in the unit. The property is legally described as Lot 91, Plan 400 with a lot size of 110 feet by 150 feet. It is listed at $750,000. When Maisie and Peter viewed the property, they noticed several concerns. The smoke alarm doesn’t seem to work in the unit at 1457 Main Street. The owner explained that the alarm has gone off several times in the past for no reason and the tenant may have removed the batteries. The air conditioning in 1455 is very loud and seems to run sporadically. In anticipation of an offer, Casia made note of the brand and serial numbers of each of the appliances that would be included in the purchase price. Maisie and Peter have just sold their current home for $500,000. They are hoping to offer $735,000 with a deposit of $35,000. If the offer is accepted, they will need to arrange a mortgage of $500,000 at a rate no more than 4% for 5 years. The buyers, after further discussion of their concerns with each of the properties and the irregular rental payment history of the current tenant at 1457 Main St, they have determined 1457 Main St is the preferred property they will request vacant possession of for their own personal use.

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Now that Maisie and Peter have decided on a property, Casia, their representative, has completed an offer plan to get ready for drafting the offer. At the top of the ‘Offer Plan – Residential Real Property – Residential Duplex Dwelling’ form, the names of seller and buyer are identified along with any other information that is available. The full legal names may need to be confirmed. Under the ‘Summarize offer mathematics’ section, the deposit amount and how it will be paid (herewith, upon acceptance etc.) is identified and the calculation for balance due is completed. In this case, the deposit is subtracted from the offer price which yields the balance. Under the ‘Identify dates’ section, the key dates are identified to ensure there is no overlap or conflict. The irrevocable time period is sufficient and will ensure the seller makes a decision in a timely fashion. The completion date includes a couple of extra weeks added to the 60 days’ notice period required by the tenant to vacate the unit for the buyer. Under the ‘List required information to be included on a schedule’ section, the clauses are identified based on concerns from the buyers such as a requirement for an inspection, insurance and mortgage; transaction requirements such as arranging for a tenant to vacate the unit and recognizing the tenancy in one unit. Due dates are also identified for conditions. Under the ‘Identify any additional information required for the offer’ section, additional information requirements are identified that will be used in the offer or for decision-making, such as details on the appliances, details on any appliance rentals to be assumed, tenant rent records, maintenance costs for the units.

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Next Steps

The offer plan has identified a number of areas that Casia needs to investigate further before drafting the agreement of purchase and sale. For example: • Can the clients’ concerns about the smoke alarm be addressed by a building inspection, or will there need to be a separate fire compliance inspection? • Is additional information on compliance needed? • Is there enough time to complete the conditions? E.g. insurance • Is the information on the costs associated with the rental units complete? Exam Study Guide

As part of your due diligence, you would investigate these areas and any other gaps to ensure you are able to provide a complete and correct picture on the agreement of purchase and sale that addresses all of the needs and concerns of your client.

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Similarity and Difference with Single-Family Residential Property Agreement The agreement of purchase and sale for multi-family residential property mirrors an agreement of purchase and sale for a single-family residential property. The offer process, including countering and all other aspects, is also similar. The main difference is in the kind of clauses and conditions used and the documentation necessary. An agreement for a multi-unit is often a complex and lengthy document. The number of schedules included in an offer for a multiunit dwelling would reflect the information required not just about the seller and the property, but also about the tenants and their property.

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Lesson 7 | Page 26 of 45

An Agreement of Purchase and Sale

We will briefly review the agreement and focus on the aspects of the agreement that are different for multi-units. We will continue to follow the buyers, Maisie and Peter, from the offer plan example. Casia, their representative, has gathered all of the information and has completed the agreement. The opening section with seller’s and buyer’s information is standard. This is basic to every agreement of purchase and sale that you would prepare. From OREA Form 100: Agreement of Purchase and Sale ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

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Lesson 7 | Page 27 of 45

Purchase Price and Deposit

The purchase price and the deposit are completed in the same way as a single-family transaction agreement of purchase and sale. A Schedule A is attached and contains the clauses specific to your transaction. From OREA – 2019 Residential and Commercial Clauses. ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

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Clauses 1-2: Irrevocability and Completion Date

Clause 1, Irrevocability, is the same as single-family residential. Clause 2 states that vacant possession shall be given to the buyer unless otherwise provided for in the agreement. Since this is a tenanted property, the appropriate clauses must be added to Schedule A to address the fact that vacant possession will not be given. Since one of the occupied units is to be vacated for use by the buyer Casia includes VAC-1 – Vacant Possession/Notices, in Schedule A to comply with the requirements of the Residential Tenancies Act. This clause impacts the completion date as the tenant has 60 days to vacate the unit from either the end of their fixed term tenancy, or if there is no fixed term, on the last day of a rental period. Otherwise a clause that the buyer agrees to assume the existing tenant should be included on the Schedule A of the APS. If there are other tenants involved, Casia may include Clause Rent 5 – Notices to Tenants of New Owner, in Schedule A to acknowledge notification of the new buyer to the tenants if she feels it is necessary.

From OREA Form 100: Agreement of Purchase and Sale ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

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Clause 3: Notices

Number three: Notices, is standard for both single and multi-units. From OREA Form 100: Agreement of Purchase and Sale ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

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Clauses 4-6: Chattels, Fixtures, and Rental Items

Clauses 4, 5 and 6 address chattels, fixtures, and rental items. This is similar to single-family residential except Casia needs to list all applicable to the units. There may also be tenant possessions that need to be excluded. Some multiunit properties may have tenants who have their own chattels and fixtures and you would need to ensure these are listed. In this case, Casia has listed the brand and serial numbers of the appliances and the water heater rentals. The rentals are part of the costs billed to the tenants by the owner. From OREA Form 100: Agreement of Purchase and Sale ©2019 Ontario Real Estate Association. All rights reserved. Used under license. Exam Study Guide

Lesson 7 | Page 31 of 45

Clause 7: HST

Casia selects from the drop-down: “it’s included in” or “in addition to”. Typically, the norm is “included in”. If there are questions about HST applicability in terms of ownership, advise your client to consult a tax specialist. From OREA Form 100: Agreement of Purchase and Sale ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

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Lesson 7 | Page 32 of 45

Clause 8: Title Search

This clause is important and requires multi-unit considerations. Casia has taken into account any possibility of a longer length of time required for the buyer to complete their due diligence. Title search always takes place after the due date of any conditional clauses to ensure the buyer does not incur unnecessary costs for lawyer’s fees for the title search if the trade is cancelled by one of the clauses. In the second paragraph it is important to insert the correct words to describe its present use of the property. It is important to identify what the zoning allows the property to be legally used as: two-unit building, three-unit building, or single-family home with an accessory dwelling unit, etc. This protects the parties in the agreement of purchase and sale. The seller is protected because they are making an accurate disclosure of the property’s legal use. The buyer is protected because if it turns out that the property’s present use as specified in the clause is not legal, the buyer can terminate the transaction. From OREA Form 100: Agreement of Purchase and Sale ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

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Exam Study Guide

Clauses 9 Through 27

These are all standard legal clauses used with every transaction for a single-unit or multi-unit dwelling. From OREA Form 100: Agreement of Purchase and Sale ©2019 Ontario Real Estate Association. All rights reserved. Used under license. Exam Study Guide

Lesson 7 | Page 34 of 45

Schedule A Casia has added all of the clauses to Schedule A that will address Maisie and Peter’s requirements for the inspection of the property, insurance, and mortgage. Casia also included the balance due clause and a representation and warranty clause for the general condition of the chattels. Two additional clauses deal specifically with the tenants. One of the clauses basically confirms the tenancy for unit 1457. The other clause confirms the seller give notice to the tenant in unit 1455 immediately in order to have the tenant vacate the unit. The following seven sections contain information about each clause.

Balance due

The amount due on closing. The Buyer agrees to pay a further sum of _seven hundred thousand_dollars ($ _700,000_), subject to adjustments, to the Seller on completion of this transaction, with funds drawn on a lawyer’s trust account in the form of a bank draft, certified cheque or wire transfer using the Large Value Transfer System.

Representation and Warranty for the good working order of the chattels. warranty The Seller represents and warrants that the chattels and fixtures as included in this Agreement of Purchase and Sale will be in good working order and free from all liens and encumbrances on completion. The Parties agree that this representation and warranty shall survive and not merge on completion of this transaction, but apply only to the state of the property at completion of this transaction.

Inspection

Condition to conduct an inspection of the property. The inspection by a third party has general inspection requirements and also to confirm fire code compliance and the state of the air conditioning. This Offer is conditional upon the inspection of the subject property by a home inspector at the Buyer's own expense, and the obtaining of a report satisfactory to the Buyer in the Buyer's sole and absolute discretion. Unless the Buyer gives notice in writing delivered to Exam Study Guide

the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than 9:00 p.m. on 18th day of September 2019, that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. The Seller agrees to co-operate in providing access to the property for the purpose of this inspection. This condition is included for the benefit of the Buyer and may be waived at the Buyer's sole option by notice in writing to the Seller as aforesaid within the time period stated herein.

Insurance

Condition to acquire insurance for multi-units. This offer is conditional on the Buyer arranging insurance for the property satisfactory to the Buyer in the Buyer’s sole and absolute discretion. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than 9____p.m. on the 19th __day of__September_, 20_19 , that this condition is fulfilled, this offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. The Seller agrees to co-operate in providing access to the property, if necessary, for any inspection of the property required for the fulfillment of this condition. This condition is included for the benefit of the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein.

Mortgage

Condition to acquire funding at an acceptable rate and time period. This Offer is conditional upon the Buyer arranging, at the Buyer’s own expense, a new first Charge/Mortgage for not less than five hundred thousand_dollars_ ($ 500,000_), bearing interest at a rate of not more than 4_ % per annum, calculated semi-annually not in advance, repayable in blended monthly payments of about _two thousand six hundred and thirty dollars ($ _2630_), including principal and interest, and to run for a term of not less than 5 years from the date of completion of this transaction. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than 9 p.m. on the 19th day of September , 20_19 , that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. This condition is included for the benefit of the Buyer and may be waived at Exam Study Guide

the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein.

Tenancy assumption

Vacant Possession notice

Clause to identify the current tenant who will stay and the rental conditions. The Seller represents and warrants that the property located at 1457 Main St, AnyCity, ON, is occupied by Ida Semeniuk as a monthly tenant at the rate of One Thousand, Five Hundred Dollars ($1,500.00) plus utilities payable on the 1st of each month. The Parties agree that this representation and warranty shall survive and not merge on completion of this transaction but only apply to those circumstances at completion of this transaction. Clause to require the seller to notify the tenant who must vacate the unit for the buyer. The Buyer hereby authorizes and directs the Seller, and the Seller agrees, when this Agreement becomes unconditional, to give to the tenant currently occupying 1457 Main St. AnyCity, ON, the requisite notices under the Residential Tenancies Act, requiring vacant possession of the property for use by the Buyer or the Buyer’s immediate family, effective as of the 13 day of September, 2019, and the seller agrees to deliver copies of the requisite notices to the Buyer immediately after service of the notices upon the tenant. The Buyer and the Seller hereby agree in the event that the tenant fails to vacate the property prior to completion of the transaction, the Buyer agrees to assume the existing tenant upon completion of this transaction. Upon vacant possession being provided to the Buyer, the Buyer or the Buyer’s immediate family agrees to take possession of and occupy the property forthwith thereafter. The Buyer agrees to provide the Seller with a written indemnity on completion, indemnifying the Seller from all actions, causes of action, claims and demands of any kind whatsoever, that may occur in the event that the Buyer does not take possession of and occupy the property as aforesaid.

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Lesson 7 | Page 35 of 45

Signatures and Initials

From OREA Form 100: Agreement of Purchase and Sale ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

Once the offer is ready, Casia reviews it with the clients and each page is initialled and the document is signed and dated. Casia also signs as witness to the signatures. The offer is sent to the listing brokerage who reviews it with the seller.

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Lesson 7 | Page 36 of 45

Overview of a Counter Offer

Once the seller receives an offer, they have three options: to accept, reject or counter the offer. As a salesperson you and your clients need to be prepared for all three possibilities. When an offer is countered by the seller, this can start a process of negotiation with the buyer until agreement is reached or the offer is rejected.

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The Counter Offer

To review the counter offer process we will continue our scenario with the buyers, Maisie and Peter. They submitted an offer to the seller on September 12 with an irrevocable, until September 13. On September 13, the listing agent returned the offer. The seller has signed and initialled a counter offer. The completion date on the agreement of purchase and sale has been crossed out along with the title search date and a new completion date and title search date written in. The seller has initialled the changes. A new irrevocable date has also been added to give the buyers time to consider it all. The seller does not want the completion date to be November 25. This date is two weeks later than the 60 days’ limit required for the tenant to vacate the property and was chosen to give some flexibility in case there was any damage to the unit that needed repair or other difficulties to be solved. The seller wants the completion date to be moved to November 13, which is just two days after the deadline for vacating the property. The seller has travel plans that require him to be out of the country from November 14 onwards. The title search date has also been changed to October 15 to ensure there is enough time to handle any issues before the new completion date. From OREA Form 100: Agreement of Purchase and Sale ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

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Lesson 7 | Page 38 of 45

Accepting a Counter Offer

Although Maisie and Peter were concerned about the risk in having such a short time from vacancy deadline to completion date, after speaking with the listing salesperson, Casia was able to give them additional information that explained the change. The tenant has indicated they will leave much earlier than the 60 days’ limit and so the seller feels he can manage any requirements within the time frame. Maisie and Peter can accommodate the new dates and agree to the counter offer. The date of acceptance of the counter offer is September 14, 2019.

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Accepting a Counter Offer

Exam Study Guide

To accept a counter offer from the seller, the buyer must do the following: • Initial all changes made by the seller • Complete and sign the Confirmation of Acceptance on the agreement of purchase and sale • Complete and sign the Acknowledgement portion of the agreement of purchase and sale

From OREA Form 100: Agreement of Purchase and Sale ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

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Lesson 7 | Page 40 of 45

Accepting a Counter Offer

As the salesperson for the buyer, when accepting the counter offer, Casia is required to perform the following: • Provide a copy of the accepted offer to each buyer • Sign the Remuneration or Commission Trust Agreement on the Agreement of Purchase and Sale and obtain the listing brokerage’s signature when providing documents to the listing salesperson • Provide copies of the accepted offer to the listing salesperson • Retain a copy of the accepted offer for the brokerage’s records As the listing salesperson, Lora, provides a copy of the accepted offer to the seller and obtains his information and signature in the Acknowledgement portion. A copy of the accepted offer is also retained for the brokerage’s records. From OREA Form 100: Agreement of Purchase and Sale ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

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Lesson 7 | Page 41 of 45

Scenario Rita Simmonds, salesperson of XYZ Realty Inc., has been helping her new client, Talia Jordan, find a duplex. She wants to occupy the main floor space and rent out the second floor to offset the mortgage cost. Rita has found a 25-year-old duplex property at 123 Smith Street, Anyville, in the Township of Abbotsford. It is fronting on the north side of the street and has a 100 foot x 150 foot lot. The property is legally described as Lot 52, Plan 888. The asking price is $530,000. The list of income and expenses have been provided by the seller, Heather Tellman. The seller is being represented by John Sewell at ABC Realty Ltd. Appliances are owned by the seller and are being sold with the property. There is a Cookright Stove, Freezeright Fridge, and Acme Built-in Dishwasher in each unit. The apartment-sized washer and dryer on the main floor belong to the tenant and are not included in the sale. The original oil furnaces were converted to gas 15 years ago. No confirmation has been provided that the Exam Study Guide

underground oil tanks have been removed. The two tankless hot water units have both recently been upgraded and there is a rental fee of approximately $90.00 per month expiring July 21, 2029. There are currently two tenants that occupy the building. Both moved in two years ago and are now month-tomonth tenancies. Talia has been approved for a 70% first mortgage with a down payment of $150,000. She is hoping to put in an offer of $500,000 with a deposit of $25,000 payable on acceptance to the listing brokerage, ABC Realty Ltd. The offer will be irrevocable for 24 hours with a closing date of 90 days from the date of the offer. Talia requires vacant possession of the main floor unit, so the proper notification would have to be given. The rent on the second floor unit is $2,000 but hasn’t been raised since they moved in. Talia is considering raising the rent but will wait until after she moves into the building.

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Rita needs to prepare an offer plan prior to completing the Agreement of Purchase and Sale. Based on the given scenario, Rita would fill in the first part of the offer plan as follows. • Address is ‘123 Smith Street, Anyville, Township of Abbotsford, Lot 52, Plan 888, North side of the road, 100 foot x 150 foot lot’ • Buyer is ‘Talia Jordan’ • Sellers is ‘Heather Tellman’ • Offer price is ‘500,000’ • Deposit is ‘25,000’ • To be paid ‘upon acceptance to ABC Realty Ltd.

Exam Study Guide

Scenario Rita Simmonds, salesperson of XYZ Realty Inc., has been helping her new client, Talia Jordan, find a duplex. She wants to occupy the main floor space and rent out the second floor to offset the mortgage cost. Rita has found a 25-year-old duplex property at 123 Smith Street, Anyville, in the Township of Abbotsford. It is fronting on the north side of the street and has a 100 foot x 150 foot lot. The property is legally described as Lot 52, Plan 888. The asking price is $530,000. The list of income and expenses have been provided by the seller, Heather Tellman. The seller is being represented by John Sewell at ABC Realty Ltd. Appliances are owned by the seller and are being sold with the property. There is a Cookright Stove, Freezeright Fridge, and Acme Built-in Dishwasher in each unit. The apartment-sized washer and dryer on the main floor belong to the tenant and are not included in the sale. The original oil furnaces were converted to gas 15 years ago. No confirmation has been provided that the underground oil tanks have been removed. The two tankless hot water units have both recently been upgraded and there is a rental fee of approximately $90.00 per month expiring July 21, 2029. There are currently two tenants that occupy the building. Both moved in two years ago and are now month-tomonth tenancies. Talia has been approved for a 70% first mortgage with a down payment of $150,000. She is hoping to put in an offer of $500,000 with a deposit of $25,000 payable on acceptance to the listing brokerage, ABC Realty Ltd. The offer will be irrevocable for 24 hours with a closing date of 90 days from the date of the offer. Talia requires vacant possession of the main floor unit, so the proper notification would have to be given. The rent on the second floor unit is $2,000 but hasn’t been raised since they moved in. Talia is considering raising the rent but will wait until after she moves into the building.

Exam Study Guide

Lesson 7 | Page 43 of 45

Based on the given scenario, Rita would fill in the offer plan as follows. • Amount due on closing is ‘475,000’ • Condition 1 is ‘Retrofit status’ • Condition 2 is ‘Environmental’ • Condition 3 is ‘Systems inspection’ • Condition 4 is ‘Financing’ • Condition 5 is ‘Insurance’

Exam Study Guide

Scenario Rita Simmonds, salesperson of XYZ Realty Inc., has been helping her new client, Talia Jordan, find a duplex. She wants to occupy the main floor space and rent out the second floor to offset the mortgage cost. Rita has found a 25-year-old duplex property at 123 Smith Street, Anyville, in the Township of Abbotsford. It is fronting on the north side of the street and has a 100 foot x 150 foot lot. The property is legally described as Lot 52, Plan 888. The asking price is $530,000. The list of income and expenses have been provided by the seller, Heather Tellman. The seller is being represented by John Sewell at ABC Realty Ltd. Appliances are owned by the seller and are being sold with the property. There is a Cookright Stove, Freezeright Fridge, and Acme Built-in Dishwasher in each unit. The apartment-sized washer and dryer on the main floor belong to the tenant and are not included in the sale. The original oil furnaces were converted to gas 15 years ago. No confirmation has been provided that the underground oil tanks have been removed. The two tankless hot water units have both recently been upgraded and there is a rental fee of approximately $90.00 per month expiring July 21, 2029. There are currently two tenants that occupy the building. Both moved in two years ago and are now month-tomonth tenancies. Talia has been approved for a 70% first mortgage with a down payment of $150,000. She is hoping to put in an offer of $500,000 with a deposit of $25,000 payable on acceptance to the listing brokerage, ABC Realty Ltd. The offer will be irrevocable for 24 hours with a closing date of 90 days from the date of the offer. Talia requires vacant possession of the main floor unit, so the proper notification would have to be given. The rent on the second floor unit is $2,000 but hasn’t been raised since they moved in. Talia is considering raising the rent but will until after she moves into the building. List of Possible Conditions or Terms Retrofit Inspection Inspection of systems Environmental Lawyer approval Mortgage Exam Study Guide

Insurance Representation / Warranties Rent

Exam Study Guide

Lesson 7 | Page 44 of 45

Appliances are owned by the seller and are being sold with the property. There is a Cookright Stove, Freezeright Fridge, and Acme Dishwasher in each unit. The apartment-sized washer and dryer on the main floor belong to the tenant and are not included in the sale. The original oil furnaces were converted to gas 15 years ago. No confirmation has been provided that the underground oil tanks have been removed. The two tankless hot water units have both recently been upgraded and there is a rental fee of approximately $90.00 per month expiring July 21, 2029. Based on this information in the given scenario, Rita would fill in the offer plan as follows. • Chattels are ‘2 Cookright Stoves, 2 Freezeright Fridges, and 2 Acme Dishwashers; not included are clothes washing machine and dryer on main floor’ • Fixtures are ‘N/A’ • Rental items are ‘2 tankless hot water units, $90.00/mo. term ending July 1, 2029’ • Other is ‘N/A’

Exam Study Guide

Scenario Rita Simmonds, salesperson of XYZ Realty Inc., has been helping her new client, Talia Jordan, find a duplex. She wants to occupy the main floor space and rent out the second floor to offset the mortgage cost. Rita has found a 25-year-old duplex property at 123 Smith Street, Anyville, in the Township of Abbotsford. It is fronting on the north side of the street and has a 100 foot x 150 foot lot. The property is legally described as Lot 52, Plan 888. The asking price is $530,000. The list of income and expenses have been provided by the seller, Heather Tellman. The seller is being represented by John Sewell at ABC Realty Ltd. Appliances are owned by the seller and are being sold with the property. There is a Cookright Stove, Freezeright Fridge, and Acme Built-in Dishwasher in each unit. The apartment-sized washer and dryer on the main floor belong to the tenant and are not included in the sale. The original oil furnaces were converted to gas 15 years ago. No confirmation has been provided that the underground oil tanks have been removed. The two tankless hot water units have both recently been upgraded and there is a rental fee of approximately $90.00 per month expiring July 21, 2029.

Exam Study Guide

Lesson 7 | Page 45 of 45

Congratulations, you have completed the lesson! There are five sections on this page with a summary of the key topics that were covered in this lesson.

Reviewing key aspects of an agreement of purchase and sale

In this first topic of our lesson, you learned how to review an agreement of purchase and sale and identify which typical pre-printed clauses are affected by multi-unit dwellings. You learned that you will use the form for an agreement of purchase and sale for a residential property when selling multi-unit properties with four or less units. You reviewed which preprinted clauses will be affected by a multi-unit transaction including: • Completion date: tenancy versus vacant possession • Chattels: a tenant may own the appliances • Fixture: tenant may have installed fixtures • Documents and discharge: there will be more documentation because of confirmations of leases, tenancy agreements, rent deposits • Inspection: may need inspections for life safety systems • Adjustments: include calculations for rents held on deposit

Writing clauses for multi-unit dwellings

In addition to the regular residential items, there is a need for additional conditions or clauses when drafting an offer for multi-unit properties. These include: • • • • • • •

Permissions to enter and showing times Financial information and documents Representation and warranties Vacant possession clauses Tenant leases and rents (including deposits) Rent increases and collection Zoning

You learned what due diligence is needed to gather additional financial information and documents that will accompany the agreement. These documents would include: Exam Study Guide

• Copies of leases • Copy of the rent roll • Confirmation of deposits in trust • Expense history information (generally spanning three years)

Completing an offer plan

Before creating an offer, you must use your knowledge of multi-unit specific clauses to create an offer plan. • Identify required information • Calculate figures • Establish dates • Itemize clauses for Schedule A • Obtain additional information required for preparing an offer

The whole offer presentation and acceptance process for a multi-unit, including countering Completing an an offer, is similar to a residential property. You reviewed key parts of an offer and agreement of identified what conditions and clauses would be needed in a scenario. purchase and sale

Reviewing how signing would be completed

To complete the process you identified what would be needed to complete a counter offer, and then complete acceptance with signatures and copies of the document.

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Lesson 8 | Page 1 of 9

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 9

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

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Lesson 8 | Page 3 of 9

Scenario Alex Mathew, salesperson of XYZ Realty Inc., has been helping his new client, Darren Marks, find a detached home with an accessory dwelling unit in the basement. He would like to occupy the main floor and rent the accessory dwelling unit. Alex has found an 1,800 square foot detached bungalow with an accessory dwelling in the basement at 456 Smith Street, Anyville, in the Township of Abbotsford. The property is legally described as Lot 88, Plan 200 with a lot size of 66 feet by 188 feet and is on the south side of the street. The list of income and expenses have been provided by the seller, Kimberly Belcourt, being represented by John Sewell at ABC Realty Ltd. They have the home listed at $649,000. Darren has been approved for an 80% first mortgage with a down payment of $125,000. Darren is hoping to put an offer in for $625,000 with a deposit of $15,000 payable to the listing brokerage upon acceptance of the agreement of purchase and sale. The main floor is currently unoccupied and there is an existing tenant in the lower unit. Appliances include a Cookright Stove, Freezeright Fridge, and Acme Built-in Dishwasher in each unit. Each unit has their own hot water tank being rented at $45.00 each per month with a term expiring August 15, 2024. The accessory dwelling unit tenant has been there for three years and has not signed a new lease and therefore is considered a month-tomonth tenant. The rent being paid for the accessory dwelling unit is currently $1,500 and is at market value.

Exam Study Guide

Lesson 8 | Page 4 of 9

Based on the given scenario, Alex would fill out the fields in the form as follows. • Buyer is ‘Darren Marks’ • Seller is ‘Kimberly Belcourt’ • Address is ‘456 Smith Street’, fronting on the ‘South’ side of ‘Smith Street’ in the ‘Anyville, Township of Abbotsford’ and having a frontage of ‘66 feet’ more or less by a depth of ‘188 feet’ and legally described as ‘Lot 88, Plan 200’

Exam Study Guide

Scenario Alex Mathew, salesperson of XYZ Realty Inc., has been helping his new client, Darren Marks, find a detached home with an accessory dwelling unit in the basement. He would like to occupy the main floor and rent the accessory dwelling unit. Alex has found an 1,800 square foot detached bungalow with an accessory dwelling in the basement at 456 Smith Street, Anyville, in the Township of Abbotsford. The property is legally described as Lot 88, Plan 200 with a lot size of 66 feet by 188 feet and is on the south side of the street. The list of income and expenses have been provided by the seller, Kimberly Belcourt, being represented by John Sewell at ABC Realty Ltd. They have the home listed at $649,000. Darren has been approved for an 80% first mortgage with a down payment of $125,000. Darren is hoping to put an offer in for $625,000 with a deposit of $15,000 payable to the listing brokerage upon acceptance of the agreement of purchase and sale. The main floor is currently unoccupied and there is an existing tenant in the lower unit. Appliances include a Cookright Stove, Freezeright Fridge, and Acme Built-in Dishwasher in each unit. Each unit has their own hot water tank being rented at $45.00 each per month with a term expiring August 15, 2024. The accessory dwelling unit tenant has been there for three years and has not signed a new lease and therefore is considered a month-tomonth tenant. The rent being paid for the accessory dwelling unit is currently $1,500 and is at market value.

Exam Study Guide

Lesson 8 | Page 5 of 9

The seller has the home listed at $649,000. Darren has been pre-approved for $500,000 mortgage with a down payment of $125,000. Darren is hoping to put an offer in for $625,000 with a deposit of $15,000 upon acceptance payable to the listing brokerage. Based on this information in the given scenario, Alex would fill out the fields in the form as follows. • Purchase Price $ is ‘625,000’ • Purchase price spelled out is ‘Six hundred twenty five thousand’ • Deposit Buyer Submits is ‘upon acceptance’ • Deposit spelled out is ‘Fifteen thousand’ • Deposit $ is ‘15,000’ • Payable to is ‘ABC Realty Ltd.’

Exam Study Guide

Scenario Alex Mathew, salesperson of XYZ Realty Inc., has been helping his new client, Darren Marks, find a detached home with an accessory dwelling unit in the basement. He would like to occupy the main floor and rent the accessory dwelling unit. Alex has found an 1,800 square foot detached bungalow with an accessory dwelling in the basement at 456 Smith Street, Anyville, in the Township of Abbotsford. The property is legally described as Lot 88, Plan 200 with a lot size of 66 feet by 188 feet and is on the south side of the street. The list of income and expenses have been provided by the seller, Kimberly Belcourt, being represented by John Sewell at ABC Realty Ltd. They have the home listed at $649,000. Darren has been approved for an 80% first mortgage with a down payment of $125,000. Darren is hoping to put an offer in for $625,000 with a deposit of $15,000 payable to the listing brokerage upon acceptance of the agreement of purchase and sale. The main floor is currently unoccupied and there is an existing tenant in the lower unit. Appliances include a Cookright Stove, Freezeright Fridge, and Acme Built-in Dishwasher in each unit. Each unit has their own hot water tank being rented at $45.00 each per month with a term expiring August 15, 2024. The accessory dwelling unit tenant has been there for three years and has not signed a new lease and therefore is considered a month-tomonth tenant. The rent being paid for the accessory dwelling unit is currently $1,500 and is at market value.

Exam Study Guide

Lesson 8 | Page 6 of 9

Alex is submitting the initial offer to the seller on behalf of Darren Marks. He would indicate ‘Buyer’ in the irrevocability clause section.

Exam Study Guide

Lesson 8 | Page 7 of 9

Based on the given scenario, Alex would fill out the fields in the form as follows. • Chattels included are ‘2 Cookright Stoves, 2 Freezeright Fridges. • Fixtures included are ‘N/A’ • Rental items are ‘2 hot water tanks rented at $45 each, total of $90 per month with a term expiring August 15, 2024’

Exam Study Guide

Scenario Alex Mathew, salesperson of XYZ Realty Inc., has been helping his new client, Darren Marks, find a detached home with an accessory dwelling unit in the basement. He would like to occupy the main floor and rent the accessory dwelling unit. Alex has found an 1,800 square foot detached bungalow with an accessory dwelling in the basement at 456 Smith Street, Anyville, in the Township of Abbotsford. The property is legally described as Lot 88, Plan 200 with a lot size of 66 feet by 188 feet and is on the south side of the street. The list of income and expenses have been provided by the seller, Kimberly Belcourt, being represented by John Sewell at ABC Realty Ltd. They have the home listed at $649,000. Darren has been approved for an 80% first mortgage with a down payment of $125,000. Darren is hoping to put an offer in for $625,000 with a deposit of $15,000 payable to the listing brokerage upon acceptance of the agreement of purchase and sale. The main floor is currently unoccupied and there is an existing tenant in the lower unit. Appliances include a Cookright Stove, Freezeright Fridge, and Acme Built-in Dishwasher in each unit. Each unit has their own hot water tank being rented at $45.00 each per month with a term expiring August 15, 2024. The accessory dwelling unit tenant has been there for three years and has not signed a new lease and therefore is considered a month-tomonth tenant. The rent being paid for the accessory dwelling unit is currently $1,500 and is at market value.

Exam Study Guide

Lesson 8 | Page 8 of 9

Based on the given scenario, Alex would state how the HST will be addressed and indicate what the present use of the property is as follows. • HST shall be ‘Included in’ • Present use is ‘Two-family dwelling’

Exam Study Guide

Scenario Alex Mathew, salesperson of XYZ Realty Inc., has been helping his new client, Darren Marks, find a detached home with an accessory dwelling unit in the basement. He would like to occupy the main floor and rent the accessory dwelling unit. Alex has found an 1,800 square foot detached bungalow with an accessory dwelling in the basement at 456 Smith Street, Anyville, in the Township of Abbotsford. The property is legally described as Lot 88, Plan 200 with a lot size of 66 feet by 188 feet and is on the south side of the street. The list of income and expenses have been provided by the seller, Kimberly Belcourt, being represented by John Sewell at ABC Realty Ltd. They have the home listed at $649,000. Darren has been approved for an 80% first mortgage with a down payment of $125,000. Darren is hoping to put an offer in for $625,000 with a deposit of $15,000 payable to the listing brokerage upon acceptance of the agreement of purchase and sale. The main floor is currently unoccupied and there is an existing tenant in the lower unit. Appliances include a Cookright Stove, Freezeright Fridge, and Acme Built-in Dishwasher in each unit. Each unit has their own hot water tank being rented at $45.00 each per month with a term expiring August 15, 2024. The accessory dwelling unit tenant has been there for three years and has not signed a new lease and therefore is considered a month-tomonth tenant. The rent being paid for the accessory dwelling unit is currently $1,500 and is at market value.

Exam Study Guide

Lesson 8 | Page 9 of 9

Congratulations, you have completed the lesson!

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Module Summary | Page 1 of 3

Module Summary

This lesson provides a summary of concepts from 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 Learning Objectives.

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Module Summary | Page 3 of 3

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

An introduction to As a salesperson you need to know the basics of what constitutes a dwelling unit, because a property must meet the Building Code requirements in order for it to be permitted to be multi-unit marketed as a multi-unit dwelling. dwellings Completion of this lesson has enabled you to:

• Identify the differences between a single-family dwelling and a multi-unit dwelling • Identify key features of a multi-unit dwelling

Special considerations for a property containing a multi-unit dwelling

There are a number of special considerations for multi-unit dwelling, specifically Building Code, Fire Code and zoning. You must learn to identify the key requirements needed for a unit to be permitted under these codes. Completion of this lesson has enabled you to: • Identify zoning requirements for multi-unit dwellings • Identify key Building Code requirements for multi-unit dwellings • Identify key Fire Code requirements for multi-unit dwellings • Identify additional financial considerations related to an accessory dwelling unit within an existing structure and purpose-built multi-unit structures

Requirements for due diligence and disclosure

As a salesperson selling a multi-unit residential property, you want a clear picture of the property you are selling as well as the tenancies involved. This means you will document the physical condition of the property as you conduct an inspection of all units. You will obtain tenant information and document the terms under which each of them holds possession of their unit.

Exam Study Guide

It is important to be aware of your responsibilities to disclose and your obligations to ensure the accuracy of information you provide including material facts. Completion of this lesson has enabled you to: • Identify key tasks as part of conducting due diligence requirements of a salesperson • Describe a salesperson’s obligations to ensure accuracy of information • Describe a seller’s obligations for disclosure when selling a property containing a multi-unit

Develop a working relationship with tenants

Understanding and adhering to the Residential Tenancies Act is critical to ensure you and your clients are following the law especially as it relates to showing properties and giving proper notice to tenants to obtain vacant possession. Developing a working relationship with tenants based on clear communication and respect can help you when you need to show a unit. Completion of this lesson has enabled you to: • Identify tenancy considerations impacting the selling of a multi-unit dwelling • Identify the importance of maintaining professional interactions with tenants when listing a multi-unit property for sale

Estimating the value of a multiunit residential property

Clients may ask for an estimate of value. You may provide estimates, but for a full appraisal, they must be directed to a third-party professional. The most common methods of valuation are: direct approach, income approach, and the use of income multipliers. Completion of this lesson has enabled you to: • Identify the salesperson’s obligation to verify the income and expenses reported by the seller when providing an opinion of value • Describe the methods of valuation to use when estimating the value of a property containing a multi-unit dwelling

Exam Study Guide

Show a multi-unit property and advise on properties of interest

It is your responsibility to ensure that you identify buyer’s intended use of a property. Buyers each have their own investment philosophy and risk tolerance. You will want to know when a purchase is solely as an investment. You are required to perform all due diligence, verifying legal and financial considerations affecting the property. You provide this information to the buyer. It is important to be aware of the tenants’ human rights. When preparing for showings you will need to know how much notice must be given, treat the tenants with respect and be aware of their right to privacy. Completion of this lesson has enabled you to: • Identify a salesperson’s responsibilities when preparing to show a property containing a multi-unit dwelling to a buyer Identify considerations related to interactions with a tenant while showing a property containing a multi-unit dwelling

Considerations for an offer when selling a tenanted property

There are specific considerations when reviewing and completing an agreement of purchase and sale for a multi-unit dwelling. Some of these considerations include tenants, chattels, tax considerations, and in some cases vacant possession. There are pre-printed clauses in the form that require modification for multi-units. Also, you identified which additional clauses apply to multi-units that can be recorded on Schedule A. It is also important during any negotiation process to ensure the parties initial any changes. All the proper signatures and initials must be in order to have the offer accepted. Completion of this lesson has enabled you to: • Identify key aspects of an agreement of purchase and sale for a multi-unit property • Write clauses for a residential multi-unit property • Identify the steps required to draft an offer for a multi-family dwelling • Draft an offer for a multi-unit property that includes conditions and other clauses • Review how signing would be completed by a seller and by a buyer when there is a counter offer that is being accepted

Exam Study Guide

Appendix | Page 1 of 2

Appendix Answer Key Question #1: 2, 3, 5 Question #2: 1, 2, 3, 5 Question #3: 1, 2, 3, 5, 6 Question #4: 1, 3 Question #5: 1, 3, 4 Question #6: 3, 4 Question #7: 1, 2 Question #8: 1, 3, 4 Question #9: 2 Question #10: 2, 3, 4, 5 Question #11: 3, 4 Question #12: 1, 3 Question #13: 1, 2, 4, 5 Question #14: 2, 3, 4, 5 Question #15: 1, 2, 3, 4 Question #16: 2 Question #17: 2 Question #18: 1, 2, 4 Question #19: 1, 2, 3 Question #20: 1, 2, 3, 4 Question #21: 4 Question #22: 1, 2 Question #23: 1, 2 Question #24: 1, 2, 6 Exam Study Guide

Appendix | Page 2 of 2 Question #25: 1, 3 Question #26: 1, 4 Question #27: 1 Question #28: 1 Question #29: 2, 4 Question #30: 3, 4, 5, 6 Question #31: 2, 3, 4, 5 Question #32: 1, 2, 3 Question #33: 1, 3, 4, 5 Question #34: 2 Question #35: 1, 3, 4

Exam Study Guide

Module: Preparing to Lease Residential Real Properties This is a study guide to help you prepare for the qualifying exam. There are multiple study guides that are provided for preparation. Each study guide contains several decision points to test your knowledge. The answer key to these decision points is present in the “Appendix” section at the end of the guide. Please use Adobe Acrobat Reader (Recommended version 9 or above) to navigate through this PDF. Real Estate Pre-Registration 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 PreRegistration Program learner.

Exam Study Guide

Module: Preparing to Lease Residential Real Properties

So far, you have learned about the purchase and sale of properties. This module focuses on leasing residential properties, from both the landlord and tenant perspectives. Approximately 30% of all residential properties in Ontario are leased. Helping landlords find suitable tenants, and helping tenants find desirable housing that meets their goals, can be a part of your activities as a salesperson. Working with landlords and tenants can help you expand your network, meet future sellers or buyers, and help people find suitable housing–sometimes at a critical juncture in their life. This module provides the information you will need to advise both landlords and tenants while adhering to all regulations. You will discover what landlords can and cannot ask for, their responsibilities, and leading practices for managing their property. You will learn about the rights of residential tenants, their responsibilities when renting, and ways to prepare for renting a unit. Organized real estate includes membership with a local real estate board, OREA, and CREA. If you are a member, you will have access to standard forms and clauses available through organizations you belong to. However, not all registrants choose to be members of organized real estate and may not have access to these forms. As they are commonly used in trading, images of OREA clauses for illustrative purposes are included with permission of the Ontario Real Estate Association (OREA).

Exam Study Guide

Menu: Preparing to Lease Residential Real Properties

Number of Lessons

12 Lessons

Lesson Number

Lesson Name

Lesson 1

Fundamentals of Leasing Residential Real Properties

Lesson 2

Key Components of Leasing Residential Properties

Lesson 3

Key Considerations When Leasing

Lesson 4

Key Components of Legislation Affecting a Residential Lease

Lesson 5

Safety and Compliance Considerations

Lesson 6

Compliance and Due Diligence of a Salesperson

Lesson 7

Responsibilities of Parties Involved

Lesson 8

Rent Roll

Lesson 9

Estimating the Value of a Rental Property

Lesson 10

Special Leasing Considerations

Lesson 11

Summary Practice Activities Module Summary Appendix

Exam Study Guide

Lesson 1 | Page 1 of 15

Lesson 1: Fundamentals of Leasing Residential Real Properties

This lesson introduces you to the key terms in residential leasing. Familiarity with these terms will enable you to understand the rights and responsibilities of the different parties to a lease.

Exam Study Guide

Lesson 1 | Page 2 of 15

Understanding the key terms used in leasing is the foundation to understanding the laws and rules around leasing. Being able to interpret the rules will enable you to help both landlords and tenants on potential courses of action in various scenarios. Knowing the terms, and being able to define them for clients and customers is the first benchmark of competence which helps you to build trust. Upon completion of this lesson, you will be able to: • Define common terms used in leasing • Recognize the difference between an agreement to lease and a lease Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

Exam Study Guide

Lesson 1 | Page 3 of 15

Common Terms Used in Leasing The first step is to know the meaning of some key terms used in leasing. A solid understanding of these terms will provide you with the foundation on which to build your understanding of leasing. The following six sections contain information about common leasing terms.

Landlord or lessor(also known as lessor)

A landlord is a person or organization that owns and leases land, buildings, or individual units to others.

Tenant or lessee(also known as lessee)

A tenant is a person or group who pays rent in return for the right to occupy land, a building, or a unit.

Leasehold interest

A leasehold interest is the right to possess or use property for a stated period of time at a given price, as created by a written lease.

Term, fixed term, and periodic tenancy

The term of a tenancy is the period of time a tenant will lease a property. A fixed term tenancy provides the tenant with exclusive possession of the rental unit for a specific term. For example, the fixed term could be one year. A periodic tenancy is for a fixed period (such as weekly or monthly) and is automatically renewed period after period until there is a termination. For example, when a fixed term ends, a residential tenancy turns into a periodic (month to month) tenancy.

Tenancy agreement

A tenancy agreement is a written, oral, or implied agreement between a tenant and a landlord for occupancy of a rental unit.

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Rental unit

A rental unit is any living accommodation used or intended for use as rented residential premises.

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Lesson 1 | Page 4 of 15

Common Terms Used in Leasing The following five sections contain information about several additional common leasing terms.

Rent

Rent is the amount required to be paid by a tenant to a landlord for the right to occupy a rental unit, and for any services and facilities that the landlord provides regarding the occupancy of the rental unit.

Lawful rent

A lawful rent is a rent that complies with all the requirements stipulated by the Residential Tenancies Act.

Rent increase guideline

The maximum percentage by which a landlord can increase the rent for residential tenants without approval from the Landlord and Tenant Board. The guideline is set by the government.

Rent deposit

The maximum of a rent deposit that a landlord can charge is one month’s rent. The rent deposit must be used for the rent for the last month before the tenancy ends. It cannot be used for anything else, such as to pay for damages.

Use restrictions

A use restriction is a public or private declaration limiting how land, a building, or a unit is used.

Exam Study Guide

Lesson 1 | Page 5 of 15

Differences Between an Agreement to Lease and a Lease

As a salesperson, you will need to understand the difference between an agreement to lease and a lease.

Exam Study Guide

Lesson 1 | Page 6 of 15

Lease A lease is a contract between a landlord (lessor) and a tenant (lessee). It is for the occupation or use of the landlord’s property by the tenant for a specified or unspecified time, and for a specified consideration. Under the terms of a lease, the lawful owner of the property (the landlord) transfers the rights of use, possession, and enjoyment to another (the tenant) for a specified or unspecified period of time, for a consideration (rent). A lease may also be referred to as a tenancy agreement. A lease can be verbal or written, expressly stated or implied by a person’s conduct. Its terms are found in common law and in provincial statutes concerning commercial or residential tenancies. All leases that are longer than 3 years should be in writing as the document outlines each party’s rights and responsibilities.

Exam Study Guide

Lesson 1 | Page 7 of 15

Agreement to Lease

An agreement to lease is technically referred to as an agreement for lease without a finalized form of lease. An agreement to lease sets out important details of the agreement between the parties in anticipation of writing a formal lease agreement. An agreement to lease outlines the terms, and conditions to be considered by both parties. Once accepted by the parties, details agreed to in the agreement to lease are documented in a formal lease. An agreement to lease is best described as a consensus leading to final agreement (the lease).

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Lesson 1 | Page 8 of 15

Standard Lease Agreement

Standard Lease Agreement-© Queen’s Printer for Ontario, 2018

The Residential Tenancy Agreement (Standard Form of Lease) is a standard lease agreement that applies to most forms of residential tenancies in Ontario. Landlords are required to use this form (lease) when entering into a tenancy agreement with a tenant. The standard lease uses easy-to-understand language to help: • Landlords and renters understand their respective rights and responsibilities • Reduce illegal terms in leases and misunderstandings caused by verbal tenancy agreements • Reduce the need for Landlord and Tenant Board hearings to resolve disputes

Exam Study Guide

Lesson 1 | Page 9 of 15

Understanding the meaning of fundamental leasing-related terms sets the foundation to all leasing business. Question #1: Which one of the following is true regarding the fundamental terms used in residential leasing? There are four options. There is only one correct answer. 1

A landlord is also known as a lessee.

2

A tenant is also known as a licensee.

3

A rental unit is any living accommodation used or intended for use as rented residential premises.

4

Use restrictions do not apply to residential rental buildings, only commercial buildings.

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Lesson 1 | Page 10 of 15

Being familiar with the terminology around rent ensures a salesperson is able to accurately complete and explain lease agreements. Being able to explain those terms to a client helps a salesperson build credibility with that client. Question #2: Which of the following statements are true? There are four options. There are multiple correct answers.

1

Rent is the amount required to be paid by a tenant to a landlord for the right to occupy a rental unit and for any services and facilities that the landlord provides regarding the occupancy of the rental unit.

2

Lawful rent is the maximum percentage by which a landlord can increase the rent without approval.

3

Rent increase guideline is the maximum a landlord can legally charge for rent.

4

Rent deposit can be collected by a landlord but must be applied to the last month’s rent.

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Lesson 1 | Page 11 of 15

One of the core requirements when leasing property is to understand the key terminology related to lease-related agreements. Question #3: A lease is a contract between a landlord (lessor) and a tenant (lessee). Identify whether the statement is true or false. There are two options. There is only one correct answer. 1

True

2

False

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Lesson 1 | Page 12 of 15

One of the core requirements when leasing property is to understand the key terminology related to lease-related agreements. Question #4: Standard Lease Agreement outlines the terms and conditions to be considered by both parties. Identify whether the statement is true or false. There are two options. There is only one correct answer. 1

True

2

False

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Lesson 1 | Page 13 of 15

One of the core requirements when leasing property is to understand the key terminology related to lease-related agreements. Question #5: Landlords are required to utilize a Standard Lease Agreement when entering into a tenancy agreement with a tenant. Identify whether the statement is true or false. There are two options. There is only one correct answer. 1

True

2

False

Exam Study Guide

Lesson 1 | Page 14 of 15

Understanding the rules governing leases is necessary for a salesperson to comply with provincial regulations and follow industry best practices when helping clients. Question #6: Which of the following statements are true about lease agreements? There are five options. There are multiple correct answers. 1

Under common law, a lease must be in writing to be considered valid.

2

Most types of residential tenancies require that a landlord use a Standard Form of Lease when entering into a tenancy agreement.

3

An agreement to lease is just a technical name for a Lease.

4

A lease transfers the rights of use, possession and enjoyment of a property to another party.

5

A lease is not a legally enforceable document.

Exam Study Guide

Lesson 1 | Page 15 of 15

Congratulations, you have completed the lesson! There are two sections on this page with a summary of the key topics that were covered in this lesson.

Define common terms used in leasing

Key terms include the following: • • • • • • • • • •

Landlord or lessor Tenant or lessee Leasehold interest Term, fixed term, and periodic tenancy Tenancy agreement, Standard Form of Lease/Residential Tenancy Agreement Rental unit Rent Lawful rent Rent increase guideline Rent deposit

• Use restrictions

The difference between a lease and an agreement to lease

A lease is a contract for the use and occupation of a property for a specified time and consideration. An agreement to lease is an agreement that sets out details in anticipation of writing a formal lease agreement, or agreement by both parties to accept the terms, conditions and clauses as outlined in the agreement to lease. A contract does not exist until a lease is in place. Residential leases must include the use of the Standard Form of Lease whether or not any other lease form is used.

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Lesson 2 | Page 1 of 36

Lesson 2: Key Components of Leasing Residential Properties

This lesson explores key parts of the required residential tenancy agreement, the Standard Form of Lease. As a salesperson, this will enable you to help both landlords and tenants understand their rights and responsibilities under the Residential Tenancies Act.

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Lesson 2 | Page 2 of 36

When working with landlords or potential tenants to lease a property, as a salesperson, you will need to understand the various situations and terms in residential leasing to provide accurate information to landlords and tenants. Knowing the types of residential tenancy, the purpose and key components of the Standard Residential Tenancy Agreement, and the typical types of properties used for residential tenancy will help you build trust and avoid errors. Upon completion of this lesson, you will be able to: • Recognize the characteristics of the types of residential tenancies • Explain the purpose of the Standard Residential Tenancy Agreement • Identify the key components of the Residential Tenancy Agreement • Identify the types of properties typically used for a residential tenancy 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 36

The Four Types of Residential Tenancy There are four major types of tenancy. Each have their own common law rights and remedies for landlords and tenants, including termination. The following four sections contain information about the different types of tenancies.

Fixed term tenancy

A fixed term tenancy provides the tenant with exclusive possession of the property for a specific term, which is normally agreed to in a written contract. In a fixed term lease, both the commencement and expiry dates must be determined before the lease takes effect. In residential, if the tenant remains in possession of the property following the expiry date, the tenancy is deemed to continue as a periodic (month to month) tenancy.

Periodic tenancy

A periodic tenancy is for a fixed period but unknown length that can come to an end through a notice of termination. This means the periodic tenancy automatically renews itself (usually on a weekly or monthly basis), unless one party gives notice of termination to the other. A periodic tenancy can be either in writing or oral, and may simply state that the tenancy is on a month­to­month basis. In residential, if the tenant remains in possession of the property following the expiry date, the tenancy is deemed to continue as a periodic (month to month) tenancy.

Tenancy at will

Tenancy at will can arise when no lease exists, the tenant has the possession, with or without rent, with the consent of the landlord. • An implied tenancy at will may occur when a tenant occupies premises without rent.

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• An express tenancy at will may occur when a real estate transaction does not close on the scheduled date and possession is granted in anticipation of a future closing.

Tenancy at sufferance

Tenancy at sufferance (also referred to as an overholding tenancy) could occur if a person has possession of the property without the consent of the owner. It arises by implication of law in situations where the tenancy has been terminated but the tenant does not vacate. Tenancy at sufferance might typically arise from one of the following instances: • The tenant did not vacate after a proper notice to terminate. • The tenant did not vacate after the fixed term tenancy expired.

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Lesson 2 | Page 4 of 36

How Tenancy at Will Occurs

Tenancy at will can occur when the tenant remains in possession of the property with the consent of the landlord or the person entitled to possession. This takes place after the expiration of a lease or when no lease exists. It is a tenancy that may be terminated by the landlord or tenant at any time by giving reasonable notice. An implied tenancy at will may arise when a tenant occupies a property without rent. An express tenancy at will can arise when a real estate transaction does not close on the scheduled date and possession is granted in anticipation of a future closing. The lawyers for the owner of the property and the buyer agree to allow the tenant to take possession of the property if circumstances have delayed the closing of the transaction. While there are risks involved, the lawyers as well as the seller and buyer are confident that the closing is certain to take place.

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Implications for a salesperson As a salesperson representing a landlord, you will need to know whether a tenancy at will exists. Tenancy at will can complicate matters when the landlord wants to change the terms of the tenancy or create a new tenancy for some reason, as the landlord has less control if the tenant choses to remain in the property.

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Lesson 2 | Page 5 of 36

Requirement to Use the Standard Lease

If a tenant signs a lease, the standard Residential Tenancy Agreement (Standard Form of Lease) must be used. If the lease signed is not the standard lease, the tenant can write to the landlord to request one. The landlord must provide one within 21 days. If a landlord fails to provide the standard lease within 21 days after a tenant has asked for it in writing, the tenant may withhold one month's rent. If the landlord fails to provide the standard lease within 30 days after the tenant has begun withholding rent, the tenant does not have to repay the one month's rent. The tenant cannot withhold more than one month’s rent and must continue paying rent for the term of the lease, even if the landlord never provides the standard lease. If a standard lease is not provided, special Landlord and Tenant Board rules allow the tenant to end the fixed-term lease early.

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Lesson 2 | Page 6 of 36

Purpose of the Standard Lease

The standard lease uses easy-to-understand language and standard clauses to provide the following solutions to common problems: • Help landlords and renters understand their rights and responsibilities • Reduce illegal terms in leases and misunderstandings caused by verbal tenancy agreements • Reduce the need for Landlord and Tenant Board hearings to resolve disputes Examples of disputes Often disputes arise from a lack of clarity in the lease. For example, it may be unclear who is paying for items such as furnace filters or light bulbs, or who is responsible for fixing a leaky faucet. Importance of standard clauses As a salesperson, ensure you use only standard clauses and terms when writing up a lease. Doing so ensures compliance with: • The Residential Tenancies Act • The Ontario Human Rights Code

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Additional terms that are not consistent with the Residential Tenancies Act or the Ontario Human Rights Code are considered void and unenforceable.

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Lesson 2 | Page 7 of 36

Landlord’s Rights Under the Residential Tenancies Act, a landlord has some fundamental rights. The following two sections contain information about several additional common leasing terms.

Collect a rent deposit

A rent deposit cannot be more than one month's rent, or if rent is paid weekly, one week's rent. The deposit must be used as the rent payment for the last month or week of tenancy. It cannot be used for any other reason, such as to pay for damages. A landlord must pay interest on the deposit every year. The interest is determined by the Residential Tenancies Act, with the information on the rate provided by the Landlord and Tenant Board.

Increase the rent

Special rules limit how often a landlord can increase the rent and by how much. Per the Landlord and Tenant Board, a landlord can increase the rent only once every 12 months by the guideline that is set by the Ontario Government. This guideline changes annually. A landlord must give a tenant at least 90 days’ notice in writing of any rent increase using the proper form (N1). Exceptions: Non-profit and public housing units, residences at schools, colleges and universities, and certain other accommodation are not covered by all the rent rules.

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Lesson 2 | Page 8 of 36

Landlord’s Responsibilities

Under the Residential Tenancies Act, a landlord has some fundamental responsibilities: • Keep the rental property in a good state of repair, which includes obeying all health, safety, and maintenance standards. • Provide the tenant with a copy of the completed Standard Form of Lease within 21 days after the day it was signed and given to the landlord.

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Lesson 2 | Page 9 of 36

Prohibited Landlord Actions Under the Residential Tenancies Act, landlords are prohibited from some actions. The following four sections contain information about prohibited actions by landlords.

Shut off a vital service A landlord cannot shut off or deliberately interfere with the supply of a vital service. Vital services include: • Heat • Electricity • Fuel • Gas • Hot or cold water However, your landlord is allowed to shut-off services temporarily if this is necessary to make repairs as long as proper written notice has been provided, or for an emergency repair, such as a pipe leak.

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Take the tenant’s personal property Landlords cannot take possession of a tenant’s personal property even if the tenant: • Does not pay their rent • Continues to live in the rental unit

Lock a tenant out of their rental unit Landlords cannot lock tenants out of their rental unit unless: • The landlord has an eviction order from the Landlord and Tenant Board • The sheriff comes to the rental unit to enforce it

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Insist on rent payment by post-dated cheque or automatic debit How the rent is paid is to be decided between the tenant and landlord. When a landlord first rents to a person, the method for rent payments should be made clear. A method of payment by direct payment, post-dated cheques, e-transfer etc. can be suggested as a convenience to both the landlord and the tenant, however, a landlord cannot demand payment by one of these methods. In addition, a landlord cannot refuse to rent to a person who does not agree to pay in the method the landlord prefers. Once a method for making rent payments has been set, it cannot be changed unless both the landlord and tenant agrees.

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Lesson 2 | Page 10 of 36

Tenant’s Rights Under the Residential Tenancies Act, a tenant has some fundamental rights. The following two sections contain information about prohibited actions by landlords.

Security of tenancy A tenant can continue to live in a rental unit until one of the following applies: • They give the landlord proper notice that they intend to move out • The tenant and landlord agree that the tenant can move out • The landlord gives the tenant notice to end a tenancy for a reason allowed by the Residential Tenancies Act If a landlord gives notice to end a tenancy, a tenant does not have to move out. A landlord must apply to the Landlord and Tenant Board to get an order to evict a tenant. In such a case, the tenant has the right to attend a hearing and explain why their tenancy should not end. Note that the tenant has more rights regarding termination than the landlord, since there are limited reasons for a landlord to terminate a lease. The only limitation on a tenant to terminate is the timing

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requirement (e.g., 60 days for a month-to-month tenancy).

Privacy A landlord can enter a rental unit only for the reasons allowed by the Residential Tenancies Act. In most cases, before entering a unit, a landlord must give a 24-hour written notice. This notice requirement is waived in the case of an emergency or if a tenant agrees to allow the landlord to enter.

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Lesson 2 | Page 11 of 36

Tenant’s Responsibilities Under the Residential Tenancies Act, a tenant has some fundamental responsibilities. The following four sections contain information about a tenant’s responsibilities under the Residential Tenancies Act.

Pay rent

Tenants must pay their rent in full and on time.

Keep the rental unit clean

Keeping the unit clean means keeping it up to the standard that most people would consider ordinary or normal cleanliness. Tenants must also ensure proper use, such as not leaving windows open when it rains, which could damage the premises, including creating mold and pest problems.

Repair any damage to the rental property

Tenants are responsible for repairing any damage to the rental property caused by themselves or their guests. This applies whether damage is caused on purpose, by omission, or by not being careful. It is important to distinguish between damage and wear and tear. Wear and tear is the physical deterioration that occurs with normal, reasonable use. It is to be expected. Damage is beyond wear and tear and is usually due to negligence, carelessness, abuse, or one or more accidents.

Meet the provisions of the lease

Tenants must meet the provisions of their lease.

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Lesson 2 | Page 12 of 36

Prohibited Tenant Actions

Under the Residential Tenancies Act, tenants are prohibited from some actions: • Tenants are not allowed to change the locking system on an entry door to the rental unit without the landlord's permission. If the locks have been changed, the tenants are required to provide copies of keys to the landlord. • Tenants cannot withhold rent when the landlord fails to properly maintain the building or unit. Tenants can make an application to the landlord tenant board to deal with the landlord's lack of maintenance concerns. If a tenant withholds rent, the landlord can give a notice of termination for non-payment of rent and file an application to evict the tenant.

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Lesson 2 | Page 13 of 36

Benefits of Using a Written Lease

As a salesperson, you will want to avoid situations where parties make a verbal tenancy agreement. Verbal tenancy agreements often lead to problems stemming from illegal terms and misunderstandings of the intentions of each party. To avoid these situations and provide the best service possible, use the Standard Form of Lease, as required. Doing so will help ensure the terms are legally compliant, minimize misunderstandings between the parties, and reduce the likelihood of costly and time-consuming litigation.

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Lesson 2 | Page 14 of 36

Mandatory Fields

All the sections in the Standard Lease Form are mandatory. As a salesperson, you cannot change any of the standard clauses in any of the sections. This protects all parties involved in the rental transaction, by ensuring all clauses: • Are definite and clear • Comply with the Residential Tenancies Act and the Ontario Human Rights Code • Are legally enforceable Any additional terms added to the lease must comply with the Residential Tenancies Act and the Ontario Human Rights Code. Some terms violate the Residential Tenancies Act. For example, most terms that forbid animals (commonly called the “no pet provision”) or those that require a damage deposit violate the Act. They are considered void and are not enforceable unless the property already has a no-pet rule; for example, due to existing tenants’ allergies or for residents in a condominium corporation. In these special cases, landlords should disclose the restrictions as soon as possible to prospective tenants to avoid problems later.

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Lesson 2 | Page 15 of 36

Residential Accommodations That Are Exempt from the Standard Lease

A standard lease is not required for tenancies that have special rules or partial exemptions under the Residential Tenancies Act, or those that are exempt from the Residential Tenancies Act. • For care home rental arrangements, such as a retirement home, a written rental agreement is required but the landlord is not required to use the standard lease form. • Mobile home parks and land lease communities used by people who are travelling or on vacation, or a mobile home park site in a resort, tourist camp, campground, or trailer park that is occupied only for a seasonal or temporary period. • Social and supportive housing are exempt from the rent rules under the Residential Tenancies Act; for example: o Housing subject to operating agreements under certain programs o Housing where the tenant receives publicly funded rent-geared-to-income assistance o Co-op member units Exam Study Guide

Lesson 2 | Page 16 of 36

Mandatory Terms of the Standard Lease The standard lease contains several core terms. These terms cover the fundamentals of the lease, such as who is involved, the unit covered by the lease, the lease term, rent details, utilities, and deposits. The following seven sections contain information about the core terms of the lease.

Parties to the agreement Names of landlord and tenant. Rental unit

The address and unit number of the rental unit, and whether the unit is part of a condominium corporation.

Contact information

Mailing address for the landlord and optionally, landlord and tenant email addresses and phone numbers.

Term of tenancy agreement

The commencement and expiry date of the tenancy agreement.

Rent

Includes: • The date, frequency, and method of rent payments • The amount of rent payable and additional inclusions in the rent payment, such as parking fees and other services and utilities • Who the rent is payable to • Any other applicable rent details • Pro-rated rent. When rent is payable on one day of the month but the tenant moves in on a different day, the tenant could pay a pro-rated rent for the number of days of early possession. The term would start on the

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payment day of the following month, with rent being due on that day every month Example: If rent is payable on the first of the month, but the tenant moves in on October 25, the tenant could pay a pro-rated rent for the seven days for early possession. The term starts on November 1, with rent being due on the first of every month from November onwards.

Services and utilities

Specific details on additional services and utilities included in the rent payment, such as guest parking, air conditioning, additional storage, and on-site laundry. Information on who pays basic utilities such as electricity, water and heat, hot water tank rental, etc.

Rent discounts, rent deposit, and key deposit

These fields detail: • Whether a rent discount applies and if so, the amount of the discount • Whether a rent deposit applies and if so, the amount of the deposit • Whether a key deposit applies and if so, the amount of the deposit. The landlord can also ask for a key deposit up to a maximum of $200 to cover unit keys, mailbox keys, garage remotes, fobs, etc. The amount of the deposit cannot exceed the expected cost of key replacement

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Lesson 2 | Page 17 of 36

Other Terms of the Standard Lease Along with the core sections, the standard lease contains several other terms. These terms cover statements and requirements specific to the situation. To be valid, the form must be signed by all landlords and tenants. The following seven sections contain information about the other sections of the lease.

Smoking

Smoking rules, over and above provincial laws applicable to common areas. Note: The clause specifies neither tobacco nor cannabis; it is therefore reasonable that the clause pertains to both.

Tenant’s insurance

Whether or not tenant’s insurance is required and, if so, the amount. Tenant insurance covers liability within the premises or unit, and their personal possessions.

Changes to the rental unit

The changes to the unit that the tenant can and cannot make without or with the landlord’s approval.

Maintenance and repairs

Standard expectations and requirements of maintenance, repairs, and cleanliness.

Assignment and subletting

To assign or sublet a unit, a tenant must first make a written request for the landlord's approval. Such approval and consent cannot be unreasonably refused by the landlord. Assignment: Assigning a unit means that the tenant moves out of the unit permanently and transfers their tenancy to another person. All the terms (such as the amount of the rent) of the original rental agreement stay the same. Subletting:

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Subletting a unit means that the tenant moves out of the unit for a certain period of time but they want to return to it before the end of the tenancy. The person who moves in (subtenant) pays the rent to the original tenant who then pays it to the landlord.

Additional terms

Whether any additional terms are covered in the agreement. The details of those terms would appear as an attachment to the agreement.

Changes to this agreement

A statement preventing changes to the document without agreement from both parties.

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Lesson 2 | Page 18 of 36

Single-Family Dwelling Units

The terms residential dwelling unit, residential unit, and dwelling unit are formally defined in zoning bylaws as well as under law. For example, the Residential Tenancies Act units are usually divided into three main categories: 1. Dwelling types such as detached, semi-detached and duplex 2. Multiple dwelling units, such as townhouses or other forms of horizontal multiple housing 3. High density multiple unit buildings, such as high-rise apartments A dwelling unit is a housing unit that has one or more habitable rooms as self-contained living quarters. It is generally the same as a single-family home. The dwelling unit would normally consist of: • Sanitary facilities • Accommodations for sleeping • A kitchen

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Lesson 2 | Page 19 of 36

Multiple Family Dwelling Units

All of the following are commonly used as rental units: • Low-rise buildings set up as a duplex (two units), triplex (three units), or fourplex (four units) • Apartment buildings containing several dwelling units in a low-rise, mid-rise, or high-rise building

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Lesson 2 | Page 20 of 36

Condominiums

Condominium ownership represents a major sector of the Ontario real estate market. Condominiums have a broadbased appeal ranging from luxury downtown accommodations to recreational lakeside suites. There are many types of condominiums making up a large portion of the rental market. A condominium unit is that portion of the property as designated in the description and generally described as the space defined by boundaries including all the land, structures and fixtures within that defined space. All units are deemed to be property with each owner having exclusive ownership and use of their unit. Units are clearly differentiated from common elements: for example the pool or exercise room. Common elements are held by the owners as tenants in common (undivided interest), in proportions as set out in the declaration. The Residential Tenancies Act, 2006, enforced by the Landlord and Tenant Board, governs tenancies within condominium units. However, in some cases, the condominium corporation’s rules (e.g., a no pets clause) supersede the Residential Tenancies Act, 2006, but not the Human Rights Code.

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Lesson 2 | Page 21 of 36

The Residential Tenancies Act confers certain rights to landlords and prohibits them from other actions. Question #7: The Residential Tenancies Act allows a landlord to collect a rent deposit. Identify whether the statement is true or false. There are two options. There is only one correct answer. 1

True

2

False

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Lesson 2 | Page 22 of 36

The Residential Tenancies Act confers certain rights to landlords and prohibits them from other actions. Question #8: The Residential Tenancies Act allows a landlord from shutting off a vital service when a tenant stops paying rent. Identify whether the statement is true or false. There are two options. There is only one correct answer. 1

True

2

False

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Lesson 2 | Page 23 of 36

The Residential Tenancies Act confers certain rights to landlords and prohibits them from other actions. Question #9: The Residential Tenancies Act prohibits a landlord from taking the tenant’s personal property if that tenant does not pay their rent. Identify whether the statement is true or false. There are two options. There is only one correct answer. 1

True

2

False

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Lesson 2 | Page 24 of 36

The Residential Tenancies Act confers certain rights to landlords and prohibits them from other actions. Question #10: The Residential Tenancies Act prohibits a landlord from locking a tenant out of their rental unit. Identify whether the statement is true or false. There are two options. There is only one correct answer. 1

True

2

False

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Lesson 2 | Page 25 of 36

The Residential Tenancies Act confers certain rights to landlords and prohibits them from other actions. Question #11: The Residential Tenancies Act prohibits a landlord from increasing the rent. Identify whether the statement is true or false. There are two options. There is only one correct answer. 1

True

2

False

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Lesson 2 | Page 26 of 36

The Residential Tenancies Act confers certain rights to landlords and prohibits them from other actions. Question #12: The Residential Tenancies Act allows a landlord to insist on rent payment by post-dated cheque or automatic debit. Identify whether the statement is true or false. There are two options. There is only one correct answer. 1

True

2

False

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Lesson 2 | Page 27 of 36

The Residential Tenancies Act confers certain rights to tenants. Question #13: Which of the following are tenant’s rights under the Act? There are four options. There are multiple correct answers. 1

Security of tenancy

2

Withhold rent if the landlord fails to provide services agreed to in the lease

3

Change the locks for security purposes

4

Privacy

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Lesson 2 | Page 28 of 36

Landlords and tenants each have specific responsibilities that come as a result of signing the Standard Form of Lease and the requirements of the Residential Tenancies Act. Question #14: It is a landlord’s responsibility to provide a copy of the written tenancy agreement. Identify whether the statement is true or false. There are two options. There is only one correct answer. 1

True

2

False

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Lesson 2 | Page 29 of 36

Landlords and tenants each have specific responsibilities that come as a result of signing the Standard Form of Lease and the requirements of the Residential Tenancies Act. Question #15: It is tenant’s responsibility to keep the rental unit clean. Identify whether the statement is true or false. There are two options. There is only one correct answer. 1

True

2

False

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Lesson 2 | Page 30 of 36

Landlords and tenants each have specific responsibilities that come as a result of signing the Standard Form of Lease and the requirements of the Residential Tenancies Act. Question #16: It is landlord’s responsibility to pay rent. Identify whether the statement is true or false. There are two options. There is only one correct answer. 1

True

2

False

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Lesson 2 | Page 31 of 36

Landlords and tenants each have specific responsibilities that come as a result of signing the Standard Form of Lease and the requirements of the Residential Tenancies Act. Question #17: It is tenant’s responsibility to obey all health, safety and maintenance standards. Identify whether the statement is true or false. There are two options. There is only one correct answer. 1

True

2

False

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Lesson 2 | Page 32 of 36

Landlords and tenants each have specific responsibilities that come as a result of signing the Standard Form of Lease and the requirements of the Residential Tenancies Act. Question #18: It is tenant’s responsibility to repair any damage to the rental property caused by tenants. Identify whether the statement is true or false. There are two options. There is only one correct answer. 1

True

2

False

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Lesson 2 | Page 33 of 36

A standard lease is not required for tenancies that have special rules, partial exemptions under the Residential Tenancies Act, or are completely exempt from the Residential Tenancies Act (RTA). Question #19: Which of the following types of residential units does NOT require the use of standard lease? There are five options. There are multiple correct answers. 1

Small apartments less than 20 square metres

2

Care home rental arrangements, such as a retirement home

3

Mobile home parks and land lease communities

4

Any rental unit for which rent is less than $600

5

Social and supportive housing exempt from the rent increase guidelines

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Lesson 2 | Page 34 of 36

If a tenant signs a residential lease, the standard Residential Tenancy Agreement (Standard Form of Lease) must be used. If the lease signed is not the standard lease, the tenant can write to the landlord to request one. The landlord must provide one within 21 days. If a landlord fails to provide the standard lease within 21 days after a tenant has asked for it in writing, the tenant may withhold one month's rent. Question #20: Once rent has been withheld, how many days does the landlord have to provide the standard lease without forfeiting that withheld month’s rent? There are three options. There is only one correct answer. 1

30 days

2

15 days

3

25 days

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Lesson 2 | Page 35 of 36

Most residential rental situations are governed by the Residential Tenancies Act. The Act requires a landlord to use a standard lease agreement, the Residential Tenancy Agreement (Standard Form of Lease). Question #21: What benefits does the Residential Tenancy Agreement (Standard Form of Lease) provide? There are five options. There are multiple correct answers. 1

Helps landlords and renters understand their rights and responsibilities

2

Reduces the number of illegal terms in leases and misunderstandings caused by verbal tenancy agreements

3

Reduces the need for Landlord and Tenant Board hearings to resolve disputes

4

Allows a landlord to ask for a security and damage deposit which would otherwise be illegal under the Residential Tenancies Act

5

Makes the Residential Tenancies Act obsolete

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Lesson 2 | Page 36 of 36

Congratulations, you have completed the lesson! There are seven sections on this page with a summary of the key topics that were covered in this lesson.

The four types of residential tenancy

The four types of tenancy are: 1. 2. 3. 4.

Fixed term tenancy Periodic tenancy Tenancy at will Tenancy at sufferance

Each arises from specific actions or inactions of the landlord, tenant, or both.

The Standard Form of Lease

Most written residential lease arrangements must be made using the standard lease form known as the Residential Tenancy Agreement. The purpose of the standard lease is to help avoid misunderstandings, provide clarification of terms, and reduce the need for dispute resolution. All terms are mandatory. Any additional terms must comply with the Residential Tenancies Act and the Ontario Human Rights Code. Exemptions from the Standard Form of Lease The following rental units are exempt from having to use the Standard Form of Lease: • Care homes, such as retirement homes • Mobile home parks and land lease communities • Social and supportive housing exempt from the rent rules under the Residential Tenancies Act

Mandatory terms of the standard lease

These are all mandatory terms in the lease that must be completed for the lease to be valid: • Parties to the agreement • Rental unit

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• • • • • •

Contact information Term of the tenancy agreement Rent Services and utilities Rent deposit Key deposit

Other terms of the standard lease

The following are examples of optional terms in the lease:

Landlord’s rights and responsibilities, and prohibited landlord actions

Landlords have the right to collect a rent deposit, collect regular rent, and increase the rent only once a year by a maximum percentage set by the Ontario Government.

• • • • • •

Smoking Tenant’s insurance Changes to the rental unit Maintenance and repairs Assignment and subletting Changes to the agreement

Landlords must keep the property in good repair, meeting all legal requirements and provide the tenant with a copy of the written tenancy agreement. Under the Residential Tenancies Act, landlords cannot: • • • •

Tenant’s rights and responsibilities, and prohibited tenant actions

Shut off a vital service Take the tenant’s personal property Lock a tenant out of their rental unit Insist on rent payment by post-dated cheque or automatic debit

Tenants have the right to security of tenancy and privacy. Tenants must pay rent, keep the rental unit clean, and repair any damage to the rental property. Tenants cannot change the locks without landlord permission, nor withhold rent for any reason.

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Dwelling units

A dwelling unit is a housing unit that has one or more habitable rooms as selfcontained living quarters, usually consisting of sanitary facilities, sleeping accommodation, and a kitchen. Buildings can be single-family, such as a detached home, or multi-unit dwellings, as follows: • • • •

Duplex, triplex, or fourplex Low-rise or garden apartment Mid-rise or high-rise apartment building Condos consist of individual units that are individually owned and common elements that are commonly owned by all unit owners.

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Lesson 3 | Page 1 of 25

Lesson 3: Key Considerations When Leasing

This lesson introduces different types of accessory dwelling units. The lesson outlines considerations such as ensuring the unit complies with all building codes and municipal bylaws, providing information on the occupants of the other unit, and understanding the restrictions and use of shared facilities or parking, so tenants can make an informed choice.

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Lesson 3 | Page 2 of 25

Understanding the different types of accessory dwelling units available will help you as a salesperson identify the range of accessory dwelling units available in your marketplace. Each type of structure has its own advantages and disadvantages. Considering these characteristics and the bylaws associated with accessory dwelling units will enable you to address requirements of a potential landlord or tenant. Upon completion of this lesson, you will be able to: • Identify the characteristics of a property containing an accessory dwelling unit • Identify key considerations when leasing an accessory dwelling unit • Describe bylaws which impact leasing properties 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 25

Primary Dwelling Units and Accessory Dwelling Units

A dwelling unit is a housing unit that has one or more self-contained living quarters or habitable rooms. A primary dwelling unit is the main dwelling of a property. An accessory dwelling unit is a self-contained residential unit with a private kitchen, bathroom facilities, and sleeping areas within a dwelling or within a structure added to a dwelling, such as above a laneway garage. Accessory dwelling units may be referred to by many other names, including: • Secondary suites • Basement apartments • Accessory apartments • Granny flats • In-law apartments • Nanny suites

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Lesson 3 | Page 4 of 25

Examples of Accessory Dwelling Units

The majority of accessory dwelling units are created through internal alterations to a home, either in a basement or on any other floor of the house. Others are built as additions to the main house, or in or above added structures like garages or purpose-built detached units.

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Lesson 3 | Page 5 of 25

Privacy Considerations for Occupants

In some instances, there can be less privacy for the occupants. This may be due to reduced space, barriers between the units, or a shared wall, yard or, parking. Increased noise may be one effect of this reduced privacy.

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Lesson 3 | Page 6 of 25

A secondary suite is a self-contained residential unit with a private kitchen, bathroom facilities and sleeping areas within a dwelling or within a structure ancillary to a dwelling, such as above a laneway garage. Question #22: What are the other names for secondary suites? There are eight options. There are multiple correct answers.

1

Basement apartments

2

In-law apartments

3

Granny flats

4

Triplex

5

Fourplex

6

Primary dwelling unit

7

Nanny suites

8

Accessory apartments

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Lesson 3 | Page 7 of 25

Legal Compliance of Accessory Dwelling Units

The primary question around an accessory dwelling unit is, is it legal? Accessory dwelling units must comply with all zoning requirements, building code regulations, and provisions of the Ontario Fire Code. When providing information as a salesperson, you will need to be familiar with the requirements. Zoning Municipal zoning regulations regarding accessory dwelling units vary considerably from one municipality to another. In some municipalities, accessory dwelling units are legal. In others they require a permit or may be prohibited. You should check the zoning regulations to ensure a property complies. You can do so by contacting the city or town hall. Note: Calling on behalf of an owner may result in a property inspection by the city or municipality. Consult with the landlord and exercise caution when inquiring about a specific property.

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Lesson 3 | Page 8 of 25

Ontario Fire Code for Accessory Dwelling Units

Legislation commonly refers to a house with an accessory dwelling unit as a two-unit residential property. The Ontario Fire Code sets out specific requirements to address occupant safety. These include: • Fire separation and containment provisions for each dwelling unit • Escape (egress) from each dwelling unit • Fire alarm and detection • Fire suppression • Electrical safety Required inspections Legislation requires each municipal fire department to ensure specific code compliance. Compliance with the Code requires two separate inspections:

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• An electrical inspection by the Electrical Safety Authority (ESA) • An inspection by the local fire department The electrical inspection is in accordance with the Electrical Safety Code enacted under the Power Corporation Act. Failure to comply Homeowners may face significant fines for failing to comply with the fire and electrical safety standards. As well, if a fire were to damage or destroy a non-compliant building, the owner’s insurance may be void and the owner may face criminal charges due to injury or loss of life.

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Lesson 3 | Page 9 of 25

Considerations Concerning the Occupancy of the Other Unit

As a salesperson, you can help potential tenants make an informed decision about renting an accessory dwelling unit by providing them with information on the occupancy of the other unit or units in the building. For example, this could include: • Whether the unit is owner-occupied or tenanted • Whether the other occupants have pets • Whether the other occupants smoke Knowing the situation of the other occupants can help you find tenants well-suited to the unit. For example, if the other occupants have pets and the tenant is allergic, it may not be a good fit.

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Lesson 3 | Page 10 of 25

Shared Utilities, Amenities, and Facilities When leasing an accessory dwelling unit, as a salesperson you must confirm any restrictions, use, and cost of any shared utilities, amenities, or facilities. Examples include: • Shared laundry facilities • Shared internet costs • A common electricity, gas, and water bill • Shared parking Knowing the share of payments can help a potential tenant determine whether they can afford the unit and budget those costs. Other considerations of shared facilities may include designated times or situations when the tenant has access to the facilities. For example, the rental agreement may state that a tenant can use the laundry facilities between certain hours or on certain days. It is also important to know whether the tenant has access to certain facilities at all. For example, the tenant would want to know whether they have access to the back yard, or to the garage or a storage shed.

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Lesson 3 | Page 11 of 25

Tenant and Guest Parking

An accessory dwelling unit may not have any parking or parking may be extremely limited. Knowing this beforehand can help a potential tenant make informed choices. They can: • Decide whether the unit would suit their needs • Identify alternative parking solutions • Determine whether they need more than one car if only one space is available • Identify a solution to accommodate visitor parking Providing this type of information before they make a decision can help build trust and avoid problems at the time of signing.

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Lesson 3 | Page 12 of 25

A salesperson needs to be aware of the factors that affect the legality of a secondary unit when representing a client that wishes to lease a secondary unit or sell a home with this type of accessory suite. Question #23: Which of the following must a secondary unit comply with in order to be considered legal? There are five options. There are multiple correct answers.

1

Municipal zoning requirements

2

The Ontario Human Rights Code

3

The Ontario Building Code

4

The Electrical Safety Code

5

The Ontario Fire Code

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Lesson 3 | Page 13 of 25

Clients have asked their salesperson about how the Ontario Fire Code applies to an accessory dwelling unit in a property they want to buy. Question #24: Which one of the following is NOT covered by the Ontario Fire Code? There are five options. There is only one correct answer.

1

Fire separation and containment provisions for each dwelling unit

2

Electrical safety

3

Fire alarm and detection

4

Escape (egress) from each dwelling unit

5

The allowable square footage in the accessory dwelling unit

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Lesson 3 | Page 14 of 25

Occupancy Standards in Municipal Bylaws

Municipal bylaws set standards for the maximum number of occupants in a unit. These bylaws vary among municipalities across Ontario. For example, the City of Toronto bylaws restrict both the number of people in a unit and minimum room size for occupancy. City of Toronto bylaw on maximum number of people The maximum number of persons living in a habitable room cannot exceed one person for each nine square metres of habitable room floor area. City of Toronto bylaw on minimum room size The minimum size for habitable rooms used for sleeping is as follows: • For rooms used by only one person, the minimum floor area is six square metres. • For rooms used by two or more persons, the minimum floor area is four square metres for each person. • Rooms used for sleeping must have no wall less than two metres in length.

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Lesson 3 | Page 15 of 25

Maintenance Standards

A landlord must make sure that their rental property meets health, safety, housing, and maintenance standards. These standards are set out in municipal bylaws or provincial maintenance standards. Municipal bylaws and property standards Many communities in Ontario have bylaws and property standards that set minimum guidelines for the upkeep and maintenance of a rental property. A landlord must maintain a rental property to the minimum guidelines. The local municipal government is responsible for enforcing these bylaws and property standards. Provincial maintenance standards For communities without municipal bylaws on maintenance standards, the landlord must follow the provincial maintenance standards set out in the Residential Tenancies Act regulations. The municipality is responsible for enforcing the provincial maintenance standards.

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Lesson 3 | Page 16 of 25

Example of Maintenance Standards

The City of Ottawa’s property maintenance bylaw covers such things as: • Prohibited use of land to dump refuse and debris • Removal of refuse and debris, including undergrowth, long grass, and unhealthy tree limbs • Garbage disposal • The condition of outdoor furniture • Land drainage • Snow and ice removal

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Lesson 3 | Page 17 of 25

Residential Rental Housing Licensing

Certain municipalities in Ontario require rental housing licenses. This gives the municipality the ability to manage low-rise residential rental housing. It balances the needs of property owners with those of residents looking for safe, adequate, and properly maintained rental accommodation, while limiting the impact of large rental housing units in residential neighbourhoods. Example: The City of Toronto The City of Toronto’s RentSafe TO is a bylaw enforcement program designed to ensure building owners comply with building maintenance standards. The bylaw requires owners of buildings with three or more storeys and ten or more units, to register the property in the program and renew annually. At least once every three years, city inspectors inspect each building and assign a score for that building. Buildings with low scores are subject to full audits at additional cost to the owner. Failed audits can lead to court action and significant fines.

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Lesson 3 | Page 18 of 25

Zoning and Rental Units

Zoning bylaws control the use of land in our communities. The zoning bylaw typically divides the entire municipality into a minimum of six zoning classifications which are further divided into subclasses or zones. These classifications determine the types of buildings that are permitted and how they may be used. For example, in Loyalist Township (Odessa, ON), a property must be zoned R-4 to allow a duplex, and R-5 for a triplex or fourplex.

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Lesson 3 | Page 19 of 25

Jamal and a few of his university friends are thinking about leasing a house near the university they are attending. They have gone to view a property listed for rent by a local real estate brokerage. The salesperson handling the listing is concerned about the legality of the number of people (Jamal and his friends) who intend to occupy the house. The municipality has bylaws that restrict both the number of people in a unit and minimum room size for occupancy. Number of People The maximum number of persons living in a habitable room cannot exceed one person for each nine square metres of habitable room floor area. Room Size The minimum size for habitable rooms used for sleeping is as follows: • For rooms used by only one person, the minimum floor area is six square metres. • For rooms used by two or more persons, the minimum floor area is four square metres for each person. Rooms used for sleeping shall have no wall less than two metres in length. Question #25: The house Jamal is looking at has the following specifications: • The habitable room floor area is 85 square metres • The floor area of the three bedrooms in square metres is as follows: Bedroom one (8 sq. m) Bedroom two (7 sq. m) Bedroom three (12 sq. m)

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Based on the provided information, what is the maximum number of people who could live in the house Jamal is viewing? There are three options. There is only one correct answer.

1

7

2

6

3

5

Exam Study Guide

Lesson 3 | Page 20 of 25

Maintenance standards are in place in municipalities to ensure a rental property is safe and meets health regulations. The standards are also in place for visual reasons. Question #26: A landlord must make sure that the rental property meets health, safety, housing and maintenance standards. Identify whether the statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 3 | Page 21 of 25

Maintenance standards are in place in municipalities to ensure a rental property is safe and meets health regulations. The standards are also in place for visual reasons. Question #27: Maintenance standards would only be found in a municipality’s bylaws. Identify whether the statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 3 | Page 22 of 25

Maintenance standards are in place in municipalities to ensure a rental property is safe and meets health regulations. The standards are also in place for visual reasons. Question #28: The local municipal government is responsible for enforcing all maintenance standards. Identify whether the statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 3 | Page 23 of 25

Maintenance standards are in place in municipalities to ensure a rental property is safe and meets health regulations. The standards are also in place for visual reasons. Question #29: Municipal maintenance standards do not cover things like lawn maintenance, snow and ice removal, land drainage, and garbage disposal. Identify whether the statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 3 | Page 24 of 25

Anna is looking to lease a house near where she works. She will only lease a property that has received a rental housing license. Question #30: Which of the following statements are true about rental housing licensing? There are four options. There are multiple correct answers.

1

All municipalities require a rental housing license, in order for the property to operate as a rental.

2

The rules for rental housing licenses are set out in the Residential Tenancies Act.

3

Rental housing licensing helps to ensure rental properties are appropriately maintained and are safe.

4

Regardless of whether a municipality requires rental housing licensing, all rental housing must meet zoning bylaws.

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Lesson 3 | Page 25 of 25

Congratulations, you have completed the lesson! There are four sections on this page with a summary of the key topics that were covered in this lesson.

Accessory dwelling units

In a two-unit dwelling, the primary dwelling unit is the main dwelling of the property. An accessory dwelling unit is a self-contained residential unit with a private kitchen, bathroom facilities, and sleeping areas within a dwelling. Accessory dwelling units can be: • On any floor of a house, including the basement • In an addition to the house • In a secondary structure on the property Depending on the location and structure of the accessory dwelling unit, privacy may be a concern to some potential tenants.

Legal compliance of accessory dwelling units

Rental units must comply with all regulations: • Zoning bylaws • The Ontario Building Code • The Ontario Fire Code • The Electrical Safety Code Significant fines may apply for failing to comply with the fire safety standards. As a salesperson, you must be cautious when the property houses an accessory dwelling unit. Ensuring the unit meets all current requirements is crucial.

Property-specific considerations

As a salesperson, you will be able to help significantly by providing additional information about the unit and occupancy of any neighbouring units. For example: • The number of occupants of the other units Exam Study Guide

• Whether the other occupants have pets • Additional costs and restrictions of shared facilities such as laundry or internet • Availability of tenant and guest parking

Municipal bylaws and rental units

Municipal bylaws control the availability and condition of rental units. These bylaws vary considerably among municipalities. To provide appropriate advice you must know your local bylaws. Some municipalities restrict the maximum number of occupants in a unit. Typically, this is based on the size of the unit. Often they dictate the minimum acceptable size for a bedroom. A landlord must ensure the rental property meets maintenance standards. If these standards are not set out in municipal bylaws, provincial maintenance standards apply. Some municipalities require rental housing licenses. To be licensed, a property must meet all safety and zoning standards. Zoning bylaws determine the type of buildings that are permitted in a specific area and how they may be used.

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Lesson 4 | Page 1 of 35

Lesson 4: Key Components of Legislation Affecting a Residential Lease

This lesson provides an overview of the key components of the Residential Tenancies Act and Ontario Human Rights Code, which together specify numerous requirements, prohibitions, and rights for landlords and tenants. Understanding the legislation and the role and rules of the Landlord and Tenant Board will help you guide landlords or tenants to make appropriate leasing decisions.

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Lesson 4 | Page 2 of 35

The Residential Tenancies Act and Ontario Human Rights Code are two significant pieces of legislation that affect the residential rentals market. Together they detail the rights and responsibilities of landlords and tenants. They ensure a system where rental units are clean and safe, and a system to resolve disputes. This knowledge will help to ensure that, as a salesperson, you are providing the correct information and can meet the needs of your clients and customers. Upon completion of this lesson, you will be able to: • Identify the legislation impacting a residential tenancy • Explain key components of the Residential Tenancies Act • Distinguish between assignments and subletting • Describe the role of the Landlord and Tenant Board 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 35

The Residential Tenancies Act

The Residential Tenancies Act, 2006 is a complex legislation that: • Spans numerous provisions • Governs residential tenancies in Ontario • Sets out rights and responsibilities for landlords and tenants The legislation affects approximately 1.6 million renter households in Ontario. That represents about 30 per cent of Ontario’s households. This module does not discuss the entire Residential Tenancies Act. It discusses only those sections that are most pertinent to a salesperson; for example, helping tenants, helping someone sell a tenanted property, or someone wanting to buy a property as an investment.

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Lesson 4 | Page 4 of 35

The Ontario Human Rights Code

In Ontario, the Human Rights Code applies to both tenants and landlords. Under the Code: • Everyone has the right to equal treatment in housing without discrimination and harassment • Landlords are responsible for making sure housing environments are free from discrimination and harassment How the Code applies to leasing The Ontario Human Rights Code ensures that people cannot be refused an apartment, harassed by a housing provider or other tenants, or otherwise treated unfairly.

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Lesson 4 | Page 5 of 35

Pet Provisions

A tenancy agreement cannot prohibit animals in the rental unit, or in or around the residential building. In some cases, the landlord can apply to the Landlord and Tenant Board to evict a tenant who has a pet. These are some common examples of such exceptions: • The pet makes too much noise, damages the unit, or causes other tenants to have allergic reactions. • The breed or species is inherently dangerous. • The pet is overly aggressive toward other residents, having attacked people, or is used by a tenant as a weapon against other tenants. If the rules of a condominium corporation do not allow pets, the condominium corporation would initially enforce the rules with the tenant. If that is not effective, then the condominium corporation would pursue the owner as well as the tenant. A landlord can refuse to rent to a person who has a pet, but cannot evict the tenant simply for having a pet. This is true even if they agreed that the tenant would not have a pet. A service animal is not considered a pet.

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The general information component of the Standard Form of Lease addresses pet provisions. It derives from Part III of the Residential Tenancies Act.

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Lesson 4 | Page 6 of 35

Rent-Related Provisions of the Residential Tenancies Act The Residential Tenancies Act contains numerous provisions regarding rent. The following five sections contain information about rent-related provisions of the Residential Tenancies Act.

Rent

When a new tenancy is entered into, the landlord and tenant agree on: • How much the rent will be for the rental unit • Which services will be included in the rent, such as parking, cable, heat, water, and electricity In most cases, the rent cannot be increased until at least 12 months after the tenant moves in.

Rent deposits

A landlord can collect a rent deposit from a new tenant on or before the start of a new tenancy. When the tenant pays rent monthly, the deposit cannot be more than one month's rent. When the tenant pays rent weekly, the deposit cannot be more than one week's rent. The rent deposit can be used only as the rent payment for the last month or week before the tenant moves out. It cannot be used for anything else, such as repairing damage to the rental unit. If the landlord gives the tenant a notice to increase the rent, the landlord can also ask the tenant to increase the rent deposit by the same amount. A landlord must pay the tenant interest on the rent deposit every year. Under the Act, the interest rate is the same as the rent increase guideline.

Example of a rent increase on rent deposit

Assume that the proper notice of rent increase is given, and the rent is $1,000. Rent: $1,000 Rent increase guideline: 1.8%

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Rent “top-up”: $18 ($1,000 x 0.018) Last month's rent interest: $18 No funds need to be exchanged because each party owes the other the same amount. However, the rent for the 13th month onward is now $1,018. In this instance, the landlord must communicate that they are doing this, as in the absence of clear information, the tenant could deduct the rental deposit interest off of a subsequent rental payment.

Damage deposits

A landlord cannot collect a damage deposit, nor use the last month's rent deposit to cover damage in the unit. If the landlord finds that a tenant has damaged the unit or the building, the landlord can: • Give the tenant a notice of termination • Ask them to pay for the damage • Both give notice and request payment for damage If the tenant does not pay, the landlord can apply to the Landlord and Tenant Board to determine if there are damages and what should be done about them.

Post-dated cheques and automatic payments

Usually, when a landlord and a new tenant agree to enter into a rental agreement they discuss how the rent will be paid. They can agree that the tenant will pay rent by post-dated cheques or automatic payments, such as debits from the tenant's account, or by credit card. But a landlord cannot require the tenant to pay by either of those methods.

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Lesson 4 | Page 7 of 35

Rent-Related Provisions of the Residential Tenancies Act The Residential Tenancies Act contains numerous provisions regarding rent. The following seven sections contain information about rent-related provisions of the Residential Tenancies Act.

Increasing a tenant's rent Usually, the rent can be increased at least 12 months after the later of the following:

• The tenant first moved in • The tenant's last rent increase A landlord must give at least 90 days' notice in writing of any rent increase. Landlords can obtain the proper form for this notice from the Landlord and Tenant Board.

Maximum amount of rent increase

The rent increase guideline determines the maximum amount a landlord can increase in most tenants’ rent during a year without the approval of the Landlord and Tenant Board. The guideline applies to most private residential rental units covered by the Residential Tenancies Act. Exemption: The guideline does not apply to vacant residential units, social housing units, nursing homes or commercial properties. This guideline also does not apply to new buildings, additions to existing buildings, and most new basement apartments that are occupied for the first time for residential purposes after November 15, 2018. Landlords must serve a notice of rent increases 90 days in advance on a Landlord and Tenant Board approved form.

Rent increase guideline

By August 31 each year, the government announces the guideline for rent increases that will take effect on or after January 1 of the following year. A rent

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increase that is not above the guideline does not need to be approved by the Landlord and Tenant Board. However, a landlord must get approval from the Landlord and Tenant Board before they can charge an increase above the guideline.

Rent increase above the guideline

A landlord can apply to the Landlord and Tenant Board for an increase above the guideline in any of the following cases: • The landlord's costs for municipal taxes and charges have increased significantly • The landlord has done major repairs or renovations (capital expenditures) • The landlord has operating costs for security services performed by people who are not employees of the landlord For increases in the cost of municipal taxes and charges, there is no limit on the amount of rent increase that can be approved.

Maximum rent increases for capital expenditures or security services

Rent increases for capital expenditures or security services cannot be more than three percent above the guideline each year.

Rent increases due to capital expenditures

The landlord must provide a copy of the supporting documents to the tenants who are affected by the rent increase. Before passing the costs on to the tenants, the Landlord and Tenant Board will determine whether the work was really necessary. If the Landlord and Tenant Board determines that there are serious maintenance problems in the rental unit or building, or if the landlord has not complied with an order to fix an elevator issued by the Landlord and Tenant Board, the municipality or the Technical Standards and Safety Authority, and the Landlord and Tenant Board may:

If the landlord justifies an increase that is more than three percent above the guideline, the increase can be taken over three years, at a rate of up to three percent above the guideline per year.

• Dismiss the landlord's application

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• Require the landlord to prove that the problems have been fixed before they can charge the approved increase

Rent increase above guideline with landlord and tenant agreement

The landlord and tenant can agree to a rent increase above the guideline if they agree that the landlord will do any of the following: • Make major repairs or renovations • Buy new equipment for the rental unit • Add a new service for the tenant The highest increase that can be agreed to is three percent above the guideline. This agreement must be in writing. The proper form for this agreement is available from the Landlord and Tenant Board. Where the landlord and tenant make this kind of agreement, the landlord does not have to apply to the Landlord and Tenant Board for approval of the increase. A tenant has five days after signing this agreement to change their mind and tell their landlord, in writing, that they no longer agree to the rent increase.

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Lesson 4 | Page 8 of 35

Access and Entry Rights of the Landlord

One fundamental right of a tenant is the right to privacy. This means a landlord cannot come and go whenever they please. Usually, a landlord must provide the tenant with written notice to enter the rental unit, at least 24 hours in advance. Entry under normal circumstances should be between 8 a.m. and 8 p.m.

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Lesson 4 | Page 9 of 35

Landlord Entry Without Written Notice

A landlord can enter a tenant's rental unit without written notice if: • There is an emergency such as a flood due to a pipe leak • The tenant agrees at the time to let the landlord in • A care home tenant has agreed in writing that the landlord can come in to check on their condition at regular intervals A landlord can enter a rental unit without written notice, between 8 a.m. and 8 p.m. if either of the following applies: • The rental agreement requires the landlord to clean the unit—unless the agreement allows different hours for cleaning. • The landlord or tenant has given a notice of termination, or they have an agreement to end the tenancy, and the landlord wants to show the unit to a potential new tenant. Note: Although notice is not required, the landlord must try to tell the tenant before entering for this reason to foster good relations with the outgoing tenant. Exam Study Guide

Lesson 4 | Page 10 of 35

Landlord Entry With 24 Hours' Written Notice If they have given the tenant 24 hours' written notice, a landlord can enter the rental unit between 8 a.m. and 8 p.m. for any of the following reasons: • To make repairs or do work in the unit • To inspect the unit to determine whether repairs are needed • To allow a potential mortgagee or insurer of the complex to view the unit • To allow a potential buyer to view the unit Note: the Act also allows a registered real estate salesperson or broker to enter for this purpose with written authorization from the landlord • To allow an engineer, architect or other similar professional to inspect the unit for a proposed conversion under the Condominium Act • For any reasonable purpose allowed by the rental agreement The notice must include the reason why the landlord wants to enter the rental unit and must state what time, between 8 a.m. and 8 p.m., the landlord will enter the unit. If the landlord gives the tenant the correct notice, the landlord can enter even if the tenant is not at home.

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Lesson 4 | Page 11 of 35

Termination by the Landlord

Termination by a landlord is far more restrictive than termination by a tenant. A landlord can end a tenancy only for the reasons allowed by the Act, whereas the only limitation on a tenant to terminate is the timing requirement (e.g., 60 days for a month-to-month tenancy). To end a tenancy, the landlord must first give the tenant notice in writing that they want the tenant to move out. The landlord must use the proper forms for giving a notice to end the tenancy. If the tenant does not move out after receiving the notice, the landlord can ask the Landlord and Tenant Board to end the tenancy by filing an application. The Landlord and Tenant Board will hold a hearing to decide if the tenancy should end. Both the landlord and the tenant can come to the hearing and explain their side to a member of the Landlord and Tenant Board. After the hearing, the adjudicator hearing the case at the Landlord and Tenant Board will make a decision.

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Lesson 4 | Page 12 of 35

Notice to End Tenancy by the Landlord

A notice of termination must: • Identify the rental unit and the date of the tenancy termination • Set out the reasons and details respecting the termination • Be signed by the person giving the notice or their designated agent The Act outlines appropriate notices to be used based on a range of circumstances. A notice of termination is not required if the landlord and tenant agree to terminate. As a salesperson, you should consult the Act directly or contact the Landlord and Tenant Board if you are involved with such matters. The Landlord and Tenant Board can provide you with information about their processes and the Residential Tenancies Act but cannot provide legal advice.

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Lesson 4 | Page 13 of 35

Landlord Termination Before the End of the Tenancy Period The landlord may proceed with a notice of termination either before the end of the tenancy period or at the end of the term, based on specific reasons set out in the Act. Notice periods and procedures vary. The landlord must provide notice to the tenant using the appropriate Landlord and Tenant Board Notice. The following table lists common reasons for termination and the corresponding Notice.

Reason for Termination

Corresponding Notice

Non-payment of rent or consistently paying rent lateReason for Termination

Notice to End your Tenancy Early for Non-payment of RentCorresponding Notice

Damage to the propertyReason for Termination

Notice to End your Tenancy for Interfering with Others, Damage or OvercrowdingCorresponding Notice

Interference with reasonable enjoyment of other tenantsReason for Termination

Notice to End your Tenancy for Interfering with Others, Damage or OvercrowdingCorresponding Notice

Too many persons occupying the rental unitReason for Termination

Notice to End your Tenancy for Interfering with Others, Damage or OvercrowdingCorresponding Notice

Illegal actReason for Termination

Notice to End your Tenancy for Illegal Acts or Misrepresenting Income in a Rent-Geared-to-Income Rental UnitCorresponding Notice

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Misrepresentation of income, especially in subsidized housingReason for Termination

Notice to End your Tenancy for Illegal Acts or Misrepresenting Income in a Rent-Geared-to-Income Rental UnitCorresponding Notice

Impairment of the safety of othersReason for Termination

Notice to End your Tenancy for Causing Serious Problems in the Rental Unit or Residential ComplexCorresponding Notice

End of termReason for Termination

Notice to End your Tenancy at the End of the TermCorresponding Notice

Landlord, purchaser or family member requires the unitReason for Termination

Notice to End your Tenancy Because the Landlord, a Purchaser or a Family Member Requires the Rental UnitCorresponding Notice

Demolish, repair or convert use of rental unitReason for Termination

Notice to End your Tenancy Because the Landlord Wants to Demolish the Rental Unit, Repair it or Convert it to Another UseCorresponding Notice

Landlord termination at the end of the tenancy period Termination procedures at the end of the term depend on the reason for termination. Most frequently, as a salesperson, you will encounter possession and sale of property. Other reasons concerning the building or unit include demolition of the building, conversion of use, and extensive renovations to the unit or building.

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Lesson 4 | Page 14 of 35

Landlord Termination due to Possession Required

With the required notice, a landlord may terminate a tenancy if possession of the rental unit is for residential occupation by any of the following people: • The landlord • The landlord’s spouse • A child or parent of the landlord or the landlord’s spouse • A person who provides, or will provide, care services to any of them Compensation to the tenant A landlord who gives notice because they want to use the unit personally, for family, or for a caregiver must do one of the following: • Pay the tenant an amount equal to one month's rent by the termination date in the notice • Offer the tenant another rental unit that is acceptable to the tenant

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Lesson 4 | Page 15 of 35

Landlord Termination due to Sale of Property

A landlord of a residential complex, containing no more than three residential units, may give notice if: • The landlord has entered into an agreement of purchase and sale to sell the complex • Any of the following requires possession of the complex or a unit within the complex: o The purchaser o The purchaser’s spouse o A child or parent of one of the purchasers or the purchaser’s spouse o A person who provides care services to any of them In such situations, the current landlord is not required to provide compensation to the tenant. However, once a property has been sold, the buyer becomes the new landlord of the tenant and compensation in accordance with the Residential Tenancies Act must be provided.

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Other reasons when a landlord may terminate a tenancy The Residential Tenancy Act specifies several other reasons when a landlord may terminate a tenancy. One common reason is that the tenant persistently fails to pay rent on the due date. Termination provisions by landlords are complex. As a salesperson, you will need to refer to the Act regarding both procedures, and applications to the Landlord and Tenant Board so you can adequately advise your client or customer.

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Lesson 4 | Page 16 of 35

Required Notice Period When a landlord gives notice to a tenant, the landlord must observe a required notice period. While often 60 days, some reasons for termination require or allow a different notice period.

Reason for notice

Notice period

Usual notice period

The termination date is 60 days following the notice and is the day the tenancy ends if periodic, or in the case of a fixed term, the end of the term. Upon notice, the tenant may terminate earlier than the landlord’s notice, but not earlier than 10 days following notice.

Demolition, conversion of use, extensive renovations

120 days subject to certain qualifications regarding such activities.

Tenant causes willful or excessive damage to the unit or building

10 days

Tenant causes a disturbance in a small rental building where the landlord also resides

10 days

Rent increase

90 days

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Lesson 4 | Page 17 of 35

Termination by the Tenant

Termination of a tenancy agreement is only possible in accordance with the Act. A notice of termination must: • Identify the rental unit • State the date of the tenancy termination • Be signed by the person giving the notice or their agent A notice of termination is not required if the tenant and landlord agree to terminate. It is important to point out that in most circumstances, the salesperson or brokerage acting on behalf of a seller is not authorized as agent for the landlord to sign and serve such notices. As a salesperson, you should be particularly aware of notice periods relating to terminations by tenants. The tenant may give notice at the end of a rental period or at the end of a tenancy for a fixed term. The number of days’ notice depends upon the term of the tenancy, as shown in this table:

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Term of the tenancy

Number of days’ notice required

Daily or weekly

28 days before effective date of termination on the last day of the rental period.

Monthly or yearly

60 days before effective date of termination on the last day of the rental period.

Fixed term

60 days before specified expiration date to be effective on the expiration date, and no earlier than the last day of the lease.

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Lesson 4 | Page 18 of 35

Notice Requirement When Safety Is a Concern

The Residential Tenancies Act allows tenants who have concerns for their safety, or the safety of a child living in the household, to give 28 days’ notice to terminate their tenancy rather than the usual 60 days. This applies to monthly, yearly, and fixed term leases. To end their tenancy on short notice tenants must provide their landlords with: • A restraining order, access order or peace bond issued within the last 90 days • A signed statement stating they or their child has experienced domestic or sexual abuse

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Lesson 4 | Page 19 of 35

Requirement to Provide the New Tenant Brochure

Landlords must provide the Information for New Tenants brochure to new tenants. It includes information about the rights and responsibilities of landlords and tenants, the role of the Landlord and Tenant Board, and how to contact the Landlord and Tenant Board. The landlord must give the tenant the brochure on or before the day the tenancy begins, even if the tenant does not move in on that date.

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Lesson 4 | Page 20 of 35

Assignment Rights and Responsibilities

A tenant may be able to transfer the right to occupy the rental unit to someone else. This is called an assignment. In an assignment, a new person (tenant) takes the place of the current tenant and it is now the new tenant’s lease therefore all the terms of the rental agreement stay the same. Application of assignment Assignment provisions apply to all tenancies whether periodic, fixed, contractual, or statutory. The provisions do not apply to the tenant of a superintendent’s premises, which is specifically excluded under the Act. Assignment consent or refusal If a tenant requests an assignment, the landlord can either consent or refuse consent. If a tenant requests an assignment to a specific assignee, the landlord can consent or refuse consent based on that assignee. The landlord may consent to an assignment and subsequently refuse an assignment to a specific assignee. A refusal regarding an assignee cannot be arbitrary or unreasonable. The landlord may charge reasonable out-of-pocket expenses in giving consent.

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When a landlord refuses assignment or fails to reply If an assignment is requested by a tenant and the landlord refuses or does not respond within seven days of the request, the tenant may give notice of termination within 30 days of the request. If an assignment is made, the terms and conditions of the tenancy agreement continue to apply. Transfer of rights and responsibilities Both assignee (the new tenant) and assignor (now former tenant) are liable to the landlord and have rights under the tenancy agreement as follows: • The assignor for the period up to the assignment • The assignee for the period following assignment

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Lesson 4 | Page 21 of 35

Sublet Rights and Responsibilities

A sublet occurs when a tenant moves out of the rental unit with the intention of returning before the tenancy ends and lets another person live there as a tenant during their absence. In a sublet, the terms of the rental agreement and the landlord-tenant relationship do not change. The original tenant ultimately remains responsible should the sub-tenant breach a provision within the lease, such as not paying the rent. A sub-tenant may stay longer at the end of the term, potentially creating a problem unless the tenant agrees not to return to the unit. The lease could be assigned to the sub-tenant. Application of subletting Subletting provisions apply to all tenancies whether periodic, fixed, contractual, or statutory. The provisions do not apply to the tenant of a superintendent’s premises. Subletting requirements and restrictions The Act sets out various requirements and restrictions concerning subletting. As a salesperson, you should access the Act directly for exact wording.

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Landlord approval required A tenant must have the landlord's approval for a sublet. The landlord cannot arbitrarily or unreasonably withhold consent to a sublet. The landlord may charge reasonable out-of-pocket expenses relating to the consent. The tenant can appeal to the Landlord and Tenant Board if the landlord unreasonably denies the request. No transfer of rights and responsibilities The tenant remains entitled to the benefits and liable for breaches under the tenancy agreement during the subtenancy period. The sub-tenant is entitled to the benefits and is liable to the tenant for breaches of the sub-tenant’s obligations. However, the original tenant is responsible should the sub-tenant not comply with the lease provisions, fail to follow the building rules, and so on. Sub-tenant occupation after the end of the sub-tenancy Various rights given to the landlord concerning termination apply to the tenant/sub-tenant relationship as if the tenant were the landlord and the sub-tenant were tenant; for example, damage, reasonable enjoyment, and too many persons. The sub-tenant has no right to occupy the rental unit after the end of the sub-tenancy. The tenant may apply to the Landlord and Tenant Board for an order for compensation from an overholding sub-tenant, if the sub-tenant is in possession of the rental unit at the time of the application. If a sub-tenant overholds and the original tenant has vacated the rental unit, the landlord may negotiate a new tenancy agreement with that person. The unauthorized occupation is deemed to be an assignment with landlord consent if these two conditions are met: • A new tenancy agreement is not entered into within 60 days • No application is made to evict the person or the sub-tenant

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Lesson 4 | Page 22 of 35

Role of a Salesperson When a Tenancy is Being Assigned or Sublet

As a salesperson, sometimes you may receive a request for advice. Knowing the rights of the landlord, tenant, assignee, and subletting tenant can help you provide basic information to the parties involved. However, advice can only be provided by a recognized third-party professional such as a property manager. Assignment applies when the tenant does not want to continue with the tenancy and wants the new tenant to take over the tenancy with the landlord. Sublet applies when the original tenant wants to return to the rental unit and continue with their tenancy after a period of absence from the rental unit, during which time someone else rents the unit from the tenant.

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Lesson 4 | Page 23 of 35

The Landlord and Tenant Board

The Landlord and Tenant Board has the following two key roles: • Provide information about the Residential Tenancies Act • Resolve disputes between most residential landlords and tenants The Landlord and Tenant Board is best described as quasi-judicial in that it generally operates like a court of law, but not in all respects. Members of the Landlord and Tenant Board are appointed by the provincial government. The Landlord and Tenant Board operates in terms of rules of practice and interpretation guidelines, and makes those rules and guidelines, and approved forms available to the public. When contacting the Landlord and Tenant Board, you will be provided with information about their processes and the Residential Tenancies Act, but cannot get legal advice. The Landlord and Tenant Board does not provide information about the rights and obligations of non-profit housing co-operatives and their members. This information is available from the Co-operative Housing Federation of Canada or a Community Legal Clinic.

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The Landlord and Tenant Board is involved in various activities that include: • Determining matters raised in applications made by parties • Making findings (e.g., that a capital expenditure is reasonable) • Making and issuing orders • Mediating situations between landlords and tenants • Adjudicating (holding hearings)

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Lesson 4 | Page 24 of 35

Mediation Versus Adjudication

The Board settles issues between landlords and tenants through either mediation or adjudication. Mediation Mediation is a process of achieving some form of agreement or reconciliation between opposing parties. This process has proven particularly effective in resolving a wide variety of disputes that might otherwise extend into lengthy hearings or legal actions. The Landlord and Tenant Board encourages the disputing parties to use mediation to reach a settlement. The adjudicator hearing the case, or either party to the dispute, may ask for mediation. A mediator will be available to hold a meeting of the parties to help the parties reach a settlement on the day of the hearing. If a settlement is reached, then there will be no hearing. A written settlement will be drafted for both parties to sign. For example, if the dispute relates to late or non-payment of rent, the settlement would include the payment terms and timelines that the tenant would have to follow. The signed agreement becomes binding on both parties. If the tenant fails to fulfill the terms of the settlement; for example, pay the agreed-to-amount of rent on the required date, the landlord

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can proceed to evict the tenant by returning to the Landlord and Tenant Board based on the tenant’s breach of the settlement agreement. Note: A salesperson will not be involved at the hearing. Only the landlord, a paralegal, lawyer, employee of the landlord (in instances where the landlord is a large company) can present for a hearing. As a salesperson, you may be required to provide information regarding the hearing process to a landlord or tenant. Adjudication Conversely, adjudication is the process of deciding or settling bylaw issues arising between landlords and tenants pursuant to the Residential Tenancies Act. With adjudication, a hearing is typically held. Based on evidence presented by the landlord and tenant, a member of the Board issues an order. An order is the final, written version of the Board Member’s decision. The adjudicated order typically cannot be appealed, which is why mediation is usually encouraged as the first option to resolve the dispute.

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Lesson 4 | Page 25 of 35

Application and Hearing Process of the Landlord and Tenant Board

Landlords and tenants are bound by provisions of the Residential Tenancies Act. When a dispute arises, the Landlord and Tenant Board requires the applicant and respondent to follow specific steps to settle the issue. Before filing an application Before filing an application for a hearing, the landlord and tenant should talk to each other first to try to resolve the problem. If that fails, the parties must follow the required steps laid out by the Landlord and Tenant Board before submitting an application. Following are two examples. Before filing: • A tenant must write to the landlord to ask them to fix the problem. • A landlord whose tenant is not paying rent must give the tenant notice to end the tenancy. Summary of the application and hearing process

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1. The applicant completes the appropriate notice, depending on the situation and desired outcome, and serves notice to the respondent. 2. The Landlord and Tenant Board schedules a hearing. 3. At the hearing, either adjudication or mediation takes place. 4. The decision is made and the order issued the same day.

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Lesson 4 | Page 26 of 35

Scheduling Hearings

Typically, applications are scheduled for a hearing within 30 business days, but could be longer. Decisions are usually issued within 10 business days of the end of the final hearing. Exception: Generally, a hearing is scheduled within 25 business days for: • Applications to evict a tenant for non-payment of rent • Applications to collect rent the tenant owes Decisions for these applications are usually issued within four business days of the end of the final hearing. Who can represent a landlord at a hearing Only certain parties can appear at a hearing to represent a landlord: • The landlord • An employee of the landlord • A paralegal • A lawyer

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Lesson 4 | Page 27 of 35

Application Notices and Forms for Use by a Landlord or Tenant

The Landlord and Tenant Board website provides: • All the forms necessary for landlords and tenants • Information on what form to use and how to complete the appropriate form • Information on how to file the forms • The annual Rent Increase Guideline (for example, 1.8% for 2019)

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Lesson 4 | Page 28 of 35

The Residential Tenancies Act (RTA) and the Ontario Human Rights Code are two significant pieces of legislation that affect rental housing in Ontario. Question #31: Which of the following statements are true about the Residential Tenancies Act (RTA) and/or the Ontario Human Rights Code? There are four options. There are multiple correct answers.

1

The Residential Tenancies Act applies to all jurisdictions in Canada

2

The Residential Tenancies Act makes landlords responsible for ensuring housing environments are free from discrimination and harassment

3

The Ontario Human Rights Code applies to both Landlords and Tenants

4

The Residential Tenancies Act sets out the rights and responsibilities for landlords and tenants

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Lesson 4 | Page 29 of 35

A potential renter does not currently have a pet but is open to getting a dog once settled into a rental unit. Of concern to the renter is whether having a pet will affect her ability to rent a unit. Question #32: Which one of the following statements is NOT true with respect to renting and having a pet dog? There are four options. There is only one correct answer.

1

A landlord can refuse to rent to a person who has a pet.

2

Service animals would be considered pets as per the Human Rights Code and the Residential Tenancies Act.

3

A landlord cannot evict a tenant simply for having a pet.

4

Pet provisions added to a tenancy agreement prohibiting the keeping of pets are void and not enforceable.

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Lesson 4 | Page 30 of 35

The Residential Tenancies Act (RTA) contains numerous rent related provisions. Question #33: Which of the following statements are true with respect to the Act’s rent related provisions? There are five options. There are multiple correct answers.

1

When a new tenancy is entered into, the landlord and tenant decide on how much the rent will be for the unit. In most cases the rent cannot be increased until at least 12 months after the tenant moves in.

2

It is illegal for a landlord to ask a tenant for post-dated cheques.

3

A landlord can legally collect a damage deposit.

4

A landlord can legally collect a rent deposit from a new tenant on or before the start of a new tenancy.

5

The landlord must pay interest on a rent deposit every year.

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Lesson 4 | Page 31 of 35

One fundamental right of a tenant is the right to privacy. This means a landlord cannot enter the rental unit whenever they want. Usually, a landlord must provide the tenant with written notice to enter the rental unit. Entry under normal circumstances should be between 8 a.m. and 8 p.m. Question #34: Which of the following situations are exceptions to the requirement to provide written notice to tenants to enter the rental unit? There are five options. There are multiple correct answers.

1

There is an emergency such as a damaged roof that is leaking.

2

The tenant agrees to let the landlord in.

3

To allow a potential mortgagor or insurer of the rental building to view the unit.

4

To allow a potential buyer of the rental building to view the unit.

5

The tenant has given a notice of termination and the landlord wants to show the unit to a potential new tenant.

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Lesson 4 | Page 32 of 35

Sometimes a landlord needs to evict a tenant because of their behaviour or for other legitimate reasons. Question #35: Which of the following scenarios would allow a landlord to legally evict a tenant? There are six options. There are multiple correct answers.

1

A tenant persistently failing to pay rent on the due date.

2

A landlord’s brother needs the use and possession of the rental unit for his family.

3

The lease states that no pets are to be kept in the unit and the tenant brings in a dog.

4

A tenant is interfering with and making life very difficult for other tenants.

5

When a tenant causes willful or excessive damage to the unit or building.

6

A tenant is constantly having guests stay over for weeks at a time and the lease prohibits guests staying longer than three days.

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Lesson 4 | Page 33 of 35

Sometimes a tenant requests a sublet or assignment of their rental unit. Question #36: Which of the following statements about subletting and assignment are correct? There are five options. There are multiple correct answers.

1

A landlord can either consent or refuse consent to a tenant’s request to be able to assign the rental unit.

2

In an assignment, the assignor is still liable to the landlord for the terms of the tenancy agreement for the period following the assignment.

3

A tenant must have the landlord's approval for a sublet.

4

In a sublet, the original tenant is still ultimately responsible to the landlord should the sub-tenant breach any of the lease provisions.

5

The landlord is entitled to refuse to allow the tenant to sublet the rental unit irrespective of whether it seems arbitrary or unreasonable. The reason for this is that the landlord approved the tenant and not the sub-tenant.

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Lesson 4 | Page 34 of 35

The Landlord and Tenant Board has numerous roles and functions. Question #37: Which of the following statements about the Landlord and Tenant Board roles and functions are correct? There are six options. There are multiple correct answers.

1

The Landlord and Tenant Board holds hearings to resolve disputes between landlords and tenants.

2

The Landlord and Tenant Board settles disputes between landlords and tenants through either mediation or adjudication.

3

The Landlord and Tenant Board provides information about the Residential Tenancies Act.

4

The Landlord and Tenant Board adjudication process involves the landlord and tenant coming to an agreement to settle a dispute. There is no need for the Board to issue orders when the adjudication process is being used.

5

The Landlord and Tenant Board makes available to landlords and tenants the forms required under the Residential Tenancies Act.

6

The Landlord and Tenant Board provides legal advice to landlords and tenants regarding rental disputes.

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Lesson 4 | Page 35 of 35

Congratulations, you have completed the lesson! There are four sections on this page with a summary of the key topics that were covered in this lesson.

Residential Tenancies Act and Ontario Human Rights Code

The Residential Tenancies Act and Ontario Human Rights Code are two significant pieces of legislation that affect the residential rentals market. Together they detail the rights and responsibilities of landlords and tenants to ensure a system where rental units are clean, safe, and free of bias. It also ensures a system where landlords and tenants have a way to resolve disputes.

Residential Tenancies Act provisions

The Residential Tenancies Act covers numerous provisions concerning: Rent, allowable rent increases, deposits, and payments Pet provisions Landlord entry allowances Rules for a landlord terminating a tenancy, including when the unit is required for personal use • Allowable reasons and notification periods for a landlord to terminate a tenancy • • • •

• Rules and required notifications for a tenant terminating a tenancy

Assignment and subletting

Tenants may assign or sublet their unit with permission of the landlord. Landlords cannot unreasonably refuse such requests. An assignment transfers the tenant’s lease to the other person permanently. A sublet allows another person to occupy the unit temporarily and comply with the terms of the lease.

Landlord and Tenant Board

Activities of the Landlord and Tenant Board include: • Determining matters raised in applications made by parties • Making findings

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• Making and issuing orders • Mediating situations • Adjudicating (holding hearings) The hearing process is quite formalized, allowing both the landlord and tenant to make submissions and where required, invite witnesses.

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Lesson 5 | Page 1 of 16

Lesson 5: Safety and Compliance Considerations

This lesson outlines the landlord’s role in ensuring tenant safety in and around the rental unit. While safety of the unit is a legislative burden on the landlord, having a rental unit that meets all codes and safety standards makes good business sense for the landlord.

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Lesson 5 | Page 2 of 16

Tenant safety is paramount. A tenant expects their home to be safe. As a landlord, you are responsible for providing your tenants with a secure place to reside. The Residential Tenancies Act imposes numerous obligations on landlords and tenants. Many are intended to ensure the rental unit is safe for occupancy. As a salesperson, you will often be asked to show, recommend, or comment on rental units. Knowing the safety standards and being able to determine the current level of compliance with those standards, can help you to provide valuable service to clients and customers, and help them avoid potential hazardous or legal situations. Upon completion of this lesson, you will be able to: • Explain methods to ensure adequate safety is provided for tenants 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 16

Unobstructed, Well-Lit Surrounding Areas

A neat, well-maintained building is in itself a deterrent to crime, as it gives the appearance of a well-run operation. Lighting The building should be well lit at night. This includes all parking and locker areas, the entire building perimeter, and especially doors. Lighting is vital as a psychological deterrent to crime. Statistics show that more light means less crime. As well, the courts have held employers negligent and liable for injuries sustained due to insufficient lighting. Unobstructed areas Areas surrounding the building should be unobstructed. • The perimeter is neat and clean. • Unauthorized access to the roof is prevented by avoiding stacked pallets or tall trees next to the building, and readily available ladders.

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• Shrubbery around the building is kept low enough to: o Provide an unrestricted view of the entire building perimeter. o Prevent unauthorized persons from using shrubs as hiding places. • Trees trimmed to about 6-7’ above ground provide a clear line of sight to prevent hiding places for intruders. Cameras Video recording devices provide residents with a sense of safety and security, and also deter intruders. Cameras should be operational, with clear signage notifying everyone that the area is under surveillance. Advise landlords not to install “dummy cameras”. They may seem to be an effective and low-cost method of providing a safe environment, however this creates a false sense of security. It puts the landlord in a vulnerable position for a lawsuit, especially if tenants depend on the supposed cameras and an incident occurs. To provide the best level of security or deterrence, cameras should have someone monitoring them.

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Lesson 5 | Page 4 of 16

Physical Security of the Unit to Prevent Unauthorized Access

Tenants should feel safe inside of their home. This means landlords must ensure all doors and windows are properly secured and have appropriate working locks. All front doors should, at the very least, have a deadbolt lock. A landlord must ensure no one else has a key to the tenant’s home. Landlords should always change the locks after a prior tenant moves out and before a new one moves in. When giving keys to salespersons to show a vacant unit, landlords should use a generic lock and then replace the lock prior to the tenant moving in. In many residential buildings, a tenant may have a key to the main entrance door to the building and a separate key for the rental unit. The key may be traditional or a coded card for an electronic system. Often in larger buildings, visitors gain access by contacting the tenant on an intercom and being “buzzed in” by the tenant who gives access to the building by activating an electronically operated lock release on the main entrance from their unit. Larger apartment buildings often have enclosed parking for tenants, such as in a lot underneath the building. Such lots are often accessed with a fob, garage door opener or key. This helps to maintain personal security and prevent unauthorized access to the building.

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Lesson 5 | Page 5 of 16

Smoke Alarms, Carbon Monoxide Alarms, and Fire Safety Equipment

Landlords are responsible for ensuring all required smoke alarms, carbon monoxide alarms, fire safety doors, and equipment are in good working order. All rental units must comply with all safety requirements, including the Fire Code and the Building Code. As a salesperson, it is important that you are familiar with all registration and safety requirements in your area. Smoke alarms Landlords must ensure their rental properties comply with the Ontario Fire Code. Specifically, a landlord is responsible for installing and testing smoke alarms, keeping them in working condition, and replacing them when necessary. The landlord must give the tenant of each rental unit a copy of the smoke alarm manufacturer’s maintenance instructions or approved alternative maintenance instructions. A landlord must also act to correct any problem or concern reported about the operation of an installed smoke alarm. Exam Study Guide

Carbon monoxide alarms As with smoke alarms, landlords are responsible for the installation, testing, and maintenance of carbon monoxide alarms when gas appliances or gas-fired heating equipment or furnaces are within the rental premises. The landlord must also provide the tenant with maintenance instructions for the carbon monoxide alarms. Tenant’s responsibilities A tenant must not disable a smoke alarm or a carbon monoxide alarm. Intentional disabling of a smoke or carbon monoxide alarm are both violations of the Ontario Fire Code. Fines can be significant. Up to $50,000 may be imposed by the court upon conviction of an offence that the tenant disabled the alarm. Keeping records of testing Landlords should ensure they retain documentation that they have provided working alarms, instructions, and maintenance records. These should be available upon request by the Fire Prevention Office. Doors Proper operation of doors is an important factor in fire safety protection. Suite doors are “fire-rated” and the doorcloser mechanism forms part of the protection from fire and smoke spreading. Door-closers on common area doors must be maintained by the landlord to ensure that doors properly close. Landlords are responsible for maintaining doors. Tenants must not tamper with, change, or remove door-closer mechanisms. Doing so could compromise the fire protection that the doors provide.

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Lesson 5 | Page 6 of 16

Condition of the Electrical System

A landlord has to keep the rental property in a good state of repair. Maintenance standards within the Residential Tenancies Act stipulate: • A supply of electrical power shall be provided to all habitable spaces in a residential complex. • The wiring and receptacles necessary to provide electrical power shall be maintained free of conditions dangerous to persons or property. All electrical work completed must be performed by a licensed electrician and, depending upon the complexity of the electrical work, inspected by the Electrical Safety Authority.

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Lesson 5 | Page 7 of 16

Use of Hazardous Materials for Building Maintenance

In the operation of any building, maintenance and janitorial staff use a variety of materials that can cause injury or pose a health hazard to staff, tenants, or the public. The Occupational Health and Safety Act requires the property manager, building staff, and contract employees to be fully aware of materials and products that are potentially hazardous. They must also be fully informed on the handling, storage, and disposal of hazardous materials. The Act also requires employers to provide appropriate training and safety equipment, such as boots, gloves, goggles and masks, to ensure safety in the workplace.

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Lesson 5 | Page 8 7 of 16

Monitoring for Illegal Activity

Landlords are responsible for monitoring for any illegal activity taking place within the building or on the property. The level of security required varies considerably based on the size, age, and use of the building. It may vary from a simple security key system to a sophisticated electronic monitoring system manned 24 hours a day. While current technologies for control and detection can manage many functions, security personnel are the only component of the security system with reasoning capabilities that can act to prevent problems before they occur. For example, they can spot potential fire hazards and unauthorized persons on the premises and take appropriate action before they become a problem. A building’s security needs must be carefully assessed to ensure that sufficient security is put in place. The most critical part of building security is the control of access, which is necessary to protect tenants and their property from criminal activity.

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Lesson 5 | Page 9 of 16

Additional Tenant Obligations

A number of cities have enacted public ordinances requiring owners and occupiers to remove ice and snow from sidewalks. The Residential Tenancies Act requires landlords to assume the responsibility of snow and ice removal for apartment buildings and other rental properties. Commonly, for rental units that are not part of an apartment building or condominium, tenants might also have obligations set out in the additional terms of the lease that could address safety, such as exterior snow and ice removal. Cutting grass is also required. The municipality may issue an order, and potentially a fine, against a property owner if the grass is too long. This obligation needs to be outlined in the lease. Similarly, garbage removal is required by the municipality. If garbage is left to pile up, municipal orders and possible fines may apply. A clause can be inserted in the agreement that the tenant will perform these functions if they agree to. If the tenant doesn't agree to do it, or doesn't do it, the landlord is responsible. However, even when included in the lease and the tenant agrees, these functions are considered landlord obligations, and such clauses are not enforceable. Part of your due diligence as a salesperson would be to inform the landlord of their obligations, even if the tenant has agreed to perform the functions. Exam Study Guide

Keeping the rental unit clean and tidy is a tenant obligation. This precludes hoarding. Hoarding can be a danger to the occupants of the unit and potentially to others in the building as well. Not only could hoarding promote mold growth and encourage pests, it can also create a fire hazard. The landlord is responsible for monitoring their property to ensure that the actions of one tenant do not jeopardize many tenants. This is where individual rights collide with the rights of the many. A similar approach applies to smoking–whether tobacco or cannabis. If one apartment in a duplex or triplex has a tenant who is highly allergic to smoke, the lease can prohibit smoking, as the air is shared within the building and could cause a serious health risk to the allergic tenant. No one has the “right” to smoke in the rental unit.

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Lesson 5 | Page 10 of 16

Role of a Salesperson to Help Ensure Safety and Compliance

As a salesperson, you will be able to provide valuable information and advice to landlords and tenants by being knowledgeable about the safety requirements of rental units. Pointing out potential deficiencies, and educating your clients and customers will help to build your reputation as a trusted salesperson. Legislation changes from time to time, so it is important to review the governing Act, Codes, and municipal bylaws regularly. As a salesperson, you will have the same legal and ethical obligations to landlords and tenants as you would to sellers and buyers. By explaining the safety requirements to both the landlord and the tenant, the salesperson is looking after their best interests and ensures all the parties are protected and treated fairly and ethically.

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Lesson 5 | Page 11 of 16

Landlords are legally responsible for ensuring their rental property is safe for tenants to live in. Question #38: Which of the following are safety responsibilities of a landlord under the Residential Tenancies Act? There are four options. There are multiple correct answers.

1

Ensuring the area surrounding the building is unobstructed and is sufficiently well-lit.

2

Installing security cameras.

3

Ensuring only the tenant and authorized persons can access the tenant’s rental unit.

4

Ensuring smoke alarms are installed correctly and are working.

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Lesson 5 | Page 12 of 16

Landlords are legally responsible for ensuring their rental property is safe for tenants to live in. Question #39: Which of the following are safety responsibilities of a landlord under the Residential Tenancies Act? There are three options. There are multiple correct answers.

1

Disabling faulty alarms to avoid problems.

2

Ensuring fire doors are operational.

3

Ensuring the electrical system is safe.

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Lesson 5 | Page 13 of 16

Fire safety is a major concern for both landlords and tenants. Question #40: Which of the following statements about fire safety and the Residential Tenancies Act are true? There are five options. There are multiple correct answers.

1

Tenants are responsible for testing and ensuring all carbon monoxide alarms in their unit are working properly.

2

Tenants and landlords must ensure that fire doors do not have door-closers as it is important that these doors do not automatically shut closed after being opened. Door closers can be a serious fire hazard.

3

To avoid annoying their neighbours, tenants can pull the batteries out of a smoke alarm if it keeps going off when they are cooking. Alarms can be temporarily disabled for no longer that eight hours.

4

Landlords must keep documentation that they have provided working alarms, instructions and maintenance records.

5

Landlords must give the tenant of each rental unit a copy of the smoke alarm manufacturer’s maintenance instructions or approved alternative maintenance instructions.

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Lesson 5 | Page 14 of 16

A landlord client owns a rental building with 200 units. The building has an on-site property manager and building supervisor, as well as three other full-time employees and two contract employees. In maintaining and operating the building, a host of potentially hazardous materials are used. Question #41: Identify the requirements of the Occupational Health and Safety Act with respect to potentially hazardous materials being used by employees. There are four options. There are multiple correct answers.

1

All employees must be fully aware of materials and products that are potentially hazardous.

2

Employees must take training courses to ensure they know how to deal with hazardous materials and must provide their employer with a certificate of proof of the successful completion of that training. Some employers will pay for the training.

3

All employees, including contract employees, must be fully informed on the handling, storage and disposal of hazardous materials.

4

The Occupational Health and Safety Act requires all employees to purchase the necessary boots, gloves, goggles, and masks to ensure their safety in the workplace. Most employers will reimburse their employees for any purchases.

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Lesson 5 | Page 15 of 16

Ari is a salesperson who has extensive experience working with landlords and tenants in leasing residential rental units. His clients appreciate the knowledge and advice he gives with respect to compliance with the Residential Tenancies Act. He has a great reputation and most of his business comes from referrals or repeat clients. He understands what it takes to be successful and understands what is required of him with respect to the REBBA Code of Ethics. Question #42: Which of the following statements are true regarding Ari’s obligations under REBBA Code of Ethics when it comes to leasing? There are five options. There are multiple correct answers.

1

Ari must understand a landlord and tenant’s rights and obligations under the Residential Tenancies Act as well as the Ontario Human Rights obligations.

2

Under REBBA Code of Ethics, a salesperson can only work with landlords and tenants if they have the knowledge and expertise to do so. This means that Ari would be in violation of the Code of Ethics if he ever recommended a client seek advice from a third-party professional.

3

When working with sellers and buyers, Ari is obligated to discover and disclose any material facts to that seller and buyer. When working with a landlord and tenant Ari is not obligated under REBBA to disclose a material fact unless he has specific knowledge of that fact.

4

The REBBA Code of Ethics requires a salesperson to use their own standard form of lease agreement providing it is current and fulfills the requirements of the Residential Tenancies Act and the Ontario Human Rights Code.

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5

Ari needs to ensure his landlord or tenant client understands their obligations under a lease prior to signing that lease. One way to fulfill that obligation is for Ari to go through every clause in the lease agreement with his client explaining that clause in simple terms.

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Lesson 5 | Page 16 of 16

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were covered in this lesson.

Landlord responsibilities Tenant safety is a landlord’s most important responsibility. Ensuring a unit meets all safety standards helps to avoid safety issues and minimize liability. for tenant safety The building should be well-lit at night, particularly entrances. The perimeter of the building should be obstruction free to prevent unauthorized access through upper floors and avoid hiding places. All windows, doors, and access points should have adequate security to prevent unauthorized access to the building or unit. Updating lock systems when a new tenant moves in is paramount. Landlords must ensure smoke and carbon monoxide alarms are installed where required and are tested regularly. Tenants must not interfere with alarms, including removing the batteries. The electrical system must be provided to all habitable spaces and must be safe. Hazardous materials must be used, stored and disposed of safely. Landlords are responsible for monitoring for any illegal activity taking place within the building or on the property.

Tenant obligations

Sometimes, tenants are responsible for some maintenance around the unit, such as snow removal if they agree. Under some circumstances, they may be restricted from activities that are otherwise allowable.

Salesperson role

As a salesperson, you can provide valuable information. Observing the Code of Ethics and keeping your knowledge up to date will ensure you provide accurate information to both landlords and tenants.

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Appendix | Page 1 of 2

Appendix Answer Key Question #1: 3 Question #2: 1, 4 Question #3: 1 Question #4: 2 Question #5: 1 Question #6: 2, 4 Question #7: 1 Question #8: 2 Question #9: 1 Question #10: 1 Question #11: 2 Question #12: 2 Question #13: 1, 4 Question #14: 1 Question #15: 1 Question #16: 2 Question #17: 2 Question #18: 1 Question #19: 2, 3, 5 Question #20: 1 Question #21: 1, 2, 3 Question #22: 1, 2, 3, 7, 8 Question #23: 1, 3, 4, 5 Exam Study Guide

Appendix | Page 2 of 2 Question #24: 5 Question #25: 2 Question #26: 1 Question #27: 2 Question #28: 1 Question #29: 2 Question #30: 3, 4 Question #31: 3, 4 Question #32: 2 Question #33: 2, 4, 5 Question #34: 1, 2, 5 Question #35: 1, 4, 5 Question #36: 1, 3, 4 Question #37: 1, 2, 3, 5 Question #38: 1, 3, 4 Question #39: 2, 3 Question #40: 4, 5 Question #41: 1, 3 Question #42: 1, 5

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Lesson 6 | Page 1 of 15

Lesson 6: Compliance and Due Diligence of a Salesperson

This lesson explores your compliance and due diligence obligations as a salesperson. As with any real estate transaction, fulfilling these obligations will help to keep you on the right side of the law and build your reputation as a trusted and professional salesperson.

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Lesson 6 | Page 2 of 15

While compliance with legislation, regulation, and the Code of Ethics is a core requirement of a salesperson’s role, it also makes good business sense. It is the best way to avoid fines and other penalties. But equally importantly, it enables you to provide value to clients and customers, build your reputation, and become a trusted real estate salesperson with strong referral potential. Upon completion of this lesson, you will be able to: • Identify a salesperson's obligations for compliance with legislation and regulations affecting residential leasing • Identify the due diligence required of a salesperson when leasing properties 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 15

REBBA Requirements for Documenting a Relationship with a Landlord or Tenant

The Code of Ethics applies equally to documenting relationships with landlords and tenants as it does to those involving sellers and buyers. Specific sections that apply include: • Information before agreements • Contents of written agreements • Landlord representation agreement • Buyer representation agreement for purchase or lease

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Lesson 6 | Page 4 of 15

Disclosure of an Interest in a Property

As in all dealings with clients and customers, full disclosure is paramount. Disclosure requirements and expectations will apply for any relation with a landlord or tenant in the same manner as for sellers and buyers. In all cases, as a salesperson, disclosure of your interest in the property has to be made in writing at the earliest practical opportunity, and before any offer is made.

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Lesson 6 | Page 5 of 15

Required Knowledge of Residential Leasing Legislation

A salesperson must know about the Residential Tenancies Act and the Ontario Human Rights Code if they are going to be involved in leasing properties and show skill and competence in providing information, as these are the primary legislations governing residential leasing. Knowing the legal requirements will help you as a salesperson inform clients and customers appropriately, and avoid some of the pitfalls of leasing, such as knowing what questions can be asked of a prospective tenant or what can be said when rejecting a prospective tenant.

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Lesson 6 | Page 6 of 15

Requirement to Use the Most Current Tenancy Agreement

As you learned in an earlier lesson, landlords of most private residential rental units must use the Standard Form of Lease for all new leases. This must be used in its entirety with no changes to clauses. As a salesperson, you should ensure the landlord understands the requirement to use this form and both parties understand the clauses and implications of those clauses before signing the lease.

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Lesson 6 | Page 7 of 15

Offering Opinions

Landlords, tenants, sellers, and buyers often ask salespersons questions or seek out their advice. The Code of Ethics requires that all registrants demonstrate reasonable knowledge, skill, judgement, and competence when responding to such questions. In particular, brokerages, brokers, and salespersons must ensure that registrants, providing opinions or advice on value, have the education or experience related to real estate. To comply with the Code of Ethics, a salesperson must understand the landlord and tenant rights and obligations under the Residential Tenancies Act and Ontario Human Rights Code.

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Lesson 6 | Page 8 of 15

Ensure Advertising Complies with All Legislation

When creating advertising as a salesperson, you must comply with REBBA and the rules of the Ontario Human Rights Code to avoid discrimination. When preparing an advertisement for a rental property, a salesperson must ensure the advertising guidelines of the Code of Ethics are followed. Compliance with the Ontario Human Rights Code must also be adhered to. Open discrimination Advertisements cannot openly discriminate, with statements such as: • “Adult building” or “Not suitable for children” • “Must have working income” or “Must provide proof of employment” • “No disability cheques” • “Seeking mature couple”

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“No pets” – under the Ontario Human Rights Code, persons with disabilities who use service animals, such as guide dogs, cannot be denied access to any kind of housing based on a “no pets” rule. These advertisements discriminate because they show the landlord’s preference of some people over others based on Human Rights Code grounds like marital or family status, age, disability, or receipt of public assistance.

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Lesson 6 | Page 9 of 15

Confirmation of Permits and Inspections

When a landlord is constructing or renovating a rental unit, they often need a building permit from the municipality. As well, some municipalities require a permit for a secondary suite. Whether working as a salesperson with the landlord or the tenant, ensure the landlord has obtained and fulfilled the appropriate permit requirements. This is one aspect of providing conscientious service to your clients and customers, and promoting the client’s best interests—two requirements of the Code of Ethics.

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Lesson 6 | Page 10 of 15

Compliance with Material Facts Obligations

If you will be involved with rental properties, as a salesperson, you must ensure that facts gathered are accurate and complete in accordance with the ethical requirement of conscientious and competent service. The requirements for disclosing material facts are the same when working with landlords and tenants as with sellers and buyers. You must discover and disclose any material facts as soon as possible.

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Lesson 6 | Page 11 of 15

Ensure Any Documentation Complies with All Legislative Requirements

As a salesperson, you must ensure that any documentation a landlord uses to find tenants and rent a unit to them complies with all legislation. Rental application form Often, landlords ask tenants to complete an application form to rent an apartment or house. Sometimes these rental application forms contain very sensitive questions. The Ontario Human Rights Code restricts what a landlord can ask without discriminating. While there is no prescribed form for this purpose, using a standard Rental Application Form helps ensure compliance. Critical parts of the Rental Application Form Two critical parts of any rental application form are the consent clause and the applicant’s representation. The consent clause allows you as a salesperson to collect the information for the purposes listed in the clause. Above all, the applicant’s representation specifies that all information they have completed is true and correct. You should always have the applicant sign and date the representation. Without a signature, you and the landlord are not

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protected by the law in the event of fraud by the applicant. Some cases exist where tenants have been jailed for fraudulent representation to obtain a rental unit. Standard Form of Lease The clauses in the Standard Form of Lease are written to be compliant with all legislation, including the Ontario Human Rights Code. However, you should be careful when writing additional clauses to ensure they comply.

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Lesson 6 | Page 12 of 15

Ensure the Landlord or Tenant Understands Their Obligations

A key part of your role as a salesperson will be to ensure the landlord or tenant understand their obligations under the lease prior to signing. You will be able to ensure understanding, by: • Having the parties read every clause in the lease agreement, explaining each in simple terms • Checking with them to verify they understand the wording, and the obligations and rights • Inviting and answering any questions • Providing the New Tenant Brochure to the tenant

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Lesson 6 | Page 13 of 15

Referrals to a Third-Party Professional

As a salesperson, you must be careful not to overstep your abilities when providing services to clients and customers. Some situations will require knowledge and skills that exceed that of you and your future broker. The Code of Ethics: • Requires you to advise a client or customer to obtain such services from others better qualified Expressly prohibits you from dissuading clients or customers from seeking such services. Not only does this ensure you comply with the Code of Ethics, it also makes good business sense. People tend to trust someone more when they say someone else is in a better position to help. This will also ensure the client or customer receives the best possible advice and service for their needs. When making recommendations to consult with a third-party professional, you should recommend at least two different people to avoid the perception of personal bias.

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Lesson 6 | Page 14 of 15

Jim is a landlord who has just written the following advertisement for his rental unit: Cozy two bedroom apartment for rent in lively neighbourhood full of restaurants and theatres. Recently painted with wood floors throughout. Ideal for a young professional couple looking to be close to work and entertainment. $1,200 per month plus utilities. Question #43: What concerns, if any, might you have with respect to this advert?

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Lesson 6 | Page 15 of 15

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were covered in this lesson.

Full disclosure

The general rule is disclose everything. Some disclosures are expressly stated in the Code of Ethics. You must disclose: • Any interest you have in a property, either directly or through a related party • Any material facts about the property or rental unit, as they may affect someone’s purchase or rental decision To avoid compliance issues, disclose early, disclose accurately, and disclose fully.

Documentation requirements

REBBA requires you to use the most current tenancy agreement. The approved wording aids full disclosure and helps avoid potential compliance issues. You must document a relationship with a landlord or tenant as soon as possible, stating the scope of your service, the effective date, and end date for the agreement. You must ensure all documentation complies with the Residential Tenancies Act and the Ontario Human Rights Code. This includes: • Advertising material • Rental applications • Additional clauses to the standard lease When advertising a unit or completing paperwork, you must comply with all sections of the Ontario Human Rights Code to avoid perceived or real acts of discrimination.

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Competence

To provide competent service, you must know the residential leasing legislation. Knowing what is allowed and what is not ensures that you can offer an accurate opinion. When the scope of an issue is beyond your expertise you must refer the person to a third-party professional who is more qualified. • When a landlord is adding or modifying a unit, you should ensure they use appropriately licensed and insured trades people, have appropriate permits, and are undergoing the required inspections.

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Lesson 7 | Page 1 of 22

Lesson 7: Responsibilities of Parties Involved

This lesson introduces the rights and responsibilities of landlords and tenants. As a salesperson, knowing these rights and responsibilities can help you find a tenant a desirable place to live or help a landlord find a good tenant.

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Lesson 7 | Page 2 of 22

Knowing the role and responsibilities of the parties involved in a rental property will help you provide effective service as a salesperson. Helping landlords and tenants can be very rewarding. Knowing that you have helped someone find somewhere to live or fill a vacant rental unit, and expanding your business contacts can be very satisfying. Upon completion of this lesson, you will be able to: • Outline the services a salesperson could provide to a tenant • Outline the services a salesperson could provide to a landlord • Describe the role of the property manager • Describe the responsibilities of a landlord • Describe leading practices to qualifying tenants 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 22

Find Appropriate Rental Units for Tenants

As a salesperson, initial conversations with tenants are important. The purpose of initial conversations with tenants is to determine their criteria for a rental unit and prepare them for what information may be required from a landlord. You can then provide your service to meet the tenant’s needs. You will need to find out if the potential tenant enquiring about a rental property is already represented by another salesperson, and whether they have signed a Representation Agreement. If the prospective tenant has not, a discussion can take place on the benefits of a representation agreement with the prospective tenant and proceed with the representation agreement if prospective tenant agrees to do so. Show properties or units that meet the tenant’s criteria Different tenants have a wide range of criteria for a rental unit. Showing only those units that closely meet the needs of the tenant ensures you are spending their time wisely and demonstrates to the tenant that you are listening to their needs. For example: • A single person with a young child would likely need at least two bedrooms

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• An elderly couple may want a unit with few stairs, may want shops and medical services nearby, and may want additional bedrooms for family visits • A young family may want an entire house in a neighbourhood with other families and a school nearby Consider the tenant’s target geographical area. High-demand areas, such as in the urban core or on a subway line, demand higher rents than rental properties in suburbia where they would have to drive or walk a far distance to get to public transportation. As well, downtown urban units are typically smaller and may offer less, such as no parking. You should discuss this with the prospective tenant to ensure their expectations are realistic, and that you and the tenant have the same view of the tenant’s needs and wants. Guide tenants on factors that would affect their ability to lease a unit Knowing what a tenant wants is one part of determining what properties are right for the tenant. The other part is identifying what the tenant can manage. Preparing them for those items that could affect their ability to lease a unit can help them to obtain and organize the required information. Consider the tenant’s income relative to the rent and all other charges for which the tenant will be responsible, such as utilities, hot water tank rental, and so on. For example, a landlord will likely request a credit check, references, and a rental deposit. To prepare properly, a prospective tenant should obtain a credit check and references from past landlords, and have the funds available to pay two months’ rent (first and last) after the offer is accepted.

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Lesson 7 | Page 4 of 22

Providing Material Information About the Unit and Its Environment

Location and local amenities often make up a large part of a tenant’s criteria for a rental unit. When many options exist, and to help narrow down the choices when showing properties as a salesperson to a tenant, select only those properties that meet their criteria. This will save you both time. When showing a unit, you will be able to provide information about the property, the neighbourhood, and any other material information to help them make an informed decision. For example, a tenant may require or want easy access to: • Public transportation • Shopping • Health facilities and services • Parks and open spaces • Schools or daycare

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• Dining and entertainment • A library or community centre • A place of worship Other factors about the neighbourhood Tenants generally appreciate additional local neighbourhood knowledge you can provide. Some other factors that may influence a tenant’s decision may include: • Local demographics (age group- for example young families or seniors) • Crime rates in the area • Walkability – the “walk score” • Local job opportunities Features of the property or unit itself When showing the unit, it is important to identify both good and bad points to ensure full disclosure. Here are some things you will want to focus on beyond the cost of the unit: • Ensure it meets code, from what you can see, and identify any non-compliant issues. • Specify how it meets the tenant’s criteria or where it falls short. • Identify anything in the unit that may affect the tenant, such as: o Having to close a bedroom door to be able to open a closet door in the room. o Considering how an exterior door that opens directly into a living room would affect comfort. o Sharing laundry or parking amenities with other tenants. • Specify any additional responsibilities the tenant would have, such as mowing the lawn or clearing snow.

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Lesson 7 | Page 5 of 22

Verify Market Price for Rent and Prepare and Explain an Agreement to Lease

Verify market price for rent By researching and analyzing rental rates for similar properties in the neighbourhood, you will determine whether the rent is in line with market figures. Agreement to lease An agreement to lease generally sets out fundamental, material aspects of the agreement between the parties, prior to entering into a formal lease. When drafting an agreement to lease, as a salesperson, you must ensure that all the essential elements of the lease are included; for example, the parties, a description of the premises to be leased (often formally referred to as the demised premises), the commencement of the lease, the term of the lease, and the amount of rent. These terms are all included in the standard lease. The agreement to lease must address all other material issues to ensure a lease can be written correctly as per the agreement. You can add additional terms for specific requirements of the landlord or the tenant. You must ensure

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that the agreement to lease is clear and complete. Any confusion or omissions could be detrimental to the parties and could result in legal ramifications.

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Lesson 7 | Page 6 of 22

Negotiate the Agreement and Explain the Residential Tenancy Agreement

One of your major roles as a salesperson will be to present and negotiate the agreement to lease on behalf of the potential tenant with the landlord. Negotiating skills are central to the process to arrive at mutually agreeable terms. You must explain to the tenant that once an agreement is reached, a Residential Tenancy Agreement using the Standard Form of Lease must be executed between the tenant and the landlord. You must explain each clause to the tenant and identify what it means in their specific situation.

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Lesson 7 | Page 7 of 22

Advertising Properties or Units for Lease

Before advertising the unit, as a salesperson, you will need to provide the landlord with pricing information about recent comparable rental properties. This pricing information includes properties that have been rented and those currently for rent. This will allow the landlord to get an accurate picture of the rental market for the property. If there are many rentals available in the area or on the same street, it is likely that the recommended listing price will be lower than if your landlord’s property was the only one in the area available for rent. Next you will write the advertisement. To ensure you comply with anti-discrimination legislation, focus your advertisement on the features and benefits of the unit and nearby amenities, not who you think would want to live in the unit. Ensure your advertisement is attractive but not misleading. If you plan to advertise online on local market sites, such as Kijiji, or social media sites, such as Facebook, it is important to disclose that you are a registrant and comply with Code of Ethics advertising requirements. You will have a range of choices available to you to advertise properties, including: • The local listing service

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• Brokerage and salesperson websites • Rental websites • Social media sites, such as Facebook • Online local market sites, such as Kijiji and Craigslist • Brochures distributed in areas that could have potential tenants • Local print media Placement of the advertisement and cost of the advertisement will be determined by the value of the rental property and the type of tenant you are marketing to.

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Lesson 7 | Page 8 of 22

Add and Communicate Additional Terms in a Lease

Landlords and tenants can agree to additional terms in the lease. The Standard Form of Lease allows for additional terms to be added. These can be added by either the landlord or tenant. Examples include terms that: • Require the tenant to maintain the lawn or clear the snow, if they are willing • Allow the tenant to use a shed on the property for storage You must write these additional terms in plain language. They must clearly describe what the landlord or tenant must or must not do to comply with the term. An additional term cannot take away a right or responsibility under the Residential Tenancies Act. Once written, you will need to explain the additional terms to either party. Tip: You should use the sample terms provided by OREA. Terms not allowed If a term conflicts with the Residential Tenancies Act, the term is void and cannot be enforced. Examples of void and unenforceable terms include those that:

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• Prohibit pets unless an exemption applies • Smoking, unless an existing tenant or the owner has allergies • Prohibit guests, roommates, or additional occupants • Require the tenant to pay additional deposits, fees or penalties Require the tenant to pay for repairs that are the responsibility of the landlord, other than basic repairs and maintenance, such as changing furnace filters and light bulbs.

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Lesson 7 | Page 9 of 22

Qualifying Prospective Tenants/Rental Application

Landlords make the final choice when selecting tenants. As a salesperson, you and the landlord must take care during the selection process to ensure compliance with the Residential Tenancies Act and the Human Rights Code. When an applicant is not approved, you will need to ensure that what you say to the applicant cannot be interpreted as a breach of the Human Rights Code. The approval of a prospective tenant begins with a rental application. When completed, this provides information on the prospective tenant for the landlord to evaluate the prospective tenant who is interested in renting a residential living space. The information provided in the rental application can help the landlord when performing reference checks, credit checks, criminal background checks, and more. When an application is not approved, a salesperson will need to ensure that what they say to the applicant cannot be interpreted as a breach of the Human Rights Code.

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Credit worthiness and behavioural patterns are the two most important things that must be checked about a prospective tenant. The information comes from credit bureaus, the applicant’s bank, current and previous employers, previous landlords and building managers. It is essential to investigate every prospective tenant before giving possession of a rental unit. Always remember, once a tenant receives the keys they have legal possession of the rental unit, which provides them with certain immediate rights: • The right to use and enjoy the property • The right to privacy • The right to quiet enjoyment • The right to the protections within the Residential Tenancies Act and enforced by the Landlord and Tenant Board These rights apply whether the rent has been paid or not. If the tenant defaults in the payment of rent, the landlord’s recourse for recovery is strictly controlled by provisions of the Residential Tenancies Act. You must always encourage landlords to obtain, at the very least, a credit check, verify references and a completed rental application from a prospective tenant.

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Lesson 7 | Page 10 of 22

Contents of a Tenancy Application

As well as complying with all requirements of the Ontario Human Rights Code, any tenancy application should include the following information for each person applying: • Applicant’s name and relationship to other applicants • Applicant’s current address, with name and telephone number of landlord, building manager, or property manager, applicant’s telephone number, and period of residence • Applicant’s previous addresses, with name and telephone number of landlord or building manager, and period of residence at each • Bank and branch of applicant (optional) • Personal character references • Present occupation, name of employer, length of employment, and income • Previous occupations, name of previous employers, length of employment, and income

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• Name, address, and telephone number of a person to contact in case of emergency • If the applicant owns a vehicle, the make, year, and license number of the vehicle • List of all persons who will be occupying the premises • Permission to complete a credit check • An appropriate statement regarding the Privacy Act • A consent clause and an applicant’s representation clause with their signature and date Although some information is optional, this can help to differentiate good from poor applicants: • Good applicant = full disclosure The applicant will have completed the form and all documentation (i.e., the job letter is complete, the credit report is current, and sometimes more information is provided depending upon the applicant’s circumstances). • Poor applicant = lack of full disclosure The applicant will have left information out of the form or not signed it, the credit report is incomplete or outdated, the job letter is poorly written or contains gaps.

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Lesson 7 | Page 11 of 22

Receive, Explain and Negotiate an Agreement to Lease

Writer perspective Using the Residential Tenancy Agreement (Standard Form of Lease) when drafting an Agreement to Lease Residential helps to ensure that all essential elements are included. All other material matters in a lease, other than specific exceptions, reservations, covenants or special conditions, are implied by law. Recipient perspective As a salesperson preparing an agreement to lease on behalf of a tenant, you must ensure that the provisions in the agreement are reasonable and fair to all parties, and most importantly that tenants are protected. Pay particular attention when the property involves items shared among two or more tenants. Specifically, you must ensure the agreement: • Reflects what the landlord’s salesperson has disclosed on the listing and when showing the property • Lists the amenities available, including laundry facilities, parking, and storage included with the premises, and that they are all as advertised

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• Specifies clearly whether amenities are exclusive-use or shared, and how shared utilities are split between and paid for by the two or more tenant parties • Outlines landlord expectations that are reasonable and in accordance with the Residential Tenancies Act You must be able to explain all the terms of the agreement to lease and the implications of those terms. When you are a salesperson representing the landlord, and a potential tenant is submitting an agreement to lease, you must: • Be available to receive the agreement in a timely fashion • Explain its contents to the landlord • Negotiate on behalf of the landlord and protect their best interests

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Lesson 7 | Page 12 of 22

Prepare and Present an Agreement to Lease to a Prospective Tenant A major role of the salesperson is to present and negotiate the agreement to lease on behalf of the potential landlord or tenant. Effective negotiating skills are a fundamental part of the transaction to arrive at mutually agreeable terms. Ensure that the landlord’s and tenant’s rights are preserved and enforceable, and that their obligations are outlined within the lease. The following four sections contain information about considerations when preparing and presenting an agreement to lease.

Protect landlord’s rights

The landlord’s salesperson must ensure that the landlord’s rights are protected within the Residential Tenancies Act and that adequate time is given for due diligence after a lease is accepted. There needs to be enough time allowed to complete this important task after acceptance. A suggested clause to provide adequate time to verify the tenant is as follows: This Offer to Lease is conditional upon the Landlord satisfying the Landlord concerning the personal and/or credit worthiness of the Tenant. The Tenant hereby consents to having the Landlord conduct or cause to be conducted a personal and/or credit investigation in respect to the Tenant. Unless the Landlord gives notice in writing delivered to the Tenant personally or in accordance with any other provisions for the delivery of notice in this Agreement to Lease or any Schedule thereto not later than ____p.m. on the ______day of ___________, 20____, that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Tenant in full without deduction. This condition is included for the benefit of the Landlord and may be waived at the Landlord’s sole option by notice in writing to the Tenant as aforesaid within the time period stated herein. Lease/Res-1 Condition—Credit Check ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

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Require proof the tenant Clauses requiring the tenant to act and provide proof that they have met the has met requirements of requirements of the lease prior to taking possession should be included in the offer. This may cover such items as utility account transfers, proof of tenant insurance, the lease and key deposits.

Lease commencement

The lease commencement is also an important consideration. If the mortgage and other payments are due on the first or early in the month, the lease should be structured so that rent is due on the first. Even if the tenant wants to take early possession before the first, the lease would still commence on the first. The tenant would pay a pro-rated amount to take possession earlier.

Access to part of the premises

Some landlords request exclusion to access a part of the premises, such as a storage room, garage, or shed in the backyard. This allows the landlord to access to premises without notice, as they retain this part of the premises for their exclusive use.

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Lesson 7 | Page 13 of 22

Waldek and Ester are a young married couple who are looking to rent a two-bedroom apartment. They have been referred to Marek, a salesperson working for a local real estate brokerage. Waldek and Ester have just walked into Marek’s office and are meeting him for the first time. They want to find a rental as soon as possible. Question #44: Which of the following actions at this meeting would help assist Marek in meeting his obligations under the REBBA Code of Ethics and allow him to provide a competent and conscientious service? There are four options. There are multiple correct answers.

1

Marek should ask questions to discover what is important to the couple in a rental unit, such as size, number of bedrooms, amenities, layout, and quality of finishes.

2

Marek should prepare the couple for leasing a rental unit by explaining that landlords will usually require a credit check and references. He needs to explain that landlords can make their agreement to lease subject to receiving a damage deposit and that landlords can also refuse to consider a tenant who does not meet their rent-to-income ratio.

3

Marek should determine what type of neighbourhood they need by asking about such things as transportation needs, what local amenities they want, where they work, what they enjoy doing in their spare time, whether they have specific locations, or areas in mind.

4

Marek must have Waldek and Ester sign a representation agreement before he starts providing them with any information or asking them any questions. This is a requirement of the REBBA Code of Ethics.

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Lesson 7 | Page 14 of 22

Martha is a salesperson who has extensive experience working with Landlords and Tenants in leasing residential rental units. Her clients appreciate the knowledge and advice she gives with respect to compliance with the Residential Tenancies Act. She has a great reputation and most of her business comes from referrals or repeat clients. She understands what it takes to be successful and understands what is required of her with respect to the REBBA Code of Ethics. Question #45: Which of the following statements are correct with respect to leasing and a salesperson’s involvement in representing a tenant in the leasing process? There are five options. There are multiple correct answers.

1

A salesperson should research and analyze rental rates of similar units in order to verify a market price for the rent of a unit the prospective tenant would like to lease.

2

An agreement to lease is the same as a lease agreement.

3

The agreement to lease is a document that sets out fundamental, material aspects of the agreement between a prospective landlord and tenant prior to actually entering into a lease agreement.

4

Any mistakes or missing terms made in an agreement to lease can be corrected by a tenant when the lease agreement is being drafted. The tenant can also change terms prior to the actual lease agreement being signed.

5

The agreement to lease will only outline the fundamental terms to be included in the lease agreement such as the amount of rent and the date the tenancy is to start. Additional terms such as what services are included in the rental amount and who is responsible for what are added later when the lease agreement is to be signed.

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Lesson 7 | Page 15 of 22

Two brothers have just signed a seller representation agreement with a local real estate brokerage to list and lease a three-bedroom house they own as an investment. The salesperson they will be working with had, during the listing presentation, shown them examples of the advertising that they do for rental properties such as theirs. Question #46: List five channels which are typically used to advertise a rental property.

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Lesson 7 | Page 16 of 22

A salesperson’s client, a landlord, is leasing a rental unit to a new tenant. The landlord has added a number of additional terms to the lease. The terms that can be added in would be enforceable terms and those that cannot because they conflict with the Residential Tenancies Act would be unenforceable terms. Question #47: Which of the following terms are enforceable? There are seven options. There are multiple correct answers.

1

Require the tenant to mow the lawn

2

Prohibit pets

3

Require the tenant to pay damage or pet deposits, fees or penalties

4

Prohibit guests, roommates, or additional occupants

5

Allow the tenant to use a shed on the property for storage

6

Require the tenant to pay for repairs that are the responsibility of the landlord, other than basic repairs and maintenance, such as changing furnace filters and light bulbs

7

Require the landlord to make changes to the unit before the tenant moves in

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Lesson 7 | Page 17 of 22

A salesperson is representing a landlord and both understand the importance of selecting a good tenant – one who will pay on time, keep the rental unit clean and tidy, let the landlord know if there is a maintenance issue, communicates well, and so on. A prospective tenant has completed the tenancy application. Question #48: Which of the following should you consider a possible red flag – an indicator that needs further investigation? There are six options. There are multiple correct answers.

1

The prospective tenant has answered all the questions except for some recent gaps in their employment history.

2

The prospective tenant has only provided three personal references.

3

The prospective tenant is only 22 years old.

4

The prospective tenant has provided a credit report from last year.

5

The prospective tenant does not provide the name and telephone number of the current and previous landlords.

6

The prospective tenant has supplied a poorly written job letter that is not on the employer’s stationery.

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Lesson 7 | Page 18 of 22

A salesperson is preparing an agreement to lease a residential property on behalf of a client. Once it is completed and signed, the salesperson will contact the salesperson representing the landlord in order to present the offer. Question #49: Which of the following statements are correct with respect to an agreement to lease and the obligations and responsibilities of either the salesperson representing the prospective tenant or the salesperson representing the prospective landlord? There are four options. There are multiple correct answers.

1

The salesperson representing the landlord must be able to receive the agreement in a timely fashion.

2

While the salesperson representing the landlord cannot advise the landlord on the leasing terms, they can protect the landlord’s best interests by recommending the landlord take the agreement to lease to a lawyer.

3

The salesperson preparing the agreement to lease on behalf of the prospective tenant should ensure the agreement reflects what the landlord’s salesperson has disclosed on the listing for the property.

4

When a salesperson is involved in leasing, the agreement to lease serves as the Standard Form of Lease required under the Residential Tenancies Act.

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Lesson 7 | Page 19 of 22

Safety Responsibilities of the Landlord Landlords must ensure the rental unit is safe and adheres to all safety legislation. The following five sections contain information about specific landlord responsibilities.

Constructing a new building, adding a rental unit to an existing structure, or renovating a rental unit

Whether constructing a new building to be used as a rental unit, adding a rental unit to an existing structure, or renovating a rental unit, the Ontario Building Code, including the Ontario Fire Code, applies.

Smoke alarms and carbon monoxide detectors

Landlords are responsible for installing smoke alarms and carbon monoxide detectors in the correct locations, and testing them annually. Landlord must also direct tenants not to interfere with any smoke alarm or carbon monoxide detector. A landlord can delegate these tasks to the property manager. The Ontario Fire Code requires landlords to test smoke alarms and CO alarms at the following times: Annually, After a change of tenancy in rental units, following installation of a new battery for battery-operated smoke alarms or CO alarms and following electrical renovations or servicing when smoke alarms or CO alarms are AC powered to ensure that the alarm circuit has not been disconnected.

Fire suppression equipment The Building Code requires fire sprinklers in multiple-unit residential buildings and the residential portions of mixed-use buildings higher than three storeys.

These requirements apply to new construction, additions to existing buildings, floors of existing buildings that undergo a change of major occupancy, and floor areas that undergo extensive (“gut”) renovation.

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The Building Code does not mandate the retrofit of existing buildings where no construction is proposed.

Electrical system

The landlord must ensure the electrical system complies with the Electrical Safety Code and inspections by the Electrical Safety Authority are carried out when required.

Ensure tenants have accessible and adequate means of egress

Tenants must have accessible and adequate means of egress (escape). Generally, this means direct access to a ground-level exterior door or a fire-safe stairway, and a conforming window or balcony.

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Lesson 7 | Page 20 of 22

A landlord has just completed the construction of a brand new four storey apartment building with 10 units on each floor and has asked a local real estate brokerage to lease all the units. Question #50: This landlord must ensure their rental units are safe and adhere to all safety legislation. Which of the following statements are correct with respect to this landlord’s responsibilities and the safety issues of the brand new apartment building? There are five options. There are multiple correct answers.

1

The landlord must install smoke alarms and carbon monoxide detectors in the correct locations and test them annually.

2

Since the building is only four storeys, the landlord does not need to install fire sprinklers.

3

The landlord must ensure the electrical system complies with the Electrical Safety Code.

4

The landlord must ensure tenants have accessible and adequate means of egress.

5

The landlord must ensure each unit is kept clean and tidy.

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Lesson 7 | Page 21 of 22

Leading Practices to Qualifying Tenants Qualifying tenants effectively can avoid a host of problems later on. The best defence against a bad tenant is to avoid accepting them as a tenant in the first place. To mitigate risks from some common problems, as a salesperson, you should follow all leading practices every time you are involved in leasing a unit. The following five sections contain information about leading practices to qualifying tenants.

Complete a credit check

You or the landlord can perform a credit check by using a recognized credit reporting agency such as Equifax, TransUnion, or a company that can run credit reports, such as a bank or mortgage company for a minimal cost. It may make sense to subscribe to a landlord or rental credit check group if the landlord has several rental properties. Such services enable you to: • Perform credit checks at a reduced cost • Use their supporting materials to assist with the procedure Leading practice: Always perform a credit check. 1. For a tenant Ask the tenant to obtain a credit report as this will be needed as part of the documents submitted with an offer to lease. 2. For a landlord Even though a credit report may have been submitted by the tenant along with the offer to lease, it may be prudent for the landlord to do a credit report independently on the applicant, as long as they have submitted an application form allowing it. This adds further validation of the tenant to reassure the landlord.

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Follow up on all references

Part of the due diligence investigation is to determine the characteristics of previous tenant behaviours to determine suitability, having regard for the landlord’s needs and priorities. Leading practices: Follow up on all references. Verify tenant’s information online, including name, employer name and address, and other information. An online search may reveal additional information that has not been disclosed on the application form.

Require all tenants to fully complete a rental application

A rental application provides vital information to the landlord to enable appropriate due diligence when selecting a tenant. It can include such things as: • Previous rental history • Consent for a credit check • Landlord, employer, and personal references Leading practice: Request that all tenant applicants fully complete a rental application.

Risks of accepting rent or a rental deposit in instalments

When a tenant asks to pay rent or the rental deposit in installments, the inherent risk is the landlord may not receive full payment from the tenant. The tenant could use this approach to avoid paying the last month’s rent in full. Leading practice: Always require payment in full and typically by certified cheque or bank draft for the first and last month’s rent before occupancy.

Risks when a tenant has A tenant who moves often may indicate problems with previous landlords. A tenant moved often, or requires who requires immediate occupancy may have an eviction order in progress or may have been evicted from their last unit. In both cases, ask the tenant why and verify immediate occupancy with past landlords to see whether the reasons are legitimate.

A quick move-in may also mean that the tenant did not provide the standard 60-day termination notice, which shows that they may not be ideal tenants.

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It could also mean that the tenant applied to more than one place since submitting the termination and has been rejected. At this late stage, time may be running out on them to move out from their current premises. Sometimes circumstances require a quick move-in. Do not be overly skeptical as “life happens”. Last-minute acceptance to a new job, school program, family circumstances, or a host of other reasons could legitimately result in tenants needing to move in quickly without advanced notice. Leading practice: Listen to the tenant’s reasons for a quick move-in. Obtain independent verification of the reasons the tenant provides. If in doubt, consider very carefully whether you would recommend that person as a tenant to the landlord.

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Lesson 7 | Page 22 of 22

Congratulations, you have completed the lesson! There are five sections on this page with a summary of the key topics that were covered in this lesson.

Services a salesperson could provide to a tenant

After listening to the tenant’s criteria for both the unit and the location, you will identify rental units that closely match those criteria. You will be able to talk about features of the unit, the neighbourhood, and the surrounding area. You will be able to guide the tenant on factors that may affect their ability to lease a unit, such as a credit check and ability to pay the rental deposit. Once you have verified the market price for rent, you will create an agreement to lease. Then you will negotiate the agreement to lease with the landlord, and explain the Residential Tenancy Agreement to the tenant.

Services a salesperson could provide to a landlord

Working for the landlord, you will research pricing of comparable rental units in the area and write an advertisement for the unit that complies with all legislation. You will determine where to place that advertisement, both online and in traditional media. You will write any additional terms to add to the lease, and ultimately, explain them to both parties. Those terms must not be prohibited by the Residential Tenancies Act. Qualifying people as good tenants is far more effective than having to evict bad tenants. Landlords will appreciate the value you will add when helping to qualify and investigate prospective tenants. You will likely receive the agreement to lease on behalf of the landlord. To do so, you must be readily available, and be able to explain and negotiate its terms.

The role of the property manager

Property managers perform a host of roles. These are defined in their agreement with the landlord. The role may include any or all of the following:

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• • • • • • •

Oversee maintenance and repairs Manage staff, oversee contractors, and monitor vacant properties Be the main point of contact for tenants Provide any required notice to a tenant Collect rent Facilitate tenant move ins and move outs, and evictions Assess prospective tenants

• Interact with a salesperson

The responsibilities of a landlord

Landlords are responsible for ensuring the rental unit and building comply with all legislation and regulations: • When constructing a new building or adding a rental unit to an existing structure, or renovating a rental unit they must follow the Building Code, Ontario Fire Code, and local municipal bylaws. • Smoke alarms, carbon monoxide detectors and fire suppression equipment must be placed correctly, working, and tested regularly. • The electrical system must comply with the Electrical Safety Code and ensure the appropriate inspections are completed when required. • Tenants must have accessible and adequate means of egress, according to the Building Code.

Leading practices to qualifying tenants

When qualifying prospective tenants, these are the leading practices to avoid potential problems: • Require that all tenants fully complete a rental application • Complete a credit check even when an applicant appears credit worthy • Follow up on all references provided by the tenant • When a tenant asks to pay the rent or rental deposit in instalments, recognize the risks. Ideally, require these to be paid in full before occupancy

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• When a tenant has moved quite often, or is requiring immediate occupancy of a unit, recognize this as a signal to independently verify the reasons the tenant provides. This allows the landlord to make an informed decision

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Lesson 8 | Page 1 of 7

Lesson 8: Rent Roll

This lesson introduces the rent roll, a tool for landlords to obtain a snapshot of rents for each property they own and for potential buyers of rental properties to obtain key numbers on which to base a purchase decision.

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Lesson 8 | Page 2 of 7

Rent rolls and tenant ledgers provide financial information to rental property owners. Together they allow a landlord to determine the stability and value of the property, and to see where there are gaps in rent payments cumulatively and for individual tenants. As a salesperson, you will be able to suggest these tools to new landlords, and help experienced landlords analyze the information and make informed investment decisions. Upon completion of this lesson, you will be able to: • Identify the purpose of a rent roll and describe the key components • Identify the purpose of a tenant ledger and describe the components 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

Rent Rolls A rent roll is a document that lists tenants their contracted rents, and other basic details that landlords can use to determine rental income and support valuation for their rental property. A rent roll is typically prepared by property management. The following four sections contain information about rent rolls.

Purpose of a rent roll

The purpose of the rent roll is to detail rental income derived from an income producing property for the owner.

Information typically included in a rent roll

The rent roll would detail among other things: • Contact information for the tenant • Details of rent deposits • Rent set offs • Responsibilities of the tenant and responsibilities of the landlord • Rent charges per unit • Lease expiry • Possibly arrears (outstanding accounts receivable) • Other income from items such as laundry, signage, vending machines, and telecom

Importance of updating and maintaining a rent roll

The rent roll assists sellers and buyers in understanding the value and stability of a rental property. It can only show stability if it is up to date.

Use of rent roll for other purposes, such as when

The rent roll is a snapshot of rents due for a period reflected in a signed and valid lease. It can provide details about gross rental income that can be used as

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estimating the value of the property

a component of the income approach to value or the application of a rent multiplier.

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Lesson 8 | Page 4 of 7

Tenant Ledgers A tenant ledger is a document that shows the amount of rent due, the amount of rent paid, and expenses for a particular tenant. The following three sections contain information about tenant ledgers.

Purpose of a tenant ledger

A tenant ledger is a financial tool used to track revenue and expenses related to a rental agreement. It provides a rent payment history of the tenant, illustrating all of the following: • If the tenant pays on time or late • Whether the tenant has been taken to the Landlord and Tenant Board to facilitate recovery of bank charges for funds that do not clear and Landlord and Tenant Board fees • If the tenant has been charged back for damages or other expenses • What rents the tenant is paying for, such as the unit, parking, and others • Whether allowable rent increases were applied, which would be shown by rent increases applied every year

Information typically included in a tenant ledger

The tenant ledger would detail among other things: • The date of the payment and expense • Description of the payment and expense • The amount due • The amount paid • The outstanding balance • Rents received

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Importance of updating and maintaining a tenant ledger

A tenant ledger helps landlords track cash flows and budget for future expenses. It also helps to evaluate expenses and identify trends. If the landlord needs to evict a tenant, the ledger provides trend analysis–a history of missed or late payments, and if necessary, expenses for property repairs. If management proceeds with an eviction for legitimate reasons, the ledger will provide evidence of late or non-payments of rent and other information relevant to the eviction proceedings.

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Lesson 8 | Page 5 of 7

A couple own several rental properties in town. When they first started renting out the rental properties they had bought, their accountant told them to make use of a rent roll. Question #51: Which of the following statements are true about rent rolls? There are four options. There are multiple correct answers.

1

The purpose of the rent roll is to detail rental income derived from an income producing property for the owner.

2

A rent roll typically includes details of the rents and rent deposits for each unit, but it would not include contact information for the tenants or the dates the leases expire.

3

A rent roll can be used to help value a property.

4

A rent roll typically includes information such as rent and rent deposits for each unit as well as the tenant’s contact information, employment details and income.

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Lesson 8 | Page 6 of 7

A couple own several rental properties in town. When they first started renting out the rental properties they had bought, their accountant told them to make use of tenant ledgers. Question #52: Which of the following statements are true about tenant ledgers? There are five options. There are multiple correct answers.

1

Among other things, a tenant ledger includes the rents the tenant is paying for the unit and parking.

2

If the landlord needs to evict a tenant, the ledger provides a history of missed or late payments and if necessary, expenses for property repairs.

3

A tenant ledger provides an inventory of all the furniture, fixtures and equipment in each unit rented by a tenant.

4

A tenant ledger shows whether allowable rent increases were applied, which would be shown by rent increases applied every year.

5

A tenant ledger will typically include copies of insurance and service contracts as well as a summary of accounts payable and receivable.

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Lesson 8 | Page 7 of 7

Congratulations, you have completed the lesson! There are two sections on this page with a summary of the key topics that were covered in this lesson.

Rent roll

A rent roll provides information on rents and rent payments for all the properties a landlord owns. It can be used to assess the stability of payments and value of a property.

Tenant ledger

A tenant ledger provides a financial snapshot of rent payments and expenses for a specific tenant. It can be used to track cash flows, and budget for expenses. In an eviction situation, it can provide an accurate picture of the tenant’s payment record.

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Lesson 9 | Page 1 of 13

Lesson 9: Estimating the Value of a Rental Property

This lesson details how to use the direct comparison method for valuating a rental property with fewer than four units. It looks at value from two perspectives, that of the landlord and that of the tenant.

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Lesson 9 | Page 2 of 13

Numerous factors affect the value of a rental property including the location of the unit, nearby amenities, the layout and condition of the unit, what the rent includes, vacancy rates, and the rents at comparable properties. Pricing rental properties appropriately will help the unit to rent quickly at a fair price. This will minimize the amount of time the unit is vacant, and ensure a tenant is not overpaying for a unit, while the landlord is getting the appropriate rent for the unit. Upon completion of this lesson, you will be able to: • Describe leading practices when estimating the value of a rental property Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

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Lesson 9 | Page 3 of 13

Supply and Demand of Rental Properties

Under perfect market conditions, when the rent asked for a property decreases, the demand for that property will increase. Conversely, when the rent rises, the demand for that property will decrease. The vacancy rate in a particular municipality will greatly influence the amount of rent obtainable. The lower the vacancy rate, the higher the rents will be. Low vacancy means renters have fewer options and less flexibility, while landlords can be more selective. Conversely, the higher the vacancy rate, the lower the rents. High vacancy rates provide more options for renters to choose from, while landlords have relatively fewer renters to choose from and so cannot be so selective with tenants. Perspectives of value It is important to understand that valuing a rental property can be viewed from two perspectives: the investor and the user. • The investor wants to obtain predetermined objectives usually involving rates of return on the investment. • The user tends to focus on the utility of the property.

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Lesson 9 | Page 4 of 13

The Direct Comparison Approach to Determine Market Rent

The direct comparison approach (sometimes known as the sales comparison approach) is based on the proposition that an informed buyer will pay no more for a property than the cost of acquiring an existing property with the same utility. The same concept would apply to the amount of rent a tenant would pay for a property. This approach has widespread popularity, particularly in residential market rates. Direct comparison is popular for the following several reasons: • It is widely accepted by the courts • It is understood by the general public • Given reliable comparable sales, it is a proven, time-tested approach Procedural steps The direct comparison approach follows a series of logical steps to arrive at a value estimate.

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1. Locate and select all available comparable rental listings. To do so, look for properties that fulfill all four of these primary qualities: • Located within the local market area • Rented at or near the date of the appraisal • Appealing to the same type of tenant who would consider renting the subject property being appraised For example, if the appraisal is for a single-family home, then a duplex would not normally be a good comparable • An arm’s length transaction where both parties are not under pressure or duress from the other party 2. Collect pertinent information on each comparable to make meaningful adjustments and gain a true understanding of the comparable properties. 3. Analyze all relevant data, including differences that exist between the comparable and subject property, such as features and date of rent. 4. Compare each property with the subject property making the necessary adjustments. Adjustments can be either dollar amounts or percentages. When comparing rentals, registrants typically use dollar adjustments. 5. Reconcile the data and arrive at a reasonable value estimate. Sources of information A variety of sources exist for sales data to be used in the direct comparison approach. The best resources are the brokerage’s files and the local listing service. Other sources of information are newspapers, legal publications, and other professional publications. Vacancy and absorption rates (the time it takes to rent a vacant unit) may also be available from your local listing service or from institutions such as the Canada Mortgage and Housing Corporation (CMHC).

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Lesson 9 | Page 5 of 13

Effect of Location, Amenities, Property Condition and Layout on Rental Value

Effect of location and amenities The location, building amenities and neighbourhood all impact market rent estimates. Desirable neighbourhoods, such as those with low crime rates or a good reputation increase the amount of rent a tenant is willing to pay. Local amenities that help make a rental unit more desirable include proximity to transportation routes, grocery stores, and healthcare professionals. Depending on the demographic, schools, bars, restaurants, or other entertainment will appeal to some renters. Units further away from transportation and stores may rent for less, although other variables such as facilities within the building and the type and style of unit may override those potentially lower rents. Building amenities vary widely from one to the next. For example, a duplex may include storage space, laundry, forced air gas heating, or a back yard. A larger building may have full-time security personnel, secured indoor

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parking, a pool, a gym, a movie theatre, a party room, a rooftop terrace, or a host of other features. All of these will affect how much a tenant is willing to pay. Effect of property condition and layout The condition of the property has a direct influence on the amount of rent a tenant is willing to pay for the rental property. The better the condition the more rent a property will obtain. Similarly, particular layouts and unobstructed views tend to command a higher price. All other things being equal, a small unit with a practical layout and comfortable room sizes will command a higher price than one with a less practical layout and tiny rooms.

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Lesson 9 | Page 6 of 13

A Key Number for Landlords: Net Operating Income

For a landlord, net operating income is a crucial number. This involves knowing the legal rents and all expenses for a building. Confirm current rents being collected are legal rents The Residential Tenancies Act provides that no charge of rent or increase of rent is allowed greater than the lawful rent permitted, with the exception of qualifying rental units first occupied for residential purposes after November 15, 2018. Confirm expenses to arrive at net income To calculate the net operating income, subtract the operating expenses, vacancy, bad debt, and property taxes (if not included in operating expenses) from gross income. The result may be the difference between them buying or keeping a rental property and selling it. It’s usually fairly simple to determine the amount of gross income from the rent roll. Obtaining accurate expenses is important for determining income and estimating value using the income approach. Exam Study Guide

Lesson 9 | Page 7 of 13

The amount of rent a landlord can charge depends on several factors including vacancy rates, market demand, location and amenities offered. The landlord and the tenant will have two different perspectives when deciding how much rent to ask for and how much to pay. Question #53: When the rent rises, the demand for a property decreases. Identify whether the statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 9 | Page 8 of 13

The amount of rent a landlord can charge depends on several factors including vacancy rates, market demand, location and amenities offered. The landlord and the tenant will have two different perspectives when deciding how much rent to ask for and how much to pay. Question #54: A landlord tends to focus on the utility of the property. Identify whether the statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 9 | Page 9 of 13

The amount of rent a landlord can charge depends on several factors including vacancy rates, market demand, location and amenities offered. The landlord and the tenant will have two different perspectives when deciding how much rent to ask for and how much to pay. Question #55: A landlord tends to focus on the property as an investment. Identify whether the statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 9 | Page 10 of 13

The amount of rent a landlord can charge depends on several factors including vacancy rates, market demand, location and amenities offered. The landlord and the tenant will have two different perspectives when deciding how much rent to ask for and how much to pay. Question #56: When the vacancy rate is low, rents will fall. Identify whether the statement is true or false. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 9 | Page 11 of 13

A landlord wants to lease a rental unit that is currently vacant. He needs to know what the market rent for this vacant unit would be. The salesperson representing the landlord tells the landlord that, based on an analysis of the direct comparison approach, a reasonable market rent would be $1,400 per month. Just as he is about to go through the analysis, the landlord asks the salesperson to explain, in general terms, what the direct comparison approach involves. The salesperson answers: “The direct comparison approach involves …” Question #57: How should the salesperson finish the answer correctly? There are four options. There is only one correct answer.

1

Locating all available rental units listed for lease in the local area and taking an average price of those listings.

2

Selecting local comparable units leased as recently as possible, viewing the rental prices achieved for those units, and adjusting for differences between the comparable units and the subject unit.

3

Obtaining current market rental studies for the city the rental unit is located in.

4

Applying a monthly rental factor to the value of the subject unit estimated from the use of comparable sales.

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Lesson 9 | Page 12 of 13

When estimating the market value of a rental property, it is important to confirm rents being collected are legal rents and to confirm expenses in order to arrive at a net operating income. Question #58: Which one of the following statements is correct with respect to legal rents and net operating income? There are four options. There is only one correct answer.

1

The maximum rent increase that a landlord can charge a tenant without applying to the Landlord and Tenant Board is limited to 1.8% each year.

2

The Residential Tenancies Act provides that rental units first occupied for residential purposes after November 15, 2018 cannot increase a tenant’s rent more than is lawfully permitted under the province’s rental increase guidelines.

3

The gross income of a property is the key number that landlords use in determining whether to buy, sell, or keep a rental property. This is income after the operating expenses have been taken into account.

4

Net income is gross rental income less operating expenses, vacancy, and bad debts.

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Lesson 9 | Page 13 of 13

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were covered in this lesson.

The direct comparison approach to determine market rent

The direct comparison approach to determine market rent is commonly used in Ontario. It consists of comparing the unit with similar units for rent. To ensure units are comparable, they should be: • Located within the local market area • Available for rent at or near the date of the appraisal • Appealing to the same type of tenant who would consider renting the subject property being appraised • Through an arm’s length transaction

Effect of location, amenities, property condition, and layout on rental value

Generally, rent increases when the rental unit: • • • •

Is in a good neighbourhood Is close to desired amenities Has good on-site amenities Is in good condition

• Has a desirable, practical layout

Confirm legal rent and expenses

Knowing accurate numbers for total rental income and total expenses can help a landlord make an informed decision about the property.

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Lesson 10 | Page 1 of 12

Lesson 10: Special Leasing Considerations

This lesson outlines the considerations that apply to furnished units and short-term rentals beyond those of an unfurnished rental. Landlords should consider all implications of renting furnished units, and renting for a shortterm, as often the higher rents may be offset by higher expenses and vacancy rates.

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Lesson 10 | Page 2 of 12

Short-term rentals and furnished units bring another set of considerations. Higher potential vacancy rates, the costs of replacing furniture, and insurance concerns must be balanced with the potential for higher rents, and for shortterm rentals, the ability to more readily charge the amount of rent that the market can bear. The rent is established by what the current rent is obtained for similar properties. Helping a landlord draw up accurate, complete agreements can help them ensure that they adhere to all required rules, enabling you to build trust. Upon completion of this lesson, you will be able to: • Identify considerations for a landlord leasing a furnished unit • Identify considerations for a tenant leasing a furnished unit • Identify considerations when leasing a short-term rental Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

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Lesson 10 | Page 3 of 12

Considerations for Landlords when Leasing a Furnished Unit Legislation applies similarly whether a rental unit is furnished or unfurnished. The obligations for a landlord are unchanged. However, several considerations apply for landlords when determining whether to lease a unit as a furnished unit. As a salesperson, a working knowledge of these considerations will help you to effectively advise the landlord. The following six sections contain information about considerations when leasing furnished units.

Market considerations

Fewer tenants seek furnished rentals, meaning the segment of the market from which to select tenants is smaller. This means it is harder finding your ideal tenant, or having to compromise on your requirements for a tenant or the target rental price.

Typical furnished units

Units are typically small apartments, basement apartments, secondary suites, or student accommodations. This type of accommodation may also be targeted for executives temporarily working in the jurisdiction. Short-term rentals may be quite different, with seasonal ski chalets or lakeside cottages, or ultra short-term rental units. None of these would come under the Residential Tenancies Act.

Benefits and drawbacks of furnished units

From the landlord’s perspective, renting a furnished unit may mean the ability to charge higher rents. The landlord may incur greater expenses due to wear and tear on the furniture, frequent cleaning, and laundry. Hygiene concerns may require regular furniture cleaning and inspections.

Insurance

If agreed, the landlord and tenant could be compelled to place insurance on any combination of the building, contents or belongings of tenants. Change of use of a property will void a landlord’s insurance if the insurance carrier is not made aware of the change of use or if the use is prohibited. If changing the Exam Study Guide

use of a building, the landlord would have to talk with their insurance company to ensure they have appropriate coverage.

Quality of furnishings

A furnished apartment can range from basic to luxury. Landlords can provide the minimum amount of furniture and appliances, or they can include extras, such as a desk, TV, entertainment unit, and internet at their discretion. An increased quality level could command higher rents.

Funding

Landlords should develop a fund to cover periodic replacement of furnishings, linens, and consumables.

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Lesson 10 | Page 4 of 12

Due Diligence and Role of a Salesperson When Listing Furnished Units for Lease

When working with a landlord to list a furnished unit, you will need to ensure you supply appropriate and correct information for a tenant. This includes listing the furniture provided, its quality and condition, and accurately describing additional inventory.

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Lesson 10 | Page 5 of 12

Considerations for Tenants When Leasing a Furnished Unit Legislation applies similarly whether a rental unit is furnished or unfurnished. Tenant rights and responsibilities are unchanged. However, several considerations apply for tenants when determining whether to rent a unit as a furnished unit. As a salesperson, knowing these considerations will help you to guide tenants when required. The following five sections contain information about considerations for tenants renting furnished units.

Extent of furnishings included

Knowing the extent of furnishings could be very important. Some may have no furnishings at all while others may be fully furnished. A challenge can arise. What happens to excess furniture that is not needed in the furnished unit? Storage units provide a solution, but can be expensive. A “take it as is, or not at all” approach from the landlord can save potential storage costs, but may deter otherwise good tenants from renting the unit. A detailed inventory of all furniture and items within the premises must be done at the beginning and end of each tenancy period. No matter how short the condition of the premises and the chattels should be logged. The tenant will need to cover any expenses related to losses or damage of these items, versus simple wear and tear.

Amount of rent

Furnished units are usually more expensive to rent as the landlord must recoup the costs associated with furnishing it. However, some units are furnished inexpensively, from second-hand shops, or with old furniture. Units furnished with such items may not be more expensive but often look unappealing to many tenants.

Restrictions to decorating or making changes to the unit

As with unfurnished units, the tenant may install decorative items, such as pictures or window coverings. This is subject to any reasonable restrictions set out in the additional terms of the standard lease. The tenant cannot make other changes to the rental unit without the landlord’s permission. Exam Study Guide

Ease of moving

A tenant’s move into a furnished unit can be fairly quick because they have fewer things to transport. The move is usually less expensive for the tenant. For the landlord, when tenants are not moving furniture and appliances, damage to doorways, hallways, and the premises is minimal. As well, in a building with an elevator, no elevator needs to be booked, minimizing disruption to other tenants.

Reasons to rent a furnished unit

Tenants rent a furnished unit for a range of reasons. They may be a first-time renter with a limited budget for furnishings, or someone on temporary relocation for employment, education, or training. Some people rent a furnished unit for a short time during a separation or divorce.

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Lesson 10 | Page 6 of 12

Due Diligence and Role of a Salesperson When Working with a Tenant Interested in a Furnished Unit

When you are a salesperson working with a tenant who wants a furnished unit, you will need to provide information over and above that for an unfurnished unit. This includes any of the following: • Advising them that the market of available furnished units is usually smaller than for unfurnished units • Advising them on the difference in rents for furnished versus unfurnished units • What is included in furnishings • What is not included • The condition of the furniture • What they can and cannot do with the furniture; for example, they can move it within the unit but cannot remove it from the unit • Any potential liability regarding damage to the furniture

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Lesson 10 | Page 7 of 12

Considerations When Leasing a Short-Term Rental Short-term rentals have their own benefits and challenges. While rent increase limitations do not apply, they may incur increased costs. Ultra-short-term rentals have become popular in recent years, sometimes as an alternative to hotels. The first consideration is, is it allowed? Many municipalities and condominium corporations do not allow ultra shortterm rentals. While the Residential Tenancies Act and standard lease requirements do not apply to such properties, the Building Code, including the Ontario Fire Code, still applies. If someone is planning to rent out units short term, it may change the use of the property. As a salesperson, you should encourage the landlord to verify if this use affects their insurance. The landlord should consult their insurance company before proceeding with this type of rental. Insurance coverage may be a requirement of the lending institution that is a stakeholder in the property. A lack of adequate insurance may breach the terms of the mortgage, which could cause problems for the landlord. Knowing these considerations will help you to guide both landlords and tenants when required. The following five sections contain information about considerations for tenants renting furnished units.

Bylaws

Some municipalities and many condominium corporations do not allow shortterm rentals. Usually these bylaws set a minimum term for which a property can be leased.

No rent increase limitations

If a landlord rents out frequently because of short-stay tenants, the unit is not subject to the rent increase limitations and can change the rent according to market demand.

Increased costs

A landlord who rents out frequently because of short-stay tenants can face a number of issues that increase costs. Walls can be damaged, dirt can be brought into the unit, and furniture can wear out more quickly. As well, there are sanitary concerns around the mattress and other personal use items.

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For ultra short-term rentals (“by the night”), the landlord must also set aside time to manage bookings, check-ins and check-outs, collect and return damage deposits, quickly and thoroughly clean the premises, and launder the linens.

Length of lease term

Some landlords are open to having shorter leases for furnished properties. A number of landlords will offer availability for a stay as short as a month. However, the minimum standard may be no less than six-months. In some places, ultra short-term rentals may be considerably shorter than a month. Such rentals would not use a standard lease.

Unit amenities

Short-term rental properties tend to be more basic. They may have the basic necessities in the kitchen and bathroom, but not a full complement of amenities the tenant is used to. Ultra-short-term rentals tend to be the opposite: luxurious, spacious accommodations close to tourist amenities, often with building amenities.

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Lesson 10 | Page 8 of 12

Salespersons Rights and Obligations When Facilitating Short-Term Rental Transactions As a salesperson registered with RECO, you will be able to facilitate short-term accommodation rentals on behalf of consumers, such as renting cottages, condo apartments, homes, cabin establishments, chalets, and vacation homes. Additional rules apply when facilitating short-term rentals, depending on the services you will provide. The following three sections contain information about facilitating short-term rental transactions.

Registration requirements

To facilitate short-term accommodation rentals in Ontario, a business must be registered with one of the following: • The Real Estate Council of Ontario (RECO) • The Travel Industry Council of Ontario (TICO) • Possibly both, if the business trades in real estate and provides other travel services Brokers and salespersons are permitted to trade in short-term accommodation rental properties on behalf of the brokerage that employs the broker or salesperson. The broker or salesperson is exempted from registration under the Travel Industry Act if these trades are made through the registered brokerage.

Ensure consumer understanding

As a salesperson, you must always: • Clarify your role in any transaction. • Identify which registered real estate brokerage or travel agent is involved.

Complying with REBBA

As with any other transaction under REBBA you must comply with all requirements, including those that address advertising and referral fees. Clarity in advertising Advertising of short-term accommodation rentals must comply with the advertising requirements under REBBA. In particular, all advertising must be under the brokerage’s registered name, which must be prominently displayed. Disclosure of referral fees Exam Study Guide

If you are receiving a fee or other type of compensation for referring a consumer to a third-party for a short-term accommodation rental, you must disclose this in writing to the consumer.

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Lesson 10 | Page 9 of 12

A landlord has decided to build a brand new apartment building in the city’s downtown core. He is trying to decide whether he will rent the units as furnished or unfurnished. Question #59: Which of the following are important for the landlord to consider before deciding whether to furnish the rental units? There are three options. There are multiple correct answers.

1

The Residential Tenancies Act does not cover furnished rentals.

2

While the landlord may be able to charge a higher rent, greater expenses may also incur with a furnished property.

3

The landlord should create a fund to cover periodic replacement of furnishings, linens and consumables.

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Lesson 10 | Page 10 of 12

A prospective tenant is seeking a unit to rent and is considering a furnished unit. Question #60: Which of the following statements are correct with respect to furnished versus unfurnished rental units? There are four options. There are multiple correct answers.

1

Tenants have much less protection under the Residential Tenancies Act when renting a furnished unit as opposed to an unfurnished unit.

2

A rental unit would typically be cheaper to rent if it is furnished rather than unfurnished.

3

A tenant is best advised to take a detailed inventory of all furniture and other chattels when moving in and out of a furnished unit.

4

A tenant’s move into and out of a furnished unit is usually less expensive than if the unit were unfurnished.

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Lesson 10 | Page 11 of 12

Short-term rentals raise several issues and considerations that are different from regular rentals. Question #61: Which of the following statements about short-term rentals are true? There are four options. There are multiple correct answers.

1

Some municipalities and condominium corporations do not allow short-term or ultra short-term rentals.

2

The Residential Tenancies Act and the Building Code, including the Ontario Fire Code, all apply to ultra short-term rentals.

3

Landlords who rent out frequently because of short-stay tenants can face increased costs.

4

Ultra short-term rentals normally take less of the landlord’s time than long-term rental units.

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Lesson 10 | Page 12 of 12

Congratulations, you have completed the lesson! There are four sections on this page with a summary of the key topics that were covered in this lesson.

Considerations for landlords leasing a furnished unit

Landlords must realize the market is smaller for furnished rentals. The attraction of the unit, and the rent garnered, will depend in part upon the quality of furnishings. While a furnished unit may command a higher rent, expenses may also increase due to furniture replacement costs, ongoing cleaning, and laundry expenses. Landlords should keep a fund to cover these replacements.

Considerations for tenants leasing a furnished unit

Tenants seek furnished units for a host of reasons. They need to know the extent and condition of furnishings. While moving is considerably easier compared with an unfurnished unit, rents are typically higher. Cost comparisons with unfurnished units may be a factor for some tenants.

Short-term rental considerations

Leases for short-term rentals are typically one to six months. Short-term rentals are not subject to rent control, allowing the landlord to increase the rent according to market conditions. Offsetting this to some degree are increased costs. Tenants may find furnishings and amenities to be more basic than they are used to.

Salesperson due diligence

Salespersons must perform the same due diligence for furnished and short-term rentals as for unfurnished units. As always, they must comply with all relevant Code of Ethics requirements. They must advertise units with all material facts and be aware of all the additional information and considerations for such units.

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Lesson 11 | Page 1 of 18

Lesson 11: Summary Practice Activities

This lesson provides practice through scenarios. The scenarios are realistic situations that you may face as a salesperson.

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Lesson 11 | Page 2 of 18

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

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Lesson 11 | Page 3 of 18

Scenario Introduction

You are a salesperson with ABC Real Estate Inc. A year ago, you sold a raised bungalow to Robert and Vittoria Kiel. They are a quiet couple in their thirties who work in the local town. Robert is a supervisor in the local glass factory, Stikla Inc. Vittoria is a supervisor in a grocery store. Recently, the factory where Robert works has been going through some hard times: the company’s main client recently closed their doors and the factory has had to cut all overtime. Robert and Vittoria are concerned that other cuts may come. They have decided to rent out their basement to provide some income and offset some of the costs of ownership. They want to hire you to find an appropriate tenant. Ideally, they are looking for someone who is quiet, respects the property, and keeps to themselves. The basement consists of a large kitchen/dining room/living room, a three-piece bathroom, and one bedroom. It was renovated about 10 years ago. While it is slightly dated, it is clean, warm, and in good condition. The furnace, breaker panel, and laundry facilities for the house are located in a separate utility room in the basement. It is accessible by a separate entrance – the side door of the house. The windows let in plenty of natural light, so the unit does not feel like a basement. There is space for one additional car to park in the driveway. The Kiels believe the apartment would be perfect for a young couple or a mature student.

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The town is encouraging secondary suites in an attempt to increase urban density to the levels targeted across the province. Secondary suites in their town do not need a license.

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Lesson 11 | Page 4 of 18

While walking through the basement, you notice a couple of things that concern you about the legality of the unit. Although the windows are fairly large for a basement, they are fairly high, so egress may be an issue. As well, while there is a smoke alarm, there is no carbon monoxide detector. This raises the question whether the required permits and inspections were obtained for the renovation. Question #62: How should you proceed? There are four options. There are multiple correct answers.

1

Contact the municipality to determine whether permits were obtained and inspections were completed.

2

Ask the Kiels if they know whether permits were obtained during the basement renovation.

3

Advise that they must install a carbon monoxide detector, or even better, obtain a full fire safety inspection from the local fire department.

4

Start looking for the selling features of the unit and start writing an ad.

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Lesson 11 | Page 5 of 18

The Kiels were pleased with your suggestion to get a full fire safety inspection, so they arranged one through the local fire department. Other than having to install a carbon monoxide alarm, which Robert did the following day, everything else was up to code. Question #63: What should you do next? There are four options. There is only one correct answer.

1

Place an advertisement in the local newspaper.

2

Start looking for qualified potential tenants.

3

Obtain a signed representation agreement from the Kiels and all documentation to confirm the legality of its proposed use.

4

Start showing the property.

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Lesson 11 | Page 6 of 18

The Kiels have signed a representation agreement with you. They are wondering about how much rent they could charge for the unit. You suggest they should ask for $950 per month, including utilities. They ask how you came up with that number. Question #64: What will you tell them?

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Lesson 11 | Page 7 of 18

The Kiels agree that $950 per month, including utilities, is a fair price. It is now time to write the advertisement. Question #65: Write an advertisement for the unit.

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Lesson 11 | Page 8 of 18

Your advertisement has been successful. Several people have contacted you to express an interest in renting the Kiels’ apartment. You have shown all of them the property. Three seem particularly promising. You must now qualify the potential tenants. You obtain a tenant application and a credit check. Question #66: Name one thing to look for on each document that will help you qualify potential tenants.

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Lesson 11 | Page 9 of 18

You have qualified prospective tenants, Alex and Taylor, for a property owned by the Kiels. Question #67: What is the next step? There are four options. There is only one correct answer.

1

Get Alex and Taylor to sign a standard lease agreement.

2

Have the Kiels meet with Alex and Taylor alone.

3

Obtain a signed representation agreement from Alex and Taylor.

4

Draft a Residential Tenancy Agreement.

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Lesson 11 | Page 10 of 18

You are now ready for the Kiels to meet Alex and Taylor. Question #68: Identify at least two things you will do at the meeting.

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Lesson 11 | Page 11 of 18

Scenario Introduction

You are a salesperson with ABC Real Estate Inc. Jasmine Cruz, a former client who you helped buy a house, called you for help. She told you that she and her husband Manuel had recently divorced. As part of the settlement, they sold the house. The sale closes in 10 weeks. She has decided to rent–maybe for a year or two, maybe longer, perhaps even permanently. She would like you to help her find somewhere suitable. Jasmine is in her mid-forties. She is a manager at a bank in town. She and Manuel are sharing custody of their two children–Emilio, eight, and Hana, five. The children will spend alternate weeks with their father and their mother. You arrange to meet Jasmine the following morning at the office.

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Lesson 11 | Page 12 of 18

Jasmine has arrived at your office to meet. Question #69: List at least two goals for the meeting.

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Lesson 11 | Page 13 of 18

Following your meeting with Jasmine, you have identified the following: Jasmine is looking for a house or a unit in a duplex with a minimum of three bedrooms and a back yard for the children to play. Ideally, she wants to be in the Georgian Valley part of town–a quiet neighbourhood with lots of trees, close to several bus routes and shopping. She would like to be close to a park where the children can go with their friends. She loves open-concept layouts, and will not consider a basement apartment. She wants somewhere she can entertain friends, watch TV and play with the children, and relax after a long work day. Her budget is $2,800 per month, including utilities. If something is really special, she is willing to stretch to $3,000. Question #70: What should you do next? There are four options. There is only one correct answer.

1

Start looking for available properties for rent that closely meet Jasmine’s needs and wants.

2

Start showing all the properties in the Georgian Valley area to Jasmine.

3

Explain to Jasmine that such a property is unlikely to exist, so she may have to change her expectations.

4

Tell Jasmine that she should limit the budget, just in case.

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Lesson 11 | Page 14 of 18

You have searched the internet, asked colleagues, and scoured local newspapers for suitable rentals for Jasmine. You have identified three, but none of them meets ALL of Jasmine’s needs. Question #71: What should you do next? There are four options. There is only one correct answer.

1

Tell Jasmine you were unable to find anything suitable.

2

Tell Jasmine that you have found some properties in the area that are close to what she is looking for, and suggest she look at them.

3

Tell Jasmine that you have found three properties that would be ideal for her.

4

Tell Jasmine that she should increase her budget to find the perfect place.

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Lesson 11 | Page 15 of 18

Jasmine decides to look at all three properties. Question #72: When showing Jasmine each property, what should you do? There are five options. There are multiple correct answers.

1

Identify how a property meets Jasmine's non-essential needs.

2

Point out where the property falls short of Jasmine’s needs and wants.

3

Tell Jasmine that she should not worry too much about the gap between her needs and wants, and the property’s features.

4

Have Jasmine identify what would work about each property.

5

Continue to explore how important each factor is to Jasmine.

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Lesson 11 | Page 16 of 18

Jasmine really likes one of the properties you showed her–3 Parsnip Way. She has decided that the missing features are not that important to her. She thinks she will be happy there. She wants to rent it. You direct her to complete the tenancy application. Question #73: What advice would you give Jasmine about completing the tenancy application?

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Lesson 11 | Page 17 of 18

Good news! The landlord for 3 Parsnip Way wants to meet Jasmine. At the meeting, the landlord’s salesperson walks all parties through the agreement to lease. Question #74: List at least two things you can do at the meeting to support Jasmine.

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Lesson 11 | Page 18 of 18

Congratulations, you have completed the lesson!

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Module Summary | Page 1 of 4

Module Summary

This lesson summarizes all the concepts introduced in the module.

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Module Summary | Page 2 of 4

Congratulations, you have completed this module!

This lesson will present a summary of learning objectives.

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Module Summary | Page 3 of 4

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

Define key terms and describe key components of leasing residential properties

You learned the key terms that apply to leasing. You learned about the four types of tenancy: fixed tenancy, periodic tenancy, tenancy at will, and tenancy at sufferance. For most types of residential leases, you must use the standard lease to: • Help landlords and renters understand their rights and responsibilities • Reduce illegal terms in leases and misunderstandings caused by verbal tenancy agreements • Reduce the need for Landlord and Tenant Board hearings to resolve disputes Under the Residential Tenancies Act, via the standard lease, landlords and tenants each have certain rights and responsibilities, and are prohibited from certain actions. A written lease is always better than a verbal one, as it reduces misunderstandings and disputes. Some of the clauses in the standard lease are mandatory to make the lease effective. Others are considered additional clauses, which add other rights and responsibilities to the parties. Completion of this lesson has enabled you to: • Define common terms used in leasing • Recognize the difference between an agreement to lease and a lease

Different types of single-family and multi-unit dwellings include: Describe types of secondary dwelling units • Bungalows, semi-detached houses, and detached houses and structures and the Exam Study Guide

differences in leasing them

• Duplex, triplex, and fourplex buildings • Low-rise, mid-rise, and high-rise apartment buildings Some properties contain accessory dwelling units either within the main structure or in another building. They are known under many different names. Knowing the details of those properties, especially regarding shared utilities and facilities, will help you provide effective advice. Completion of this lesson has enabled you to: • Recognize the characteristics of the types of residential tenancies • Explain the purpose of the Standard Residential Tenancy Agreement • Identify the key components of the Residential Tenancy Agreement • Identify the types of properties typically used for a residential tenancy

Describe leasing and zoning restrictions, and requirements

Municipal zoning allows only certain types of structures within any area or neighbourhood. This restricts where apartment buildings can be built, and where duplex, triplex, or fourplex units are allowed. Some municipalities regulate secondary suites with permit requirements. Some have maximum occupancy standards. All have safety standards. Municipalities enforce property standards, whether their own or those of the province.

Describe key regulations Key regulations are covered in: for leasing properties • The Residential Tenancies Act – to ensure fairness between landlords and tenants, and to provide a dispute resolution mechanism • The Ontario Human Rights Code – to prevent discrimination • The Building Code – to ensure building structures used as rentals are safe • The Ontario Fire Code – to prevent and reduce deaths, injuries, and damage due to fire

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• Electrical Safety Act – to ensure the electrical system in the building is not a hazard to occupants or others The primary legislation is the Residential Tenancies Act. It covers a host of requirements and restrictions such as: • A tenant’s right to sole use, privacy and enjoyment of the property • Rent, deposits, and allowable increases • Landlord access rights • Maintenance responsibilities • Lease termination by either party, including eviction • Dispute resolution Completion of this lesson has enabled you to: • Identify the characteristics of a property containing an accessory dwelling unit • Identify key considerations when leasing an accessory dwelling unit • Describe bylaws which impact leasing properties

Describe landlord/tenant Tenants can terminate their tenancy at any point, with sufficient notice. dispute resolution and Landlords are far more restricted. They may terminate a tenancy only with a valid reason and sufficient notice. protection parameters The Landlord and Tenant Board is charged with providing information about the Residential Tenancies Act to landlords and tenants, and settling landlord and tenant disputes through either mediation or adjudication. For the Board to resolve a dispute, the applicant must first serve the appropriate Notice to the other party. The applicant must then make an application to the Board. Only after the required time lapse, and if all documentation is in order, will the Board schedule a hearing.

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Settled agreements from mediation, or orders from the adjudicator, are not negotiable after the fact. There is no appeal process. A salesperson cannot represent a party at a Board hearing. Completion of this lesson has enabled you to: • Identify the legislation impacting a residential tenancy • Explain key components of the Residential Tenancies Act • Distinguish between assignments and subletting • Describe the role of the Landlord and Tenant Board

Identify considerations required for safety and compliance

Tenant safety is paramount. The Building Code, Ontario Fire Code, and the Electrical Safety Code provide strict standards for building safety. Much is the responsibility of the landlord. Landlords must ensure the property is secure with adequate lighting, unobstructed surroundings, and cameras where applicable, and strong locks door and windows. They must also monitor for illegal activity. Landlords must ensure all smoke alarms, carbon monoxide alarms, sprinkler systems, and fire doors are installed as required and are working. Neither landlords nor tenants can disable the alarms or other fire prevention equipment. All means of egress must be clear. Landlords must ensure all parts of the electrical system are safe. Any repairs must be completed by a licensed electrician. Landlords must ensure they follow the requirements of the Occupational Health and Safety Act when hazardous materials are used. Landlords or tenants must clear snow around the building. Completion of this lesson has enabled you to: • Explain methods to ensure adequate safety is provided for tenants

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Module Summary | Page 4 of 4

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

Describe compliance and due diligence of a salesperson

As with any other type of property you must comply with all legislation, regulation, and the Code of Ethics. When advising and assisting landlords or tenants, you must always ensure rental units are legal and safe. If permits and inspections were not all completed, declining the business may be prudent. Legal requirements and safety standards change from time to time. You must update your knowledge frequently to ensure you know the current requirements. You must meet minimum disclosure requirements, including material facts and interests, in a property before entering into any agreements. You must meet all documentation requirements including disclosures, content requirements, and representation agreement requirements. You must use the most recent lease form. You must ensure all advertising avoids discrimination and complies with the Ontario Human Rights Code. You must ensure any documentation a landlord uses to find tenants and rent a unit to them complies with all legislation. You must ensure parties understand all obligations under the lease before signing. When the required knowledge and skills exceed your own, you must advise your client or customer to obtain those services from someone better qualified. Completion of this lesson has enabled you to: • Identify a salesperson's obligations for compliance with legislation and regulations affecting residential leasing • Identify the due diligence required of a salesperson when leasing properties

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Describe roles and responsibilities of a salesperson, owner/landlord, and property manager

As a salesperson you can find appropriate properties for tenants, prepare them to lease a unit, and provide information about a rental unit and the neighbourhood. For landlords, you can price the unit, advertise and show the property, qualify prospective tenants, and draft an agreement to lease. For either party, you can explain the terms of the agreement and negotiate the final lease, ensuring you protect your client’s or customer’s interests. Landlords must maintain their building. They must obtain and fulfill all building permits and inspections when building or renovating a property. They must comply with all fire code requirements, including maintaining alarms and fire suppression equipment, comply with all electrical system requirements, and ensure tenants have adequate means of egress. A property manager acts as the main contact for tenants, oversees maintenance and repairs, oversees vacant properties, manages staff and contractors, provides required notices to tenants, enforces leases, collects rent, facilitates move-ins and move-outs, assesses prospective tenants, and interacts with salespeople when required. Completion of this lesson has enabled you to: • Outline the services a salesperson could provide to a tenant • Outline the services a salesperson could provide to a landlord • Describe the role of the property manager • Describe the responsibilities of a landlord • Describe leading practices to qualifying tenants

Outline what forms part of a rent roll

A rent roll provides financial information about rental units to a rental property owner. If kept updated, it can be used to determine the profitability of a property and provide data for valuation of that property. The rent roll typically details: • Contact information for the tenant

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• Details of rent deposits • Rent set offs • Responsibilities of the tenant and responsibilities of the landlord • Rent charges per unit • Lease expiry • Possible arrears (outstanding accounts receivable) • Other income from items such as laundry, signage, vending machines, and telecom By contrast, a tenant ledger tracks the revenue and expenses related to a specific rental agreement. It provides a financial snapshot of rent payments and expenses for a specific tenant. Completion of this lesson has enabled you to: • Identify the purpose of a rent roll and describe the key components • Identify the purpose of a tenant ledger and describe the components

Estimate the value of a rental property

Numerous factors affect the value of a rental property, including the location of the unit, nearby amenities, the layout and condition of the unit, what the rent includes, vacancy rates, and the rents at comparable properties. The price of a rental is affected by supply and demand. A more desirable neighbourhood or a lower vacancy rate will increase the initial amount a landlord can charge for rent. Conversely, a less desirable neighbourhood or a higher vacancy rate will reduce the initial rent. You should use the direct comparison approach to determine the price of a rental unit. Completion of this lesson has enabled you to: • Describe leading practices when estimating the value of a rental property

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Tenants rent furnished units for a host of reasons. Furnished units are typically, but Identify considerations for leasing furnished and not always, small apartments or secondary suites. Moving is easier, as no large items need moving. short-term properties

When deciding whether to offer a rental unit as a furnished unit, you should ensure the landlord knows the following: • Often, but not always, landlords can charge more for furnished units than similar, unfurnished units. • Fewer tenants seek furnished rentals. • Expenses are typically higher for furnished units, as wear and tear on furnishings must be recouped. • The quality of furnishings will play a large role in the desirability of the unit. • Insurance issues may arise with furnishings, so the landlord should check with their insurance company. • Landlords should develop a fund to cover periodic replacement of furnishings, linens, and consumables.

The lease should detail exactly what furnishing and items are included with the unit. Many municipalities and condominium corporations do not allow short-term rentals, or limit the minimum term of a rental. Short-term rentals may breach insurance terms around use of the property. Costs and the required time investment may increase due to damage, cleaning and booking. Rent increases are not limited by the rent increase guideline. Completion of this lesson has enabled you to: • Identify considerations for a landlord leasing a furnished unit • Identify considerations for a tenant leasing a furnished unit

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• Identify considerations when leasing a short-term rental

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Appendix | Page 1 of 4

Appendix Answer Key Question #43: Even if discrimination is unintentional, the advertisement is likely discriminatory because it describes the potential renters the landlord is looking for. It suggests a preference for the kind of people the landlord wants. This contravenes the Ontario Human Rights Code. Jim should remove the third sentence and spend more time describing the features and benefits of the apartment and the surrounding area, rather than the people who may want to live there. This will avoid any potential conflict with the Ontario Human Rights Code. Question #44: 1, 3 Question #45: 1, 3 Question #46: Here is a list of common channels available to you to advertise properties: •

The local listings service

•

Broker websites

•

Rental websites

•

Facebook, YouTube

•

Online local market sites, such as Kijiji and Craigslist

•

Brochures distributed in areas that could have potential tenants

•

Local print media

Question #47: 5, 7 Question #48: 1, 4, 5, 6 Question #49: 1, 3 Question #50: 1, 3, 4 Question #51: 1, 3 Question #52: 1, 2, 4, 5 Question #53: 1 Question #54: 2 Question #55: 1 Question #56: 2

Exam Study Guide

Appendix | Page 2 of 4 Question #57: 2 Question #58: 4 Question #59: 2, 3 Question #60: 3, 4

Question #61: 1, 3 Question #62: 2, 3 Question #63: 3 Question #64: “The generally accepted practice in real estate is to use the direct comparison method. What that means is I find comparable listings in the area. Then I look at distinguishing factors, such as •

The different features and amenities in those units compared with yours

•

The layout of your unit compared with the other listings

•

The condition of your unit compared with those listings

•

The rent obtained recently for similar properties

So, in this case, I looked at all one-bedroom basement apartments in the area. Generally, they go for between $800 and $1,000 per month. Since yours has a better layout than most, that increases its value. It’s in good condition, which also increases its value. The features and amenities of your unit are about the same as the average, so that will bring the price down from the top end just a little. Since you are a little further from the bus station that will reduce the price just a little. Based on all that, I think $950 is a reasonable price.” Question #65: Spacious, one-bedroom, one-bathroom basement apartment for rent. Large, open concept kitchen-living room with so much natural light that it’s hard to believe it’s a basement. Must be seen! Includes one parking space and access to shared laundry facilities. $950 per month, including utilities. Important note: Notice that the advertisement does not refer to an “ideal tenant”. Doing so would contravene the Ontario Human Rights Code. Also remember that, as a salesperson, you would need to ensure the full advertisement complied with REBBA requirements. Question #66: To qualify tenants you have two main tools, the tenant application and credit check. Tenant application Some things to look for include: •

Employment gaps are explained

•

Past rental history is complete

•

It is signed

•

References are provided for employers and past landlords (Note: call all references)

•

It is completed in full

Although some information is optional, this can help to differentiate good from poor applicants: Exam Study Guide

Appendix | Page 3 of 4 •

Good applicant = full disclosure The applicant will have completed the form and all documentation, the job letter is complete, the credit report is current, and sometimes more information is provided depending upon the applicant’s circumstances.

•

Poor applicant = lack of full disclosure The applicant will have left information out of the form or not signed it, the credit report is incomplete or outdated, the job letter is poorly written or contains gaps.

Credit check The credit check will give you a snapshot of the debt repayment history of the applicant. You and the landlord should review it carefully to ensure there are no surprises. Note: It is worth highlighting to the Kiels that there are no guarantees that someone will be a perfect tenant, despite all indicators being positive. However, a good qualification process will minimize the risk. Question #67: 4 Question #68: Prior to the meeting, you would have reviewed the agreement to lease with Alex and Taylor, and had them sign it. 1. The first thing is to make introductions. This is an important step for setting the groundwork for a long-term relationship between the landlords and tenants. 2. Next, you would review the agreement to lease with Alex, Taylor and the Kiels. 3. Next, you would verify the identity of all parties and provide a copy of the lease agreement to all parties. You would also give a copy of the new tenant’s brochure to Alex and Taylor. 4. Finally, you would receive a cheque for first and last month’s rent from Alex and Taylor. After the meeting, on the start date of the lease, you can deliver the keys to Alex and Taylor. Question #69: Your goals should include all the following: •

Reassure Jasmine that she has come to the right person, that you will look after her best interests, and that you will do everything you can to find a place where she and the children will be happy.

•

Discover Jasmine’s needs and wants for a rental property.

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Determine Jasmine’s budget.

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Have Jasmine sign a representation agreement.

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Prepare Jasmine for renting. Put aside some time to view properties. Ensure enough money is readily available to pay first and last month’s rent.

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Describe the process to Jasmine–what she can expect, when you will call, time frames, and so on.

Question #70: 1 Question #71: 2 Question #72: 1, 2, 4, 5 Exam Study Guide

Appendix | Page 4 of 4 Question #73: You should advise Jasmine as follows: •

Complete the application in full, even the optional fields. Doing so shows you have nothing to hide.

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Explain any gaps or questionable entries. For example, she should explain her gaps in employment as maternity leave absences.

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Provide contact information for the most recent employers as references.

•

Provide personal references who can vouch for Jasmine’s character.

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Sign the form once it is complete.

Question #74: You can do all of the following for Jasmine: •

You represent Jasmine and will protect her by negotiating the terms that are in her best interests.

•

As the meeting progresses, if the landlord’s salesperson says something that you and Jasmine had talked about earlier it would be good to raise it. For example, clarifying who is responsible for clearing snow or mowing the lawn would help Jasmine plan appropriately.

•

You can help to ensure all Jasmine’s questions are answered and that she is comfortable.

•

Finally, you can ensure the landlord provides Jasmine with a copy of the lease and the new tenant brochure.

•

After the meeting, on the date the lease starts, you can accept the keys on Jasmine’s behalf.

Exam Study Guide

Module: Introducing Commercial Real Estate This is a study guide to help you prepare for the qualifying exam. There are multiple study guides that are provided for preparation. Each study guide contains several decision points to test your knowledge. The answer key to these decision points is present in the “Appendix” section at the end of the guide. Please use Adobe Acrobat Reader (Recommended version 9 or above) to navigate through this PDF. Real Estate Pre-Registration 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 PreRegistration Program learner.

Exam Study Guide

Module: Introducing Commercial Real Estate

Introducing Commercial Real Estate Commercial real estate is vastly more complex than residential real estate. The stakes may be higher, documentation and due diligence is more comprehensive, and you will have to develop relationships with various third-party professionals to assist you at different times during a transaction. This module will provide opportunities to learn about various topics related to commercial real estate including: • What to expect in the commercial real estate environment • The impact of certain legislation/regulations on commercial real estate • The benefits and challenges to commercial real estate investing • An introduction to third-party professionals you will rely on over the course of the real estate transaction • An introduction to commercial financing and taxation

Exam Study Guide

Menu: Introducing Commercial Real Estate Number of Lessons

Lesson Number

9 Lessons

Lesson Name

Lesson 1

The Commercial Real Estate Environment

Lesson 2

Impact of REBBA and the Commercial Tenancies Act when Trading in Commercial Real Estate

Lesson 3

Impact of the Ontario Building Code, the Planning Act, and Zoning Bylaws on Commercial Real Estate

Lesson 4

The Benefits and Challenges to Investing in Commercial Real Estate

Lesson 5

Third-Party Professionals

Lesson 6

An Introduction to Commercial Financing

Lesson 7

The Impact of Taxation on Commercial Property Ownership

Lesson 8

Summary Practice Activities Module Summary Appendix

Exam Study Guide

Lesson 1 | Page 1 of 20

Lesson 1: The Commercial Real Estate Environment

This lesson introduces the commercial real estate environment, specifically how it differs from the residential real estate environment. The lesson also focuses on relationships with sellers and buyers in commercial transactions.

Exam Study Guide

Lesson 1 | Page 2 of 20

The Commercial Real Estate Environment

This lesson introduces the commercial real estate environment, specifically how it differs from the residential real estate environment. Commercial transactions are often more complex than residential transactions and demand a broader set of skills. This lesson will also focus on relationships with sellers and buyers now that the transaction is commercial in nature. If you are considering pursuing commercial real estate, you will have a clearer picture of some of its requirements and challenges. Upon completion of this lesson, you will be able to: • Illustrate the work environment of a salesperson • Describe the type of relationship a brokerage could have with a commercial seller or buyer • Identify how offers and negotiations for a commercial property can be complex Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented. Exam Study Guide

Lesson 1 | Page 3 of 20

What is Commercial Real Estate?

Commercial real estate includes any property used exclusively for business purposes. A salesperson employed at a brokerage can be involved in the sale and leasing of retail, office, industrial, multi-residential, and similar types of properties. In smaller markets that have fewer commercial properties, a residential brokerage will commonly have a few dedicated individuals focused on commercial transactions. The residential brokerage might also have salespersons who practice in both residential and commercial market sectors out of necessity. In larger markets, such as urban centres, brokerages may focus on select market segments. Commercial real estate is quite different from residential. Some of the differences you will encounter include: • Work environments • Types of properties • Types of sellers and buyers (including ownership differences) • Motivation of commercial sellers and buyers Exam Study Guide

• Building construction techniques • The need for more information gathering due to the complex nature of the transactions • More time-consuming due diligence and much greater contact with and reliance on third-party professionals • Offers and negotiations are more complex and time consuming • Prominence of leasing in commercial real estate and the complexities of lease agreements and negotiations • Services and marketing • Financing and valuation techniques • Dealing with financial statements • Buying and selling businesses and the related challenges • Types of commercial brokerages Be aware that commercial real estate can be alluring for the high-profile projects and correspondingly high remuneration. The downside is that transactions take longer to develop and are subject to extensive research and negotiations, and the conditional and closing periods are longer.

Exam Study Guide

Lesson 1 | Page 4 of 20

The commercial real estate work environment differs from that of residential sales. The education, employment experience, and typical work hours of commercial salespersons are likely to differ from those of their residential counterparts. The following three sections contain information about specific differences in the commercial real estate work environment.

Education and work experience

Commercial real estate transactions and market segments are complex. As such, experience or post secondary education in a discipline related to the planned area of practice would be considered an asset for a salesperson. For example, salespersons specializing in the office market must be familiar with financial markets in the planned area of practice; salespersons specializing in the industrial market must be familiar with industrial processes; salespersons specializing in multi-residential must be familiar with the Residential Tenancies Act which includes rent controls; salespersons specializing in vacant land must be familiar with land use planning principles, municipal bylaws, and geography.

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Employment criteria

Commercial brokerages may be more selective and use more intensive criteria when hiring a salesperson for commercial transactions. Commercial clients and customers can be business and investment savvy, so brokerages may place more weight on a salesperson’s financial literacy. To prepare yourself for employment in commercial real estate, you can take these steps: • Do extensive research in the market segment you are interested in • Reach out to your existing connections and contacts • Join industry associations and network Even if you feel they do not meet all the employment criteria, there are things that can be done to prepare for commercial real estate, including extensive research into the market segment of interest, reaching out to pre-existing connections and contacts, joining trade associations, and networking.

Working hours

Unlike residential real estate that requires evenings and weekends, commercial real estate work typically occurs during business hours, e.g., Monday to Friday, 8 a.m. to 6 p.m. Some commercial work, such as research and document preparation, can require time outside traditional business hours.

Exam Study Guide

Lesson 1 | Page 5 of 20

Your Employment

The Real Estate and Business Brokers Act (REBBA) states that a brokerage, broker, and salesperson must be registered under the Act to perform any activities deemed to be a trade in real estate. For taxation purposes, the relationship between the employing brokerage and brokers and/or salespersons can involve employee or independent contractor status. Employee versus Independent Contractor Status With an employee, a contract of service exists, in which the employer controls and supervises the work of the employee. With an independent contractor, a contract for service is created. Independent contractor agreements are generally lengthier documents containing detailed contracted duties and responsibilities. Brokers or salespersons seeking independent contractor status are doing so for taxation purposes and to save on some deductions, such as employment and health insurance costs. Independent contractors may also write off many personal expenses, such as car, home office, computer, phone, etc. While the main difference between employee and independent contractor can be tax treatment, employees who are completely commission-based also get Exam Study Guide

similar tax write-offs for business expenses. If a decision whether to be an employee or contractor is to be based on the tax treatment, the salesperson should consult a tax professional for further advice for their case. An independent contractor generally has more control over the management of their own business but has some higher expenses, such as full payment of the Canada Pension Plan contributions and no employer health benefits. In most large commercial brokerages, the salespersons are employees and not independent contractors. Smaller brokerages, both residential and commercial, are more likely to have independent contractors, and a new salesperson may not have that choice, although it is recommended that the salesperson confirm that with the relevant brokers or managers. The new salesperson is likely to begin their career as a trainee under a more experienced salesperson, which could result in years of gaining knowledge and experience by rotating through various aspects of the brokerage before working directly with a seller or buyer. In larger commercial brokerages, the salesperson is likely to be an employee as opposed to an independent contractor, and work as part of a team, especially when first hired. As a new salesperson, you might have a specific role or task to perform rather than be involved in the end-to-end transaction. It is important to keep in mind that these expectations vary between individual brokerages. As with any job, it is important to interview potential brokerages to see if that workplace is a good fit. When meeting with the brokerage, have specific questions ready, such as: • What training programs are available for new salespersons and at what cost? • What is the remuneration split arrangement and what expenses are paid by the brokerage and salesperson? • Will you provide an office, a desk in a common area, or a shared desk? • What special services do you provide that are unique from other brokerages that will help in building my real estate career? You want to build a solid relationship with a brokerage and other salespersons that fit with your personality and aspirations. Culture within the brokerage can vary depending on market size, location, urban versus non-urban environments, and many other factors. As you can imagine, a large multi-residential brokerage in a downtown metropolitan area will be very different from a smaller commercial brokerage in a smaller, rural city. In fact, some large offices may have rooms that remind you of a stock exchange, whereas smaller, boutique offices may be quieter. A successful brokerage is built on synergism, teamwork, and individuals contributing to the whole.

Exam Study Guide

Lesson 1 | Page 6 of 20

Before deciding on a career in real estate sales, a newly registered salesperson had completed a Bachelor’s degree in Commerce and gone to work as a junior financial analyst at a major life insurance company. Over the past several months, he has interviewed with a number of different commercial brokerages and now has to decide which brokerage he is interested in working for. Question #1: Which of the following statements are correct with respect to the typical work environment for a salesperson working for a commercial brokerage? There are four options. There are multiple correct answers.

1

In the larger commercial brokerages, a new salesperson will more likely be hired as an employee rather than an independent contractor

2

Commercial real estate transactions involve extensive research and negotiations but generally provide for higher remuneration than earned in residential transactions

3

For commercial salespersons, negotiations and meetings with clients generally happen outside of business hours during evenings and weekends

4

A newly registered salesperson will typically find that they will only perform specific duties on one type of property at a small boutique commercial brokerage, as opposed to being able to work on many different types of properties and be involved in all aspects of a real estate transaction at a large commercial brokerage

Exam Study Guide

Lesson 1 | Page 7 of 20

A newly registered salesperson has decided to work for a small commercial real estate brokerage. Question #2: Based on what you have learned about the work environment of a salesperson working for a commercial brokerage, which one of the following reasons will a newly registered salesperson decide to work for a small commercial brokerage? There are two options. There is only one correct answer.

1

Because small commercial brokerages tend to offer more support and in-house training than the large commercial brokerages

2

Even though small commercial real estate brokerages generally offer less support and less extensive formal in-house training as compared to the large commercial brokerages

Exam Study Guide

Lesson 1 | Page 8 of 20

A newly registered salesperson has decided to work for a small commercial real estate brokerage. Question #3: Based on what you have learned about the work environment of a salesperson working for a commercial brokerage, why do you think he is really looking forward to working on commercial transactions? There are two options. There is only one correct answer.

1

He is really looking forward to working on commercial transactions despite the fact that they take longer to develop and complete as compared to residential transactions. This is because of the lengthier conditional and closing periods involved in selling commercial real estate.

2

He is really looking forward to working on commercial transactions because they are usually concluded more quickly than residential transactions, given the generally faster conditional time frames and shorter closing periods in commercial real estate, as compared to residential real estate.

Exam Study Guide

Lesson 1 | Page 9 of 20

A newly registered salesperson has decided to work for a small commercial real estate brokerage. Question #4: Based on what you have learned about the work environment of a salesperson working for a commercial brokerage, why is the brokerage that the newly registered salesperson has decided to work for is emailing him a contract? There are two options. There is only one correct answer.

1

For service which will make him an independent contractor for the purpose of taxation

2

Of service which will make him an independent contractor for the purpose of taxation and the requirements of REBBA

Exam Study Guide

Lesson 1 | Page 10 of 20

Introduction to Seller/Buyer Relationships You will learn about seller and buyer representation and customer service agreements in the context of commercial real estate transactions. A representation agreement is a contract between a salesperson (and their brokerage) and a seller or buyer. The representation agreement grants permission to sell a property for a seller or to locate property that meets a buyer’s needs. These agreements set out the legal relationship, obligations of the parties, and time limits concerning such authority. While they may be responsible for handling the listing within their brokerage, the authority is granted in the brokerage’s name, never in theirs.

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Lesson 1 | Page 11 of 20

Seller Representation Agreements

A seller representation (or listing) agreement sets the terms and conditions for a brokerage to sell a property. It performs several functions, including: • Establishes the seller/brokerage agency relationship with defined limitations on the agent’s authority • Provides property specifics for paper and electronic distribution • Furnishes information for negotiations and drafting offers • Outlines services being performed The Listing Agreement – Commercial: Authority to Offer for Sale (OREA Form 520) This form is the seller representation agreement used for commercial real estate transactions. It generally follows the structure and wording of its residential counterpart, but important differences require highlighting. The following discussion is limited to four notable differences only. A salesperson contemplating commercial listing and sale activities should fully review both forms to identify all wording variations.

Exam Study Guide

Lesson 1 | Page 12 of 20

Commercial Seller Representation Agreements – Differences from Residential The following three sections contain information about the commercial clauses that have different wording than their residential counterparts.

Clause 1: Definitions and Interpretations The commercial listing form expands the definition of a purchase to include an option to purchase, exercising a First Right of Refusal, and the selling or transferring of shares or assets. Further, real property includes real estate as defined in REBBA and property deemed to include any part thereof or interest therein.

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Clause 2: Commission Clause 2 has an added provision that pertains to an instance where a deposit becomes forfeited, awarded, directed, or released by the seller. If such occurs, the listing brokerage is authorized by the seller to retain 50 per cent of the deposit for services rendered (but not to exceed the remuneration that would have been payable had the sale been completed).

Exam Study Guide

Clause 7: Indemnification and Insurance The indemnification clause found in the commercial form has been expanded to include liability, claim, loss, cost, damage, or injury resulting from contaminants or environmental problems. The seller is also warranting that the property is insured, including personal liability insurance against any claims or lawsuits resulting from bodily injury or property damage to others.

Exam Study Guide

Lesson 1 | Page 13 of 20

Buyer Representation Agreements

A buyer representation agreement sets the terms and conditions for a brokerage to locate a suitable property for a buyer. The agreement establishes an exclusive relationship between the buyer and brokerage. It performs several functions, including: • Establishes an exclusive buyer representation relationship • Sets out duties and responsibilities of both parties • Details remuneration arrangements and buyer responsibilities should remuneration not be paid by the seller The Buyer Representation Agreement – Commercial: Mandate for Purchase (OREA Form 540) This form is the buyer representation agreement used for commercial real estate. It generally follows the structure and wording of its residential counterpart, but important differences require highlighting. The present discussion is limited to three notable differences only. Students contemplating commercial listing and sale activities should fully review both forms to identify all wording variations.

Exam Study Guide

Lesson 1 | Page 14 of 20

Commercial Buyer Representation Agreements – Differences from Residential The following three sections contain information about the commercial clauses that have different wording than their residential counterparts.

Clause 1: Definitions and Interpretations The commercial buyer representation form expands the definition of a purchase to include an option to purchase and the transfer of shares or assets. Further, real property includes real estate as defined in REBBA.

Clause 2: Services Provided by the Brokerage This clause is an added provision relating to specific services that may assist the buyer. Space is provided for other services as agreed between the parties (including the possibility of a separate schedule).

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Clause 3: Responsibilities of the Buyer Clause 3 sets out specific duties owed by the buyer to the brokerage during the currency of the agreement.

Exam Study Guide

Lesson 1 | Page 15 of 20

Terms of the Agreement

As a salesperson, one of the first items you will complete on a seller or buyer representation agreement is the term of the agreement. A commencement date must be inserted, as well as an expiry date pursuant to the Code of Ethics, Sec. 11: Contents of Written Agreements. Following the commencement or expiry date, the seller or buyer initials the form to acknowledge the length of the agreement, if the term is to exceed six months. Although the duration of a representation agreement can be from 30 days to one year, there are no restrictions on the duration and it is a matter of negotiation between the parties. The parties should consider the complexities of the property and its limited appeal given current market conditions. The date cannot exceed six months without the seller or buyer’s informed consent and initials, as per the Code of Ethics, Sec. 11: Contents of Written Agreements.

Exam Study Guide

Lesson 1 | Page 16 of 20

A salesperson has worked with a local brokerage for the past 15 years. The brokerage is involved in both residential and commercial real estate. For the first 10 years, the salesperson only sold residential real estate but has, for the last five years, been mostly focused on commercial transactions with a partner who has sold commercial properties for 25 years. The salesperson is meeting with a potential client who is interested in buying a small office building as a long term investment. This potential client has bought and sold a number of residential homes but has never been involved in commercial real estate. The salesperson is going through the brokerage’s buyer representation agreement and points out some differences between a residential and commercial agreement. Question #5: Which of the following statements is correct with respect to commercial representation agreements with buyers and/or sellers? There are four options. There is only one correct answer.

1

It would not be unusual for a commercial seller representation agreement to include a clause that authorizes a listing brokerage to retain part of the deposit forfeited by a buyer who fails to complete a transaction

2

While discouraged in residential real estate, multiple representation is encouraged in commercial real estate transaction because it allows for a transaction to be completed much more quickly than in single representation

3

Under REBBA, a commercial buyer representation agreement cannot have a term that is longer than six months Exam Study Guide

4

Commercial seller representation agreements would not include an indemnification clause because of the amount of money involved in commercial transactions. Additionally, commercial brokerages would have their own insurance to cover any losses as a result of their representation and work for a seller

Exam Study Guide

Lesson 1 | Page 17 of 20

Offers and Negotiations

One of the main differences between residential and commercial real estate is the complexity of the transactions. Commercial offers can have unique clauses, conditions, etc., typically included as a Schedule A attached to an agreement of purchase and sale. Residential sales usually include common conditions found in many offers. Use of Third-Party Professionals Due to the inherent complexity of commercial transactions, the use of third-party professionals throughout the entire listing and selling process is more common. Some of the third-party professionals you will come to rely on include: • Accountants • Lawyers • Land planners • Environmental engineers • Property managers • Financial lenders or mortgage specialists • Architects • Tax specialists Exam Study Guide

• Appraisers • Structural/mechanical engineers You will learn about each of these third-party professionals in more detail later in the module. Additional Complexities There are many complexities that are unique to commercial transactions, which are not typically found in a residential transaction. • It is important to keep up to date on upcoming trends and potential changes, such as a plan for a new road or landfill site in the area that would impact the transaction. Residential is impacted more so by current housing trends. • In larger commercial brokerages, some transactions could require several different teams from within the brokerage to work together on a transaction. Smaller brokerages may utilize different third-party consultants to assist with the various aspects of a transaction. • The pool of potential buyers may be limited, depending on the size of the commercial property involved, but there is also more potential for international buyers. • The remuneration structure within a commercial brokerage can be different than the typical model for residential. • The frequency of transactions, closings, and conditional time periods can be longer when compared to residential transactions. o It is extremely important in commercial transactions to know the time periods needed to complete due diligence, and to properly explain why the time is needed to stakeholders. • Larger commercial brokerages may keep listings internal rather than posting on a listing service as one way to protect the confidential information of clients and to ensure quality of service. o Alternatively, requiring brokers and their prospective buyers to sign confidentiality agreements in advance is another way to protect the seller client’s interests. • In large commercial transactions, it is a good idea to perform due diligence and qualify potential sellers and buyers—this involves determining buyer financial capabilities, past transactions, and who your clients’ thirdparty professionals are.

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• Ownership is typically not in a personal name; it can include corporations, partnerships, real estate investment trusts (REITs), pension funds, etc.

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Lesson 1 | Page 18 of 20

Due Diligence Required When Listing/Selling Commercial Real Estate Due diligence is a crucial business practice that verifies key facts concerning a real estate transaction. A simple example of due diligence in residential sales would involve the buyer requiring a home inspection. With commercial real estate, due diligence is far more expansive, particularly with large, complex transactions. Prospective commercial buyers must carefully assess all risks associated with a business and/or property acquisition, with emphasis on factors impacting ongoing income stability. The following three sections contain information about commercial due diligence.

Scope of analysis A standard due diligence clause does not exist, as needs vary with the type of property being transacted. Most clauses are customized to suit individual circumstances, but ultimately the goal is full knowledge of relevant facts relating to the purchase. Due diligence can range from a straightforward direct inquiry by the prospective owner to a team of accounting, legal, and other professionals scrutinizing every aspect of a business or investment property and developing a substantial, customized audit. All documents must be closely examined, along with a thorough inspection of the property.

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Time period Commercial transactions usually provide for a relatively open-ended provision, typically 30 days or more, giving the buyer wide ranging access to transaction-related information available through public sources, as well as detailed documentation furnished by the seller. The buyer usually has the right to simply walk away from the transaction if anything discovered does not meet expectations. No standard clause is used, as the scope of material needed and the time period required will vary.

Exam Study Guide

Financial/Operational Financial due diligence focuses on the financial health of the business being analyzed. For example, an income-producing property would usually undergo a thorough analysis of documents, including: • Income and expense statements • Balance sheets • Rent rolls and leases • Bank statements • Tax bills and returns • Employee records • Detailed information regarding operating costs This analysis would be complemented with various seller-supplied documents, including: • All financial records • Lease documents • Inventory of equipment and other assets • Utility bills • Building service contracts • Insurance policies

Exam Study Guide

Lesson 1 | Page 19 of 20

Due Diligence Required When Listing/Selling Commercial Real Estate Due diligence is a crucial business practice that verifies key facts concerning a real estate transaction. A simple example of due diligence in residential sales would involve the buyer requiring a home inspection. With commercial real estate, due diligence is far more expansive, particularly with large, complex transactions. Prospective commercial buyers must carefully assess all risks associated with a business and/or property acquisition, with emphasis on factors impacting ongoing income stability. The following three sections contain information about additional commercial due diligence.

Legal Legal analysis of the property would involve: • Title to the property and major assets • Existing mortgages and other encumbrances • Surveys • Licences • Contracts • Permits • Zoning compliance As with financial/operations, the seller would be required to furnish applicable documents in their possession.

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Structural (Building Condition Report) A commercial building condition report (also known as a building inspection report) usually includes a visual inspection of the building, review of relevant documentation (and interviews, if necessary), identification of physical deficiencies, photo documentation, and a detailed summary report. Identified physical deficiencies are of key importance, as they reflect material defects and significant deferred maintenance items that must be addressed but would exclude normal maintenance and repair items. Inspection fees vary based on the scope of report, property type and components (e.g., elevators). The report would detail key facts about the building envelope, structural design, mechanical systems, electrical systems, interior finishes, and life safety systems.

Exam Study Guide

Environmental Due diligence may also necessitate an environmental assessment to assess overall environmental condition prior to purchase, as hazards and contamination can represent a significant risk. While assessments are typically associated with industrial and commercial lands, their use can be relevant to a wide range of property types. You will learn more about environmental assessments, otherwise known as Environmental Site Assessments (ESAs), later in the module.

Exam Study Guide

Lesson 1 | Page 20 of 20

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were covered in this lesson.

Work environment

As a salesperson, it is important to understand that the commercial working environment differs from the residential work environment. • Education and work experience are an asset • Working hours tend to align with business hours • Likely to be an employee rather than an independent contractor • You might begin your career as a trainee under a more experienced salesperson

Brokerage’s relationship with a commercial seller or buyer

A representation agreement sets out the legal relationship, obligations of the parties, and time limits concerning such authority. • The Listing Agreement – Commercial: Authority to Offer for Sale (OREA Form 520) sets the terms of and conditions to sell a property • The Buyer Representation Agreement – Commercial: Mandate for Purchase (OREA Form 540) sets the terms and conditions for a brokerage to locate a suitable property for a buyer

Complexities of offers and negotiations for a commercial property versus residential

Commercial Seller and Buyer Representation Agreements have additional wording in certain clauses to help protect the interests of all parties involved. Offers and negotiations for commercial properties are inherently more complex than residential • Use of third-party professionals is more common • Due diligence is far more extensive

Exam Study Guide

Lesson 2 | Page 1 of 13

Lesson 2: Impact of REBBA and the Commercial Tenancies Act when Trading in Commercial Real Estate

This lesson introduces you to key sections of REBBA legislation that all salespersons must follow when trading in commercial real estate and the Commercial Tenancies Act — legislation that covers commercial leasing.

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Lesson 2 | Page 2 of 13

Impact of REBBA and the Commercial Tenancies Act when Trading in Commercial Real Estate

REBBA is the legislation that all salespersons must follow. It covers all aspects of a real estate transaction, from listing to sale. There are serious consequences if a salesperson fails to comply with REBBA and the associated Code of Ethics. This lesson will introduce you to a few key sections of REBBA legislation and how they are different for a commercial transaction. Next, you will learn about the Commercial Tenancies Act—legislation that covers commercial leasing. Upon completion of this lesson, you will be able to: • Identify the impact of REBBA on the activities of a salesperson • Identify key considerations of the Commercial Tenancies Act that regulates commercial leasing 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

Introduction to REBBA

The Real Estate and Business Brokers Act (REBBA) is the legislation established by the Ontario government, that real estate salespersons, brokers, and brokerages must follow. Associated regulations include the Code of Ethics, among others. REBBA addresses major stages in negotiations and elements of a transaction. A successful real estate transaction involves numerous activities that extend beyond the mere paperwork. Salespersons work with clients and customers, market and show properties to prospective buyers and other interested parties such as insurers and appraisers, respond to questions, and perform other duties that advance the real estate buying and selling process. Topics are presented as they typically occur from point of listing and selling property to drafting of an agreement, final negotiations, and ultimate completion of a transaction.

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Lesson 2 | Page 4 of 13

Disclosure of Material Facts and Conscientious and Competent Service

A significant source of errors and omissions claims involve inaccurate or incomplete information. Commonly, litigation occurs when buyers discover material defects after closing that were not previously disclosed. Salespersons involved with commercial properties must ensure that facts gathered are accurate and complete in accordance with the following legislation: • REBBA ethical requirement of conscientious and competent service • Code of Ethics requirement addressing disclosure of material facts As a salesperson working in commercial real estate, it is your responsibility to protect your sellers by: • Taking adequate time to fully investigate the commercial property • Fully discussing with the seller their legal obligation to disclose material defects • Asking questions rather than making assumptions • Immediately clarifying and resolving issues as they arise in discussions with the seller Further, you can protect your buyers by: • Explaining to the buyer the absolute necessity of carefully inspecting prospective properties • Providing appropriate conditions in a Schedule attached to an Agreement of Purchase and Sale regarding due diligence or specific matters that must be investigated Exam Study Guide

• Encouraging the buyer to enlist professional inspectors, e.g., engineering/structural, electrical, appraisal, mechanical, and environmental

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Lesson 2 | Page 5 of 13

Impact of REBBA on Activities of Salespersons You must ensure strict compliance with REBBA throughout your career as a salesperson. REBBA also specifies how to maintain records, recommend service from third-party professionals, and work with registered and unregistered assistants. The following three sections contain information about the above provisions of REBBA that impact the activities of salespersons.

Record keeping A brokerage and salesperson are required to make and keep such records that are reasonably required for the conduct of the brokerage’s business as per the Code of Ethics, section 30. In addition, the original records must be maintained at the location specified by the Registrar or at the brokerage’s head office. See the Other Regulation (OR 579-05) section 19. Because of the complexity of commercial transactions, documentation is greater and more involved. Some of the specific documentation that could be involved in a commercial transaction includes, but is not limited to: • Confidentiality agreements • Financial records • Leases

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• Non-Disclosure Agreements • Due diligence package • Clearance certificates • Building permits • Occupancy records • Fully executed FINTRAC form

Recommending services from third-party providers As a salesperson, it is important that you know the limitations of your knowledge and conduct business within your capabilities. Commercial transactions can be complex, and it is unreasonable to expect you know everything! Part of providing conscientious and competent service to clients and customers involves knowing when to involve third-party professionals in your business dealings. Involving third-party professionals can reduce the incidence of errors and omissions claims.

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Working with registered and unregistered assistants All brokerages rely on support staff for assistance. This is especially true for commercial transactions when reliance on office staff is imperative over the course of a transaction. REBBA states that no person shall trade in real estate unless registered. If questions are posed to unregistered assistants or unregistered support staff and they apply to trading in real estate, they must be passed to registered salesperson for resolution.

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Lesson 2 | Page 6 of 13

Introduction to the Commercial Tenancies Act A commercial tenancy can be generally described as any lease involving a property that is principally used for business (i.e., non-residential) activity. Commercial tenancies are governed by the Commercial Tenancies Act. They are inherently complex for several reasons: • Commercial properties are diverse and require specialized wordings/clauses relating to industrial, retail, office, investment, and vacant land leases • There is no standard, government-issued lease • The contents of the lease are up to the landlord and tenant to negotiate • Requirements for such tenancies require an interplay between legislative, as well as legal precedent As a salesperson, you should always advise your landlord and tenant clients to seek expert legal advice.

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Lesson 2 | Page 7 of 13

Rights and Obligations Under the Commercial Tenancies Act In general, the rights and obligations of commercial landlords and tenants are outlined in detail in the commercial lease. The following two sections contain information about the rights and obligations of the landlord or of the tenant.

Landlords

• Must notify tenants in writing of specific breaches of the lease and allow a reasonable period of time for them to comply • May have the right to terminate a tenancy when the tenant fails to fulfill obligations as outlined in the lease • Have the right to apply to the Superior Court of Justice (or depending on the amount, Small Claims Court) to seek damages from the tenant for the loss of rental income owed for the balance of the term of the lease

Tenants

• Must notify the landlords in writing of specific breaches of the lease and allow a reasonable period of time for them to comply • Cannot hold back rent because a landlord has failed to fulfill their obligations as outlined in the lease • Must fulfill their obligations as outlined by the lease agreement

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Lesson 2 | Page 8 of 13

Dispute Resolution If a landlord (or a tenant) fails to carry out their obligations stated in a lease, a tenant (or a landlord) has two options: to take the landlord (or the tenant) to Small Claims Court or to go to Superior Court of Justice. In either case, the tenant/landlord should seek legal counsel to assess the situation and weigh its options. The following two sections contain information about the resolution and protection parameters for landlord and tenant disputes.

Option 1 – Small Claims Court A tenant/landlord can take the matter to Small Claims Court to ask for compensation for losses incurred as a result of the landlord’s/tenant’s actions, such as reduced sales or damage to the premises/building.

Option 2 – Superior Court of Justice A tenant/landlord can go to Superior Court of Justice to obtain a court order that requires the landlord/tenant to abide by the conditions and terms of the lease. In court, the tenant/landlord can also seek compensation for any costs incurred.

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Lesson 2 | Page 9 of 13

A salesperson works for a local real estate brokerage in a town with a population of 40,000 people. The salesperson has been employed by this brokerage for 23 years, selling and leasing both residential and commercial properties. As a result, the salesperson is very familiar with the differences between leasing these two different types of properties. The salesperson has just been asked about those differences by a client who is considering the purchase of a commercial property for its income and potential long term capital appreciation. Question #6: Based on what you have learned related to commercial leasing, why are commercial tenancies inherently more complex than residential tenancies? There are three options. There is only one correct answer.

1

The Commercial Tenancies Act has many more regulations than the Residential Tenancies Act and requires landlords to use a complex government issued standard commercial lease

2

Commercial leases require specialized clauses which can vary depending on the type of property and the needs of the landlord and tenant

3

Commercial tenancies are not regulated by legislation but are subject only to legal precedent

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Lesson 2 | Page 10 of 13

A salesperson works for a local real estate brokerage in a town with a population of 40,000 people. The salesperson has been employed by this brokerage for 23 years, selling and leasing both residential and commercial properties. As a result, the salesperson is very familiar with the differences between leasing these two different types of properties. The salesperson has just been asked about those differences by a client who is considering the purchase of a commercial property for its income and potential long term capital appreciation. Question #7: Based on what you have learned related to commercial leasing, the landlord must notify tenants in writing when there has been a specific breach of the lease. What else should the landlord do in this situation? There are three options. There is only one correct answer.

1

And allow a reasonable period of time for the tenant to comply with the lease

2

And this notification allows a commercial landlord to immediately terminate the tenancy and physically evict the tenant within 48 hours of the tenant receiving the notice of breach

3

And then apply to the Landlord and Tenant Board to have the tenant evicted if that tenant does not comply with the lease within 30 days of the notice of breach

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Lesson 2 | Page 11 of 13

A salesperson works for a local real estate brokerage in a town with a population of 40,000 people. The salesperson has been employed by this brokerage for 23 years, selling and leasing both residential and commercial properties. As a result, the salesperson is very familiar with the differences between leasing these two different types of properties. The salesperson has just been asked about those differences by a client who is considering the purchase of a commercial property for its income and potential long term capital appreciation. Question #8: Based on what you have learned related to commercial leasing, if a landlord fails to fulfill their obligations under a lease, what option does a tenant has? There are three options. There is only one correct answer.

1

A tenant can hold back rent providing it is placed in a trust account with the landlord and tenant board

2

A tenant is automatically permitted to renegotiate the lease and reduce the rent to take account of the landlord`s breach of contract

3

A tenant cannot hold back the rent in response

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Lesson 2 | Page 12 of 13

A salesperson works for a local real estate brokerage in a town with a population of 40,000 people. The salesperson has been employed by this brokerage for 23 years, selling and leasing both residential and commercial properties. As a result, the salesperson is very familiar with the differences between leasing these two different types of properties. The salesperson has just been asked about those differences by a client who is considering the purchase of a commercial property for its income and potential long term capital appreciation. Question #9: Based on what you have learned related to commercial leasing, what option does the tenant and/or the landlord have when a breach of a lease cannot be resolved? There are three options. There is only one correct answer.

1

Only have the option of taking the matter to Small Claims Court

2

Only have the option of taking the matter to the Superior Court of Justice

3

Have the option of taking the matter to either Small Claims Court or the Superior Court of Justice

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Lesson 2 | Page 13 of 13

Congratulations, you have completed the lesson! There are two sections on this page with a summary of the key topics that were covered in this lesson.

REBBA

While REBBA does not distinguish between residential and commercial activity, certain aspects of REBBA deserve special mention in the context of commercial real estate: • Disclosure of material facts - the discovery of such facts takes more extensive due diligence than for residential • Providing conscientious and competent service - also requires more extensive due diligence, such as referring your clients and customers to third-party experts and having special clauses inserted to a Schedule attached to an Agreement of Purchase and Sale • Record keeping - the paperwork that goes into a successful commercial transaction is often greater and includes numerous supporting documents • Recommending service from third-party experts • Working with registered and unregistered assistants in commercial real estate - you must never let unregistered assistants give advice to clients or customers as it would be in violation of REBBA

The Commercial Tenancies Act

Commercial tenancies are governed by the Commercial Tenancies Act. They are more complex than residential tenancies for a number of reasons: • Leases require specialized clauses/additional wording to address the needs of the property owner • Terms of the lease are up to the landlord and tenant to negotiate • Rights and obligations of both parties are outlined in detail in the commercial lease If there is a dispute, an individual has two options: • Small Claims Court Exam Study Guide

• Superior Court of Justice

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Lesson 3 | Page 1 of 11

Lesson 3: Impact of the Ontario Building Code, the Planning Act, and Zoning Bylaws on Commercial Real

This lesson discusses the Ontario Building Code, which is concerned with minimum safety standards of buildings. You will also learn about the Planning Act and various bylaws that impact commercial development and use of a structure. Knowledge of these topics help you advise clients on appropriate third-party professionals to enlist to ensure they have the best chance of a successful transaction.

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Lesson 3 | Page 2 of 11

Impact of the Ontario Building Code, the Planning Act, and Zoning Bylaws on Commercial Real Estate

The Ontario Building Code, Planning Act, and zoning bylaws are inherently part of a salesperson’s commercial buying and selling activities. While the Ontario Building Code is mainly concerned with minimum safety standards of buildings, the Planning Act and various bylaws impact commercial development and use of a structure. Knowledge of these topics will help you advise clients on appropriate third-party professionals to enlist to ensure they have the best chance of a successful transaction. Upon completion of this lesson, you will be able to: • Outline how the Ontario Building Code impacts the use of a commercial structure • Recognize how the Planning Act, municipal bylaws, and zoning bylaws influence commercial development 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

Introduction to the Ontario Building Code

The Ontario Building Code is made by regulation under the Building Code Act. It is a provincial legislation that sets out minimum standards for building design, as well as provisions regarding safety in buildings, fire protection, and structural sufficiency. The Ontario Ministry of Municipal Affairs and Housing reviews and amends the Ontario Building Code approximately every five years to reflect changes in technology and emerging public safety issues. The Ontario Building Code and the Building Code Act generally address: • Specific uses and related occupancy requirements, including acceptable fire and safety standards, means of exit, accessibility, service facilities, and acoustic separation • Structural loads, foundations, and design requirements for structural materials • Wind, water, and vapour protection, including vapour barriers, air barriers, control of groundwater and rain penetration, and material specifications • Heating ventilating and air-conditioning, including air duct systems, heating appliances, piping, refrigeration systems, and chimneys/venting equipment • Plumbing, including materials, equipment, and specific requirements concerning piping, drainage, and venting, along with stipulations regarding the use of potable and non-potable water systems Exam Study Guide

• Requirements for housing and small buildings • Change of use requirements and renovations The Ontario Building Code is amended periodically to reflect changes in technology and emerging public safety issues. Effective January 1, 2020 the latest round of amendments to the current Ontario Building Code took effect. The more significant changes to the Code focus on health, safety, and enhanced environmental protection; the competitiveness of the Ontario building sector; and maintaining Ontario's leadership in energy and water conservation.

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Lesson 3 | Page 4 of 11

Building Permits Salespersons are not typically involved with the building, installation, extension, or alteration of buildings, but are indirectly impacted by the Ontario Building Code in numerous situations involving new construction and renovations. A person cannot construct or demolish a building as defined in the Code unless a building permit, sometimes referred to as a construction permit, is issued, as per the Act, Section 8, Subsec. 1. The council of each municipality appoints a chief building official and several building inspectors necessary to enforce the provisions of the Ontario Building Code. The chief building official issues permits for proposed construction or demolition unless the proposal is contrary to the Building Code Act, 1992, the Ontario Building Code or any other applicable law, as per the Act, Section 8, Subsec. 2.

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Lesson 3 | Page 5 of 11

Obtaining a Building Permit As a salesperson, you should advise your clients to seek assistance from the local building department, building inspector, and/or architect/engineer prior to the start of any construction, renovation, or demolition. If a permit is required, the building department requires an application outlining the planned work, including plans, building sketches, and related documents. Municipal staff will review the application to ensure that the planned construction meets the applicable building codes and local zoning bylaws for the area in which the construction is taking place. It is important to note that requirements for new construction, additions, alterations, renovations, relocations, and repairs or rehabilitation of a building or structure will vary. Further, an application for a building permit may trigger additional building code upgrades that were not contemplated. The following four sections contain information about the steps in obtaining a building permit for commercial real estate.

Step 1: Application Submit permit application to Building Department, along with plans, property survey (or site plan) and application fee.

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Step 2: Review Building department reviews documentation. Drawings must conform to zoning bylaws, and comply with mechanical (e.g., HVAC and plumbing) and architectural/structural building code requirements.

Step 3: Permit Legal permission granted to start construction. Permit must be posted prominently on the site and building plans must be kept on site. Any changes require review and approval as per Step 1 and Step 2.

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Step 4: Inspections Requests for inspections must be made 24 hours before work proceeds beyond stages set out in the permit. Failure can result in work stoppage until remedies are made.

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Lesson 3 | Page 6 of 11

A salesperson’s client is an investor who is thinking about purchasing a modern 4-storey office building with above ground parking on 566 Side Street, Anycity. The city is in a snow belt area. As a result, the investor is considering building a carport which would allow for 40 cars to be sheltered from the winter elements. Based on extensive research, the investor believes this will help attract tenants and allow for a profitable increase in rents being asked. The investor has asked the salesperson whether a building permit would be required. Question #10: Which of the following statements are correct with respect to commercial buildings and the Ontario Building Code? There are four options. There are multiple correct answers.

1

Once a building permit has been obtained, it must be posted in a prominent position on the site. The building plans do not have to be kept on site but must be available for review at the contactor’s office.

2

The Ontario Building Code addresses non-conforming uses, non-conforming structures, variances and allowable zoning amendments.

3

4

Depending on the work being done under a building permit, an owner is required at a number of various stages to request inspections of work that has been completed to date. There are four basic steps in obtaining a building permit for commercial real estate. These steps include the application by the owner, the review by the building department, the issuance of a permit by the chief building official, and that the inspections are carried out by municipal building inspectors.

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Lesson 3 | Page 7 of 11

A salesperson’s client is an investor who is thinking about purchasing a modern 4-storey office building with above ground parking on 566 Side Street, Anycity. The city is in a snow belt area. As a result, the investor is considering building a carport which would allow for 40 cars to be sheltered from the winter elements. Based on extensive research, the investor believes this will help attract tenants and allow for a profitable increase in rents being asked. The investor and the salesperson discuss in general terms, the Ontario Building Code and related permits. Question #11: Which of the following statements is correct with respect to commercial buildings and the Ontario Building Code? There are three options. There is only one correct answer.

1

The Ontario Building Code sets out minimum standards for building design and maintenance, but does not address fire protection. Fire protection is covered by the Ontario Fire Code.

2

The Ontario Building Code covers standards for the construction of apartment buildings but not for other types of commercial buildings, such as office buildings and retail stores.

3

The Ontario Ministry of Municipal Affairs and Housing reviews and amends the Ontario Building Code approximately every five years.

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Lesson 3 | Page 8 of 11

Planning Fundamentals

The planning system in Ontario is influenced by the Planning Act and related legislation. Planning ultimately leads to the permitted uses of land and the permitted uses in turn directly affects the value of land. As a salesperson, you should have at least an understanding of the names and functions of government organizations involved in planning, and the scope of decisions made by these organizations. Levels of Authority The Planning Act provides the statutory framework for orderly land development in the province. It is administered by the Ministry of Municipal Affairs and Housing, which also broadly directs overall planning in the province by way of provincial policy statements. Provincial policy statements contain major policy areas concerning the management of change and promotion of efficient, cost-effective development and land use patterns that stimulate economic growth, while protecting the environment and public health. All planning bodies within the province must be consistent with such statements when applying planning policies. Further, the Planning Act sets out specific provincial interests to further delineate what is considered sound planning within the province. Most municipal planning is focused on the preparation, adoption, and revision of official plans within respective Exam Study Guide

planning areas, the adoption of zoning bylaws for land use control, and strict controls over the process of dividing and developing land. A committee of adjustment can be appointed at the municipal level with the power to grant minor variances from the provisions of zoning bylaws, to grant consents, and to control the continuance of nonconforming uses. Impact of Long-Range Planning The interests of the government, as identified in the Act, are protected through the approval of long-range planning documents by the Minister or a delegated representative. Divisions of the Ministry are responsible for specific administrative functions involving ministerial approvals under the Act, i.e., official plans or amendments, plans of subdivision, and zoning orders. The Act establishes parameters for the creation of local planning advisory committees, planning areas, and the development of official plans. Planning involves a two-tiered structure for municipalities: • Upper tier (e.g., region, county, or district) - responsible for preparation, adoption, and revision of the official plan, and the process of dividing and developing land • Lower tier (e.g., municipality) - responsible for preparation, adoption, and revision of the official plan and the adoption of zoning bylaws, interim control bylaws, and other bylaws

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Lesson 3 | Page 9 of 11

Influence of Bylaws and Planning on Commercial Development As a salesperson, you may be dealing with developer clients. As such, it is important to know how certain bylaws, planning, and government regulation restricts or favours commercial development. The following three sections contain information about municipal and zoning bylaws, non-conforming and zoning amendments, and site plan control agreements.

Municipal and zoning bylaws

Primary land use control rests with zoning at the local municipal level. Zoning bylaws are enacted by municipalities setting out permitted uses, building structure standards (e.g., minimum setbacks and coverage), and other necessary regulations (e.g., signage, noise, and parking). Bylaws may restrict or prohibit the use of land, the erecting, locating and use of buildings, and the utilization of marshy, rocky, steep, sloping, hazardous land or related circumstances for commercial development purposes. Bylaws may also regulate the type of construction, minimum elevation of doors, windows, or openings, loading or parking facilities, and minimum density provisions. As a salesperson, you should be aware of municipal government responsibilities that affect day-to-day real estate marketplace activities, such as: • Sign restrictions relating to the placement of signs, notices, or advertising of property • Establishing provisions regarding flood control that affect properties in flood-prone areas • Requiring property owners to meet various standards in the control of noise, vibration, odour, dust, and outdoor illumination, e.g., operation of commercial enterprises • Regulatory matters concerning the construction of fences, e.g., height and set-back requirements • Instituting energy conservation programs and incentives for commercial property owners Exam Study Guide

• The authority to enter private lands to inspect the discharge of waste into the municipal sewage system • The implementation of interim control bylaws that freeze development for a period of time

Non-conforming use and zoning amendments

Flexibility is permitted within the bylaws. Owners may seek minor variances when property does not specifically meet requirements. Owners may also fall under non-conforming use status if a usage predates the passage of a specific zoning bylaw. In such instances, the existing use is permitted, if it continues to be used for that purpose. In terms of zoning amendments, the council of a municipality will consider a zoning bylaw amendment if the proposed use is in keeping with the official plan. Additionally, if the proposed change does not conform exactly to the zoning, but does generally conform with its overall intent, an application can be made to the committee of adjustment for a minor variance. To avoid surprises, you must be aware of zoning requirements and communicate these to a client. You may talk to planners and learn what is intended in the area and do your own research into trends and opportunities. You should always advise your clients to contact the appropriate municipal planning authority prior to making an application.

Site plan control

Site plan control is imposed by the municipality during the planning and development process. Site plan approval is authorized under the Planning Act, thereby exerting influence over building design and site amenities over and above requirements set out in zoning bylaws and the Ontario Building Code. Salespersons most commonly encounter site plan control area provisions in relation to commercial and industrial properties. Clients wishing to develop commercial real estate within a site plan control area must submit an application to the local planning department. The application approval process allows the municipality to review the overall design of planned structures and assess developmental impact on surrounding land uses. Approved plans require the owner to enter into a site plan control agreement with the municipality, which states that the development will be in accordance with the approval plans and any conditions imposed by the municipality. Finally, the municipality has the right to approve all elements of a site plan, such as landscaping areas, traffic flow, and trash storage requirements. As a salesperson, you may be involved with a developer who wants to buy land to develop Exam Study Guide

and service. In this case, the salesperson should work with the owner of the property and their advisors to establish a site plan for the subdivision or for a particular parcel of land. If a client is buying a vacant parcel of land that is subject to an existing subdivision agreement, they need to be aware of its presence, as the buyer will be bound by all of the terms contained in the subdivision agreement.

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Lesson 3 | Page 10 of 11

A salesperson works for a commercial real estate brokerage. A client, a large commercial developer and construction company, is looking to purchase 10 acres of vacant land on the outskirts of Anycity with the intention of building a large retail development. The company is currently reviewing the city’s official plan and current municipal zoning bylaws. They are also having preliminary talks with the municipality. Question #12: Identify whether the following statements regarding planning and zoning are true. There are four options. There are multiple correct answers.

1

The Ministry of Municipal Affairs and Housing is responsible for the preparation, adoption, and amendment of official plans in Ontario. The Ministry also provides consent to applications for the division and development of land in the larger cities in Ontario

2

If a proposed use of a property is not allowed under a current zoning bylaw, the council of a municipality will consider a zoning bylaw amendment as long as the proposed use is in keeping with the official plan

3

Development of a property in a site plan control area requires obtaining site plan approval from a municipality and the owner/developer will be asked to enter into a site plan agreement with the municipality as a condition of that approval

4

The purpose of the site plan approval process is to ensure the development of a site meets the needs of the official plan, is in keeping with the zoning bylaws, and meets the requirements under the Ontario Building Code. The approval process starts after a building permit has been issued but before construction is allowed to start

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Lesson 3 | Page 11 of 11

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were covered in this lesson.

The Ontario Building Code

The Building Code Act, 1992 is a provincial legislation that sets out minimum standards for building design, as well as provisions regarding safety in buildings, fire protection, and structural sufficiency. It is updated every five years. The construction, renovation, and demolition of buildings require a building permit, as per the Ontario Building Code. Steps in obtaining a building permit: • Application • Review • Permit • Inspections

The Planning Act

The Planning Act provides the statutory framework for orderly land development in the province. It is administered by the Ministry of Municipal Affairs and Housing, which also broadly directs overall planning in the province by way of provincial policy statements. All planning bodies within the province must be consistent with such statements when applying planning policies.

Zoning bylaws

• Zoning bylaws are enacted by municipalities and set out permitted uses, building structure standards (e.g., minimum setbacks and coverage), and other necessary regulations (e.g., signage, noise, and parking) • Bylaws may: o Restrict or prohibit the use of land o Regulate the type of construction Exam Study Guide

o Affect day-to-day real estate marketplace activities • Some flexibility is permitted within the zoning bylaws o Owners may seek minor variances when property does not specifically meet requirements o Owners may fall under non-conforming use status

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Lesson 4 | Page 1 of 21

Lesson 4: The Benefits and Challenges to Investing in Commercial Real Estate

This lesson covers the types of commercial properties you will encounter, ownership options for your clients and customers, and the benefits and challenges to investing in commercial real estate.

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Lesson 4 | Page 2 of 21

The Benefits and Challenges to Investing in Commercial Real Estate

Commercial real estate, unlike residential real estate, is focused on business and investments. Your clients can range from a small business owner looking to acquire a retail storefront to a large property management company looking to purchase a multi-residential apartment building. In this lesson, you will learn about the types of commercial properties you will encounter, ownership options for your clients and customers, and the benefits and challenges to investing in commercial real estate. Upon completion of this lesson, you will be able to: • Distinguish between the types of commercial properties • Differentiate between the ownership options for commercial properties • Describe the benefits and opportunities to investing in commercial real estate • Describe the challenges and risks to investing in commercial real estate Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented. Exam Study Guide

Lesson 4 | Page 3 of 21

Introduction to Types of Commercial Properties Unlike residential properties, which are limited to the purpose of living, there are many more types of commercial properties that serve different functions to the owner. The next few activities will introduce you to the different types of commercial properties you will encounter, including: • Office • Retail • Industrial • Multi-residential • Farm • Recreational • Institutional • Hospitality • Vacant land

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Lesson 4 | Page 4 of 21

Office Properties

Office properties are buildings that contain primarily offices. The commercial office market generally follows a cyclical pattern with changing supply and demand forces, such as growth in the labour force and, subsequently, workers requiring office employment. Under normal circumstances, office construction activity will expand to meet rising demand, but only if other factors are in play. For example, mortgage funding must be readily available, as most office buildings require considerable capital given the size of most commercial projects. Other factors include the availability of land for such development, favourable zoning provisions, and municipal or other government incentives and policies. Office Building Classification The Building Owners and Managers Association (BOMA) provides common standards in the office sector for a number of things, such as how buildings are classified. Buildings are classified as either Class A, Class A+, Class B, or Class C, based on the desirability of location, quality of technology, and finishes available. The description of classes are:

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1. Class A: A Class A building is identified by its prestige location, premium office space, high tech systems, and high-quality finishes. Class A buildings are readily identifiable by their premier appearance and are typically occupied by Canada’s corporate leaders, including banks, international corporations, and large, prestigious legal firms. Class A buildings are generally concentrated in key downtown locations or other top locations (e.g., main transportation crossroads) within the city. 2. Class A+: A Class A+ building is a landmark property that is located in a highly desirable sub-market, is designed by a recognized architect, and features high-end furnishings and modern efficient systems. These buildings demand among the highest rents in the market and are more than 80 per cent occupied by the market’s premier tenants. They are highly sought after by institutional investors such as pension funds and insurance companies as well as by foreign investors. These properties are more desirable than Class A buildings. Source: NAIOP – Commercial Real Estate Terms and Definitions (Trophy Building) 3. Class B: A Class B building is identified by a good location, average building materials and construction, and adequate internal systems. Generally, Class B buildings are older structures (typically less than 20 years old), lack the latest technologies, and may suffer from limited functional obsolescence, but are generally wellmanaged and well-maintained. 4. Class C: A Class C building is typically located in a less desirable area, 20 years old or more, and lacking up-todate technology. Class C buildings typically require extensive renovations, but low rents can be an attractive draw for commercial tenants not requiring or unable to afford higher classes of buildings. Larger urban markets contain several sub-markets, which are viewed as distinct and most commonly arise due to geographic considerations. In Toronto, for example, the downtown office area is a distinct sub-market characterized by high density, high rent properties with a preponderance of Class A buildings. Many factors can result in the growth of office sub-markets. These include, but are not limited to: • Accessibility and proximity to attractive housing • Shopping and other amenities • Location of government offices • High tech needs and proximity to universities

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Lesson 4 | Page 5 of 21

Retail Properties

Retail properties typically house businesses that offer retail goods to the public over the counter without a prior appointment. Salespersons working in retail commercial real estate encounter a diverse mixture of neighbourhood commercial operations, chain, discount, independent, and luxury retailers, department stores, regional shopping centres, power centres, and lifestyle centres. Retailing analysts track all aspects of this dynamic business including changing demographics, economic trends, merchandising methods, retail site selection, and target markets, distribution technologies, and shopper preferences. A salesperson specializing in retail properties must also have knowledge of the above trends, as well as anything that might increase foot or vehicle traffic to an area, such as a new road. Retailers are facing increasing competition from online distribution centres delivering products directly to the consumer’s home. This intense competition has resulted in traditional storefront operations focusing on improved design and heightened customer service to attract and retain customers. As a salesperson, this focus means many innovations are now appearing to enhance streetscapes, store configurations, merchandising layouts, and interior design.

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Retail Classification Retail stores vary from small, independent operators to large, big box operations. Some notable types of retail properties are: • Big box stores • Power centres • Shopping centres (regional, community, and neighbourhood) • Lifestyle centres • Downtown shopping malls • Outlet malls • Main street retail

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Lesson 4 | Page 6 of 21

Industrial Properties

Industrial real estate is broadly defined as property used for the processing and manufacturing of goods. It includes all land and buildings, either utilized or suited for industrial purposes. Traditional industrial uses are normally centered on manufacturing, warehousing, or transportation. More recently, industrial areas now contain business enterprises that involve a diversity of activities. Investors have long been attracted to industrial properties given the preponderance of large, creditworthy tenants and long-term leases. Users, on the other hand, are typically committed to high capital costs relating to manufacturing needs and frequently seek investors to fund the real estate portion of their enterprises. Any salesperson contemplating this area of specialization must appreciate the inner workings of the industrial market, understand the needs of users, and possess a distinct knowledge of industrial processes. Salespersons will face unique terminology related to industrial processes, such as fabrication, production, packaging, warehousing, and distribution. Further, physical characteristics are often a priority given unique client requirements. For example, an industrial user may require substantial electric power, abundant water resources, and/or direct highway access.

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Lesson 4 | Page 7 of 21

Multi-Residential Properties

Multi-residential real estate refers to any residential structure that has more than one dwelling unit. Traditionally, four units or less are handled more like single family residential, whereas five or more units are treated and financed as a commercial transaction. In larger urban centres, there may be a preponderance of larger multi-floor, high-rise rental properties, while in smaller markets, the emphasis might be placed on smaller rental properties, such as duplexes, fourplexes, mid-rise buildings, and rental townhouses. The multi-residential market is driven by supply and demand factors, but it is also influenced by regulatory provisions set out in the Residential Tenancies Act. Salespersons venturing into this market should clearly understand the focal role of residential rent legislation and tenant protection. Supply and demand Demand for multi-residential housing is a complex interplay of economics, demographics, and target market preferences. From an economic perspective, expanding employment opportunities typically translate into increased housing demand. Demographics also plays a key role. In-migration and out-migration, overall population shifts from one area to another, and population growth provide useful indicators for the multi-residential market.

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Differing age groups and types of households within an area also translate into distinct preferences regarding residential locations, proximity to schools, access to transportation, and nearby retail services, as well as amenities provided in the building. Market research is typically needed to determine what type of property is needed, where it should be located, and what features it should contain. Estimating supply involves analyzing the existing competition, as well as new multi-residential buildings either currently approved or under construction. Based on this information and demand-related data, a client contemplating a new multi-residential building can then formulate a strategy for a new structure that will address the greatest demand within the market.

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Lesson 4 | Page 8 of 21

Farm Properties

The term agriculture generally refers to the production of goods through farming, which can be defined as follows • The production of field-grown crops, cultivated and uncultivated, and horticultural crops • The raising of livestock, poultry, and fur-bearing animals • The production of eggs, milk, honey, maple syrup, tobacco, fibre, wood from wood lots, and fodder crops • The production or raising of any other prescribed thing or animal The commercial farm market consists of many operations, both large and small. A salesperson may be involved with a large 400-acre dairy farm listed at $6.5 million to a small, specialty fruit farm on five acres available for $800,000. Farm businesses also include small farms, farm co-ops, viable farms, and recreational farms. Valuation in the marketplace can be challenging for a salesperson, as each operation derives its value from many factors. Four main criteria that affect property value are: location, land, buildings, and other assets. Location factors include such things as proximity to the target market, accessibility by adequate roads, and availability of services. Other factors can also affect value, such as proximity to large urban areas, distinctive property features (e.g., woodlot and abundant water), and other rural amenities close to the property (e.g., villages). Other value Exam Study Guide

considerations include agricultural productivity and the type, age, and condition of primary structures and farm equipment. Many agricultural products are subject to regulated marketing through marketing boards. Farm value can be significantly affected by whether a quota or production contract can be assigned at point of sale. Salespersons should include, in an agreement of purchase and sale for a farm, specific conditions providing for successful transfer or assignment from seller to buyer of any quota, entitlement or contract that the buyer needs to market products for which the farm is being purchased.

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Lesson 4 | Page 9 of 21

Recreational, Hospitality, and Institutional Properties The following grouping of commercial properties are geared towards a vacationing public. Even small bed and breakfasts can generate sizeable revenue for prospective buyers/investors. The following three sections contain information about hospitality, recreational, or institutional properties.

Recreational properties The recreational market covers a broad array of property types from lodges to larger, mixed-use resort properties. Boating and water-related activities remain a major recreational attraction in the province given Ontario’s abundance of fresh water lakes and rivers. Small recreational businesses throughout Ontario include, but are not limited to: • Wilderness camps • Bed and breakfast accommodations • Ski chalets/small lodges • Larger hotels, motels, lodges, and resorts • Trailer parks, theme parks, marinas, and campgrounds

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Hospitality properties Hospitality properties cater to the vacationing public. At one end of the spectrum, the traditional hotel configuration servicing business travelers may also attract the vacationing public given its prime location. At the other end, the large resort complex with numerous services represents a destination in itself. Hospitality properties include, but are not limited to: • Hotels and motels • Boutique hotels • Lodges and resorts

Institutional properties Institutional properties include banks, schools and universities, hospitals, insurance companies, religious or charitable organizations, and municipal and other government buildings, among others. The location depends on the property in question. For example, banks and insurance companies want prime downtown locations, while universities and hospitals are in areas owned by the municipality. Hospitals, schools, and universities are owned and controlled by the hospital or school board, and sales are pre-approved by the province.

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Lesson 4 | Page 10 of 21

Vacant Land

Vacant land, as a commercial market sector, is focused on development activities involving planning, application, and development processes. Land development has traditionally been focused on property that exists in an unused manner (and not necessarily in a natural state) before the construction of services, e.g., water and sewers and the addition of structural improvements. In recent years, considerable attention has been focused on the revitalization of property. Land development is regulated by the Planning Act. Beyond that, the scope of regulatory and related requirements is a complex interplay of provincial statutes, municipal official plans, zoning bylaws, and administrative procedures. Brownfield and Greenfield Land Ontario brownfields legislation encourages the clean-up and revitalization of abandoned, under-utilized, or contaminated lands. The Brownfields Statute Law Amendment Act, 2001 amended various Acts, such as the Municipal Act and the Planning Act, to facilitate brownfields redevelopment. This legislation addressed a key factor limiting development of abandoned properties: developers and lenders had been reluctant to invest in such sites, given potential future liability and consequent legal and financial risk. The brownfields legislation set out specific rules limiting future environmental liability for redeveloped properties, while at the same time ensuring compliance with environmental standards during the clean-up process. Greenfield land is undeveloped land in a city or rural area either used for agriculture or landscape design, or left to evolve naturally. These areas of land are usually agricultural or amenity properties being considered for urban development. Exam Study Guide

Lesson 4 | Page 11 of 21

Commercial-Residential-Retail Properties

Mixed-use developments, which involve two or more revenue-producing uses, including retail, office, residential, entertainment, and/or cultural, are also worth noting. Traditionally, zoning requirements emphasized the separation of function, thereby creating distinct areas for various developments. Mixed-use developments are now gaining widespread acceptance given the effective intertwining of shops, workplaces, and residential units within a single master plan. Ontario municipalities generally find the concept appealing, as it aligns with smart growth incentives and can be effective in revitalizing existing neighbourhoods and utilizing current infrastructure, including transportation services, provide for higher densities on existing sites, and offer growth options without traditional urban sprawl. Live-Work Properties A live-work unit is a space that is zoned for, and combines a workspace and living quarters. More buyers are interested in live-work spaces, as it is becoming more expensive to run both a home and a place of work. This concept is particularly appealing to professionals in the creative and tech industries, as well as young entrepreneurs Exam Study Guide

unable or unwilling to pay the cost of purchasing or leasing office or studio space along with living space.

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Lesson 4 | Page 12 of 21

A salesperson, who works for a large commercial brokerage, has been selling commercial real estate for twenty-five years. One client is a very large company which develops, owns, and manages a variety of different types of commercial properties. This client has been very successful in identifying which type of commercial development will bring the greatest return for a given site. Question #13: Based on what you have learned, which one of the following options is associated with the characteristic involving salespersons to understand rent legislation and tenant protection in this market? There are four options. There is only one correct answer.

1

Office

2

Retail

3

Industrial

4

Multi-residential

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Lesson 4 | Page 13 of 21

A salesperson, who works for a large commercial brokerage, has been selling commercial real estate for twenty-five years. One client is a very large company which develops, owns, and manages a variety of different types of commercial properties. This client has been very successful in identifying which type of commercial development will bring the greatest return for a given site. Question #14: Based on what you have learned, which one of the following commercial property types is very appealing to municipalities as it can revitalize existing neighborhoods especially in downtown core areas? There are three options. There is only one correct answer.

1

Farm

2

Institutional

3

Mixed-Use Property

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Lesson 4 | Page 14 of 21

Ownership Options for Commercial Property This module pursues a different perspective by focusing on individual and collective ownership options most commonly associated with businesses. There are different means of taxation for each ownership option, resulting in different tax incentives for prospective owners. The following six sections contain information about ownership options for commercial property.

Sole proprietorship

A sole proprietorship involves a business operation owned by one person, in their personal name, who operates individually or with the assistance of employees. The sole proprietor owns all the assets and is: • Responsible for the debts • Entitled to the profits • Accountable for any losses

Partnership

A partnership can be broadly defined as a relationship involving two or more individuals or entities with the intention of making a profit. Like a sole proprietorship, ownership is in the personal names of the partners.

Limited partnership

A limited partnership is an investment arrangement that limits a partner’s liability to the

Corporation

A corporation is a business entity created by statute law and established by articles of incorporation. Corporations vary from small privately-held operations to large offering or public companies. The corporation, unlike the sole proprietor and partnership, provides a distinction between the business operation and its owner(s). As a legal entity, the corporation is capable of merging and creating subsidiary companies, and generally

amount invested, while also limiting the profit they can make. Limited partnerships must be registered and have at least one general partner whose liability is not restricted.

operates distinct and separate from its owners. Exam Study Guide

Trust

Trust ownership is a special relationship in which one person (often referred to as the trustor or settlor), by way of an agreement, gives property or other assets to another person (trustee) to manage for the ultimate use or benefit of yet another (the beneficiary). Trust ownership, over the years, has expanded to address diverse purposes. For example, individuals may wish to protect beneficiaries in the face of creditors, to gain certain tax advantages, or to effectively defer taxes by establishing a trust that will transfer assets from one generation to the next.

Joint venture

A joint venture involves a real estate project undertaken by a group of investors in which the parties share in the project, including any profits or losses. Joint ventures generally tend to be specific in nature with a defined time limit. However, the exact legal structure of a joint venture varies, and its legal, as well as taxation, status is vague. Joint ventures are sometimes referred to as co-ownerships but can also be similar to a partnership in that two or more persons/corporations are pooling resources to purchase real estate or undertake some other project.

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Lesson 4 | Page 15 of 21

Benefits and Limitations of Ownership Options for Commercial Properties A commercial buyer has a number of options regarding how best to purchase a property and in which means to own it. While the buyer will typically be relying on their own judgement, or their lawyer’s or their accountant’s guidance for this decision, the salesperson should have a general understanding of the different types of ownership. It is important to always advise your client to consult a third-party professional regarding ownership options. The following five sections contain information about the benefits and limitations of certain ownership options for commercial property.

Sole proprietorship

The benefits of sole proprietorship are: 1. Ownership can normally be initiated immediately with little paperwork 2. Legal and accounting fees can be noticeably less than for other types of business organizations 3. Free from many governmental regulations imposed on corporations within Ontario 4. Tax advantages may exist, depending on personal income 5. Easy to establish and relatively inexpensive However, The limitations of sole proprietorship are: 1. Unlimited liability of the owner; if business goes bankrupt, creditors may sue the proprietor and seize other personal assets outside of the business operations that are affected 2. Growth of sole proprietorship can be limited by the amount of the owner’s capital resources and individual borrowing power 3. No separation between the business income and the personal earnings of the owner is possible; from a tax perspective, all profits are treated as regular income Exam Study Guide

4. Lacks continuity; after death of the owner, the business is dissolved by the executor or administrator of the deceased proprietor

Partnership

The benefits of partnership are: 1. More substantive and is contractual in nature 2. Partners provide funding and are involved through personal efforts in achieving specific business and profit goals 3. Normally formalized through a partnership agreement 4. All partners can be liable for the actions of one another, if such actions were carried out in the normal course of business involving the partnership 5. Easiest ownership option to enter However, The limitations of partnership are: 1. Income of a partner for tax purposes is calculated at the partnership level, but the income after distribution is added to the individual partner’s personal income 2. A partnership is not a limited company and, therefore, each partner must report their share of profits/losses 3. Transfer of assets to and from a partnership can be complicated with inherent tax pitfalls 4. Certain amount of tax planning for a new partnership since partnerships may select a year end other than the calendar year; advice of an accountant is recommended 5. Hardest ownership option to exit

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Limited partnership

The benefits of limited partnership are: 1. Liability of limited partners is capped by the amount invested 2. The general partner gets a larger share of the business earnings in exchange for greater contributions and risk 3. Finances are tracked internally with additional outside support for other accounting functions; general-purpose financial information is needed to run the company and satisfy the needs of bankers, vendors, tax collectors, and the limited partners 4. There is no need to file a separate tax return for the partnership. Each partner is taxed personally on his/her share However, the limitations of limited partnership are: 1. Profit made by limited partners is capped by the amount invested 2. Limited partners are passive investors and turn over the management and general operation of the project to the general partner 3. A limited partnership has some limits on expense deductions; taxable income is subject to the personal tax rates of the individual For the limited partner, limited exposure is an advantage. For the general partner, personal assets can be seized to settle legal claims.

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Corporation

The benefits of corporation are: 1. The corporation, unlike the sole proprietor and partnership, provides a distinction between the business operation and its owner(s) 2. The liability of shareholders is restricted to the value of shares held 3. Remains in existence until the shareholders decide otherwise The limitations of corporation are: 1. Involves more time, paperwork, initial costs, and ongoing fees for record maintenance in comparison to sole proprietorship or partnership 2. Corporations are required by law to follow several corporate formalities to ensure that the corporation is operating as a separate entity, independent of the business owners 3. The corporation is taxed for any profits earned, and any individual stockholder who earned profits from the corporation is also taxed

Trust

The benefits of trust are: 1. Individuals may protect beneficiaries in the face of creditors, gain certain tax advantages (e.g., holding funds in trust in a Registered Retirement Savings Plan) or to effectively defer taxes by establishing a trust that will transfer assets from one generation to the next 2. Trusts may effectively defer taxes by establishing a trust that will transfer assets from one generation to the next 3. Trusts provide for certain tax advantages The limitations of trust are: 1. Establishing a trust often requires high upfront cost, including legal fees. Further, administering the trust may also result in additional cost 2. Trusts are more complex to draft than wills, as there is the added factor of time written into the trust 3. Additional hurdles/requests to the trustee for beneficiaries when claiming property through a trust fund Exam Study Guide

Lesson 4 | Page 16 of 21

A salesperson, who has been selling commercial properties for over 20 years, is working for a commercial real estate brokerage. Past clients have included partnerships, corporations, joint ventures, and sole proprietors. Question #15: Which of the following statements regarding ownership options for commercial properties are correct? There are five options. There are multiple correct answers.

1

In a partnership, all the partners can be liable for the actions of one another if such actions were carried out in the normal course of business involving the partnership

2

A sole proprietorship provides the owner with limited liability. This means if the business goes bankrupt, creditors cannot seize the sole proprietor’s personal assets that are not connected to the business that has gone bankrupt

3

4

Trusts may effectively defer taxes by establishing a trust that will transfer assets from one generation to the next Corporations provide a distinction between the business operation and its owners, the shareholders. The corporation is taxed on its profits and the shareholder is taxed on the income received from the corporation

5

In a limited partnership, the general partner is a passive investor and turns over the management and general operation of the partnership’s business to the limited partners

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Lesson 4 | Page 17 of 21

Introduction to Commercial Investments

As a salesperson, you could be working with sellers and buyers to pursue their investment objectives—you will help bring investment goals and strategies to fruition. You must understand the unique advantages and disadvantages that exist for those who invest in commercial, industrial, and investment properties. You must fully understand the basis for investment decisions to be able to properly counsel your clients and provide services to customers. You may encounter a diverse variety of investor clients and customers, such as an aspiring entrepreneur leasing retail space, a contractor seeking industrial land for a growing business, a professional couple scrutinizing an apartment building as part of their retirement strategy, or a local developer reviewing a potential neighbourhood mall site. This schematic depicts how commercial differs from residential in terms of several key factors: It is extremely important to present to your clients a well-balanced perspective on the advantages and disadvantages to investing in commercial property. Note that advantages and disadvantages vary in importance, Exam Study Guide

depending on market conditions and investor requirements at the time of acquisition and disposition. When in doubt, ensure you seek advice from knowledgeable third-party professionals in conducting your research for clients.

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Lesson 4 | Page 18 of 21

Benefits and Opportunities to Investing in Commercial Real Estate The commercial investment marketplace is a mix of users (those seeking to occupy a site or premises for a specific economic purpose) and investors (those seeking a return on invested dollars). For these individuals, real estate has distinct advantages, such as stability of ownership, security of tenure, an opportunity to earn income, a change to develop a business strategy, or simply a great place to build a financial future. Why invest in commercial real estate? A well-balanced presentation to either seller or buyer will highlight both advantages and disadvantages. The following six sections contain information about benefits and opportunities to investing in commercial real estate.

High degree of personal Investors of real estate are free to manage their real estate investments. Investors can mitigate risk by diversifying their portfolio with different real estate control investments and smart asset allocation.

Opportunity for capital growth during inflationary periods Physical presence (e.g., land and buildings) as opposed to commercial paper (e.g., stocks), with

In the long run, property values should rise with inflation. Further, commercial real estate owners who invest in improvements of their properties, such as modernization of the building, renovating the interior or exterior, or change the use, will be able to increase rents and add value. Unlike paper investments, with the exception of real estate investment trusts (REITs) commercial real estate has value in the land, improvements made to the property, such as structures, infrastructure, landscaping, and any income derived from the property.

less risk of becoming valueless Exam Study Guide

Potential to recover capital through refinancing Tax benefits

Most commercial real estate transactions involve borrowed funds for leverage, thereby reducing the owner’s initial investment and permitting them to participate in various projects. Commercial property investors can use refinancing as a tool to unlock equity in their holdings, while potentially saving money through lower interest rates on a new loan. Ability to purchase under different ownership options, which provide for various tax benefits.

Home for capital inflight

International investors who need a stable home for their money may choose to invest in commercial real estate in Ontario.

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Lesson 4 | Page 19 of 21

Challenges and Risks to Investing in Commercial Real Estate The challenges and risks associated with investing in commercial real estate are as important to a seller or buyer as the benefits. The following four sections contain information about the challenges and risks to investing in commercial real estate. Because real estate is a physical asset, the turnaround time to free up capital is not the Lack of liquidity and time required same as going to the bank and selling off stocks. It is often much longer.

for disposition Ongoing costs for maintenance or management of the property Large capital investment restricts pool of potential

The property owner will likely hire professional help to handle maintenance and property management, especially if they are invested in multiple properties. Professional property management companies commonly charge between 5-10 per cent of tenant rent revenue for their services. Acquiring commercial property typically requires a higher capital investment upfront compared to acquiring a residential property in the same area. However, acquisition need not be a solo investment, as there are many opportunities to use co-ownership or joint ventures.

investors Changes in government regulation

The Ontario Ministry of the Environment, Conservation and Parks routinely changes the maximum allowable thresholds for various materials, including pollutants. This can seriously affect the value of properties, as what was once considered an allowable threshold is now lowered and is no longer considered clean. The investor may need to expend financial resources on environmental remediation. Exam Study Guide

Lesson 4 | Page 20 of 21

Potential buyers are both surgeons with a high net worth and income. They are only in their 40’s but are looking to ensure they have sufficient money available when they retire to continue to enjoy a lifestyle that they have become accustomed to. They are considering investing their cash assets in commercial real estate. They like the idea of owning office, retail, and multi-residential properties. Question #16: Identify whether the following statements regarding investing in commercial real estate are true. There are five options. There are multiple correct answers.

1

One benefit of purchasing commercial property as an investment is the potential to recover capital through refinancing

2

One of the disadvantages of investing in commercial real estate is that the risk of the investment becoming valueless is greater than when investing in a commercial paper

3

Capital appreciation occurs mostly during deflationary periods and economic downturns and this is a real advantage for people owning commercial real estate, as opposed to people owning stocks and bonds

4

The typically large capital investment needed to buy commercial real estate means that there is a much larger pool of potential investors than there would be for lower cost investments

5

There can be a high degree of personal control over the commercial real estate investment

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Lesson 4 | Page 21 of 21

Congratulations, you have completed the lesson! There are four sections on this page with a summary of the key topics that were covered in this lesson.

Types of commercial properties

Some commercial properties you may encounter include: • Office – primarily includes offices and can be classified according to the BOMA standards • Retail – refers to business that offers retail goods to the public over the counter and includes a wide range of types • Industrial – refers to property used for the processing and manufacturing of goods and may contain business enterprises • Multi-residential – defined as any residential structure that includes more than one dwelling unit and is largely driven by supply and demand factors, as well as regulatory provisions • Farm – refers to property used for agricultural activities, i.e., production of goods through farming • Recreational – includes a broad array of property types, such as lodges, hotels, trailer parks, and resorts • Institutional – includes banks, schools and universities, hospitals, insurance companies, religious or charitable organizations, and government buildings • Hospitality – refers to property that caters to the vacationing public, including hotels, boutique hotels, lodges, and resorts • Vacant land – a commercial market sector that is focused on development activities

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Ownership options of commercial properties

Some of the ownership options you may encounter include: • Sole proprietorship – refers to a business operation owned by one person • Partnership – defined as a relationship involving two or more individuals or entities formed for the purpose of generating a profit • Limited partnership – an investment arrangement that limits a partner’s liability to the amount invested, as well as the profit they can make • Corporation – refers to a business entity created by statute law and established by articles of incorporation • Trust – a special relationship in which one individual gives property or other assets to another individual to manage for the ultimate use of yet another • Joint venture – involves a real estate project undertaken by a group of investors in which the parties share in the project, such as any profits or losses Each type of ownership comes with its own benefits and limitations.

Benefits and opportunities of investing in commercial real estate

Some of the benefits and opportunities may include: • Typically, a higher return than other investments • Ability to purchase various types of properties to reduce exposure or risk • Ability to purchase under different ownership options which provide for tax benefits • Physical asset rather than stocks/bonds resulting in a lower chance of it becoming valueless • High degree of personal control • Capital growth • Potential to recover capital through refinancing

Some of the challenges and risks may include: Challenges and risks to investing in • Ongoing costs for maintenance or management of the property commercial real • Lack of liquidity estate • Higher risk as owner is last in priority to be paid Exam Study Guide

• Requires a larger capital investment compared to other investment opportunities • Changes in government regulation

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Lesson 5 | Page 1 of 8

Lesson 5: Third-Party Professionals

This lesson introduces the importance of building a network of third-party professionals and their role in the commercial transaction.

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Lesson 5 | Page 2 of 8

Third-Party Professionals

Throughout your career, you will establish relationships with third-party professionals you trust to provide complimentary service to your clients. This lesson introduces the importance of such third-party professionals and their role in the commercial transaction. Upon completion of this lesson, you will be able to describe the role of third-party professionals in a commercial transaction. 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

Importance of Third-Party Professionals

Because of the complexity of commercial transactions, you are not expected to be an expert in everything. Part of your role as a salesperson involves knowing what you do not know and knowing when to refer your clients to third-party professionals, as per Code of Ethics.

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Lesson 5 | Page 4 of 8

Roles of Third-Party Professionals in Commercial Real Estate Transactions Over the course of your career, you will establish relationships with various third-party professionals that can help you provide conscientious and competent service to your customers. The following five sections contain information about the roles of third-party professionals you may encounter in commercial transactions.

Lawyer Lawyers who specialize in commercial real estate are some of the most important third-party professionals to have in your network. They can prepare and review documents, such as agreements of purchase and sale, mortgage documents, title documents, transfer documents, closing documents, and commercial leases. They ensure the transaction is legal, binding, and in your client’s best interests. Commercial real estate lawyers may be responsible for, but not limited to, the following: 1. Buyer who reviews the Agreement of Purchase and Sale, ensures there are no claims listed against the property, arranges for Title Insurance, ensures buyer has a valid title upon closing, closes the transaction and ensure all legal and financial obligations are met, and exchanges legal documents and keys with the seller’s lawyer, and

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2. Seller who reviews the Agreement of Purchase and Sale and other legal documents from the buyer’s lawyer, assists seller with the negotiation of terms and conditions, prepares the deed to the property, remedies title issues as they occur, closes the transaction and ensure all legal and financial obligations are met, and, exchanges legal documents and keys with the buyer’s lawyer Lawyers are adept at protecting your client’s best interests and can save your clients thousands of dollars on a transaction.

Accountant Accountants are familiar with tax situations related to selling and buying a property. They perform calculations with strict compliance to tax authorities and provide accurate tax data that your clients can rely on to make critical decisions in selling or buying commercial property. Accountants are able to answer questions and advise clients on issues including, but not limited to: • Income taxes • Capital Cost Allowance • Capital Gains tax • Property taxes • Interest

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Environmental engineer Environmental engineers can provide service to your clients related to environmental site assessments (ESAs), environmental remediation, and management. They are familiar with federal, provincial and municipal legislation, regulations, policies, and guidelines that apply to environmental concerns. An environmental engineer can provide your clients with the necessary information to make informed decisions about commercial property transactions.

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Planning consultant Whether your client is looking to develop a property or change the use of an existing property, a planning consultant can offer expert advice on how best to approach the project. Planning consultants have an intricate knowledge of the politics of planning, such as regulation, legislation, obligations, charges, officers, committees, and appeals. A planning consultant can help your clients with interpretation of planning policy and local development plans.

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Property manager Multi-residential, retail, multi-unit industrial, and office properties are commonly run by property managers, so the owner or real estate investor client is not involved in the day to day management of their property. Some of the most common tasks a property manager is responsible for include: • Setting, collecting, and adjusting rent • Finding, screening, and evicting tenants • Handling leases • Maintenance and repairs • Knowledge of landlord-tenant law • Supervising responsibilities • Managing budget and maintaining records • Tax responsibilities

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Lesson 5 | Page 5 of 8

Roles of Third-Party Professionals in Commercial Real Estate Transactions Over the course of your career, you will establish relationships with various third-party professionals that can help you provide conscientious and competent service to your customers. The following five sections contain information about the roles of third-party professionals you may encounter in commercial transactions.

Appraiser An appraiser is a professional who provides objective and unbiased opinions about the value of the property, which factor into the negotiation process between sellers and buyers. As a salesperson, you may not provide an opinion or advice about the value of real estate unless you have education or experience related to the valuation the real estate under consideration, as per Code of Ethics Secs. 6-(2) and 8(1).

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Land use consultant Land use consultants are experienced in the preparation of planning applications for consent, minor variance, re-zoning, official plan amendment, and site plans. They can advise your client on whether there is opportunity to do anything else with the property, such as redevelopment or change of use as per municipal bylaws. Further, they can represent your client before judicial boards and tribunals, such as the Local Planning Appeal Tribunal.

Commercial mortgage broker or lender Arranging of construction and purchase financing.

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Architect and engineer Commercial architects and engineering consultants prepare designs and specifications for a variety of commercial properties, such as office, retail, industrial, transportation terminals, hospitals, hotels, and recreational facilities. Their proposals may include feasibility studies or site reports, which can be leveraged in applications to various municipal or provincial committees.

Insurance broker Insurance brokers ensure an adequate level of insurance for all pertinent issues, including, but not limited to, the following: • Physical damage and business interruptions • Mechanical breakdown • General liability • Environmental • Acquisition due diligence • Course of construction • Fire department services charges and fire protective equipment • Outdoor property They can advise your clients on the necessary insurance to cover all aspects of the commercial transaction. Exam Study Guide

Lesson 5 | Page 6 of 8

Several dentists have formed a limited partnership with the intent of investing in commercial real estate. The general partner is now talking to a salesperson working for a large local commercial brokerage about the experts they will likely need to hire to help advise/assist them with those investments they decide to make. Question #17: To which third-party professional would a salesperson likely refer their client to in a situation involving the sale and/or purchase of a commercial property and also where the buyer is concerned about the possibility that a property may be contaminated? There are three options. There is only one correct answer.

1

Accountant

2

Environmental Engineer

3

Planning Consultant

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Lesson 5 | Page 7 of 8

Several dentists have formed a limited partnership with the intent of investing in commercial real estate. The general partner is now talking to a salesperson working for a large local commercial brokerage about the experts they will likely need to hire to help advise/assist them with those investments they decide to make. Question #18: To which third-party professional would a salesperson likely refer their client to in a situation involving the sale and/or purchase of a commercial property and also where the buyer wants to build a large shopping mall and needs to submit detailed building plans/drawings with the building permit application? There are three options. There is only one correct answer.

1

Appraiser

2

Lawyer

3

Architect

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Lesson 5 | Page 8 of 8

Congratulations, you have completed the lesson! There is a section on this page with a summary of the key topic that was covered in this lesson.

Third-party professionals

Over the course of your professional career, you will endeavor to establish relationships with third-party professionals to build a network of individuals you can trust to provide excellent service, comparable to yours, to your clients. Some of the third-party professionals you will want to have in your network include: • Accountants • Environmental engineers • Structural engineers • Electrical engineers • Industrial engineers • Mechanical engineers • Planning consultants • Property managers • Appraisers • Land use consultants • Lawyers • Commercial mortgage brokers or lenders • Commercial architects and engineers • Insurance brokers

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Lesson 6 | Page 1 of 22

Lesson 6: An Introduction to Commercial Financing

This lesson introduces financing options to discuss with commercial real estate clients and customers.

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Lesson 6 | Page 2 of 22

An Introduction to Commercial Financing

The ability to obtain financing for a commercial real estate purchase is a critical component in the success of a transaction. As a salesperson, you require a knowledge of unique forms of financing to discuss financing options with clients and customers. However, salespersons are advised to always seek information from lending institutions and qualified third-party experts regarding local practices and procedures. Upon completion of this lesson, you will be able to: • Identify the requirements for financing • Outline key aspects of a commercial mortgage • Identify risks associated with commercial financing • Describe the mortgage approval process • Identify the costs associated with the financing process Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented. Exam Study Guide

Lesson 6 | Page 3 of 22

Introduction to Commercial Financing and Mortgage Qualification

A mortgage is a claim or encumbrance upon the real property given by the owner of the property to the lender as security for money borrowed and typically registered in the land registry office. The two parties to a mortgage transaction are referred to as the mortgagor (borrower) and the mortgagee (lender). The lender gives or lends the money and registers the mortgage against the property. In return, the borrower gives the mortgage as security for the loan, receives the funds, makes the required payments, and maintains possession of the property. The borrower has a right to have the mortgage discharged from the title once the debt is paid off. Complexities of Commercial Mortgages In the case of a commercial mortgage, the loan amount is primarily based on the current income of the property, whereas in the case of a residential property, the loan is based on the qualifications of the borrower. Compared to residential mortgages, the underwriting criteria are more complex, the documentation more extensive, the approval process costlier, and the timelines longer. A mortgage on a residential property is a far more liquid investment, making it (relatively) easy for the bank to take the property and sell it to regain their investment. For commercial mortgages, the mortgagor is looking at the business performance, property details, and the area surrounding the property, e.g., area businesses, land use opportunities, growth and development, potential site contamination, the quality of leases, and property income verification, to name but a few. As such, commercial lenders must be more tuned into the marketplace than residential. Exam Study Guide

Lesson 6 | Page 4 of 22

Financing Requirements As a salesperson, it is important to be able to make predictions about your buyers’ ability to obtain financing. You will be dealing with investor clients who will face many obstacles to growing their real estate portfolio. Salespersons are advised to seek information from lending institutions regarding local practices and procedures. However, you can still be a resource to your clients, if you know some financing practices and requirements. The following three sections contain information about some of the requirements for financing.

Financial capabilities of buyers A buyer should be advised that the development of a business plan, including cash flow analysis, which would indicate the ability to service debt, is a critical component of many commercial mortgage applications. Further, the value of the property in terms of cash flow is more important than the buyer’s ability to pay, as is the case in residential mortgage financing. Anything that is outside of your realm of expertise should be directed to the appropriate thirdparty professional, such as an accountant.

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Identifying needs of buyers In commercial real estate, identifying the needs of buyers requires more thorough research to determine who you are dealing with and to make appropriate recommendations within your realm of expertise. Buyers’ needs vary considerably given the wide variety of business types and sizes. Needs can be almost anything in terms of the business that is to be carried out at the location in question, such as traffic flow in area, competitors, zoning, municipal development plans, and more. A buyer’s degree of involvement in the property is another important consideration that must be considered. This includes the burden of management for investment properties, such as retail or multi-residential.

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Sources of funding for buyers Life insurance companies, chartered banks, and credit unions dominate commercial mortgage financing according to Bank of Canada statistics, when comparing mortgage balances outstanding. However, many market niches exist that defy precise analysis, e.g., multi-unit residential, commercial/retail, small businesses, and industrial. Unregulated sources are expanding in the Canadian marketplace given inherent flexibility and lack of legislative constraint. Finance companies do not fall under traditional banking legislation and typically focus on specialty mortgage markets and subprime lending. Other non-traditional sources of financing include REITs, RRSPs, and private financing sources, e.g., private investors. It is recommended that mortgage brokers be used in securing financing given unique business needs, complexities in assembling qualifying documentation, and expertise in finding appropriate sourcing and competitive quotations.

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Lesson 6 | Page 5 of 22

Steps in the Mortgage Process

Mortgage qualification is a process undertaken by a lender to evaluate the credit worthiness of the applicant and assess the property being offered as security for the mortgage. Underwriting involves applying specific lender credit policies leading to the acceptance or rejection of the application. There are seven typical processing steps for mortgage qualification: 1. Pre-approval (optional) 2. Mortgage application prepared 3. Lender review of application 4. Commitment letter prepared and forwarded 5. Lender's condition(s) waived, commitment letter signed 6. Mortgage documents prepared 7. Mortgage transaction completed Exam Study Guide

Mortgage Documentation Package Commercial mortgage applications contain significantly more documentation than their residential counterparts. The typical mortgage documentation package contains information relevant to a lender in making a mortgage financing decision regarding a specific property or project. The range of materials varies significantly by property type, project scope, lender requirements, and the specific investor, but may include Site and property information along with relevant statistics, sketches, valuation estimates, and associated supporting documentation: • Fully completed mortgage application, appraisal, verification of income/salaries, credit check, verification of resources and other financial commitments, and the agreement of purchase and sale • In the case of resale properties, the lender will usually insist on financial statements for at least the past three to five years, along with a review of existing leases on the property • For new construction, pro forma income statements, letters of commitment from prospective tenants (or suitable analysis identifying potential for lessees), details concerning principals involved in the project, feasibility studies, and applicable construction information (if relevant) are normally requested

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Lesson 6 | Page 6 of 22

A buyer has just made an offer to purchase a mixed-use retail and office building. The offer is conditional on obtaining the necessary financing. Question #19: Based on what you have learned related to commercial mortgage financing, what do you think the loan amount the lender will agree to is primarily based on? There are two options. There is only one correct answer.

1

The current income of the property being mortgaged

2

The owner`s credit rating and personal covenant

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Lesson 6 | Page 7 of 22

A buyer has just made an offer to purchase a mixed-use retail and office building. The offer is conditional on obtaining the necessary financing. Question #20: Based on what you have learned related to commercial mortgage financing, the presence of which detailed component is a critical component of many commercial mortgage applications? There are two options. There is only one correct answer.

1

Business plan, including a cash flow analysis, which would indicate the ability to service debt

2

Business plan, including a cash flow analysis which would indicate the total asset or equity value that the owner has in the property being mortgaged

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Lesson 6 | Page 8 of 22

A buyer has just made an offer to purchase a mixed-use retail and office building. The offer is conditional on obtaining the necessary financing. Question #21: Based on what you have learned related to commercial mortgage financing, for resale properties, what will lenders want to review? There are two options. There is only one correct answer.

1

The property’s financial statements for at least the past three to five years

2

Letters of commitment from prospective and current tenants to ensure the property will be fully leased for the foreseeable future

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Lesson 6 | Page 9 of 22

A buyer has just made an offer to purchase a mixed-use retail and office building. The offer is conditional on obtaining the necessary financing. Question #22: Based on what you have learned related to commercial mortgage financing, for resale properties, what, additionally, will the lenders want to review before making any mortgage lending decisions? There are two options. There is only one correct answer.

1

The existing leases on the property

2

The credit checks and income verification done for each tenant to ensure they are able to continue to make rental payments

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Lesson 6 | Page 10 of 22

Commercial Lending Practices Debt is intrinsically tied to most commercial transactions, and the success of ventures often rests in the availability and suitability of financing. Mortgaging directly affects cash flows and yields, and most acquisitions hinge on favorable debt financing. The optimum arrangement is twofold: • The lender is provided reasonable security (e.g., from a personal covenant from the buyer and a financial statement analysis that would indicate the financial performance/health of the property) • The investor is afforded the opportunity to enhance yield Lenders will apply various financial ratios to get a solid understanding of the business performance and the ability of the borrower to service debt. Criteria vary by commercial lender, market conditions, and type of project, and are essentially designed to give the lender reasonable assurances of investment security when advancing funds. The following five sections contain information about some of the typical criteria.

Leverage ratio

A leverage ratio is any one of several financial measurements that calculate how much capital comes in the form of debt (loans) or assess the ability of a company to meet its financial obligations.

Loan-to-value ratio

Most lenders use a conservative loan-to-value ratio (also referred to as the loan ratio) as their first line of risk defence. Additional security or collateral is usually sought in instances when the loan-to-value ratio meets or slightly exceeds a predetermined comfort level for the lender. Loan-to-value ratios vary by lender and type of property. Institutional lenders are restricted by law to a maximum 80 per cent of the appraised lending value or sale price (whichever is less) unless the mortgage is insured through a mortgage insurance program.

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Debt service coverage ratio

The debt service coverage ratio is frequently used by loan and mortgage underwriters to establish whether or not a business or rental property is capable of handling a specific debt payment level.

Safety margin

Some lenders apply a safety margin when lending based on net operating income. In effect, the margin accomplishes the same net result as the debt coverage ratio, in that the mortgage amount is directly linked to net operating income.

It is calculated by dividing net operating income by total debt service (principal and interest payments). The ratio should be in a positive range for income to properly address total debt service. Lenders often require a debt coverage ratio of 1.2 or higher when considering loan applications for rental property and other commercial ventures.

The safety margin represents either a dollar or percentage factor that serves as a financial cushion for the lender between the obligation of an owner to pay annual debt service and the forecasted net operating income from the property under consideration. In other words, the lender seeks additional security to ensure that not every dollar of net operating income is dedicated to addressing mortgage payments. A safety margin is typically required by a lender when considering income property in commercial mortgage qualification.

Risk and capitalization rate

Capitalization rate is a real estate valuation measure used to compare different real estate investments. A cap rate is often calculated as the ratio between the net operating income produced by the commercial venture and the original capital cost, or alternatively, its current market value. Lenders may elect to reduce risk and augment investment security by increasing the capitalization rate. A cap rate increase lowers value for lending purposes.

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Lesson 6 | Page 11 of 22

A buyer has just made an offer to purchase a mixed-use retail and office building. The offer is conditional on obtaining the necessary financing. The buyer has submitted an application for a commercial mortgage. The lender is now reviewing the value of the property, its current income as well as the amount of mortgage the buyer is requesting. Question #23: What financial measurement is to be used in a lender`s assessment of the mortgage application that calculates capital in the form of debt? There are two options. There is only one correct answer.

1

Leverage ratio

2

Debt coverage ratio

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Lesson 6 | Page 12 of 22

A buyer has just made an offer to purchase a mixed-use retail and office building. The offer is conditional on obtaining the necessary financing. The buyer has submitted an application for a commercial mortgage. The lender is now reviewing the value of the property, its current income as well as the amount of mortgage the buyer is requesting. Question #24: What financial measurement is to be used in a lender`s assessment of the mortgage application that calculates the ratio between the amount of the mortgage being applied for and the value of the property? There are two options. There is only one correct answer.

1

Loan-to-value ratio

2

Safety margin ratio

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Lesson 6 | Page 13 of 22

A buyer has just made an offer to purchase a mixed-use retail and office building. The offer is conditional on obtaining the necessary financing. The buyer has submitted an application for a commercial mortgage. The lender is now reviewing the value of the property, its current income as well as the amount of mortgage the buyer is requesting. Question #25: What financial measurement is to be used in a lender`s assessment of the mortgage application that calculates the ratio between the net operating income of a property and its current market value? There are two options. There is only one correct answer.

1

Capitalization rate

2

Leverage ratio

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Lesson 6 | Page 14 of 22

A buyer has just made an offer to purchase a mixed-use retail and office building. The offer is conditional on obtaining the necessary financing. The buyer has submitted an application for a commercial mortgage. The lender is now reviewing the value of the property, its current income as well as the amount of mortgage the buyer is requesting. Question #26: What financial measurement is to be used in a lender`s assessment of the mortgage application that establishes whether or not a business or rental property is capable of handling specific principal and interest payments? There are two options. There is only one correct answer. 1

Leverage ratio

2

Debt coverage ratio

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Lesson 6 | Page 15 of 22

Commercial Financing Commercial financing differs from residential given inherent complexities, as well as a somewhat different perspective for underwriting, particularly with large commercial transactions. Lending institutions looking at small business operations typically focus their attention on business specifics, property details, and borrower covenant. As mortgage amount increases, business performance is emphasized with far less concern regarding personal covenant. Commercial lenders consider risk and return in the decision-making process. Lenders have inundated the market with clever methods to meet most borrowers’ needs while seeking safeguards. Institutional lenders have refined criteria to more rigidly structure the underwriting process. As a salesperson, you should clearly understand the most typical approaches and usual documentation required. You will also require a knowledge of unique forms of financing to discuss the options with clients and customers. The following four sections contain information about some of the letters that go into commercial underwriting.

Letter of commitment

A letter of commitment is a written commitment by a lender setting out terms under which a loan or mortgage will be granted to a borrower. The terms typically include a specific interest rate together with a time period that the lender is bound by the commitment. Often referred to as a mortgage commitment, this document also details any special privileges (e.g., repayment privileges), fire insurance requirements, survey requirements, processing costs, and special conditions. Salespersons should note that a mortgage commitment is a conditional lender approval subject to terms and conditions set out in that commitment.

Letter of credit

This letter or document is issued by a lending institution on behalf of a customer authorizing the person named to withdraw a specified amount of money based on certain prearranged terms and conditions. Letters of credit are most commonly associated with commercial ventures.

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Letter of guarantee

The letter of guarantee is often used in development projects involving a municipal body. The letter of guarantee assures the existence of funds and provides a form of promise on the part of the lending institution to step in and complete the development using its own resources, if such is necessary. The lending institution provides this guarantee to assure municipal authorities of the developer’s solvency, given that a lender is prepared to back the company and the project.

Letter of intent

A letter of intent is a written, general understanding of the parties setting out various provisions, covenants, terms, and other matters that may ultimately lead to a detailed agreement between those parties. A letter of intent is viewed as a preliminary agreement between the parties and is not a formal contract.

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Lesson 6 | Page 16 of 22

The sale of large, income-producing properties and major commercial operations requires special expertise. A salesperson could become involved in assisting a buyer in arranging financing for such a project. Question #27: A lender can request for past projects with addresses, financial statements for the past two to three years, credit check, and background of the company/individual with supporting documents. Which one of the following items can serve the mentioned lender’s request? There are four options. There is only one correct answer.

1

Feasibility report

2

Construction and site analysis

3

Borrower information

4

Estimated income/operating expenses

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Lesson 6 | Page 17 of 22

Types of Commercial Loans There are almost as many types of commercial real estate loans as there are types of commercial real estate. As a salesperson, it is important to know of the different varieties of loans, so you are able to answer your clients' basic questions and direct them to appropriate sources of additional information and guidance. The following five sections contain information about some of the different types of loans.

Bridge loan

A bridge loan is an interim form of financing, typically used when a buyer has to close one sale prior to receiving funds from another sale. This situation frequently arises when the buyer’s property has sold with a late closing date, or the property remains unsold. Lending institutions may be prepared to advance funds under a bridge loan based on the borrower’s personal covenant, certification of relevant documentation, and a direction for the payment of funds on completion of a sale, or when a mortgage is placed on the unsold property.

Development loan A development loan (sometimes referred to as a construction loan) is a loan advanced for

servicing and improving land prior to building construction. The term of the loan is normally one to three years. The payout of the loan occurs when the serviced land is sold to builders or to a general developer for the construction of commercial real estate. Normally, this type of loan is not amortized over a specific period of time, but takes the form of a collateral loan with specific guarantees and interest-only payments throughout the term.

Gap loan

A gap loan is an interim financing vehicle that provides funding between construction advances and the placement of permanent financing.

Interim financing

Short-term or temporary financing is used to address immediate needs as distinguished from long-term debt structure. For real estate purposes, interim financing can involve any type of temporary arrangement until a permanent mortgage is put in place. Often, interim financing for new commercial projects involves temporary or gap funds to be used until scheduled advances are received in relation to the project.

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Line of credit

A line of credit is a highly flexible form of interim financing based on past performance and strength of personal or corporate covenants. In real estate development, a line of credit is used either in lieu of mortgages and associated advances or in addition to them. Monies advanced are secured by demand notes up to a limit specified by the applicable lender. The line of credit, in effect, can provide interim financing or complement existing arrangements. The interest charged is normally higher than conventional mortgage rates. While it is common to see a line of credit rate one or two points above conventional mortgage rates, the rate charged depends on a host of circumstances surrounding the project, the borrower, and the lender.

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Lesson 6 | Page 18 of 22

Types of Commercial Loans There are almost as many types of commercial real estate loans as there are types of commercial real estate. As a salesperson, it is important to know of the different varieties of loans, so you are able to answer your clients' basic questions and direct them to appropriate sources of additional information and guidance. The following four sections contain information about some of the different types of loans.

Standby loan

A standby loan refers to a pre-construction loan commitment arranged between a developer and a lender for preliminary financing with the expectation of permanent, longterm mortgaging. Salespersons will encounter standby loans most frequently in development projects. The lender is attracted to this arrangement as the rate charged is normally two to four points higher and an upfront fee is normally required. The developer, with a standby loan, can pursue construction financing and gain additional time to secure a more favourable, permanent mortgage arrangement for a particular project. The standby loan is exercised and then discharged in favour of more attractive rates offered by a permanent lender at some point in the future.

Wraparound mortgage

A wraparound mortgage is a new mortgage that wraps around existing financing. The wraparound is not a first mortgage, but rather sits in subsequent priority as a second, third, or higher, based on the number of mortgages being wrapped. The wraparound is most commonly used to retain the benefits of a low-interest, long-term mortgage(s) while seeking additional capital or extending an existing debt for a longer term. The use of wraparound mortgages is often highest in tight money markets and/or in instances where refinancing costs are prohibitive.

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Blanket mortgage

A blanket mortgage is a single mortgage on two or more properties forming security for a loan. A blanket mortgage allows the lender to gain recourse against all properties upon default and further protect their interest by not allowing the sale of any of the properties without specific permission. A variation on blanket financing is found in large construction projects, particularly new home developments and condominium projects. A lender supplies a blanket mortgage over the entire condominium project for the construction purposes and is fully secured by the developer’s covenant during the construction states. Upon completion, the condominium units are marketed, and the lender is correctly positioned to provide financing for individual buyers. This is accomplished by fracturing the blanket mortgage. Once sold, the buyer must qualify for the unit and upon approval, a mortgage is created for that property to be registered at closing.

Participation financing

For commercial real estate purposes, participation financing typically refers to special purpose financing involving the lender in direct participation with the borrower in some profit or ownership position for a particular venture. Most participation financing can be grouped under two major categories: • Income participation – the lender’s involvement in the cash flow, net income and/or potential income of the enterprise • Equity participation – the lender’s participation in proceeds of the disposition of the property and/or business enterprise

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Lesson 6 | Page 19 of 22

A developer is constructing an office building for $10,000,000 with an agreed take-out loan from a permanent lender for $7,500,000 based on 90 per cent occupancy of the completed structure. The interim lender has agreed to provide three consecutive draws of $2,000,000 based on pre-determined stages of construction completion. The interim lender provides all draws as agreed to totaling $6,000,000. The permanent lender subsequently advances $6,000,000 to repay the interim lender but withholds $1,500,000 because the agreed to 90 per cent occupancy level has not been reached. The developer is now lacking funds to complete final construction. Question #28: What type of loan must the developer secure until all funds from the permanent lender are advanced? There are four options. There is only one correct answer.

1

Development loan

2

Blanket mortgage

3

Standby loan

4

Gap loan

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Lesson 6 | Page 20 of 22

Financial Burden on the Buyer

Commercial mortgage applications have a number of typical fees that as a salesperson, you should have awareness of. These fees represent the cost of borrowing. The cost of borrowing for a commercial mortgage is commonly twice the residential rates, or more. This cost of borrowing can be influenced by the following: Mortgage brokers Mortgage brokers can charge 1-2 per cent the price of a loan for services rendered, though this fee varies between mortgage brokerages. Appraisers An appraiser can charge additional costs for dealing with the lender’s lawyer. Mortgage discharge A mortgage discharge is obtained by registering a Discharge of Charge/Mortgage on title. Some mortgages, however, cannot be discharged. The penalties for discharge could include a fixed amount, e.g., two to three months’ worth of payments. Penalties of late payments In the mortgage document, there are provisions set out for late payments or non-payments. Usually, the provisions relate to declaring the mortgage to be in default. Options for defaulted mortgages include foreclosure, court ordered power of sale, etc. Note, however, that each lender has their own method for dealing with late payments. Exam Study Guide

Lesson 6 | Page 21 of 22

Financial Risk Identification It is a salesperson’s responsibility to identify risks associated with commercial financing as per the Code of Ethics requirement of providing conscientious and competent service. Risks can include those imposed by the lender, those imposed on the seller, and risks based on the environmental condition of the property, to name but a few. The following three sections contain information about some of the risks associated with commercial financing.

Lender risks

There is a possibility that the institutional lender may restructure their offering statement based on their own lending policy, thereby reducing the amount of mortgage offered. Since every lender has their own criteria for lending money, a salesperson may find lenders that focus on specific business classifications, e.g., warehouses, golf courses, and bars, as lenders fully understand the risks and benefits associated with these enterprises. As banks are not in the business of taking risks, banks will use micro and macroeconomic trends and forecasting to increase their rate or decrease the amount of mortgage offered. In an effort to balance their portfolio, banks will periodically refrain from lending on a specific property type, i.e., too much exposure to industrial, and they will stop lending on industrial.

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Seller risks

The seller may be asked (or offer) to participate in the financing by holding a second (or higher) mortgage, particularly when financing proves difficult through conventional lenders and/or seller participation provides a better overall package in negotiations. The buyer may be attracted to this type of financing as it can avoid certain costs, paper work, and regulations of conventional lenders. The seller may be drawn to this option if their property remains unsold, or if a mortgage is a worthwhile investment for the seller. All sellers should be given an opportunity to participate in the financing, and at the same time, be provided with sufficient information to make a well-informed decision on the matter. This option can be a risk for both parties. For the seller, they have more exposure if there is a problem at the property, and depending on the nature of the property, it might be hard to reposition for a quick sale. For the buyer, the risk is that they may borrow more than they can handle.

Environmental risks

The overall condition of the property, especially environmental condition and status of the Environmental Site Assessment (ESA) can impact whether the lender is willing to lend or not. Lenders usually will not take risks with respect to environmental issues. Further, environmental standards are constantly changing. For example, the Ministry of the Environment, Conservation, and Parks has much higher standards now than 10 years ago with respect to boron levels/contamination.

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Lesson 6 | Page 22 of 22

Congratulations, you have completed the lesson! There are five sections on this page with a summary of the key topics that were covered in this lesson.

Requirements for financing

Financial capabilities of buyers • Salespersons are advised to seek information from lending institutions regarding local practices and procedures • A buyer should be advised that the development of a business plan, including cash flow analysis, which would indicate the ability to service debt, is a critical component of many commercial mortgage applications • The value of the property in terms of cash flow is more important than the buyer’s ability to pay, as is the case in residential mortgage financing Sources of funding may include: • Life insurance companies • Chartered banks • Credit unions • Finance companies • REITs • RRSPs • Private financing sources, e.g., private investors It is highly recommended that mortgage brokers be used in securing financing, given unique business needs, complexities in assembling qualifying documentation, and expertise in finding appropriate sourcing and competitive quotations.

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Commercial lending practices

Lenders will apply various financial ratios to get a solid understanding of the business performance and the ability of the borrower to service debt. Criteria vary by commercial lender, market conditions, and type of project, and are essentially designed to give the lender reasonable assurances of investment security when advancing funds. Lending ratios commonly used may include: • Leverage ratio • Loan-to-value ratio • Debt coverage ratio • Safety margin • Risk and capitalization rate

Commercial underwriting

When applying for a mortgage, commercial applicants must put together a mortgage documentation package. The range of materials varies significantly by property type, project scope, lender requirements, and the specific investor. A mortgage documentation package may include: • Site and property information along with relevant statistics, sketches, valuation estimates, and associated supporting documentation • Fully completed mortgage application, appraisal, verification of income/salaries, credit check, verification of resources and other financial commitments, and the agreement of purchase and sale • Financial statements for at least the past three to five years, along with a review of existing leases on the property • Letter of commitment • Letter of credit • Letter of guarantee • Letter of intent

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Types of loans

• Bridge loan – an interim form of financing that is often used when a buyer needs to close on sale before receiving funds from another sale • Development loan – a loan used for servicing and improving land prior to building construction • Gap loan – an interim financing vehicle used between construction advances and the placement of permanent financing • Interim financing – addresses immediate needs as opposed to long-term debt structure • Line of credit – a flexible form of interim financing based on past performance and strength of personal or corporate covenants • Standby loan – a pre-construction loan commitment set up between a developer and a lender for preliminary financing with the expectation of permanent, long-term mortgaging • Wraparound mortgage – a new form of mortgage that wraps around existing financing (not a first mortgage) • Blanket mortgage – a single mortgage on two or more properties forming security for a loan • Participation financing – special purpose financing involving the lender in direct participation with the borrower in some profit or ownership position for a venture

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Risks associated with financing

Risks can include those imposed by the lender, those imposed on the seller, and risks based on the environmental condition of the property, to name but a few. • Lender risks – There is a possibility that the institutional lender may restructure their offering statement based on their own lending policy, thereby reducing the amount of mortgage offered. • Seller risks – The seller may be asked (or offer) to participate in the financing by holding a second (or higher) mortgage, particularly when financing proves difficult through conventional lenders and/or seller participation provides a better overall package in negotiations. • Environmental risks – The overall condition of the property, especially environmental condition and status of the ESA can impact whether the lender is willing to lend or not. Lenders usually will not take risks with respect to environmental issues.

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Lesson 7 | Page 1 of 10

Lesson 7: The Impact of Taxation on Commercial Property Ownership

This lesson discusses the tax advantages of investing in commercial real estate. It is critical to refer tax-related questions to a third-party expert, such as an accountant. Any information presented in this lesson is for context only, and expert advice should always be sought.

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Lesson 7 | Page 2 of 10

The Impact of Taxation on Commercial Property Ownership

Taxation is a dominant factor in an investor's decision-making process when considering commercial property ownership. Real estate has always been viewed favorably by investors given its distinct tax advantages, some of which will be discussed in this lesson. It is critical to refer tax-related questions to a third-party expert, such as an accountant. Any information presented in this lesson is to provide context only, and expert advice must always be sought. Upon completion of this lesson, you will be able to identify the requirements and interests of a seller related to taxes. Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented. Exam Study Guide

Lesson 7 | Page 3 of 10

Seller Tax Considerations Real estate has always been viewed favorably given its tax sheltering capabilities. Tax sheltering is broadly viewed as any financial arrangement that results in the reduction or elimination of taxes due. A real estate investment opportunity is normally judged in terms of four characteristics: • The reliability and durability of the income stream (operations cash flow) • The opportunity to realize capital appreciation (sale proceeds cash flow) • Leverage possibilities to maximize return on investment • Tax considerations that apply to that particular property As a salesperson, you should have a general awareness of significant tax provisions in the Income Tax Act. For example, the Act provides for different tax treatment depending on whether a property is used for business/investment income or as a primary residence. While taxes are payable on the business and investment income, the principal residence is generally excluded from taxation under the Act. Further, the Act also distinguishes between business income and property income when rent is received by an investor from real estate. The differentiation of business income and property income is important as significant distinctions are made concerning the treatment of such income. Most importantly, the Act provides for capital cost allowance (CCA) on income-producing property and generally reduces the taxes payable on operations cash flows, as well as impacting final sale proceeds at point of disposition.

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Lesson 7 | Page 4 of 10

Tax Concepts for Commercial Real Estate While you should not be providing advice to your clients on tax related issues, it is important to know the requirements and interests of a seller. The following five sections contain information about tax concepts for commercial real estate.

Capital gain

A key element in the sale of a commercial property involves capital gains. Capital gain is described as the gain from the disposition of capital property, a percentage of which must be added to taxable income on disposition of the property. The Income Tax Act does not specifically set out whether or not a gain or loss is capital in nature. The taxpayer is responsible for reporting the gain as income or capital gain. This report may then be challenged by the Canada Revenue Agency with the onus of proof on the taxpayer. Over the course of years, the determination is made based on a number of primary factors, such as the intention of the taxpayer, relationship to the taxpayer’s business, frequency of transactions, length of time held, nature of the transaction, and objects of the corporation. Should a debate proceed to the Tax Court of Canada, the Court will consider relevant factors concerning taxpayer conduct before, during, and after the period under appeal. Certain factors carry more weight in the process.

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Capital cost allowance

Capital assets, though durable, have a limited lifetime and at some point, will be replaced. Generally, the capital cost of a property is what a buyer pays for that property. Capital cost includes such items as delivery charges and applicable taxes. The Act permits a deduction of part of the capital cost of the asset against the income from the business. Capital cost allowance (CCA) is the maximum rate set under the Act that the taxpayer can claim for depreciation. CCA is not a cash flow item, but rather a matter of taxation and tax-deductible expenses. CCA acknowledges the existence of depreciation that is the result of wear and tear over the life of an asset and the ability to offset income in relation to the cost of that asset. The amount of depreciation allowed depends on the asset class. Most, but not all buildings, qualify for a four per cent CCA on a declining balance basis. One-half of that amount (two per cent) is permitted during the first year of purchase. The rate of CCA applied is specified as a maximum rate. A taxpayer may, therefore, claim any CCA amount up to the maximum by multiplying the CCA rate by the balance in the class at the end of the taxation year. Only the amount of CCA actually claimed is deducted from the balance of the class and the remaining balance is carried forward.

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The Income Tax Act and Regulations detail various classes for purposes of CCA calculation. Capital cost allowance classes Specific classes of interest to salespersons involved with commercial properties are illustrated here. The rate of CCA applied to each class is specified as a maximum rate. A taxpayer may therefore claim any CCA amount up to the maximum by multiplying the CCA rate by the balance in the class at the end of the taxation year. Only the amount of CCA actually claimed is deducted from the balance of the class, and the remaining balance is carried forward and available for future CCA claims.

The Commercial Real Estate Transaction Ch. 9, pg. 183 – CCA Classes are the specific classes of interest that are: 1. Class 1: This involves the type of assets where most building made of brick, stone or cement acquired after 1987, including their component parts such as electric wiring, lighting fixtures, plumbing, heating and cooling equipment, elevators, and escalators (additional allowance of 6 per cent for buildings used for manufacturing and processing in Canada and 2 per cent for buildings used for other non-residential purposes, for buildings acquired after March 18, 2007). The associated rate with this class is 4 per cent. 2. Class 3: Most buildings made of brick, stone or cement acquired before 1988, including their component parts as listed in Class 1 above. The associated rate with this class is 5 percent. 3. Class 6: Buildings made of frame, log, stucco on frame, galvanized iron or corrugated metal that are used in the business of farming or fishing, or that have no footings below-ground; fences and most greenhouses. The associated rate with this class is 10 per cent. 4. Class 7: Canoes, boats and most other vessels, including their furniture, fittings or equipment. The associated rate with this class is 15 per cent. 5. Class 8: Property that is not included in any other class such as furniture, calculators and cash registers (that do not record multiple sales taxes), photocopy and fax machines, printers, display fixtures, refrigeration equipment, machinery, tools costing $500 or more, and outdoor advertising billboards and greenhouses with rigid frames and plastic covers. The associated rate with this class is 20 per cent. Exam Study Guide

Adjusted cost base

The adjusted cost base represents the acquisition price of a property, with adjustments as prescribed by the Income Tax Act. The Act provides for various adjustments: • Mandatory capitalization of certain expenses (e.g., interest expense for vacant land or soft costs relating specifically to the construction, alteration, or renovation of a rental building) • Adjustments allowed by the Act due to replacement property acquisitions • Selling costs for the disposition of capital property (e.g., legal/accounting fees) • Reductions that arise through the receipt and use of public assistance funding • Reductions due to partial disposition of the capital property • Adjustments relating to various elections by corporations at time of acquisition or wind-up

Soft costs

The calculation of soft costs can be a significant issue regarding the adjusted cost base. The Income Tax Act does not define the term soft costs, but it is understood to include, but not limited to, construction-related inspection fees, utility hook-up charges, engineering fees, municipal fees, legal/accounting fees, and mortgage fees. Capitalization of soft costs is generally limited to the construction phase. Pre- and post-construction costs, subject to qualifications, may be deductible if incurred for the production of income. The Act also permits the amortization of selected expenses, depending on their contribution to the longterm earning capacity of the property and the ability to expense certain items regardless of whether they occur during, before, or after the construction period, e.g., costs associated with landscaping.

Exam Study Guide

Lesson 7 | Page 5 of 10

Tax Complexities: HST The Income Tax Act states that HST applies to all supplies of real estate (e.g., sale, transfer, exchange, and rentals), unless a specific exemption is provided. Most commercial property sales and commercial leases are taxable, while most residential sales and rentals are exempt. In most cases, the owner of real property is responsible to remit HST. For real property, the payment must be made at point of ownership, transfer, or possession of the property, whichever comes first. However, with large commercial property transactions, the payment of HST at closing would impose a heavy cash flow burden, if remitted by the buyer to the seller at closing. Timing is the issue. The seller would submit the buyer’s HST payment with their HST return. The buyer would ultimately receive an input tax credit for the amount paid, but a significant amount of time could pass. To offset this timing issue, a special rule applies for the sale of a commercial property. The seller is not required to collect the HST, providing that certain conditions are met. A seller must, however, ensure that the buyer fully complies with all Exam Study Guide

remittance requirements, failing which the onus falls back on the seller. A warranty from the buyer is necessary within the agreement of purchase and sale, as well as further documentation, including indemnification provisions to adequately protect the seller. The wording of Clause 7: HST in the Agreement of Purchase and Sale-Commercial (OREA Form 500) is an example of a clause that describes the procedure, including the buyer’s warranty.

From OREA Form 500: Agreement of Purchase and Sale – Commercial, Clause 7: HST. ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

Exam Study Guide

Lesson 7 | Page 6 of 10

Tax Complexities

As a salesperson, you may encounter certain unique tax complexities that can impact commercial real estate transactions. An expanded knowledge of these issues and related tax requirements can help avoid potential problems and minimize risk. However, it is critical to refer tax-related questions to a third-party expert, such as an accountant. Non-Resident Sellers Transactions involving non-resident sellers can pose challenges. Legislative restrictions impact the acquisition and/or disposition of land by individuals or other entities, defined as non-residents, pursuant to provincial and federal statutes. The Income Tax Act sets out provisions for the collection of capital gains tax payable by non-resident sellers. The Act establishes a procedure requiring the non-resident seller to remit, in advance of the disposition, a calculated amount to obtain a certificate from the Minister of National Revenue. Alternatively, such funds can be remitted by the buyer on the seller’s behalf within 10 days following sale completion. The specified percentage required by the Ministry of National Revenue is calculated using the amount by which the sale proceeds (or anticipated proceeds in the case of an advance payment) exceeds the property’s adjusted cost base. Salespersons should also be aware that disposition of depreciable property may complicate the situation, as recapture comes into play when establishing the calculated amount. Exam Study Guide

Finally, issues concerning non-residency are addressed in Clause 17 of the Agreement of Purchase and Sale – Commercial (OREA Form 500). The agreement requires that the necessary amount be credited to the buyer by the seller, to satisfy the non-residency provisions of the Act, unless a Minister’s certificate is provided. This provision is important, as the buyer is liable under the Act for the tax owed by the non-resident seller. Mixed-Use Buildings Generally, a property that contains both residential (exempt) and commercial (taxable) uses are viewed as distinct entities for HST purposes. In other words, no HST is payable nor input credits available for the exempted use, but taxes do apply along with input tax credits for the taxable (commercial) portion.

Exam Study Guide

Lesson 7 | Page 7 of 10

Examples of Tax Calculations for Commercial Real Estate Sellers Examples of sample tax calculations are provided for your reference only. It is imperative that you refer all tax calculations and advice to the appropriate tax expert, such as an accountant. The following four sections contain information about some example capital gain, capital loss, and CCA calculations.

Capital gain A capital gain is a gain on the sale or exchange of capital assets that meets the criteria for a capital gain as set out in the Income Tax Act. Two real estate examples are provided. The first details a gain by a corporation (including calculation of taxable gain based on an assumed taxation level) and the second provides the calculation for a gain realized by an individual.

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Capital loss Capital loss is the loss which is incurred from the disposition of capital property. Provisions in the Act provide for the deduction of capital losses for both individuals and corporations.

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Capital cost allowance The most frequently used method to calculate depreciation involves the reduction of the capital cost by a percentage, as set out for a particular class of property, with subsequent reductions always applied to the declining balance (undepreciated capital cost) within that class. Half-Year Rule The half-year rule was implemented to correct for the fact that assets purchased at the end of a taxation year would otherwise provide an amount in a class eligible for the maximum capital cost allowance in that year. The rule provides that 50% of purchases made during the year, minus the lesser of capital cost and proceeds of disposition of assets in the class during the year, is deducted before the CCA for the year is calculated. By effectively reducing the CCA on purchases (in excess of dispositions) made during the year, the tax advantage of the late purchase is reduced. Simply stated, the halfyear rule discourages persons/corporations from taking the entire allowable deductions for the very first year of them owning the asset. Some persons/corporations buy assets earlier in the year and some buy late in the year. The Canadian Revenue Agency finds it fair to allow 1/2 the allowable deduction in the first year of ownership, thus the half-year rule. It only applies to the first year of ownership.

Exam Study Guide

Recaptured capital cost allowance At the time of property disposition, the Act requires the recapture of CCA, if the value of the improvements has been maintained or increased since originally acquired. The recapture cannot exceed the capital cost deductions allowed. As a rule, if the undepreciated capital cost (UCC) has a positive balance and no assets remain, terminal loss can be claimed. If a negative UCC balance occurs due to asset disposition, recapture (referred to as income inclusion) occurs, even if assets remain in that particular class. Recapture must be declared as income. Deferral of recapture is possible in some instances, e.g., a replacement property is acquired within a specified time limit. In this instance, an amount equal to the recapture is applied against the UCC for new property.

Exam Study Guide

Lesson 7 | Page 8 of 10

An owner of a company, three years ago, bought a property developed with a 100-unit apartment building. The owner is now looking at the capital cost allowance showing in the company’s tax return for this building. Question #29: Which one of the following statements is correct regarding Capital Cost Allowance (CCA)? There are four options. There is only one correct answer.

1

Capital Cost Allowance is calculated on the amount of the undepreciated capital cost of both land and buildings/improvements

2

Capital Cost Allowance is considered an expense which is deducted from income to arrive at cash flow

3

If the company buys a brand new refrigerator for a unit in the building this year because that unit’s refrigerator is broken and has to be thrown away, then the capital cost allowance for this year can only be calculated on 50 per cent of the cost of the new refrigerator

4

The disposition of a depreciable capital asset always involves recapture of the capital cost allowance taken for that asset

Exam Study Guide

Lesson 7 | Page 9 of 10

An owner of an office building for the past fifteen years is thinking of selling it. The owner is concerned about the amount of capital gains tax that will have to be paid as the property will likely sell for a couple of million dollars more than the original purchase price. Question #30: Identify whether the following statements regarding capital gains tax are true. There are four options. There is only one correct answer.

1

If a commercial property was sold for $1,450,000, the adjusted cost base was $950,000 and the cost of sale amounted to $50,000, the amount of the taxable capital gains tax would be $450,000

2

The Income Tax Act set out specific requirements in the legislation regarding whether a gain from the sale of a capital property is income or capital gain

3

Soft costs, while not defined in the Income Tax Act, generally include costs such as inspection fees, utility hookup charges, and engineering fees

4

Capital Gains Tax does not apply to the sale of residential properties which would include apartment buildings

Exam Study Guide

Lesson 7 | Page 10 of 10

Congratulations, you have completed the lesson! There is a section on this page with a summary of the key topic that was covered in this lesson.

Tax-related requirements and interests of a seller

• Capital gain – Described as the gain from the disposition of capital property, a percentage of which must be added to taxable income on disposition of the property. • Capital cost allowance (CCA) – CCA is the maximum rate set under the Act that the taxpayer can claim for depreciation. The amount of depreciation allowed depends on the asset class. • Adjusted cost base – The adjusted cost base represents the acquisition price of a property, with adjustments as prescribed by the Act. • Soft costs – The Act does not define the term soft costs, but it is understood to include, but not limited to, construction-related inspection fees, utility hook-up charges, engineering fees, municipal fees, legal/accounting fees, and mortgage fees. • HST – With large commercial property transactions, the payment of HST at closing would impose a heavy cash flow burden if remitted by the buyer to the seller at closing. • Non-resident sellers – Transactions involving non-resident sellers can pose challenges. Legislative restrictions impact the acquisition and/or disposition of land by individuals or other entities, defined as non-residents, pursuant to provincial and federal statutes. • Mixed-use properties – Generally, a property that contains both residential (exempt) and commercial (taxable) uses are viewed as distinct entities for HST purposes. In other words, no HST is payable nor input credits available for the exempted use, but taxes to apply along with input tax credits for the taxable (commercial) portion.

Exam Study Guide

Lesson 8 | Page 1 of 8

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 8

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 8

Helenka, Mohammed, Sonila and Avi are surgeons who work together at the same hospital in Anycity. They have been good friends for more than twenty years. Over the past few years they have been talking about pooling their money to invest in commercial real estate. One of Helenka’s patients, Claudio, is a very successful businessman who owns a construction company that builds all types of commercial buildings across Ontario. A few weeks ago, Mohammed noticed that a large vacant piece of land on the outskirts of Anycity was listed for sale. The economy is booming and a number of new companies are starting to move into the area. Mohammed called a meeting to discuss with Helenka, Sonila, Avi, and Claudio, the possibility of joining together to buy the vacant land and have Claudio’s company develop it for them. At this meeting, there was a lot of discussion about a number of issues including whether they should be investing in commercial real estate, the type of commercial property that the vacant land could be developed into, the process of development and construction, and how they would structure the ownership of the property. All five people at the meeting participated in the discussion and made a number of statements. Question #31: Based on the above scenario, which of the following statements made at the meeting regarding ownership and development of commercial real estate are correct? There are five options. There are multiple correct answers.

Exam Study Guide

1

If a proposed development of a vacant piece of land does not conform exactly to the current zoning, but is in-keeping with its overall intent, then a municipality is allowed to consider approving that proposed development providing there is an amendment to the official plan to allow for this specific variance

2

One concern with developing vacant land into a shopping centre or power centre is that retailers are facing increasing competition from online distribution centres delivering products directly to the consumer’s home. This intense competition has resulted in traditional storefront operations focusing on improved shop designs and heightened customer experience

3

The problem with the suggestion of setting up a corporation to buy the vacant land and develop it is that the owners are personally responsible for its debts, should the corporation become bankrupt. The corporation is taxed for any profits earned and in addition, the individual stockholders who earn profits from the corporation are also taxed

4

One of the benefits of investing in commercial real estate over stocks is that real estate has less risk of becoming valueless given the physical presence of land and buildings. On the other hand, there is a lack of liquidity as compared to investing in shares

5

A site plan approval process requires an owner/developer to enter into a site plan agreement which allows for a site to be developed without having to meet the requirements of the Ontario Building Code or the zoning bylaws. The site plan approval process, of course, has its own building code and zoning regulations

Exam Study Guide

Lesson 8 | Page 4 of 8

Helenka, Mohammed, Sonila, and Avi, are surgeons who work together at the same hospital in Anycity. They have now decided not to buy and develop a piece of vacant land that is currently listed for sale. Instead they form a limited partnership and make an offer to purchase an apartment building. The offer is subject to financing. The partnership submits an application for a commercial mortgage. One of the documents submitted with the application is the building’s financial statements. The principal and interest payments on the mortgage they are applying for would be $23,457.51 monthly and the annual net operating income for the building is $400,000. The lender will only lend up to 65 per cent of the value of the property and they require a 8 per cent capitalization rate for this kind of property as well as a minimum 1.2 debt coverage ratio. Question #32: Based purely on the above information, does this application meet the lenders minimum debt coverage ratio? There are four options. There is only one correct answer.

1

Yes, because this property has a positive debt coverage ratio of 1.42

2

Yes, because this property has a negative debt coverage ratio of 1.42

3

No, because this property has a positive debt coverage ratio of 0.70 per cent

4

No, because this property has a negative debt coverage ratio of 0.70 per cent

Exam Study Guide

Lesson 8 | Page 5 of 8

XYZ Anycity Ltd was incorporated in 2004. In 2005, it bought Property A, an office building for $6,000,000. The land was valued at $1,000,000 and the building was valued at $5,000,000. The property was sold in 2008 for $7,350,000. The adjusted cost base was calculated as being $6,200,000 and the selling cost of the property amounted to $300,000. The UCC at the time of sale was $4,500,000. In 2009, XYZ Anycity Ltd purchased Property B, another office building, for $9,000,000. At that time the land was valued at $2,000,000. This property was eventually sold in 2013 for $11,000,000. The adjusted cost base of the property was calculated as being $9,400,000. The CCA rate for this type of building is 4 per cent. In 2010, XYZ Anycity Ltd purchased an apartment building for $12,000,000. At that time the land was valued at $3,500,000. The property was sold a few years later for $14,000,000 with the improvements being valued at the time of sale at $8,200,000 and the undepreciated capital cost of the improvements at sale being $7,650,000. Question #33: Based on what you have learned, identify the correct calculation about the capital gain for Property A. There are four options. There is only one correct answer.

Exam Study Guide

1

$1,150,000

2

$650,000

3

$450,000

4

$850,000

Exam Study Guide

Lesson 8 | Page 6 of 8

XYZ Anycity Ltd was incorporated in 2004. In 2005, it bought Property A, an office building for $6,000,000. The land was valued at $1,000,000 and the building was valued at $5,000,000. The property was sold in 2008 for $7,350,000. The adjusted base cost was calculated as being $6,200,000 and the selling cost of the property amounted to $300,000. The UCC at the time of sale was $4,500,000. In 2009, XYZ Anycity Ltd purchased Property B, another office building, for $9,000,000. At that time the land was valued at $2,000,000. This property was eventually sold in 2013 for $11,000,000. The adjusted base cost of the property was calculated as being $9,400,000. The CCA rate for this type of building is 4 per cent. In 2010, XYZ Anycity Ltd purchased an apartment building for $12,000,000. At that time the land was valued at $3,500,000. The property was sold a few years later for $14,000,000 with the improvements being valued at the time of sale at $8,200,000 and the undepreciated capital cost of the improvements at sale being $7,650,000. Question #34: Based on what you have learned, identify the correct calculation about the Undepreciated Capital Cost for the building on Property B as on January 1, 2010. There are four options. There is only one correct answer.

1

$6,275,700

2

$7,395,400

3

$6,860,000

4

$7,565,300 Exam Study Guide

Lesson 8 | Page 7 of 8

XYZ Anycity Ltd was incorporated in 2004. In 2005, it bought Property A, an office building for $6,000,000. The land was valued at $1,000,000 and the building was valued at $5,000,000. The property was sold in 2008 for $7,350,000. The adjusted base cost was calculated as being $6,200,000 and the selling cost of the property amounted to $300,000. The UCC at the time of sale was $4,500,000. In 2009, XYZ Anycity Ltd purchased Property B, another office building, for $9,000,000. At that time the land was valued at $2,000,000. This property was eventually sold in 2013 for $11,000,000. The adjusted base cost of the property was calculated as being $9,400,000. The CCA rate for this type of building is 4 per cent. In 2010, XYZ Anycity Ltd purchased an apartment building for $12,000,000. At that time the land was valued at $3,500,000. The property was sold a few years later for $14,000,000 with the improvements being valued at the time of sale at $8,200,000 and the undepreciated capital cost of the improvements at sale being $7,650,000. Question #35: Based on what you have learned, identify the correct calculation about the Recaptured Capital Cost Allowance for Property C. There are four options. There is only one correct answer.

1

$550,000

2

$850,000

3

$2,050,000

4

$650,000 Exam Study Guide

Lesson 8 | 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 Learning Objectives.

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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 covered in this module.

The commercial real estate environment

• As a new salesperson, it is important to understand that the commercial working environment differs from the residential work environment. • Commercial Seller and Buyer Representation Agreements have additional wording in certain clauses to help protect the interests of all parties involved. • Offers and negotiations for commercial properties are inherently more complex than residential. Completion of this lesson has enabled you to: • Illustrate the work environment of a salesperson • Describe the type of relationship a brokerage could have with a commercial seller or buyer • Identify how offers and negotiations for a commercial property can be complex

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Impact of REBBA and the Commercial Tenancies Act when trading in commercial real estate

While REBBA does not distinguish between residential and commercial activity, certain aspects of REBBA deserve special mention in the context of commercial real estate: • Disclosure of material facts – the discovery of such facts takes more extensive due diligence than for residential • Providing conscientious and competent service – also requires more extensive due diligence, such as referring your clients and customers to third-party experts and having special clauses inserted to a Schedule attached to an Agreement of Purchase and Sale • Record keeping – the paperwork that goes into a successful commercial transaction is often greater and includes numerous supporting documents • Recommending service from third-party experts • Working with registered and unregistered assistants in commercial real estate – you must never let unregistered assistants give advice to clients or customers as it would be in violation of REBBA Commercial tenancies are governed by the Commercial Tenancies Act. They are more complex than residential tenancies for a number of reasons: • Leases require specialized clauses/additional wording to address the needs of the property owner • Terms of the lease are up to the landlord and tenant to negotiate • Rights and obligations of both parties are outlined in detail in the commercial lease If there is a dispute, an individual has two options: • Small Claims Court • Superior Court of Justice Completion of this lesson has enabled you to: • Identify the impact of REBBA on the activities of a salesperson • Identify key considerations of the Commercial Tenancies Act that regulates commercial leasing

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Impact of the Planning Act, zoning bylaws, and the Ontario Building Code on commercial real estate

The Building Code Act, 1992 is a provincial legislation that sets out minimum standards for building design, as well as provisions regarding safety in buildings, fire protection, and structural sufficiency. It is updated every five years. The construction, renovation, and demolition of buildings require a building permit, as per the Ontario Building Code. Steps in obtaining a building permit • Application • Review • Permit • Inspections Planning Act • The Planning Act provides the statutory framework for orderly land development in the province. It is administered by the Ministry of Municipal Affairs and Housing, which also broadly directs overall planning in the province by way of provincial policy statements. All planning bodies within the province must be consistent with such statements when applying planning policies. Zoning bylaws • Zoning bylaws are enacted by municipalities and set out permitted uses, building structure standards (e.g., minimum setbacks and coverage), and other necessary regulations (e.g., signage, noise, and parking) • Bylaws may: o Restrict or prohibit the use of land o Regulate the type of construction o Affect day-to-day real estate marketplace activities • Some flexibility is permitted within the zoning bylaws o Owners may seek minor variances when property does not specifically meet requirements

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o Owners may fall under non-conforming use status Completion of this lesson has enabled you to: • Outline how the Ontario Building Code impacts the use of a commercial structure • Recognize how the Planning Act, municipal bylaws, and zoning bylaws influence commercial development

The benefits and challenges of investing in commercial real estate

Some commercial properties you may encounter include: • Office, retail, industrial, multi-residential, farm, recreational, institutional, hospitality, and vacant land Some of the ownership options you may encounter include: • Sole proprietorship, partnership, limited partnership, corporation, trust, and joint venture • Each ownership option comes with its own benefits and limitations Some of the benefits and opportunities may include: • Typically, a higher return than other investments • Ability to purchase various types of properties to reduce exposure or risk • Ability to purchase under different ownership options which provide for tax benefits • Physical asset rather than stocks/bonds resulting in a lower chance of it becoming valueless • High degree of personal control • Capital growth • Potential to recover capital through refinancing Some of the challenges and risks may include: • Ongoing costs for maintenance or management of the property • Lack of liquidity • Higher risk as owner is last in priority to be paid • Requires a larger capital investment compared to other investment opportunities Exam Study Guide

• Changes in government regulation Completion of this lesson has enabled you to: • Distinguish between the types of commercial properties • Describe the benefits and opportunities to investing in commercial real estate • Describe the challenges and risks to investing in commercial real estate • Differentiate between the ownership options for commercial properties

Third-party professionals

Over the course of your professional career, you will endeavour to establish relationships with third-party professionals to build a network of individuals you can trust to provide excellent service, comparable to yours, to your clients. Some of the third-party professionals you will want to have in your network include: • Accountants, environmental engineers, structural engineers, electrical engineers, industrial engineers, mechanical engineers, planning consultants, property managers, appraisers, land use consultants, lawyers, commercial mortgage brokers or lenders, commercial architects, and insurance brokers Completion of this lesson has enabled you to describe the role of third-party professionals in a commercial transaction.

Exam Study Guide

An introduction to Some of the key points you learned include: commercial • Salespersons are advised to seek information from lending institutions regarding local practices and procedures. financing • A buyer should be advised that the development of a business plan, including cash flow analysis, which would indicate the ability to service debt, is a critical component of many commercial mortgage applications. • The value of the property in terms of cash flow is more important than the buyer’s ability to pay, as is the case in residential mortgage financing. • It is highly recommended that mortgage brokers be used in securing financing given unique business needs, complexities in assembling qualifying documentation, and expertise in finding appropriate sourcing and competitive quotations. • When applying for a mortgage, commercial applicants must put together a mortgage documentation package. The range of materials varies significantly by property type, project scope, lender requirements, and the specific investor. • Some types of loans include: o Bridge loan, development loan, gap loan, interim financing, line of credit, standby loan, wraparound mortgage, blanket mortgage, and participation financing. Completion of this lesson has enabled you to: • Identify the requirements for financing • Identify risks associated with commercial financing • Describe the mortgage approval process • Identify the costs associated with the financing process • Outline key aspects of a commercial mortgage

Exam Study Guide

The impact of taxation on commercial property ownership

The following are key terms and concepts related to taxation on commercial properties that you should be aware of: • Capital gain – Described as the gain from the disposition of capital property, a percentage of which must be added to taxable income on disposition of the property. • Capital cost allowance (CCA) – CCA is the maximum rate set under the Act that the taxpayer can claim for depreciation. The amount of depreciation allowed depends on the asset class. • Adjusted cost base – The adjusted cost base represents the acquisition price of a property, with adjustments as prescribed by the Act. • Soft costs – The Act does not define the term soft costs, but it is understood to include, but not limited to, construction-related inspection fees, utility hook-up charges, engineering fees, municipal fees, legal/accounting fees, and mortgage fees. Tax complexities • HST – With large commercial property transactions, the payment of HST at closing would impose a heavy cash flow burden, if remitted by the buyer to the seller at closing. • Non-resident sellers – Transactions involving non-resident sellers can pose challenges. Legislative restrictions impact the acquisition and/or disposition of land by individuals or other entities, defined as non-residents, pursuant to provincial and federal statutes. • Mixed-use properties – Generally, a property that contains both residential (exempt) and commercial (taxable) uses are viewed as distinct entities for HST purposes. In other words, no HST is payable nor input credits available for the exempted use, but taxes to apply along with input tax credits for the taxable (commercial) portion. The most important takeaway should be that you must always refer tax-related questions to the appropriate third-party expert, such as an accountant. Completion of this lesson has enabled you to identify the requirements and interests of a seller related to tax related issues.

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Appendix | Page 1 of 2

Appendix Answer Key Question #1: 1, 2 Question #2: 2 Question #3: 1 Question #4: 1 Question #5: 1 Question #6: 2 Question #7: 1 Question #8: 3 Question #9: 3 Question #10: 3, 4 Question #11: 3 Question #12: 2, 3 Question #13: 4 Question #14: 3 Question #15: 1, 3, 4 Question #16: 1, 5 Question #17: 2 Question #18: 3 Question #19: 1 Question #20: 1 Question #21: 1 Question #22: 1 Question #23: 1 Question #24: 1 Question #25: 1

Exam Study Guide

Appendix | Page 2 of 2

Question #26: 2 Question #27: 3 Question #28: 4 Question #29: 3 Question #30: 3 Question #31: 2, 4 Question #32: 1 Question #33: 4 Question #34: 3 Question #35: 1

Exam Study Guide

Module: Preparing to Sell Commercial Condominiums This is a study guide to help you prepare for the qualifying exam. There are multiple study guides that are provided for preparation. Each study guide contains several decision points to test your knowledge. The answer key to these decision points is present in the “Appendix” section at the end of the guide. Please use Adobe Acrobat Reader (Recommended version 9 or above) to navigate through this PDF. Real Estate Pre-Registration 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 PreRegistration Program learner.

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Module: Preparing to Sell Commercial Condominiums

This module will explore many of the key traits of commercial condominium properties, building on what you have already learned about residential condominiums, as well as your knowledge of the commercial real estate market more generally. This module will prepare you to fulfill your obligations as a salesperson in working with buyers of commercial condominium units and will introduce you to several of the most common scenarios and challenges you might encounter.

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Menu: Preparing to Sell Commercial Condominiums

Number of Lessons

Lesson Number

10 Lessons

Lesson Name

Lesson 1

Overview of Condominium Governance

Lesson 2

Commercial Condominium Uses

Lesson 3

Key Considerations for New and Resale Condominiums

Lesson 4

Due Diligence Obligations of a Salesperson

Lesson 5

Gathering of Key Information

Lesson 6

Potentially Detrimental Conditions

Lesson 7

Preparing to List a Commercial Condominium for Sale

Lesson 8

Valuating a Commercial Condominium

Lesson 9

Summary Practice Activities Module Summary Appendix

Exam Study Guide

Lesson 1 | Page 1 of 18

Lesson 1: Overview of Condominium Governance

This lesson re-introduces learners to key terminology and concepts related to condominiums, condominium governance, and the Condominium Act.

Exam Study Guide

Lesson 1 | Page 2 of 18

This lesson will serve as a refresher on some of the important terminology, personnel, and processes involved in condominium governance. The processes, structures, and documentation involved in residential and commercial condominium governance are essentially the same, though there are a few key considerations that a salesperson needs to be familiar with in order to best serve their clients. Upon completion of this lesson, you will be able to: • Describe commercial condominium governance • Identify the impact of the Condominium Act on activities related to commercial condominiums Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

Exam Study Guide

Lesson 1 | Page 3 of 18

From a governance perspective, there is no difference between a residential and a commercial condominium and they both fall under the jurisdiction of the Condominium Act. However, from a practical perspective the two categories can be quite different, primarily in the context of common areas, management, maintenance fees, and overall design components. As a salesperson, you must be aware of the processes and documents regarding commercial condominium governance so that you can make enquiries on behalf of a potential buyer client and advise your client accordingly.

Exam Study Guide

Lesson 1 | Page 4 of 18

Developers and Condominiums

A developer is responsible for registering a declaration and description at the Land Registry Office, creating the plan and vision for the property. Upon registering the property, the developer, now legally referred to as the declarant, may work directly with architects, construction companies, or other third-party contractors to develop the land, or they could sell the opportunity to another party. Common examples of developers include corporations that develop commercial or residential properties. Once the declaration and description are registered, a corporation without share capital is created automatically under the Condominium Act. The declarant will then be responsible for appointing at least three members to the newly formed board of directors. During this period, the registered bylaws included in the declaration are valid until replaced or amended by future boards. Use restrictions are established initially by the declarant and modified by the condominium corporation, as needed. As units sell, the developer eventually ceases to be a majority shareholder; within 21 days of ceasing to be a majority shareholder, the developer must call a turnover meeting to turn control over to a newly elected board of directors. After this turnover process, the developer is typically no longer involved in condominium governance. Exam Study Guide

If turnover of authority to the board of directors is delayed, then the developer may be involved in governance for a longer period of time than normal. Often, after turnover occurs, the developer still owns unsold units. As a result, the developer would still have the right to be elected to the board or otherwise participate in the management of the corporation as a unit owner.

Exam Study Guide

Lesson 1 | Page 5 of 18

Board of Directors

The initial board of directors (at minimum three members) is appointed by the declarant within 10 days of condominium registration. This first board must call a meeting before the later of: • The 30th day after the declarant transfers 20 per cent of the units; or • The 90th day after the first unit is transferred. At this meeting, the owners may elect two directors who hold office, in addition to those appointed by the declarant. The first board must call a turn-over meeting to elect a new board within 21 days after the declarant ceases to be a majority owner of the condominium property’s units. The subsequent iteration of the board of directors is elected in accordance with the Condominium Act, and bylaws. Directors are required to be at least 18 years old and cannot be bankrupt or mentally incompetent. A director ceases to be a director if they: • Become bankrupt Exam Study Guide

• Become mentally incompetent • Do not obtain a discharge for a lien (relating to the payment of common expenses) within 90 days of the registration of that lien Directors are typically appointed for three years or such lesser period as specified in the bylaws. All business of the corporation is conducted at meetings of the board of directors. The board is responsible for enforcing the condominium's rules and bylaws, managing utilities and insurance for the condominium, and generally overseeing and employing property management and maintenance personnel for all common areas. In some smaller corporations, the board of directors may choose to self-manage the development, in which case they would not employ a property manager.

Exam Study Guide

Lesson 1 | Page 6 of 18

Condominium Managers Condominium managers act as partners to assist the board of directors with the management of the condominium. They may have more expertise and experience than the condominium’s board of directors, who are often just volunteers from among the parties who own units in the condominium. Condominium managers help the board make decisions to ensure they are taking the best care of their condominium corporation. Amendments to the Condominium Act led to the creation of the Condominium Management Regulatory Authority of Ontario (CMRAO), a self-funded non-profit regulatory body that provides oversight of condominium managers and management companies. CMRAO regulation means that condominium managers are required to be licensed, meet minimum education requirements, and comply with a standard Code of Ethics.

Exam Study Guide

Lesson 1 | Page 7 of 18

Bylaws in Commercial Condominium Governance

Condominium governance and bylaws were discussed in the residential course. Bylaws are documented standard procedures and requirements regarding a condominium’s internal operations that involve establishing procedures for borrowing funds, setting director remuneration, and other regulatory matters. Bylaws are included in the initial declaration and established by the developer as part of condominium registration. For example, the declarant might include bylaws that require that units may only be used for medical practices and not other commercial operations, such as legal services. The bylaws might be more specific, dictating the width of elevator doors for patients and equipment, or not allowing dentists to practice in the building, as their plumbing is more expensive than other medical practices. Registered bylaws made by the declarant are valid until replaced. Bylaws are made, amended, or repealed by the board of directors and must be consistent with the Condominium Act and the declaration. Bylaws must be registered in the land registry office.

Exam Study Guide

Lesson 1 | Page 8 of 18

Rules in Commercial Condominium Governance

Rules that can be established and changed far more easily than bylaws, are directives and regulations developed by a condominium corporation that promote the safety, security, and welfare of owners, as well as the property and assets of the corporation. Rules also prevent unreasonable interference with the use and enjoyment of common elements. For example, commercial condominiums might have rules against solicitation or residential living uses. Registrants should be aware of rules impacting condominiums being marketed, as they can directly impact the seller in terms of the marketability of the unit. The board of directors can make, amend, or repeal rules that are reasonable concerning the common elements. The board must provide owners with a copy of the rules (made, amended, or repealed), the effective date, and notice that they may requisition a meeting. Rules are not effective until approved by the owners at a requisitioned meeting within 30 days. If no meeting is requisitioned within that period, the rules become effective.

Exam Study Guide

Lesson 1 | Page 9 of 18

It is essential for a salesperson to be familiar with the key personnel involved in condominium governance so that they can best serve their clients in the buying and selling process. Each stakeholder has a different role in governance and your interactions with them as a salesperson will vary depending on the situation. Question #1: In condominium governance, which one of the following is responsible for overseeing the business affairs of a condominium corporation? There are three options. There is only one correct answer.

1

Developer/Declarant

2

Board of directors

3

Condominium manager

Exam Study Guide

Lesson 1 | Page 10 of 18

Though rules and bylaws both dictate the operations and requirements of condominium ownership, there are crucial differences between them. While, from a governance perspective, there is no difference between how rules and bylaws function in a commercial context compared with residential condominiums, the actual rules and bylaws themselves will be quite different due to the different uses of the properties. Question #2: Which of the following options are likely to be a rule? There are four options. There are multiple correct answers.

1

Terms of office for board of directors

2

Noise restrictions

3

Parking regulations and parking lot use restrictions

4

Procedures for borrowing funds for property renovations

Exam Study Guide

Lesson 1 | Page 11 of 18

The Condominium Act is the law that establishes how condominiums are created and operated in the province of Ontario. As a salesperson, you are advised to learn as much as possible about the Condominium Act, 1998. Without this knowledge, you may be unable to provide sufficient insight into condominium governance to your clients and customers who wish to buy or lease a commercial condominium. You must be familiar with the legal framework regulating condominiums so that you can provide your clients with insight and meaningful information. Part of this due diligence includes being well informed of revisions to the Condominium Act, which may change from time to time. Exam Study Guide

In terms of the hierarchy of governing documents, it is important to remember that the Condominium Act supersedes rules and bylaws. The hierarchy is as follows: • Condominium Act • Declaration • Bylaws • Rules The provisions of any of these documents cannot be inconsistent with, or contradict the terms and conditions of the document that supersedes it. Generally, if there is a conflict, the superseding document takes precedence.

Exam Study Guide

Lesson 1 | Page 12 of 18

New Owner Information Certificate (NOIC)

Whenever a buyer assumes ownership of a condominium unit, the corporation must send a New Owner Information Certificate (NOIC) to the new owner. The NOIC is a form developed by the Ontario government, and provides new owners with the most recent Periodic Information Certificate (PIC) or the most recent Information Certificate Update. The Condominium Act imposes on corporations the obligation to send out New Owner Information Certificates. They must do so as soon as reasonably possible and, in any event, no later than 30 days after the buyer becomes an owner. To produce a NOIC, the condominium corporation must be made aware of the arrival of a new owner. The Condominium Act, imposes on new owners the obligation to give the condominium corporation written notice of the change in ownership. This notification requirement helps corporations maintain the record of owners and mortgagees.

Exam Study Guide

Lesson 1 | Page 13 of 18

Condominium Unit Use—Restrictions and Approvals by the Board of Directors

A condominium corporation’s board may reserve the right to approve a buyer. The corporation may restrict certain types of uses, as described in the rules and bylaws enforced by the board of directors. For example, in the industrial sector, the corporation may restrict the industrial processes on site and processes thought to be potentially harmful to the environment. In the retail sector, the condominium corporation may restrict the number of stores with similar products. Zoning regulates the uses of all properties in Ontario, and the declaration and bylaws can regulate specific uses of the development. The board may not make approvals that exceed the zoning regulations applicable to the property. A typical agreement of purchase and sale will include the present use of the property, but not normally the zoning designation.

Exam Study Guide

Lesson 1 | Page 14 of 18

Status Certificate

The status certificate provides a wealth of information for the resale buyer. The certificate is a document containing information regarding the operational, legal, and financial aspects of the condominium corporation. Upon request, the corporation is required to provide a Status Certificate for any unit within the corporation. As a salesperson, you should be familiar with all aspects of the status certificate. The corporation must provide the status certificate within 10 days to anyone who requests this document. The corporation is allowed to charge a fee for the status certificate, but it cannot exceed $100. The information contained within the status certificate and the accompanying documents are vital from a buyer’s perspective in fully understanding both the status of an individual unit and the overall operation of the condominium corporation. Status certificate content includes, but is not limited to: • Corporation’s address for service, directors’/officers’ names and addresses for service. • Statement of common expenses (including any arrears and payments in default for the unit). • Amount payable by the unit for common expenses. Exam Study Guide

• Particulars of any increase in common expenses for the unit since the start of the current fiscal year. Reasons for the increase must also be provided. • Statement concerning any assessments relating to the reserve fund since the start of the current budget year (including reasons for such assessments). • Information concerning any applications for amendments to the declaration. • Details of outstanding judgements. • Status of any legal actions being taken against the condominium corporation. • Current budget and the most recent audited statement, including the auditor’s report. • Copy of the current declaration, bylaws, and rules. • A listing of various current agreements; for example, management and insurance. • Statement that the person requesting the status certificate has the right to inspect agreements. • Owner compliance with current agreements regarding modifications that relate to the unit. • Particulars of the most recent reserve fund study and the amount in the fund (no earlier than at the end of a month within 90 days of the date of the status certificate), including any current plans to increase the fund. • Number of units leased for the fiscal year preceding the status certificate date. • Certificate or memorandum of current insurance policies. • Any planned or proposed additions, alterations, or improvements to the common elements, other assets of the corporation, or services. • A statement if a court has appointed an inspector pursuant to the Condominium Act.

Exam Study Guide

Lesson 1 | Page 15 of 18

Reviewing an up-to-date status certificate, often with the aid of a lawyer, allows a buyer of a condominium resale property to gain crucial information about a condominium corporation’s operations and practices. Question #3: What information can a buyer obtain from a status certificate? There are five options. There are multiple correct answers.

1

Details of increases to common expenses for units in the building in the beginning of the current fiscal year, as well as a rationale or explanation of the reasons for those increases

2

Location of unit on property, square footage, and points of access

3

An up-to-date copy of the declaration, as well as documentation of all bylaws and rules

4

Confirmation that the board of directors have secured all insurance policies required for the unit

5

Status of any legal actions or outstanding judgements relevant to the business affairs of the condominium corporation

Exam Study Guide

Lesson 1 | Page 16 of 18

Once a buyer becomes an owner of a unit in a condominium corporation, they will be entitled to a New Owner Information Certificate (NOIC). Question #4: Whose responsibility would it be to develop and provide a New Owner Information Certificate (NOIC) to a new owner of a condominium property? There are three options. There is only one correct answer.

1

The condominium board of directors

2

The condominium manager or management company

3

The declarant responsible for registering the condominium property in the land registry system

Exam Study Guide

Lesson 1 | Page 17 of 18

A prospective owner of a retail condominium unit wants to make changes to an exterior service entrance associated with the unit they are interested in purchasing. However, per condominium corporation bylaws, this doorway is considered a “common element” and cannot be altered without approval by the board, who are hesitant to allow it. Question #5: What should the salesperson do in this situation? There are four options. There are multiple correct answers.

1

Make an appeal under the Condominium Act which allows for owners to make alterations if they can demonstrate satisfactorily that it will not have an adverse effect on other units, detract from the appearance of other buildings, affect structural integrity, or incur additional expenses on the condominium corporation’s behalf.

2

Make an appeal to the condominium rules that dictate the terms of use for common elements.

3

Check the declaration and description, which dictate which parts of the building will be exclusive use common elements.

4

Seek the assurance of a friend who happens to be the original declarant of the condominium.

Exam Study Guide

Lesson 1 | Page 18 of 18

Congratulations, you have completed the lesson! There are two sections on this page with a summary of the key topics that were covered in this lesson.

Condominium governance structure

The developer is responsible for registering the declaration and description thereby creating the condominium corporation, but is not typically involved in condominium governance past the turnover meeting to the elected board of directors.

Impact of the Condominium Act on activities related to commercial condominiums

Bylaws are documented standard procedures and requirements regarding a condominium’s internal operations that involve governance. They must be registered as part of the declaration in the land registry office.

• The board of directors is responsible for overseeing the operations and welfare of the condominium corporation, often with the assistance of condominium managers, who help the board make the best decisions to ensure they are taking the best care of their corporation.

Rules are directives and regulations developed by a condominium corporation that promote the safety, security, and welfare of owners, as well as the property and assets of the corporation. When a buyer assumes ownership of a condominium unit, the corporation must send a New Owner Information Certificate (NOIC) to the new owners. The status certificate is a document containing information regarding the operational, legal, and financial dimensions of the condominium corporation. The corporation is required to give each person, so requesting, a status certificate with respect to a unit in the corporation.

Exam Study Guide

Lesson 2 | Page 1 of 25

Lesson 2: Commercial Condominium Uses

This lesson explores the differences between office, retail, industrial, and mixed-use condominiums, as well as issues shared by most commercial condominiums.

Exam Study Guide

Lesson 2 | Page 2 of 25

Office, retail, and industrial condominium owners share many of the same issues, considerations, and risks. It’s important for a salesperson to be able to differentiate between the uses of different commercial condominium types and know the different needs of buyers in each sector. This lesson will explore the differences between each type of commercial condominium and help you, as the salesperson, to understand how the different uses of condominium space lead to different needs from owners. Upon completion of this lesson, you will be able to describe the different types of commercial condominium use and the considerations, issues, and risks involved with: • Office-use condominiums • Retail-use condominiums • Industrial-use condominiums Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

Exam Study Guide

Lesson 2 | Page 3 of 25

There is a wide variety of industries and applications that can be found in a commercial condominium. While the Condominium Act impacts different condominium properties – both commercial and residential – in many of the same ways, the needs and considerations of owners across these sectors are quite varied. It is important for you, as a salesperson, to be able to differentiate between uses of condominium spaces in order to better serve your buyers.

Exam Study Guide

Lesson 2 | Page 4 of 25

Commercial Condominium Uses Owners in the commercial condominium sector might be involved in any number of industries. As a salesperson, you should be aware of the most common uses. The following five sections contain information about the different uses of commercial condominiums.

Office An office condominium is a unit that is typically part of a larger condominium building or complex. As with all condominiums, each unit is registered with its own title and can be bought and sold separately from all other units. The owner may share common spaces with other unit owners, such as washrooms, office and conference rooms, media rooms, elevators, cafés, parking, guest reception, cleaning facilities, and fitness centres. It may be cheaper for a business to lease than to buy in certain locations. Others may not want to commit to ownership when company operations could expand or shrink over time, requiring a possible relocation of the business.

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Retail A retail condominium is a single unit located in a retail complex such as a strip mall or a multi-use development. Each unit is registered with its own title and can be bought and sold separately. The condominium corporation’s bylaws may have noncompetition provisions. An owner will share common space with other unit owners, such as washrooms, public walkways, parking, janitorial facilities, lobbies, signage, landscaping, and HVAC.

Industrial Industrial condominiums can be used for industrial processes and are often purchased when a business owner wishes to acquire an asset that will accommodate an industrial business. Uses can include warehousing and distributing and light manufacturing. Industrial condominiums can include storage areas for a construction company. Industrial condominiums are normally not suitable for heavy industrial applications due to the potential for interference with other unit owners. Common elements may include signage, parking areas, shipping and receiving, truck aprons, landscaping, roadways, HVAC, electrical transformer stations, closedcircuit security systems, sprinklers, and fencing. Maintenance fees can often be higher than residential condominiums due to differing tax rates and increased utility costs, such as electricity and water. Exam Study Guide

Mixed-use A mixed-use condominium is usually a high-rise condominium complex with ground floor retail owned by the corporation and leased to retail tenants or owned by individual businesses. The floors directly above the ground level retail space are typically used as office condominium units, again owned or leased with the remaining floors being devoted to residential units. The hospitality industry includes restaurants, bars, and salons, that could both complement and benefit from the other uses in the development. These would typically be located on the main floor, with offices and residential units on the upper floors. This type of development offers a number of benefits to all owners. The residential owners may benefit financially from rents derived from the commercial spaces, if they are owned by the condominium corporation, and can take advantage of services from the commercial residents/owners. If the retail and commercial units are owned by the corporation and are rented out to tenants, then the rent derived from these units will offset the expenses associated with the entire development thereby indirectly subsidizing the operating costs of the residential units. These residential unit owners will own the corporation and all common elements which in this scenario would be the retail and commercial units. The retail and office businesses will benefit from an immediate market within the complex and the exposure of their business to the larger community, as these types of developments are often located in high-density neighbourhoods. Exam Study Guide

Shared facilities In the declaration, rules, or bylaws there may be a “shared facilities” agreement between the current condominium owner and another party. These other parties could include other condominium developments (which could, for example, include shared parking) or an independently owned property that is willing to share services, such as maintenance or other contracts. These agreements may establish shared parking, parking lights, snow/landscaping services, shared driveways/entrance/egress, shared storm/sanitary lines, or any easements. In these agreements, costs are allocated between the parties sharing the facilities. However, sometimes, conflicts can occur with respect to cost allocation. Shared facilities agreements can be complex. As a salesperson, you will need to be aware of the potential complications and ask whether or not a shared facilities agreement may be in place when encountering multiple uses, or multiple corporations sharing the same property.

Exam Study Guide

Lesson 2 | Page 5 of 25

Owners of office, retail, and industrial condominium units share many of the same concerns. It is important for a salesperson to be able to differentiate between these uses and know the different needs of customers in each sector. Question #6: Which one of the following commercial condominiums, with respect to the consideration, issue, or risk, has maintenance fees often higher than other condominium uses due to differing tax rates and has increased utility costs, such as electricity and water? There are four options. There is only one correct answer.

1

Office

2

Retail

3

Industrial

4

Mixed-use

Exam Study Guide

Lesson 2 | Page 6 of 25

In this lesson, you will first explore some of the most important topics that are common amongst all commercial condominiums. Later, you will understand issues and considerations related to specific commercial condominium uses. Next you will explore some of the considerations, issues and risks associated with commercial condominiums that you may encounter, when working with clients or customers. As a salesperson, you will need heightened awareness so that you can keep your clients or customers well informed.

Exam Study Guide

Lesson 2 | Page 7 of 25

Potential to Build Equity Ownership usually creates equity, which allows the value of a property to build over time. One of the benefits of condominium ownership is the opportunity for the real estate asset to appreciate in value, regardless of the success of a given business. Business owners often find themselves answering the question of whether to invest in growing their business, or to invest in property and real estate. The answer to this question will be dictated by a given customer’s personal goals and ambitions, as well as market conditions and economic factors. In many cases, purchasing a commercial condominium can give the business space to grow, while appreciating capital and creating equity at the same time.

Exam Study Guide

Lesson 2 | Page 8 of 25

Shell and Turnkey Units

A developer may sell units as a “turnkey operation,” which means that the developer, in consultation with the buyer, will finish the space to their specifications so that on closing the buyer will have a “business ready” unit. The costs of the finishing and customization work that the developer does will be included as part of the unit purchase price. At the other end of the spectrum, the buyer may wish to purchase the unit as a “shell space,” and either finish the space themselves or through a contractor. Shell spaces may already have rough-in plumbing, electrical work, and an HVAC system, which the buyer will finish to their needs and requirements. Usually, the developer or board of directors, acting on behalf of the condominium corporation, will insist on having the ability to approve any renovations to ensure that the unit will be compatible with all aspects of the condominium development.

Exam Study Guide

Lesson 2 | Page 9 of 25

Commercial Condominium Considerations There are a few key considerations, issues, and risks that are common across most categories of commercial condominiums. As a salesperson, you will need to be aware of these topics in order to adequately help a client make the right purchasing decisions. The following four sections contain information about each key consideration.

Rules, regulations, and bylaws All commercial condominium owners must comply with rules, regulations, and bylaws, and a board of directors must enforce compliance. A new buyer agrees to comply with the bylaws, rules, and regulations of the condominium. If an owner is not in compliance, a court can issue an order to bring that individual into compliance, or in extreme cases, the board of directors can submit an application requiring the owner to surrender ownership. A business is subject to the condominium rules, regulations, and bylaws and must seek permission to modify the unit or add signage, and sometimes to carry out a new type of business activity. This type of compliance may not suit every business.

Exam Study Guide

Signage Condominium corporation rules establish placement of signage, which is usually on the front of the unit, inside a lobby, or on a pylon sign. Rules may cover the type of signage and design characteristics. Signage attached to the building is most commonly on the front of the unit, and the unit owner has exclusive use of the common element to install a sign, subject to following the rules of the declaration. On the other hand, some developers sell individual space on a pylon sign. Usually when it is sold to a buyer, the sign space itself is unitized, and the buyer gets legal title to that space and pays property taxes and condominium fees (both usually small amounts). In turn, a unit owner can sell that pylon sign panel/space to another party or rent it out (if allowed in the declaration). If an owner sells and moves out, the cost of signage removal is the owner’s responsibility and they must also repair any damage done to the building as a result of the removal.

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Changes to common elements Condominium corporation rules can prohibit changes to common elements unless approved by the board of directors. Such changes will be a cost to the unit holder. If the board of directors reverses its decision, removal or changes will be at the owners’ expense. The common elements consist of all property within the condominium corporation, except the units. The clear delineation of units versus common elements is essential. As a salesperson, you must understand the scope of ownership when listing and selling condominiums. Common elements are held by the owners, as tenants in common (undivided interest), in proportions as set out in the declaration. One or more owners may have exclusive use of selected common elements, such as parking spaces and balconies. The board of directors may make an addition, alteration, or improvement to the common elements without owner approval, unless the owners request a meeting and vote against the proposed work. Additions, alterations, and improvements of a substantial nature require approval of 66 per cent of the owners. Owners may make additions, alterations, and improvements to the common elements (for example, installing a patio area or fence on an exclusive use common area) but are subject to board approval, a formal agreement and other criteria as set out in the Condominium Act.

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Garbage disposal A condominium corporation can determine where garbage is stored and how often it is removed, including maintenance fees for garbage handling. This information is often detailed in the site plan approval and land development agreements. Toxic waste is not included in the normal waste of a business and is a separate issue in condominium management. Garbage disposal can be a complex issue in commercial condominiums, depending on the owners. The rules are usually detailed and must be followed by the owners to avoid hazardous substances ending up in the general municipal waste disposal system.

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Lesson 2 | Page 10 of 25

Commercial Condominium Considerations, continued As a salesperson, you will need to be aware of a few more key considerations, issues, and risks involved with most categories of commercial condominiums. The following four sections contain information about each key consideration.

Property maintenance Maintenance of the common elements is the responsibility of the condominium corporation. Maintenance of the units, though, is the responsibility of owners. Maintenance fees are established on an annual basis where projected costs are estimated and apportioned to unit owners. The cost is often expressed as a dollar amount per sq. ft. A maintenance plan provides for the orderly upkeep of the managed property. Developing a plan typically involves four steps: 1. Assessing the property’s needs. 2. Identifying the capabilities of on-site staff and equipment. 3. Estimating the time each job will take. 4. Rearranging the maintenance tasks according to personnel. Maintenance can include: • Routine maintenance • Maintenance of grounds, including lawn care and snow removal • Cleaning and inspection of HVAC units Exam Study Guide

• Windows • Life safety systems • Water treatment equipment • Hallways and flooring • Storage areas • Equipment owned by the development (such as lawnmowers or snowblowers)

Surveillance and security Usually, building surveillance and security fall under the common elements of a condo. They can include fencing, security guards, CCTV, alarm systems, controlled entry, and an after-hours controlled exit. An individual owner can have their own system such as CCTV, bio-security, or a card system.

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Common expenses Common expenses involve costs relating to the performance of the objects and duties of the corporation, including all expenses specified as common expenses in the Act or in a declaration. The payment of common expenses and the amount of such expenses is an important consideration when purchasing a condominium. Owners contribute common expenses in proportions outlined in the declaration. Any default can result in a lien against the owner’s unit (including legal costs and other expenses), which can be enforced in the same manner as a mortgage. No owner is exempted from the requirement of paying common expenses, even if they have waived or abandoned the right to use the common elements, is making a claim against the corporation or has been restricted from using such common elements.

Booking shared spaces The ability to book shared common areas such as meeting rooms is defined by the condominium corporation, usually on a first-come first-served basis. There can be charges for the use of these areas. Booking can be done either via a property manager or electronically.

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Lesson 2 | Page 11 of 25

A buyer is interested in securing a unit in a condominium building for their small greeting card company, which has recently expanded and is in need of a new office space. The company consists of approximately 50 employees, and this location will be the headquarters of the operation, while the actual products themselves will be printed and sold offsite at a location that the buyer already owns. Question #7: Which of the following should the salesperson consider in this situation? There are five options. There are multiple correct answers.

1

Rules regarding the placing of signage on the front of the building and on pylons

2

Building-wide surveillance and security

3

Conflict with other retail operations in the building

4

Access to common areas and shared spaces

5

Possibility of other owners having exclusive use rights to any loading docks

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Lesson 2 | Page 12 of 25

A salesperson is showing a unit in a large office building to a client looking to purchase a unit for their general insurance brokerage. The client is interested in the property. Given the building’s location and exposure to a main arterial road, the client would like to install a large neon sign on the exterior of the building to promote their business. Question #8: What should the salesperson advise their client in this situation? There are three options. There are multiple correct answers.

1

They will need permission from the board of directors to install this signage

2

Their responsibility for maintenance fees will always be subject to a surcharge

3

They will be responsible for installation, removal, and repair of the signage

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Lesson 2 | Page 13 of 25

Office condominiums have proven attractive to those seeking independence from occupancy costs and landlord controls found in commercial leasing. The office condominium market tends to parallel the office leasing market. Today’s office condominiums offer a variety of facilities and services. Those focused on premium business and professional applications may include shared boardrooms, reception areas and meeting room space, full building video surveillance, entry pass card systems, computer servers, fibre optic lines and IT support, and fully-featured telephone systems.

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Lesson 2 | Page 14 of 25

Key Considerations of Office-Use Condominiums As a salesperson, you should be familiar with a few key considerations, issues, and risks that are most prevalent with office-use condominiums in particular. The following six sections contain information about each key consideration for office-use condominiums.

Lack of expansion opportunity If all units are sold and there is no space to expand, a business may figure out other floors to expand. However, the operation may become fractured. Running a business on multiple floors of a complex can impact efficiency. It can become disjointed, interrupt workflow, and may impact management – all of which could affect profitability.

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Bylaws and rules Bylaws and rules will include: Interior improvements, partition walls, lighting, noise generating equipment, numbers of employees (also controlled by Building Code of Ontario and Fire Code), business hours, and internal security systems.

Insurance Consideration for insurance includes the types of insurance risks that must be covered and to what dollar amount. The condominium corporation is often coinsured with a unit owner in the event that a lawsuit could be against both the owner and condominium corporation.

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Shared reception Shared reception, mostly found in office condominiums, has pros and cons. It is cost-saving for the business, but the receptionist should have a thorough understanding of all businesses and their services within the building as they need to refer callers and guests to the appropriate parties. Confidentiality is also a significant concern. A receptionist must understand the importance of confidentiality and not speak publicly about businesses or share information with another party. An alternative may be an electronic entry system for the unit owners that could replace or diminish the role of a receptionist.

Parking access A commercial office condominium should provide dedicated parking for business owners and guests. Parking should also be available for deliveries, employees, and accessible parking. Ideally, the parking should offer 24/7 surveillance and controlled access for employees. Restrictions could be placed on the amount of time a customer/visitor could park on site. A parking charge may be in place for employees and visitors.

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Maintenance Office-specific common area maintenance would typically include lawn care, snow removal, janitorial services, windows, elevators, common washrooms, common areas and meeting rooms, and the HVAC system.

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Lesson 2 | Page 15 of 25

A buyer is looking into a unit in an office condominium building that they think might be a great fit for their business. In particular, they are excited about the vast array of amenities and services available in this building. However, they are eager to know more, and do not want to wait the potential period of time it may take to receive a Status Certificate or do their due diligence to iron out some of the details. The salesperson tells the buyer that all the information about the amenities and services may not be readily available as some of them might be covered under rules, regulations, and bylaws. Question #9: Which of the following would likely be controlled by the rules, regulations, and bylaws? There are five options. There are multiple correct answers.

1

Shared use of meeting rooms

2

Administrative services provided by reception

3

Information to be included in a status certificate

4

Use of audio/visual equipment in conference rooms

5

Restricted hours to access the premises

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Lesson 2 | Page 16 of 25

Many commercial condominiums consist of retail businesses, either in multi-use buildings, strip malls, shopping centres, or other configurations. With intense competition from online retailers, traditional storefront operations are now increasingly focused on superior design and heightened customer service to attract and retain customers. Fortunately, retailers have always demonstrated marketing creativity knowing that shopping is not only a necessary activity, but is also an experience in itself. Many innovations are now appearing to enhance streetscapes, store configurations, merchandising layouts, and interior designs to attract today’s consumer.

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Lesson 2 | Page 17 of 25

Key Considerations of Retail-Use Condominiums As a salesperson, you should be familiar with a few key considerations, issues, and risks that are most prevalent with retail-use condominiums in particular. The following three sections contain information about each key consideration for retail-use condominiums.

Surrounding uses and limitations on retail uses Retail businesses look for synergies or conflicts with other businesses nearby. Will surrounding use detract from a business? Are neighbouring property uses complimentary or competitive? Owners have to consider any limitations and restrictions imposed by rules and bylaws (for example, hours of operation). There may be limits to fixtures and stocking, payment methods, gift cards, or merchandise. Alternatively, seasonal decorations might have to be consistent and global.

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Bylaws and rules Retail condominium bylaws are unique to each development, but there are some common issues. The declaration and/or rules may have provisions for the governance of “exclusive use” areas. “Exclusive use” rights can be complex. Example: A restaurant owner in a commercial condominium has an exclusive outside patio attached to their unit for the restaurant’s sole business use. However, if that restaurant owner has the right to exclusive use, but does not actually use the amenity, then rights of use might revert to the declarant or condominium corporation after a certain time period. Other common issues include: • Permitted uses and non-competition among the owners • Maintenance fee content such as window washing and seasonal decorations • Hours of operation • Business conduct

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Loading, unloading, and parking Just as in office-use condominiums, retail condominiums should provide dedicated parking for business owners and customers. Parking should also be available for deliveries, employees, and accessible parking. Ideally with 24/7 surveillance and controlled access for employees. A potential buyer should explore the following issues: • Is there available parking for commercial trucks or vans to unload/deliver goods? • Has the municipality provided commercial loading zones? • Is there a rear door into the unit, or a common shipping area? • Are there restricted hours when deliveries can be made? Some condominiums may attach “exclusive use areas” to certain units to allow for delivery. Example: A unit owner who operates a grocery store is the sole unit owner in the commercial condominium to have an outside exclusive use dock area (for shipping/receiving of goods) attached to its unit.

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Lesson 2 | Page 18 of 25

A salesperson is working with a buyer looking to purchase a retail unit in a mixed-use high-rise condominium building. The unit satisfies many of their requirements, but they are not familiar with any of the restrictions on the property. Although this unit is likely to satisfy many of the client’s business needs, they are also considering leasing a portion of their space to an affiliated business. Question #10: What should the salesperson do in this scenario? There are three options. There are multiple correct answers.

1

Ensure that the agreement of purchase and sale is conditional on receipt of an up-to-date status certificate that details any restrictions on the business.

2

Suggest that the client lease out the space, as there are typically no restrictions on leasing your property as long as the affiliate business is in a related industry.

3

Verify whether or not there are any non-competition provisions that need to be satisfied.

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Lesson 2 | Page 19 of 25

While industrial real estate shares certain common characteristics with commercial office and retail, many distinctive needs are associated with this specialty field. In a market where tangible goods drive the market, you may come across unique terminology associated with the industrial world of fabrication, production, packaging, warehousing, and distribution. Your industrial client may have special needs that require substantial electric power, abundant water resources, and/or direct highway access. Size and shape also play a role in figuring out storage, parking, and docking facilities. Cost is another key consideration.

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Lesson 2 | Page 20 of 25

Key Considerations of Industrial-Use Condominiums As a salesperson, you should be aware of a few key considerations, issues, and risks that are most prevalent with industrial-use condominiums in particular. The following five sections contain information about each key consideration for industrial-use condominiums.

Compatibility with other industrial businesses For zoning purposes, permitted uses will vary by municipality and commonly include manufacturing and warehousing, research/training facilities, transportation uses including truck and rail terminals, public works depots, contractor yards, service and repair operations, electric power facilities, and automotive service establishments. In recent years, industrial areas have become more varied in terms of land use with the appearance of large-scale entertainment centres, recreational facilities, fitness clubs, fraternal organizations, and large vertical market retailers. This wide diversity of uses has served to blur traditional lines separating retail/office and industrial markets. As for actual placement within a community, industrial properties are ideally grouped in planned areas to minimize impact on adjacent uses. Buffer zones are frequently employed. Example: A residential zone buffers the agricultural zone from the commercial, which in turn buffers the residential zone from light industry, and light industry serves to separate the more severe impact of heavy industry. Exam Study Guide

Light industry is normally classified as warehouses and non-offensive manufacturing operations. Heavy industry would cover such operations as machine works and automotive, steel, and chemical plants.

Limitations on space Limitations on space can come from a variety of sources starting with architectural restrictions emanating from the site plan control process, such as building and unit size or height. Local bylaws can regulate permitted uses and often define what uses can be considered “office”. In addition, parking and signage can also be regulated through the municipal bylaw process. The condominium declaration, bylaws, and rules and regulations can further restrict use, for example noncompetition between the owners, hours of operation, parking allocations, maintenance fees, and services provided by the corporation.

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Rules and bylaws All commercial condominiums are governed by regulations, rules, and bylaws. For industrial condominiums, there may be specific bylaws and rules that may, for example, restrict the types of operations, determine vehicle parking, oversee truck storage, and rule on external material storage. Such condominiums may also have bylaws on insurance requirements, obligation to co-insure with the condominium corporation, and waste disposal. The bylaws may also govern shipping and receiving through a rear access door for a common area.

Restrictions on use Commercial condominiums may restrict the types of businesses that can locate in the building; for example, light industrial as opposed to cement plant or metal stamping.

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Access to Parking Parking is an integral part of most commercial projects. Industrial buildings typically rely on surface parking, in contrast with the structured parking garages employed in larger retail complexes. Industrial units will also typically need loading docks with truck aprons, where oversize vehicles, such as tractor trailers, can be parked during loading and unloading. Additionally, there are typically “truck courts”, which are areas devoted to the storage of vehicles and trailers awaiting loading or unloading. An important consideration for industrial buildings is that the parking area must be spacious enough to accommodate the wide turning radius of oversized vehicles.

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Lesson 2 | Page 21 of 25

A salesperson is working with a client whose business consists of assembling and packaging writing products for distribution to office supply retailers and some end-users. Their business has grown and they need more space for additional products and a third shift to production. The expansion will require shipping/receiving facilities to be operated around the clock, Monday to Friday, and a 2,000 sq. ft. showroom and office area. The salesperson has located a 10,000 sq. ft. condominium unit located in a multi-unit facility. Question #11: Would the following be a "key-consideration" for the client? There are three options. There are multiple correct answers.

1

Rules and bylaws regarding operating hours

2

Local restrictions regarding permitted uses

3

Bylaws regarding retail operations onsite

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Lesson 2 | Page 22 of 25

A salesperson is working with a client whose business consists of assembling and packaging writing products for distribution to office supply retailers and some end-users. Their business has grown and they need more space for additional products and a third shift to production. The expansion will require shipping/receiving facilities to be operated around the clock, Monday to Friday, and a 2,000 sq. ft. showroom and office area. The salesperson has located a 10,000 sq. ft. condominium unit located in a multi-unit facility. Question #12: Access to parking for vehicles would be a key-consideration for the client. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 2 | Page 23 of 25

A salesperson is working with a client whose business consists of assembling and packaging writing products for distribution to office supply retailers and some end-users. Their business has grown and they need more space for additional products and a third shift to production. The expansion will require shipping/receiving facilities to be operated around the clock, Monday to Friday, and a 2,000 sq. ft. showroom and office area. The salesperson has located a 10,000 sq. ft. condominium unit located in a multi-unit facility. Question #13: Restrictions on noise, dust, and contamination that may interfere with neighbouring units would be a key-consideration for the client. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 2 | Page 24 of 25

A salesperson is working with a client whose business consists of assembling and packaging writing products for distribution to office supply retailers and some end-users. Their business has grown and they need more space for additional products and a third shift to production. The expansion will require shipping/receiving facilities to be operated around the clock, Monday to Friday, and a 2,000 sq. ft. showroom and office area. The salesperson has located a 10,000 sq. ft. condominium unit located in a multi-unit facility. Question #14: Exterior, product advertising opportunities would be a key-consideration for the client. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 2 | Page 25 of 25

Congratulations, you have completed the lesson! There are four sections on this page with a summary of the key topics that were covered in this lesson.

Different types of commercial condominium use and the common considerations

Considerations common to all commercial condominiums include compliance with all rules, regulations, and bylaws, signage, changes to common elements, garbage disposal, shared utilities, property maintenance, surveillance and security, and booking shared spaces.

Office unit considerations

Some of the key concerns that office condominium owners contend with include lack of expansion opportunity, shared reception, and parking access.

Retail unit considerations

Some of the key concerns that retail condominium owners contend with include surrounding uses, limitations on retail uses, and loading, unloading, and parking requirements.

Industrial unit considerations

Some of the key concerns that industrial condominium owners contend with include restrictions on use, compatibility with other industrial businesses, limitations on space, and access to parking.

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Lesson 3 | Page 1 of 12

Lesson 3: Key Considerations for New and Resale Condominiums

This lesson focuses on the differences between new and resale condominiums, exploring key characteristics of each.

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Lesson 3 | Page 2 of 12

There are important differences between residential condominiums and commercial condominiums units. Next, you will learn about various issues and considerations as they apply to new commercial condominiums as compared to resale units. Upon completion of this lesson, you will be able to: • Identify key issues and the effects of each for new commercial condominiums • Identify key issues and the effects of each for resale commercial condominiums 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

You will begin this lesson by exploring key issues and considerations related to new commercial condominiums, rather than resale units. In assignment transactions, the developers will sell the right to occupancy before the property is actually constructed. When a buyer enters into a pre-sell/construction agreement of purchase and sale, they may sell their contractual interest with the developer to another individual or legal entity, who will then exercise the rights and obligations contained in the pre-sale agreement. As a salesperson, it is essential that you perform your due diligence when working with sellers and buyers of new commercial condominiums so that you can help them be fully informed during their decision-making.

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Lesson 3 | Page 4 of 12

New Commercial Condominiums – Key Issues We will discuss issues specific to the commercial condominium market. The following five sections contain information about each key issue related to new commercial condominiums.

Municipally specified levies Any cost that a municipality incurs to provide services to a new condominium development would be charged to the developer in the form of “levies”, or development charges. These additional expenses would be passed on to buyers or reflected in the cost of the new condominium units. Keep in mind that these levies would apply to all new construction projects, not just to commercial condominiums.

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No Tarion warranty Commercial condominiums do not have the Tarion warranties, which only apply to homes. The main exception would be if there is a residential unit in a mixed-use development. As a salesperson, you may need to refer the new owner to the developer for answers about the warranties on a new commercial unit.

Site plan and site plan agreements A buyer may obtain and review a copy of any site plan, which visually depicts all of the features of an ongoing construction project. As a salesperson, you should recommend that any buyer clients review the site plan, if available, and confirm with the developer that all site plan agreements have been complied with, and that no further action will be required by a new board of directors. Statements to this effect may also be included in a Status Certificate, Periodic Information Certificate (PIC), and/or New Owner Information Certificate (NOIC).

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Timing of occupancy and registration Often in the sale of new condominium units, buyers of new units can occupy the unit prior to registration of the new project. The pre-registration occupancy period can be lengthy, and the buyer would be required to enter into an occupancy agreement and pay occupancy fees to the developer. When the development has been registered and deeds have been obtained for all the units, ownership can then officially be transferred to the buyer. As a salesperson, you should inform a buyer of this situation and recommend that they get independent legal advice regarding the occupancy agreement.

Potential business conflicts Unit owners who take early possession may be concerned about future owners, as they could be in competition with their business. The buyer should seek clarification from the developer in the agreement of purchase and sale that other owners may, or may not, compete directly with the buyer’s business. Or, the buyer should seek clarification that future owners will, or may not, be complimentary to the buyer’s business activities.

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Lesson 3 | Page 5 of 12

New Commercial Condominiums – Key Issues, continued Some additional key issues that you may encounter when working with clients in new commercial condominium transactions. The following six sections contain information about each key issue.

Occupancy costs In instances where a new owner has entered into an occupancy agreement, they will typically be responsible for paying occupancy fees. The purpose of these occupancy costs is to allow the developer to recover any costs associated with a specific unit until the project is ready for registration and ownership is transferred to buyers. Any occupancy fees paid does not have to be applied to the purchase price, as occupancy fees are intended to cover the developer’s costs associated with a particular unit on a pro-rated basis, such as taxes, mortgage interest, or insurance.

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Proposed considerations before turnover When working with a potential client, as a salesperson, you must have a thorough understanding of governance processes, including from the time the developer appoints the first board, up through the turnover meeting. Except in the most extreme cases, a developer usually does not have major issues or concerns pertaining to new units before turnover. They will focus on sales figures, new owners settling in, construction progress reports, and any internal unit modifications.

Zoning To protect the interests of clients, as a salesperson, you must confirm that the zoning bylaw will permit the client’s intended use of the unit. This can be accomplished by contacting the municipal office. Most municipalities have zoning information online that you will be able to reference as well.

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Parking As a salesperson working with buyer clients, it will be your responsibility to determine the available parking with respect to individuals working in a unit, as well as visitors and customers. Review of the site plan for a new development would assist with that process. Otherwise, the property manager should provide sufficient information on parking availability and allocation.

Commercial unit renovations New commercial condominium units are often sold as “shell” space, meaning that exterior walls, ceiling, and floors are finished to a preliminary standard. Further finishing of the space is typically the buyer’s responsibility. In some instances, buyers will require specific refurbishments to be made to their unit to accommodate their business. These requests are usually discussed with a developer and the changes are usually approved. Costs are added on to the total cost of the unit. As a salesperson, you will document any improvements that the buyer client would like to make and include those as a schedule in the agreement of purchase and sale. The costs and specifications could be added to the agreement by way of an amendment. Exam Study Guide

Insurance As a salesperson, you would advise the buyer to insure their own unit (to the boundaries specified in the declaration), contents, and business, noting what insurance is part of the condominium corporation and what would be required by the owner. Glass coverage should be carefully assessed since windows may not be considered part of common elements. Commercial insurance companies often have packages that address these risks.

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Lesson 3 | Page 6 of 12

A salesperson is working with a buyer interested in buying a new commercial condominium, which has been completely constructed, and the management of the condominium corporation has been turned over to the elected board of directors. Question #15: Which of the following actions would be the salesperson’s responsibility in this situation? There are four options. There are multiple correct answers.

1

Confirm that the zoning bylaws will permit the client’s intended use of the unit.

2

Determine whether or not the occupancy agreement requires the owner to pay any occupancy fees.

3

Determine whether the building has adequate parking for owners, staff, and customers.

4

Determine what insurance is the responsibility of the owner, as compared to the responsibilities of the condominium corporation.

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Lesson 3 | Page 7 of 12

A salesperson is reviewing the agreement of purchase and sale for a new commercial condominium with their buyer client. The salesperson notes that occupancy before registration will be required and that the agreement does not address non-competition among the unit owners. The buyer asks the salesperson for clarification of these matters and guidance with respect to non-competition. This is an important issue for the buyer. Question #16: How should the salesperson respond? There are three options. There are multiple correct answers.

1

The salesperson should note that an “occupancy agreement” is attached to the agreement of purchase and sale and explain that the buyer may have to occupy the unit before it closes and pay a fee to the developer. When the project is registered, then the transaction will close.

2

The salesperson should explain that the occupancy fee is the equivalent of “fair market rent” and will be deducted from the final purchase price on closing.

3

The salesperson should explain that currently there are no other businesses in the development that could be considered competition for the buyer. However, it is recommended that a clause be inserted in the agreement of purchase and sale requiring that the developer not sell, or permit to be leased, a space that will be in direct competition to the buyer’s business.

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Lesson 3 | Page 8 of 12

Earlier in this lesson, you learned about considerations regarding brand new commercial condominiums. You will now learn about an equally common market – resale units, which have a very different set of key issues. As a salesperson, it will be important for you to be aware of the differences between new units and the resale market, so that you are well-equipped to best serve your clients.

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Lesson 3 | Page 9 of 12

Resale Condominiums – Key Issues Key issues regarding the resale of commercial condominiums involve the status certificate, capital improvements or maintenance issues, and resale renovations. The following six sections contain information about each key issue.

Status certificate As part of a buyer’s due diligence investigation, any agreement of purchase and sale should be conditional on the buyer receiving and approving a status certificate. Reserve fund information is a mandatory inclusion in the status certificate, and would indicate any proposed major capital improvements or maintenance issues. It will also reveal any special assessments that should be necessary to carry out maintenance items and capital improvements. The buyer should keep in mind that a property manager can charge a fee for preparing and distributing a status certificate, and the buyer’s lawyer will most likely charge a fee for reviewing a status certificate.

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Capital improvements or maintenance issues When preparing to list and sell commercial condominiums, many material facts need to be determined, all of which will be available in the status certificate. These may include items like any recent capital improvements to the unit/development that would add value, or recent maintenance issues that would be of benefit to the buyer, such as major services associated with an HVAC unit. If capital improvements have not been made or maintenance issues addressed, as a salesperson, you should determine a timeline for when they will be carried out and share it with clients. You will also need to determine if the reserve fund has sufficient capital to cover these costs, or if the board of directors will levy a special assessment.

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Resale renovations In some cases, the new owner may require that modifications be made to the existing unit. This could be a matter of negotiation between the seller and the buyer. In these cases, your role as a salesperson would be to accurately document the required work and ensure it becomes part of any agreement of purchase and sale. Completion of renovations would be a matter of inspection before the closing of the transaction or as otherwise agreed by the seller and the buyer. Any modifications to the unit must be made in accordance with various regulations, not the least of which may be the declaration and bylaws. Occasionally, the buyer’s intended requirements may not be consistent with these restrictions. Municipal building permits are often required as part of the building code requirements and the board’s approval.

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Permission for renovations Before any modifications are made to a unit that may impact the common areas, there would need to be a discussion with the board of directors, who would need to approve any renovations. In many cases, the board of directors may reserve the right to approve any and all renovations and improvements to the unit itself, as well. As a salesperson, you will need to make sure the buyer is aware that they cannot make changes to common elements without board permission. This should be documented in the resale agreement. As with all real estate in Ontario, such renovations would be subject to the Ontario Building Code and any condominium Workplace Safety and Insurance Board and Occupational Health and Safety Act requirements. These requirements may include indemnifying the board of directors against lawsuits and an assurance that tradespeople will be compliant with all other requirements, including compliance with the Occupational Health and Safety Act and the Workplace Safety and Insurance Board.

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Permit for renovations Before any renovations or modifications are undertaken, the unit owner or contractor may need to obtain a building permit through the local municipality. For example, if the electrical system is being modified, a permit must be obtained from the electrical safety authority. Alterations to exclusive use common areas or common elements will require the owner to enter into an agreement with the condominium corporation, as per the Condominium Act.

Remaining warranty As a salesperson, you must determine any remaining warranty that could be assumed to be otherwise applicable to a new owner, as well as any warranties to improvements to a unit or upgrades to capital equipment. Warranties would be a material fact and may enhance saleability and value of a condominium unit.

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Lesson 3 | Page 10 of 12

A salesperson is working with a buyer who is interested in buying a retail unit in a low-rise, mixed-use development that has recently gone on the market. The client wants to run a toy store in this unit, which is currently occupied by an electronics retail chain. As part of negotiations surrounding the purchase of the unit, the seller has mentioned that the HVAC systems of neighbouring units have been repaired and updated, but not the one in the unit for sale. Question #17: Which of the following statements regarding the salesperson’s obligations before finalizing and approving the agreement of purchase and sale are true? There are three options. There are multiple correct answers.

1

The client and salesperson should request a status certificate.

2

The buyer should investigate the timeline of ongoing maintenance to HVAC systems.

3

Given the retail nature of the shopping centre, zoning will not be a problem and need not be investigated.

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Lesson 3 | Page 11 of 12

A client is interested in making renovations to a unit they are buying in an existing office condominium building. They want to hire a contractor to knock down one of the interior walls in the existing unit in order to make their office more of an “open” floor plan. Question #18: Which of the following would the salesperson recommend to their client? There are four options. There are multiple correct answers.

1

Obtaining permission from the board of directors

2

Entering into an exclusive use agreement, as per the Condominium Act

3

Acquiring a building permit from the municipality

4

Reviewing declarations and bylaws

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Lesson 3 | Page 12 of 12

Congratulations, you have completed the lesson! There are two sections on this page with a summary of the key topics that were covered in this lesson.

Key issues for new commercial condominiums

Any cost that a municipality incurs to provide services to a new condominium development would be charged to the developer in the form of “levies”, and would typically be passed onto buyers. As a salesperson, you should recommend that the buyer review the site plan, if available, and confirm with the developer that all site plan agreements have been complied with, and that no further action will be required by a new board of directors. If a buyer occupies the unit before registration and turnover to the board of directors, they would be required to enter into an occupancy agreement and pay occupancy fees to the developer. To protect the interests of clients, as a salesperson, you will need to confirm that the zoning bylaw will permit buyer’s intended use of the unit. You will document any pre-occupancy renovations that the buyer and the developer agree upon and would include them as a schedule in the agreement of purchase and sale. You should advise the buyer to insure their own contents and business, noting what insurance is part of the condominium corporation and what would be required by the owner.

Key issues for resale commercial condominiums

As part of a buyer’s due diligence, any agreement of purchase and sale should be conditional on the buyer receiving and approving a status certificate. If there are capital improvements or ongoing maintenance issues, as a salesperson, you should make sure everything is properly documented, so that you can share that information with your buyers. Any renovations or modifications that the seller and the buyer agree upon before occupancy must be documented in the agreement of purchase and sale. Exam Study Guide

Before any modifications are made to a unit that may impact the common areas, there would need to be a discussion with the board of directors, who would need to approve any renovations. In many cases, the board of directors may reserve the right to approve any and all renovations and improvements to the unit itself, as well. Alterations to exclusive use common areas or common elements will require the owner to enter into an agreement with the condominium corporation, as per the Condominium Act.

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Lesson 4 | Page 1 of 9

Lesson 4: Due Diligence Obligations of a Salesperson

This lesson dives more specifically into your obligations as a salesperson in working with clients in the commercial condominium space.

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Lesson 4 | Page 2 of 9

In this lesson, we will outline your role as a salesperson, and your compliance obligations in selling commercial condominiums and working with clients. Upon completion of this lesson, you will be able to: • Review a salesperson’s role and compliance obligations for selling commercial condominiums 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

As a salesperson, you have specific obligations regarding financial, zoning, due diligence, and declaration/rule adherence considerations when trading in commercial condominium units.

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Lesson 4 | Page 4 of 9

Obligations – Financial You learned that, as a salesperson, you must ensure that your client understands their financial obligations as a unit owner. These obligations are almost the same as in residential condominiums. A unit owner will be responsible for paying maintenance fees, special assessments, and any other financial obligations authorized by the board of directors. From an operational perspective, a unit owner could be required to carry out business in accordance with the stipulations in the condominium declaration bylaws, rules, and regulations, in some cases, they may be restrictive in nature.

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Lesson 4 | Page 5 of 9

Obligations – Zoning

You will have an obligation to a client, as a salesperson, to verify the zoning of the condominium building to confirm that the client’s intended use is permitted. Zoning will also stipulate what activities cannot be carried out. You can verify zoning requirements by contacting the municipal office or online through the municipality’s website. An agreement of purchase and sale will define the present use of the unit, and the buyer’s lawyer will confirm, as part of the closing process, that the present use can be lawfully continued. If the buyer’s intention is to use the property for a different purpose than the current use of the unit, then the agreement of purchase and sale should include a condition allowing the buyer to confirm that their intended use is in compliance with existing zoning requirements.

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Lesson 4 | Page 6 of 9

Obligations – Declaration and Bylaws/Rules

Obligations – Declaration and Bylaws/Rules The declaration and description are the constitution for the condominium corporation and the development. They detail the number of board members, banking details, and unit descriptions. A buyer must familiarize themselves with the condominium declaration and description, as well as all bylaws and rules that will apply to their ownership of the condominium, which will dramatically affect the use of the property and the unit. As a salesperson working with buyer clients, you should review the declaration, bylaws, and rules, and note any restrictions that may be incompatible with, or otherwise impact the intended use of the buyer. When working with the seller, you should contact the property manager to determine if there are unique circumstances that require disclosure before entering into an agreement of purchase and sale. However, in either case, this does not replace

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legal advice, and you would advise your client to consult with their lawyer to determine how restrictions will affect their business activities. The declaration contains both required and optional information as set out in the Condominium Act. Required information includes: 1) Statement that the Condominium Act governs. 2) Consent of registered mortgages. 3) Proportionate share of common elements appurtenant to each unit. 4) Proportionate contribution of unit owners to common expenses. 5) Corporation address for service. 6) Common elements for designated units (exclusive use common element), if applicable. 7) Any conditions required by approving authority. The description contains a series of plans, surveys and specifications describing the property and structures, together with certificates attesting to compliance and accuracy, for example: 1) Plan of survey. 2) Architectural plans and Certificate of Architect. 3) Unit boundaries. 4) Unit shape, dimension and location. 5) Structural plans (if any) and Certificate of Engineer. 6) Certificate of Ontario Land Surveyor. 7) All interests appurtenant to the land that is included in the property. Documentation will vary based on individual projects.

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Lesson 4 | Page 7 of 9

A buyer client, having viewed an office condominium building, is interested in purchasing a unit that appears to satisfy their needs for a general insurance brokerage. The buyer has expressed many concerns to their salesperson regarding the use and costs associated with the common elements. Many of these common elements are very appealing, like the shared reception area, office equipment, and meeting rooms. The salesperson advises the client that their concerns can be addressed during the due diligence phase of the purchase and that they will prepare an agreement of purchase and sale, which will include a condition for the review and approval of the status certificate as well as any other matter that will affect the buyer’s enjoyment of the unit. A 10-day conditional period should be sufficient. Question #19: Which of the following would not be addressed during the due diligence phase of the transaction? There are four options. There is only one correct answer.

1

Review and approval of the rules and regulations regarding the use of common elements

2

Parking restrictions and entitlements

3

Financial reports and the balance of the reserve fund

4

Contracts with third-party contractors for management, exterior maintenance, and garbage collection

Exam Study Guide

Lesson 4 | Page 8 of 9

Upon review of the status certificate, a buyer of a commercial condominium unit and their lawyer note that the condominium corporation has entered into a shared facilities agreement with a neighbouring property regarding a parking garage located on the premises. Question #20: Which of the following would be relevant to the buyer’s due diligence? There are five options. There are multiple correct answers.

1

Duration of the agreement

2

Control and means of access to shared facilities

3

Shared responsibility of maintenance and fees

4

Exclusive use rights to parking spaces

5

Special assessment allocations

Exam Study Guide

Lesson 4 | Page 9 of 9

Congratulations, you have completed the lesson! There is one section on this page with a summary of the key topic that was covered in this lesson.

Salesperson’s role and compliance obligations for selling commercial condominiums

Often due diligence surrounding the purchase of a commercial condominium unit takes more time than is typically needed for the purchase of a residential unit. As a salesperson, you must recognize the complexities associated with various due diligence obligations and construct an agreement of purchase and sale so that sufficient time is allocated to the various activities and approvals. Financial obligations will be almost the same as in residential condominiums, including paying maintenance fees, special assessments, and any other financial obligations authorized by the board of directors. As a salesperson, you will be obligated to verify the zoning of the condominium building to confirm that the client’s intended use is permitted. You would also review the declaration, bylaws, and rules for restrictions that may be incompatible with, or otherwise impact, the intended use of the unit. However, this does not replace a legal review, and you would advise your client to consult with their lawyer to determine how these restrictions will affect their business activities.

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Lesson 5 | Page 1 of 12

Lesson 5: Gathering of Key Information

This lesson continues to explore the information that you should be prepared to gather on behalf of your clients, as well as what to figure out for in visual inspections.

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Lesson 5 | Page 2 of 12

Thus far in this module, you have learned important factors you will need to know as a salesperson regarding commercial condominium units. This lesson covers more information you should be prepared to gather on behalf of your clients, as well as what to figure out for in visual inspections, when selling commercial condominium units. Upon completion of this lesson, you will be able to: • Explain what is unique about visual inspections of a commercial condominium and common elements • Describe how to gather key information about a new commercial condominium • Describe how to gather key information about a resale commercial condominium Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

Exam Study Guide

Lesson 5 | Page 3 of 12

This lesson begins with an exploration of a few key factors that, as a salesperson, you would understand during visual inspections. When working with both seller and buyer clients, you will be responsible for assessing the conditions and characteristics of a unit before listing it or proceeding with an agreement of purchase and sale.

Exam Study Guide

Lesson 5 | Page 4 of 12

Visual Inspections When performing any visual inspections of commercial condominium units – both new and resale – there are a few key considerations that, as a salesperson, you should keep in mind that are unique to the commercial condominium market. The following four sections contain information about each key consideration.

Inspection of unit While viewing a commercial condominium unit with a prospective buyer, you will ask the client to pay specific attention to the layout and location of various services (such as HVAC, water, and electricity). In most cases, during a commercial inspection, you will point out various features that will benefit the client’s business. At this stage, a client will determine if any modifications are required. When listing a property for a seller client, you would inspect the premises and identify potential disclosure issues, make recommendations for improvements, and identify all material facts that would be of importance to prospective buyers. As a salesperson, you will typically be involved in this process by recommending third-party tradespeople, attending various visits to prepare plans and quotes, and meeting with the seller or the property manager to ensure that renovations are consistent with the rules and regulations

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Inspection of common elements When working with buyer clients, you will show all common elements to the buyer and point out the various features that may be of value to their business, such as central reception with controlled entry to the units, a central business facilities and equipment area with a variety of equipment (such as photocopiers, fax machines, and A/V equipment), and various meeting rooms shared by the owners. As the salesperson, you and the buyer will also typically tour the parking areas allocated to the unit for employees and customers. Should the buyer wish to submit an offer on the property, you will ensure that additional conditions are inserted in the agreement of purchase and sale so that additional assessments of a unit’s features and common elements can be carried out. However, note that you typically will need permission from the board of directors or the property manager to access many of the common areas when showing them to a client.

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Structural and mechanical inspections Any inspection of commercial condominiums, for either seller or buyer clients, should include an inspection of mechanical and structural components, such as HVAC, electricity, and plumbing. However, evaluating the condition of these items and their ability to meet the needs of a client are often beyond your capability as a salesperson. Usually, a salesperson will include a condition in the agreement of purchase and sale permitting the buyer to involve third-party professionals in the assessment of the unit, including structural and mechanical aspects, heating, and electricity.

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Signage compliance Signage for any business is usually regulated by municipal bylaws. Commercial condominiums are no exception, but are subject to further regulation by the board of directors or property managers as described in the corporation’s rules and bylaws. Condominium corporations will often retain the right to approve the design characteristics of the sign and where it can be located. This may include approving how a business name appears in a lobby directory, providing space on a curbside pylon sign, or dictating the characteristics of individual signage on the exterior of the business space. The agreement of purchase and sale will often contain a clause making the transaction conditional on confirming signage.

Exam Study Guide

Lesson 5 | Page 5 of 12

A salesperson is working with a client who wants to buy a unit in a commercial condominium office building. They are looking for a new headquarters for their writing instrument manufacturing company, and need office space for approximately 50 employees. Question #21: What should the salesperson do during this inspection? There are four options. There are multiple correct answers.

1

Assess if the electrical system is sufficient for the client’s business use.

2

Help the client assess the functionality of common elements such as reception, washrooms, and photocopy/fax facilities as it pertains to their business.

3

Recommend that the client take advantage of common-area meeting rooms for daily meetings with staff.

4

Recommend that they review the condominium’s rules and bylaws with regard to displaying signage.

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Lesson 5 | Page 6 of 12

Next, you will learn how and what key information you will need to gather about new commercial condominium units in your role as a salesperson.

Exam Study Guide

Lesson 5 | Page 7 of 12

Gathering Key Information – New Condominiums The following describes some of the work that, as a salesperson, you must do in order to gather all relevant information about new commercial condominium units that may aid your seller and buyer. The following six sections contain information about each method of gathering information.

Consultation with a developer When preparing to sell a new commercial condominium, a developer can provide valuable information about the project, as well as any proposed expansions of the project, and areas of the project that may have special designs (such as retail vs. office unit configurations). You should be familiar with these aspects of a developer’s plans in order to avoid misrepresentation when discussing the project with potential buyers.

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Research covenants and restrictions When representing a seller in an assignment transaction, you should access copies of various covenants and restrictions that would be contained in a land development agreement. You can research restrictions by obtaining a copy from the land developer (with their permission) and should be prepared to disclose any covenants and restrictions that would have direct impact on potential buyers. For example, there could be limitations on the minimum size of the units, restrictions associated with the types of businesses, restrictions regarding storage of inventory, or times and locations for shipping and receiving. Some developers build condominium projects in phases, and adjoining “future development phases” may have an impact on the condominium property. For example, future developments may have to share facilities (such as parking, entrances, or site services) and a shared facilities agreement may need to be mentioned in the declaration.

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Ensure the client’s lawyer reviews documentation Once a buyer client has submitted an agreement of purchase and sale and received the required disclosure statement from the developer and a copy of the declaration, you will be responsible for reviewing the documents for any restrictions on their proposed use. If you note the existence of a restricted use clause, you should suggest that the buyer discuss the restrictions with their lawyer, as some extenuating circumstances may be permitted. As a salesperson, you will not be expected to be confident in expressing a professional opinion on restricted use clauses.

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Review the agreement of purchase and sale The agreement of purchase and sale can include an abundance of information concerning the proposed finished condition of the unit and the development, as well as any descriptive schedules. This may include the finishing of components, such as parking areas, landscaping, architectural features, as well as the location of the unit and its finishings and signage. This information is important for the buyer, as often they are purchasing a unit that has not yet been built. For example, having received a copy of an agreement of purchase and sale from the developer, a buyer client might be concerned about the finished condition of the overall project, including landscaping, as well as the extent of finishing being provided by the developer to the unit. In reviewing the developer’s agreement of purchase and sale, the salesperson may note several schedules with artists renderings indicating the proposed finished condition of the project. A written description of the developer’s proposed improvements to the unit may also be included.

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Obtain a zoning compliance letter from the city that the use is permitted Normally, the buyer’s lawyer will obtain a zoning compliance letter from the municipal authority as part of the various investigations carried out when preparing for the closing of the sale. However, should the buyer require this type of document during their due diligence investigation, an application can be made to the municipal office and normally a fee is charged. The buyer would expect to receive this letter within approximately two to four weeks.

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Measure unit or review floor plans to obtain size of unit, boundaries of unit Any floor plans obtained from the developer would indicate size of the unit, boundaries of the unit in relation to other units, and all features and improvements. Some declarations (usually as part of the schedules) will provide unit sizes for all units of the condominium property. A document called a surveyor’s certificate may be included, assuring unit sizes and boundaries, including boundaries for sign space. Usually, the developer’s floor plans, included as part of the condominium description, are sufficient. However, if no floor plans are available, a measuring company, Ontario Land Surveyor, or architect could also be engaged to measure the unit. The space should be measured in accordance with an applicable standard, Building Owners and Managers Association (BOMA), or International Property Measurement Standards (IPMS).

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Lesson 5 | Page 8 of 12

A buyer of an industrial condominium unit is considering expanding their product line to include various other types of office equipment that will require assembly and testing before shipping to their customers. However, the client is not sure that light manufacturing and assembly will be permitted, even though the declaration does permit some industrial functions. Question #22: Which of the following would be the most appropriate ways for a salesperson to aid the buyer in gathering helpful information? There are six options. There are multiple correct answers.

1

Refer the client to their lawyer to review documentation

2

Employ an Ontario Land Surveyor to measure and document unit boundaries

3

Review the agreement of purchase and sale

4

Obtain a zoning compliance letter from the municipal authority

5

Research covenants and restrictions

6

Consult with a developer about special designs or proposed expansions

Exam Study Guide

Lesson 5 | Page 9 of 12

Next, you will learn about the key information that, as a salesperson, you should gather about resale condominium units.

Exam Study Guide

Lesson 5 | Page 10 of 12

Gathering Key Information – Resale Condominiums As a salesperson, you will need to gather all relevant information about resale commercial condominium units. In addition to these items, resources at your disposal include the Condominium Authority and Condominium Management Regulatory Authority public registries on their respective websites. The following five sections contain information about each item you will need to gather and review.

Review up-to-date status certificate A status certificate should always be requested as a condition of the agreement of purchase and sale. The status certificate as a disclosure document reveals many important components of the condominium corporation, including financial information, such as the current budget, current maintenance fees, the size of the reserve fund, any projected expenditures requiring a special assessment, outstanding lawsuits, and insurance claims. As a salesperson, you should advise the buyer to obtain legal advice concerning the content of the status certificate.

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Review declaration and description As part of a buyer’s due diligence, a declaration and description will be included in the status certificate. The buyer’s lawyer will provide specific advice concerning conditions, covenants, and restrictions that may impact the buyer’s use and enjoyment of the property. As a salesperson, you must ensure that an appropriate condition regarding a status certificate is included in the agreement of purchase and sale.

Ensure that buyer’s lawyer reviews status certificate and declaration When working with a buyer client, you should ensure that various disclosure statements included in a status certificate are provided to the buyer, and that the buyer has been instructed to review these statements and the status certificate with their lawyer. If the lawyer needs more information, they should contact the salesperson, property manager, or the president of the condominium corporation. Fees may be applicable for preparation and production of statements and certifications.

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Review the agreement of purchase and sale for information about first right of refusal A condominium corporation may have the first right of refusal when a resale condominium is being sold. In some cases, other interested individuals or entities may also enjoy a first right of refusal. An agreement of purchase and sale would contain appropriate disclosures and conditions concerning the buyer’s acceptance of an offer containing these rights. The buyer must be fully informed with respect to the implications of a first right of refusal clause and must be prepared to proceed on that basis. As a salesperson, your role would be to explain first right of refusal to clients or, if you are unable to do so, refer the client to a lawyer, another salesperson, or a broker of record.

Measure unit or review floor plans to obtain size of unit, boundaries of unit If a resale unit has undergone alterations, it may be appropriate to measure the unit rather than accept previous measurements or floor plans provided by the current owner or developer. You could undertake measurements of the space or enlist a measuring company, Ontario Land Surveyor, or an architect for their services. The space should be measured in accordance with an applicable standard, Building Owners and Managers Association (BOMA) or International Property Measurement Standards (IPMS).

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Lesson 5 | Page 11 of 12

A salesperson on behalf of a client has submitted an offer to purchase an existing retail condominium unit for their electronics business. The offer was accepted by the seller closing in 60 days. Question #23: Which of the following actions should the salesperson take in this situation? There are five options. There are multiple correct answers.

1

Request an up-to-date status certificate

2

Determine if there are any first right of refusal on the unit

3

Consult with developer about proposed expansions to the property

4

Ensure the client’s lawyer reviews any available documents

5

Obtain a zoning letter from the municipal authority

Exam Study Guide

Lesson 5 | Page 12 of 12

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were covered in this lesson.

Visual inspection of a commercial condominium and common elements

In most cases during a commercial inspection, as a salesperson, you will point out various features that will benefit the client’s business. At this stage, a client will determine if any modifications are required. Additionally, the buyer may retain other third-party professionals to assist in the inspection process such as tradespeople, contractors, and fire and building inspectors. When listing a property for a seller client, you would inspect the premises and identify potential disclosure issues, make recommendations for improvements, and identify all material facts that would be of importance to prospective buyers.

Gathering information about new commercial condominiums

Some key things to keep in mind regarding new commercial condominiums: • When preparing to sell a new commercial condominium, a developer can provide valuable information about the project, as well as any proposed expansions of the project, and areas of the project that may have special designs (such as retail vs. office unit configurations). • When representing a seller in a new development, as a salesperson, you should access copies of various covenants and restrictions that would be contained in a land development agreement. You can research restrictions by obtaining a copy from the land developer (with their permission) and should be prepared to disclose any covenants and restrictions that would have direct impact on potential buyers. • Once a buyer client has submitted an agreement of purchase and sale and received the required disclosure statement from the developer and a copy of the declaration, you will be responsible for reviewing the documents for any restrictions on their proposed use. If you note the existence of a restricted use clause, you would suggest that the buyer discuss the restrictions with their lawyer, as some extenuating circumstances may be permitted. • The agreement of purchase and sale can include an abundance of information concerning the proposed finished condition of the unit and the development, as well as Exam Study Guide

any descriptive schedules. • Any floor plans obtained from the developer would indicate size of the unit, boundaries of the unit in relation to other units, and all features and improvements. If no floor plans are available, you would undertake measurements of the space or employ a measuring company, an Ontario Land Surveyor, or an architect to do so.

Gathering information about resale commercial condominiums

In your role as a salesperson, some key things to keep in mind regarding resale commercial condominiums are: • A status certificate will always be requested as a condition of the agreement of purchase and sale. As a salesperson, you will advise the buyer to obtain legal advice concerning the content of the status certificate. • As part of a buyer’s due diligence, a declaration and description will be included in the status certificate. The buyer’s lawyer will provide specific advice concerning conditions, covenants, and restrictions that may impact the buyer’s use and enjoyment of the property. • When working with a buyer client, you will ensure that various disclosure statements (such as copies of corporate bylaws, rules, and regulations) normally included in a status certificate are provided to the buyer, and that the buyer has been instructed to review these statements and the status certificate with their lawyer. • An agreement of purchase and sale will contain appropriate disclosures and conditions concerning the buyer’s acceptance of an offer containing first right of refusal. The buyer must be fully informed with respect to the implications of a first right of refusal clause and must be prepared to proceed on that basis. • If a resale unit has undergone alterations, it may be appropriate to measure the unit rather than accept previous measurements or floor plans provided by the current owner or developer.

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Lesson 6 | Page 1 of 5

Lesson 6: Potentially Detrimental Conditions

This lesson prepares you to identify potentially detrimental conditions when selling commercial condominium properties.

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Lesson 6 | Page 2 of 5

As a salesperson, when working with both sellers and buyers of commercial properties, you will need to be able to identify potentially detrimental conditions. Upon completion of this lesson, you will be able to: • Identify any potentially detrimental conditions 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 5

Detrimental Conditions As a salesperson, you have an obligation to both seller and buyer clients to identify all material facts and latent defects associated with the unit. You will need to be able to identify potentially detrimental conditions specific to commercial condominiums, including noncompliance with zoning, structural integrity, electrical service overload, and environmental factors. The following four sections contain information about each detrimental condition.

Noncompliance with zoning The condominium declaration or zoning bylaws may identify specific use requirements and create target markets. An example of this might include a medical building that would not allow “general office.” In other words, all owners and occupants must provide a medically related service. When representing a seller client, if their use is contrary to the zoning requirements, you have an obligation to identify the issue and discuss it with the seller; it is not, however, your responsibility to ensure that the seller does, in fact, comply. When presenting the property to a prospective buyer, you would be obligated to disclose any latent defects, as well as the lawful or permitted uses under the current zoning bylaw. A buyer of a commercial condominium would be obligated to confirm that their intended use was consistent with the declaration, keeping in mind that their occupancy may be contingent on the board’s approval and the existing zoning bylaw. Without these confirmations, the transaction could not proceed, as Exam Study Guide

occupancy and subsequent use would be “illegal”. If the buyer applies for an adjustment to zoning requirements, the application will add more time to completing the agreement of purchase and sale.

Structural integrity Occasionally, due to significant renovations occurring in adjoining units, the structural integrity of the subject property may have been compromised. Ideally, a seller should report their concerns to the board of directors or the property management company and ask them to carry out an assessment of the property and the structural integrity of adjoining properties as soon as possible. Should the board of directors object, the seller would be well advised to carry out an assessment through a third-party professional, such as an engineer. Any damage could affect the value of the subject property and may be considered a latent defect.

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Electrical service overload A common detrimental condition is not having the right type of power supply or adequacy of the power supply, given the demands of the seller’s or the buyer’s business operations. If the power supply is a material fact, steps should be taken by the client to assess the current power supply to determine if it is adequate or if upgrades are required. This assessment would be carried out by an electrical contractor or an engineer.

Environmental contamination from previous owners or adjoining owners Environmental issues are, and will remain, a serious consideration in most commercial transactions. Fortunately, most knowledgeable buyers are already aware of the potential for environmental problems and take appropriate steps to minimize risk. As a salesperson, you should: • Openly discuss environmental concerns with sellers and buyers (while not in any way providing advice) • Recommend appropriate experts • Include appropriate clauses affording the seller or the buyer adequate time for detailed investigation • Take the time to know any apparent signs of contamination (that is to say, as an interested observer, not an expert) Exam Study Guide

• Ask the seller about current and past uses to gain a better understanding about the property (Note: Depending on circumstances, information about uses of adjacent properties may also be relevant.)

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Lesson 6 | Page 4 of 5

A salesperson is working with a buyer client interested in a large unit in a retail condominium building, where they intend to sell televisions, stereo systems, and other electronics. While viewing the unit, they notice that construction is being performed on the apparel retailer’s unit adjacent to the unit being inspected. The salesperson notices that the neighbour is in the process of removing a wall in their unit. Question #24: Which of the following should the salesperson do in this situation? There are five options. There are multiple correct answers.

1

Request and review an up-to-date status certificate

2

Inform the board of directors and make the agreement of purchase and sale conditional on the review of a structural integrity report

3

Confer with other neighbouring owners to ensure that their units will not incur any damage

4

Advise the client to engage a third-party professional in evaluating the adequacy of the electrical supply

5

Advise the client to engage a third-party professional in carrying out an environmental site assessment

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Lesson 6 | Page 5 of 5

Congratulations, you have completed the lesson! There is one section on this page with a summary of the key topic that was covered in this lesson.

Determining detrimental conditions when preparing to sell or buy commercial condominium properties

The condominium declaration or zoning bylaws may identify specific use requirements and create target markets. When representing a seller client, if their use is contrary to the zoning requirements, you have an obligation to identify the issue and discuss it with the seller. When presenting the property to a prospective buyer, you would be obligated to disclose any latent defects, as well as the lawful or permitted uses under the current zoning bylaw. Occasionally, due to significant renovations occurring in adjoining units, the structural integrity of the subject property may have been compromised. Ideally, a buyer should report their concerns to the board of directors or the property management company and request that they carry out an assessment of the property and the structural integrity of adjoining properties as soon as possible. Environmental issues are, and will remain, a serious consideration in most commercial transactions. Fortunately, most knowledgeable sellers and buyers are already aware of the potential for environmental problems and take appropriate steps to minimize risk. A common detrimental condition is not having the right type or an inadequate power supply, given the demands of the business operations of the seller or the buyer. If the power supply is a material fact, steps should be taken by the client to assess the current power supply to determine if it is adequate or if upgrades are required.

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Lesson 7 | Page 1 of 9

Lesson 7: Preparing to List a Commercial Condominium for Sale

This lesson discusses additional items you will be responsible for when preparing to list a unit for sale.

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Lesson 7 | Page 2 of 9

This lesson explores and reviews some of the steps you should take, as a salesperson, to prepare to list a commercial condominium for sale. Upon completion of this lesson, you will be able to: • Verify calculation of areas of commercial condominiums • Describe changes that may be required before bringing a resale commercial condominium to market • Review obligations of the salesperson to recommend services from third-party professionals 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 9

Calculating Area As a salesperson, an important task when preparing a commercial condominium for sale is to verify the calculation of areas of the unit. The following three sections contain information about each calculation consideration.

Use of different measuring systems and techniques When the seller declares the area of the unit, and can produce documentation from an independent thirdparty professional that verifies that information, then you would not typically recommend that they take additional measurements. If there is no documentation, clients should engage the services of a professional measuring company to measure the unit in accordance with the applicable Building Owners and Managers Association (BOMA) standard or another standard, such as International Property Measurement Standards (IPMS). Alternatively, you might obtain a copy of the floor plan of the unit that has been prepared and verified by a qualified professional. You may also obtain information about the accurate and complete measurements of the unit via the Municipal Property Assessment Corporation website or Geowarehouse®.

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Complete description of floor area, ceiling height, or cubic feet for an industrial unit As a salesperson, part of your due diligence will include making detailed notes with respect to various features of the unit to accurately and completely present the property to prospective buyers, as well as verifying that information. This description may include the overall area of the space, the ceiling height, and the volume of the space, especially if storage and distribution will be a key component of the use of the property.

Allocation of common expenses based on Schedule D In the declaration, Schedule D will set out each owner’s contribution of common expenses and percentage interest in the common elements of the condominium property. Typically, all costs associated with the management of the common elements are divided by the total square footage of all the units to arrive at a dollar value per sq. ft. of common expenses. Maintenance fees pertaining to each unit would be determined by multiplying the area of the unit times the dollar value per sq. ft. of common expenses. In the rare circumstance that all units are identical in size, then the maintenance fees would be determined by dividing the costs associated with the common elements by the number of units. Exam Study Guide

Lesson 7 | Page 4 of 9

Additional obligations of a salesperson regarding the preparation for the sale of a commercial condominium include the conversations and documentation surrounding the remodeling or renovations of a resale unit. As a salesperson, you also have an obligation to refer clients to third-party professionals.

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Lesson 7 | Page 5 of 9

Repairs, Refurbishment, and Modifications Before bringing a resale condominium to market, a salesperson will often make recommendations to a seller for improvements to the space, such as cleaning, repainting, replacement of features like carpeting, window coverings, and equipment included in the purchase price. Depending on the complexity of the business unit, professional decorators and consultants may also be involved to improve public access areas, such as reception and meeting rooms. If significant changes have been made to the space, you would obtain copies of any documentation the seller may have and verify that the proper permits were obtained and followed. In addition, you would need to confirm with the municipality if the seller does not have any documentation. If no such permit was obtained, you will need to disclose this to any potential buyers and have them work with the condominium board and their lawyer to formulate a plan of action.

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Lesson 7 | Page 6 of 9

Third-Party Professionals

Whenever you are unable to provide the necessary services with reasonable knowledge, skill, judgement, and competence, or are not authorized by law to provide the services, as a salesperson, you must advise a seller or a buyer client to obtain such services and advice from another person. Often a professional will be required, such as a lawyer, an accountant, a property inspector, an environmental site assessor, an appraiser, or an insurance professional, as per Section 8 of the Code of Ethics. The Mortgage Brokers Act permits brokers and agents to give mortgage advice and representation, but it does not apply to real estate salespersons. Therefore, in cases where a seller client is being asked to “take back” a mortgage, if the client requires more than just basic information about market feasibility, they must be referred to a professional as described above.

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Lesson 7 | Page 7 of 9

A salesperson is working with a client interested in purchasing a recently renovated resale industrial condominium that has become available. However, when the client sees the unit, they are skeptical that the actual square footage of the unit is as described. Upon review of a floor plan quickly provided by the management office, the client concludes that the unit’s dimensions, as listed, are inaccurate. As a result, they contest the contribution to common expenses expected of the unit’s owner, as they consider it disproportionate to the space. Question #25: Which of the following would be appropriate actions for the salesperson to take in this situation? There are five options. There are multiple correct answers.

1

Try to find information about the unit on Geowarehouse®

2

Tell the client to engage a third-party professional

3

Review Schedule D of the declaration

4

Measure the dimensions of the unit using the applicable BOMA standard themselves

5

Obtain copies of any renovation permits from municipal authority

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Lesson 7 | Page 8 of 9

A salesperson is working with a buyer who is considering the purchase of a small industrial condominium unit, which is currently used for storage and minimal product distribution. The buyer intends to carry out light manufacturing operations in this unit, which will generate vibrations, and they are concerned that the floor and the structural components of the unit may not sustain this activity. Question #26: What recommendation should the salesperson make in this scenario? There are four options. There is only one correct answer.

1

Suggest involving a structural engineer to assess the condition of the unit

2

Suggest involving a property inspector to assess the condition of the unit

3

Suggest involving an industrial process specialist to design the manufacturing layout

4

Suggest involving an Environmental Site Assessor to inspect and assess the structural integrity

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Lesson 7 | Page 9 of 9

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were covered in this lesson.

Calculating area

When attempting to verify the measurements of a given property, buyers should engage the services of a professional measuring company to measure the unit in accordance with the applicable BOMA standard or some other standard, such as IPMS. Part of your due diligence, as a salesperson, includes making detailed notes with respect to various features of the unit to accurately and completely present the property to prospective buyers. In the declaration, Schedule D will set out each owner’s contribution of common expenses and percentage interest in the common elements of the condominium property. Typically, all costs associated with the management of the common elements are divided by the total square footage of all the units to arrive at a dollar value per sq. ft. of common expenses.

Repairs, refurbishment, and modifications

Before bringing a resale condominium to market, as a salesperson, you will often make recommendations to a seller for improvements to the space, such as cleaning, repainting, replacement of features like carpeting, window coverings, and equipment included in the purchase price. If significant changes have been made to the space, you should obtain copies of any documentation the seller may have verifying that the proper permits were obtained and followed, or confirm with the municipality if the seller doesn’t have any documentation.

Third-party professionals

As per Section 8 of the Code of Ethics, whenever you are unable to provide the necessary services with reasonable knowledge, skill, judgement, and competence, or are not authorized by law to provide the services, then as a salesperson, you must advise a client to obtain such services and advice from another person.

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Lesson 8 | Page 1 of 13

Lesson 8: Valuating a Commercial Condominium

This lesson helps prepare you to evaluate the value of a commercial condominium unit in order to better serve your clients.

Exam Study Guide

Lesson 8 | Page 2 of 13

This module’s discussion of preparing to sell commercial condominiums concludes, with a final understanding at factors that impact the value of commercial condominiums, as well as details to consider when providing an opinion on the sale price. This lesson will explore the direct comparison method, determining the value of units, and key considerations that can help you, as a salesperson, to better serve your clients. Upon completion of this lesson, you will be able to: • Describe factors that impact the value of a commercial condominium • Describe key considerations when providing an opinion on the selling price of a commercial condominium Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

Exam Study Guide

Lesson 8 | Page 3 of 13

Many considerations that impact the value of a commercial condominium unit will be familiar to you as you have already explored these earlier in this module. In this lesson, you will revisit some of these important topics from the perspective of how, as a salesperson, you will be able to use them in evaluating and providing an opinion regarding the price of a commercial condominium unit.

Exam Study Guide

Lesson 8 | Page 4 of 13

Factors Impacting Value

The most common factors that impact the value of a commercial condominium are the permitted uses, maintenance fees, reserve funds and special assessments, rules and regulations, and parking availability. The following five sections contain information about each factor.

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Permitted uses If the permitted uses defined in the zoning bylaw or the bylaws of the condominium corporation are thought to restrict or prohibit a broad section of the business activities, then the value of the unit could be compromised, as these restrictions would diminish demand. Alterations and additions to common elements (particularly exclusive use common elements) have proven troublesome in the resale market. While the Condominium Act is quite specific regarding approval processes and required agreements, there may be some alterations, such as changes to balconies, privacy fences, or decking, as well as some interior renovations in older condominiums, that may lack such approvals. In some instances, documentation regarding ownership and ongoing repair responsibilities may be vague or nonexistent. Such issues can pose problems at closing, if not addressed in advance.

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Maintenance fees Maintenance fees can often have a detrimental effect on a unit’s value, as buyers are often reluctant to buy a condominium unit where they believe the maintenance fee is too high. If the income approach to value is being used, any increases in operating costs (such as maintenance fees) will reduce the net operating income, resulting in a lower estimate of value. Sometimes maintenance fees can stigmatize a condominium development, resulting in lower resale values in the entire development.

Reserve funds and special assessments Special assessments associated with deficiencies in the reserve fund can also often have a detrimental effect on a unit’s value. Buyers may be reluctant if there is a likelihood of a special assessment that will affect their overhead costs, should they decide to buy the unit. As a result, buyers will often negotiate a lower price as compensation for these issues and, as a salesperson for buyer clients, you should include a clause in the agreement of purchase and sale that the seller will be responsible for any special assessments incurred on the unit prior to closing and with adjustments made on closing.

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Rules and regulations Rules and regulations are used to ensure that the common elements are used efficiently by the unit owners. Rules and regulations that are thought to be too restrictive may detract from value in the minds of a buyer.

Parking availability The availability of parking for both customers and employees can be a significant component of value. If a customer cannot easily access the business unit, they may choose to go elsewhere. If parking is not reasonably available to employees and they have to pay for parking elsewhere, it could affect the ability of the business owner to attract and retain qualified people.

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Lesson 8 | Page 5 of 13

Factors Impacting Value, Continued Additional factors that impact the value of a commercial condominium are the signage, the impact of the surrounding properties, and the environmental issues and Environmental Site Assessments (ESAs). The following three sections contain information about each factor.

Signage If a unit owner’s business is dependent on walk-in traffic, then the business owner will require appropriate forms of signage. If distinctive signage cannot be installed, due to physical or regulatory restrictions, then a buyer may consider this detrimental to the operation of their business and, as a result, would diminish their opinion of value.

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Impact of the surrounding properties It is important to consider how surrounding properties might impact the value of the subject unit. For example, as a salesperson, you would consider the overall condition of the neighbouring properties – if the neighbourhood as a whole is deteriorating, then the condition reflects on the subject unit and could negatively impact value. Also, if neighbouring businesses are complimentary to the subject building, then this could increase the value as complimentary businesses could generate more business. The reverse could also be true – if a commercial office condominium unit was surrounded by light industrial manufacturing operations, this could be considered a detrimental condition that would negatively impact value.

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Environmental issues and Environmental Site Assessments (ESA) The presence of environmental issues, usually contamination, would be considered a detrimental condition that would require disclosure by the seller. In all likelihood, it would affect the buyer’s decision to buy or the price that a buyer would likely pay. In addition to contamination, other environmental issues that might affect a property could include the presence of endangered species, historic and/or archeological sites, or waterways, all of which could affect use, enjoyment, and development, which would, in turn, impact value. Most commonly, an environmental site assessment would determine the likelihood and extent of contamination. If the environmental site assessment report for the property was obtained by the seller and indicated no likelihood of contamination, then there would be no negative effect on the value. However, if the reverse was true and a buyer obtained an ESA indicating costly contaminants, then the value would be affected, and the transaction may be in jeopardy.

Exam Study Guide

Lesson 8 | Page 6 of 13

It is important for a salesperson to be able to identify whether various characteristics of a unit will affect value. Question #27: Which of the given characteristics of a condominium unit will negatively impact your estimate of value? There are three options. There are multiple correct answers.

1

Structural alterations to the unit that have not been documented

2

A special assessment associated with deficiencies in the reserve fund

3

Flexibility regarding placement of exterior advertising boards/signage

Exam Study Guide

Lesson 8 | Page 7 of 13

It is important for a salesperson to be able to identify whether various characteristics of a unit will affect value. Question #28: Which of the given characteristics of a condominium unit will positively impact your estimate of value? There are three options. There are multiple correct answers.

1

An environmental site assessment that indicates possible environmental contamination associated with previous use

2

Strictly regimented, although ample and readily accessible, parking

3

Monthly maintenance fees comparable to similar properties in the area

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Lesson 8 | Page 8 of 13

Once you have successfully evaluated a commercial condominium unit, as the salesperson, you will then need to provide your opinion on the selling price of the unit. It is important to use all resources at your disposal when attempting to estimate the value of a unit and when advising your client on how to make the best decisions for their business needs.

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Lesson 8 | Page 9 of 13

Providing Opinions on Price Factors to consider and resources to employ when making decisions and evaluations regarding the price and value of a commercial condominium unit include the direct comparison approach, comparisons outside the condominium corporation, salesperson knowledge and experience, and sources used to verify information. The following four sections contain information about each key consideration.

Direct Comparison Approach (DCA) The use of the direct comparison approach (also sometimes referred to as the sales comparison approach) is thought to be an effective means of estimating value. It is based on the proposition that an informed buyer will pay no more for a property than the cost of acquiring an existing property with the same utility. This approach consists of sourcing comparable sales and listings, collecting all relevant data, and making adjustments to arrive at a reasonable value estimate for the subject unit. However, the strength of this method is highly dependent on the availability of reasonable comparable sales and the availability of accurate component values. As the salesperson, should you be unable to reasonably estimate the property’s value using this approach, you should refer the client to a professional appraiser.

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Comparisons outside the condominium corporation If there are no reasonable comparable sales within the condominium development, then sales from other similar developments could be used to provide a selling price. However, significant adjustments may be required that could skew an accurate estimate of value, such as location and features and amenities of the comparable development.

Salesperson knowledge and experience In order to estimate the value of a commercial condominium, as a salesperson, you must have experience in sales of these types of properties and be able to identify all of the material facts that may impact value. In addition, through your experience, you must be able to estimate the values associated with the material facts. If you are unable to do so, then you must recommend that the services of a professional appraiser be sought.

Exam Study Guide

Sources used to verify information As a salesperson, you will be obligated to verify all matters and material facts impacting value. Often, information can be verified through a variety of sources, such as the current owner, property manager, board of directors, various levels of government, lawyers, and accountants. A variety of sources exist for sales data to use in the direct comparison approach. The best resources are the brokerage’s files and the local listing service. Selected data can also be obtained from registry or land titles offices. Banks, lending institutions, and insurance companies may supply information regarding mortgage financing and details of mortgaged property. Other sources of information are newspapers, as well as legal and other professional publications.

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Lesson 7 | Page 10 of 13

A salesperson is working with a client on the acquisition of the tenth floor 2,000 sq. ft. office unit. This unit is located in a mixed-use commercial condominium building that includes retail and residential units, in addition to office spaces. To estimate the value, the salesperson has already identified three sales in the same building that have occurred over the past year – a 2,000 sq. ft. retail space, as well as two 1,800 sq. ft. office units. In comparing these units, the salesperson has noticed that all three seem to have different monthly fees for maintenance – an issue that the client is interested in exploring further before closing. Question #29: Which of the following are the correct actions for the salesperson to take in this situation? There are four options. There are multiple correct answers.

1

Estimate the selling price of the 1,800 sq. ft. units to be the same as the 2,000 sq. ft. retail unit on the ground floor of the same building

2

Contact the condominium corporation property manager to determine maintenance fees for the subject unit

3

Estimate the selling price based on the differences between the office units in the same building and calculating adjusted values

4

Estimate the selling price based on comparable office units in other properties in the same area

Exam Study Guide

Lesson 8 | Page 11 of 13

A buyer is considering a unit in a mixed-use commercial condominium building to relocate their insurance brokerage. This unit initially seems very appealing to the buyer, given that it seems perfectly suited to their business needs and seems to have better amenities than any other available properties in the area. During a viewing of the property, the property manager discloses that there is no dedicated parking for the individual businesses and clients and customers can park in an area with limited space, on a “first come, first served” basis. Question #30: What should the salesperson do in this situation? There are three options. There is only one correct answer.

1

Explain that the other features of the unit and property amenities would be complimentary to the buyer’s growth strategy, and suggest that the buyer submit an offer that reflects the negative impact on value that parking may present to their business

2

Advise the buyer to reject the unit outright, as the parking situation is a deal-breaker that severely impedes their business

3

Advise the buyer to take advantage of the fact that this unit seems like a particularly good fit for their business and quickly submit an offer on the unit at list price

Exam Study Guide

Lesson 8 | Page 12 of 13

A salesperson is working with a buyer who is considering a unit in an office condominium building for their small publishing business. When reviewing information about the unit, the buyer notes that although they like several aspects of the unit, they feel like the monthly maintenance fees seem particularly high for this property. Question #31: What should the salesperson do in this situation? There are five options. There are multiple correct answers.

1

Contact the property manager to gather more information

2

Advise the buyer that high maintenance fees likely indicate a luxury property and a condominium corporation that takes upkeep and maintenance very seriously

3

Evaluate the maintenance fees by comparing them to other properties in the area

4

Advise the buyer that high maintenance fees are usually not an item of concern and inform them that these costs do not merit further consideration

5

Advise the buyer to consider submitting an offer below the asking price due to their concerns

Exam Study Guide

Lesson 8 | Page 13 of 13

Congratulations, you have completed the lesson! There are two sections on this page with a summary of the key topics that were covered in this lesson.

Factors that impact the value of a commercial condominium

If the permitted uses defined in the zoning bylaw or the bylaws of the condominium corporation are thought to restrict or prohibit a broad section of the business activities, then the value of the unit could be compromised as these restrictions would diminish demand. If maintenance fees are high, or if there is a likelihood of a special assessment that will affect their overhead costs, buyers will often negotiate a lower price as compensation for these issues, and should include a clause in the agreement of purchase and sale that the seller will be responsible for any special assessments incurred on the unit, prior to closing and adjustments made on closing. If amenities, such as parking or signage opportunities, are not reasonably available to employees and customers, this could affect the abilities of the business owner to retain qualified employees, as well as to attract customers. The presence of environmental issues, usually contamination, would be considered a detrimental condition that would require disclosure by the seller. In all likelihood, it would affect the buyer’s decision to buy or the price that a buyer would likely pay. In addition to contamination, other environmental issues could include the presence of endangered species, historic archeological sites, or waterways, all of which could affect use, enjoyment, and development, which would, in turn, impact value.

Key considerations when providing an opinion on the selling price of a commercial condominium

The direct comparison approach is highly dependent on the availability of reasonable comparable sales and the availability of accurate component values. If no reasonable comparable sales are available, then the cost approach is often used (i.e., the individual component values). If there are no reasonable comparable sales within the condominium development, then sales from other similar developments could be used to provide a selling price. However, significant adjustments may be required that could skew an accurate estimate of value, such as location and features, and amenities of the comparable Exam Study Guide

development. As the salesperson, if you are unable to reasonably estimate the property’s value using this approach, you should refer the client to a professional appraiser. In order to estimate the value of a commercial condominium, as a salesperson, you must have experience in sales of these types of properties and be able to identify all of the material facts that may impact value. You will be obligated to verify all matters and material facts impacting value. Often, information can be verified through a variety of sources, such as the current owner, property manager, board of directors, various levels of government, lawyers, and accountants.

Exam Study Guide

Lesson 9 | Page 1 of 7

Lesson 9: Summary Practice Activities

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

Exam Study Guide

Lesson 9 | 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 9 | Page 3 of 7

Office, retail, and industrial condominium owners share many of the same issues, considerations, and risks. It is important for a salesperson to be able to differentiate between these uses and know the different needs of customers in each sector. Question #32: Which one of the following commercial condominiums, with respect to the most common considerations associated with it, has ample parking, synergies or conflicts with surrounding businesses, higher shared service, and common element upkeep than other owners? There are four options. There is only one correct answer.

1

Office

2

Retail

3

Industrial

4

Mixed-use

Exam Study Guide

Lesson 9 | Page 4 of 7

A salesperson is working with a client who is looking for a retail condominium unit for their goldsmithing business, and is considering a brand-new 1,800 sq. ft. property on the main floor of a large mixed-use condominium property. The first floor consists entirely of retail businesses, the next three floors are various office units, and the remaining 10 floors are all residential owners. This property is near a main bus route and features no street parking, but has a large underground parking garage for employees, residents, and customers. Question #33: Which of the following considerations should the salesperson discuss with the buyer regarding this property? There are six options. There are multiple correct answers.

1

Potential need for renovation of unit

2

Shared reception in lobby as a common element

3

Condominium rules and bylaws, such as mandated compliance with seasonal decorating requirements

4

Built-in market given proximity to potential customers

5

Completion of an environmental site assessment, including potential impacts of waste disposal

6

Customer access, including proximity to public transit and parking availability

Exam Study Guide

Lesson 9 | Page 5 of 7

A salesperson is working with a buyer who is interested in an office condominium on the first floor of a mixed-use building for their small financial planning company. This 1,800 sq. ft. unit was previously occupied by a tenant who themselves had to structurally overhaul the unit for their business. The unit will require additional demolition and construction work to be suitable for the buyer’s use. The seller has indicated that they may be willing to share the cost of remodeling and handle demolition if the buyer is interested in buying the unit and remodeling it themselves. During the inspection of the property, the salesperson and the buyer take stock of a few additional details that merit consideration. The building features an enormous, beautifullydecorated three-floor atrium that directly connects to the front door of the unit on the main floor. This atrium leaves a significant visual impression, though there are significant common element and maintenance fees associated with it due to its elaborate extravagance. The building features an abundance of parking, for both visitors and employees, and is located on a main arterial road, easily accessible by both car and public transit. There is a single pylon at the road that advertises the building by name (which is named after the property management company), but no additional signage for any of the property’s businesses on the exterior of the building – just each tenant’s name and unit number outside of their door. Finally, all units on the main floor share a beautiful outdoor terrace, built into the side of the building, that is a shared amenity that benefits both employees and customers. Question #34: Determine the factors that will decrease the appeal of this unit to the buyer. There are five options. There are multiple correct answers. Exam Study Guide

1

Availability of signage

2

Costs associated with atrium

3

Cost-sharing of remodeling project with previous owner

4

Visual impression of atrium

5

Accessibility and parking

Exam Study Guide

Lesson 9 | Page 6 of 7

The client in the previous scenario has decided they want to submit an offer on the new 1,800 sq. ft. main floor unit, which was initially listed at $475,000. They like several of the key benefits this property offers, but note that due to the detrimental conditions impacting the unit's value, they're interested in starting negotiations by making an opening offer approximately three per cent below the expected selling price. The salesperson finds three comparable units in the condominium building that have sold recently and calculates the list-to-sell ratio by dividing the sale price by the list price. Using this information the salesperson is able to estimate the likely selling price of the subject unit. • A 2,100 sq. ft. unit, which was listed at $595,000, but sold for $571,200. • A 1,700 sq. ft. unit, which was listed at $430,000, but sold for $412,800. • A 1,500 sq. ft. unit, which was listed at $390,000, but sold for $374,400. Question #35: Based on this information, what should the salesperson recommend the client's opening offer be? (For the purposes of this exercise, round up to the nearest $500.) There are four options. There is only one correct answer.

1

$442,500

2

$475,000

3

$500,000

4

$510,000 Exam Study Guide

Lesson 9 | Page 7 of 7

A salesperson is working with a client who is interested in purchasing an industrial condominium unit for their small construction company. They want the unit, which was previously used for light electronic assembly and packaging, to serve as their head office, as well as a facility where they can store construction equipment and building materials. During a visual inspection, the client is immediately very pleased with the unit and the opportunities it could provide their business. The buyer is so satisfied with the property that they are eager to make an offer and push this deal through as quickly as possible. Question #36: What would be the correct actions for a salesperson to take in this situation? There are five options. There are multiple correct answers.

1

Ensure that the deal is conditional on receipt of an up-to-date status certificate

2

Confirm that the client’s intended use adheres to all municipal zoning requirements

3

Review all documentation and advise the client regarding the financial status of the corporation, including the reserve fund

4

Ensure that the buyer had the opportunity to fully inspect both the unit and any common elements

5

Advise the buyer to commission a Phase 1 Environmental Site Assessment in addition to their inspection

Exam Study Guide

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 Learning Objectives.

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Module Summary | Page 3 of 3

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

Condominium governance

The developer is responsible for registering the declaration and description used to create the condominium corporation, but is not typically involved in condominium governance past the turnover meeting to the elected board of directors, who are responsible for overseeing the operations and welfare of the condominium corporation. The Condominium Act is the law that establishes how condominiums are created and operated in the province of Ontario, and supersedes rules and bylaws. The hierarchy is as follows: • Condominium Act • Declaration • Bylaws • Rules Completion of this lesson has enabled you to: • Identify the impact of the Condominium Act on activities related to commercial condominiums

Commercial condominium uses

Some of the key concerns that office condominium owners contend with include lack of expansion opportunity, shared reception, and parking access. Some of the key concerns that retail condominium owners contend with include surrounding uses; limitations on retail uses; and loading, unloading, and parking requirements. Some of the key concerns that industrial condominium owners contend with include restrictions on use, compatibility with other industrial businesses, limitations on space, and access to parking. Completion of this lesson has enabled you to: • Describe the different types of commercial condominium use and the considerations, issues, and risks involved with: o Office-use condominiums o Retail-use condominiums Exam Study Guide

o Industrial-use condominiums

Key considerations Purchasing new commercial condominiums: for new and resale • As a salesperson, you would recommend that the buyer review the site plan, if available, and confirm with the developer that all site plan agreements have been complied with, condominiums and that no further action will be required by a new board of directors.

• If a buyer occupies the unit before registration and turnover to the board of directors, they would be required to enter into an occupancy agreement and pay occupancy fees to the developer. • To protect the interests of clients, as a salesperson, you must confirm that the zoning bylaw will permit client’s intended use of unit. • As a salesperson, you will document any preoccupancy renovations that the buyer and developer agree upon and would include them as a schedule in the agreement of purchase and sale. Purchasing resale commercial condominiums: • As part of a buyer’s due diligence, any agreement of purchase and sale should be conditional on the buyer receiving and approving a status certificate. • Any renovations or modifications that the seller and buyer agree upon before occupancy must be documented in the agreement of purchase and sale. • Before any modifications are made to a unit that may impact the common areas, there would need to be a discussion with the board of directors who would need to approve any renovations. In many cases, the board of directors may reserve the right to approve any and all renovations and improvements to the unit itself, as well. Completion of this lesson has enabled you to: • Identify key issues and the effects of each for new commercial condominiums • Identify key issues and the effects of each for resale commercial condominiums

Exam Study Guide

Due diligence obligations of a salesperson

As a salesperson, you must recognize the complexities associated with various due diligence obligations – including financial and zoning verification obligations, as well as those regarding the declaration and bylaws/rules and how they may impact the use and sale of the unit – and construct an agreement of purchase and sale for both seller and buyer clients so that sufficient time is allocated to the various activities and approvals. Completion of this lesson has enabled you to: • Review a salesperson’s role and compliance obligations for selling commercial condominiums

Key information to gather

In most cases, during a commercial inspection, as a salesperson, you will point out various features that will benefit the client’s business, both in the unit itself as well as all common elements. The buyer may retain other third-party professionals to assist in the inspection process such as tradespeople, contractors, fire, and building inspectors. When preparing to sell a new commercial condominium, a developer must provide a disclosure statement to the buyer, as required by the Condominium Act, 1998, detailing, among other things, a budget for the first year of operation following registration. You should also access copies of any covenants and restrictions included in a land development agreement, as well as the declaration, any floor plans, and whatever other information needs to be included in the agreement of purchase and sale. When selling resale commercial condominiums, a status certificate should always be requested as a condition of the agreement of purchase and sale. As a salesperson, you would advise the buyer to obtain legal advice concerning the content of the status certificate. If a resale unit has undergone alterations, it may be appropriate to measure the unit rather than accept previous measurements or floor plans provided by the current owner or developer. Completion of this lesson has enabled you to: • Explain what is unique about visual inspections of a commercial condominium and common elements • Describe how to gather key information about a new commercial condominium • Describe how to gather key information about a resale commercial condominium

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Potentially detrimental conditions

Occasionally, due to significant renovations occurring in adjoining units, the structural integrity of the subject property may have been compromised. Ideally, a seller would report their concerns to the board of directors or the property management company, and ask them to carry out an assessment of the property and the structural integrity of adjoining properties as soon as possible. Environmental issues are, and will remain, a serious consideration in most commercial transactions. Fortunately, most knowledgeable sellers and buyers are already aware of the potential for environmental problems and take appropriate steps to minimize risk. Completion of this lesson has enabled you to: • Identify any potentially detrimental conditions

Preparing to list a commercial condominium for sale

When attempting to verify the measurements of a given property, buyers should engage the services of a professional measuring company to measure the unit in accordance with the applicable BOMA standard or some other standard, such as the IPMS. Part of the salesperson’s due diligence includes making detailed notes with respect to various features of the unit to accurately and completely represent the property to prospective buyers. Before bringing a resale condominium to market, as a salesperson, you will often make recommendations to a seller for improvements to the space, such as cleaning, repainting, and replacement of features like carpeting, window coverings, and equipment included in the purchase price. If significant changes have been made to the space, as the salesperson, you should obtain copies of any documentation the seller may have verifying that the proper permits were obtained and complied with, or confirm with the municipality if the seller doesn’t have any documentation. As required by Section 8 of the Code of Ethics, whenever you are unable to provide the necessary services with reasonable knowledge, skill, judgement, and competence, or are not authorized by law to provide the services, then, as a salesperson, you must advise a client to obtain such services and advice from another person. Completion of this topic has enabled you to: • Verify calculation of areas of commercial condominium • Describe changes that may be required before bringing a resale commercial condominium to market Exam Study Guide

• Review a salesperson’s obligation to recommend services from third-party professionals

Valuating a commercial condominium

Factors impacting value of a commercial condominium include: zoning and permitted uses, maintenance fees and reserve funds, rules and regulations, and parking availability. Once you have successfully valuated a commercial condominium unit, as the salesperson, you will need to be able to provide your opinion on the selling price of the unit. The direct comparison approach is highly dependent on the availability of reasonable comparable sales and the availability of accurate component values. Should you be unable to reasonably estimate the property’s value using this approach, you would refer the client to a professional appraiser. Completion of this topic has enabled you to: • Describe factors that impact the value of a commercial condominium • Describe key considerations when providing an opinion on the selling price of a commercial condominium

Exam Study Guide

Appendix| Page 1 of 2

Appendix Answer Key Question #1: 2 Question #2: 2, 3 Question #3: 1, 2, 3, 5 Question #4: 1 Question #5: 1, 3 Question #6: 3 Question #7: 1, 2, 4 Question #8: 1, 3 Question #9: 1, 2, 4, 5 Question #10: 1, 3 Question #11: 1, 2, 3 Question #12: 1 Question #13: 1 Question #14: 1 Question #15: 1, 3, 4 Question #16: 1, 3 Question #17: 1, 2 Question #18: 1, 3, 4 Question #19: 4 Question #20: 1, 2, 3, 4, 5 Question #21: 2, 4 Question #22: 1, 4, 5 Question #23: 1, 2, 4 Question #24: 2, 4 Question #25: 2, 3, 5

Exam Study Guide

Appendix| Page 2 of 2 Question #26: 1 Question #27: 1, 2 Question #28: 2, 3 Question #29: 2, 3 Question #30:1 Question #31: 1, 5 Question #32: 4 Question #33: 1, 3, 4, 5, 6 Question #34: 1, 3, 4, 5 Question #35: 1 Question #36: 1, 2, 4, 5

Exam Study Guide

Module: Showing Office, Retail, or Industrial Properties and Advising on Properties of Interest This is a study guide to help you prepare for the qualifying exam. There are multiple study guides that are provided for preparation. Each study guide contains several decision points to test your knowledge. The answer key to these decision points is present in the “Appendix” section at the end of the guide. Please use Adobe Acrobat Reader (Recommended version 9 or above) to navigate through this PDF. Real Estate Pre-Registration 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 Pre-Registration Program learner.

Exam Study Guide

Module: Showing Office, Retail, or Industrial Properties and Advising on Properties of Interest

As a salesperson, you will need to be well-versed in the essentials of the profession to meet your obligations in providing services and building relationships with commercial customers and clients. You will need to be knowledgeable about the transactional process and also use product knowledge to select and show appropriate properties, based on buyer wants and needs.

Exam Study Guide

Menu: Showing Office, Retail, or Industrial Properties and Advising on Properties of Interest Number of Lessons Lesson Number

8 Lessons Lesson Name

Lesson 1

Introduction to Showing Commercial Properties

Lesson 2

Leading Practices for Showing Commercial Properties

Lesson 3

Show and Advise on Office Properties of Interest

Lesson 4

Show and Advise on Retail Properties of Interest

Lesson 5

Show and Advise on Industrial Properties of Interest

Lesson 6

Salesperson Due Diligence and the Role of Other Professionals

Lesson 7

Summary Practice Activities Module Summary Appendix

Exam Study Guide

Lesson 1 | Page 2 of 22

Lesson 1: Introduction to Showing Commercial Properties

This lesson summarizes information related to a salesperson’s obligations when working with clients or customers, while focusing on buyer wants and needs.

Exam Study Guide

Lesson 1 | Page 2 of 22

As a salesperson, a firm understanding of your obligations when working with buyers will prepare you to provide services relevant to their wants and needs, as user or investor of commercial properties. You will find that the commercial buyer’s requirements are different from those of residential buyers, as there are varying considerations for investors and users who seek financial gains from property purchases and leases. Without strong product knowledge, you could show properties that are not appropriate by failing to understand what motivates or deters buyers towards commercial selections. Upon completion of this lesson, you will be able to: • Review the obligations of a salesperson when working with commercial buyers • Identify a commercial buyer’s needs and property requirements for personal use • Identify a commercial buyer’s needs and property requirements as an investor Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

Exam Study Guide

Lesson 1 | Page 3 of 22

As a salesperson, it will be essential for you to be able to accommodate commercial buyer clients and customers based on their needs and wants.

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Lesson 1 | Page 4 of 22

Obligations Regarding Due Diligence and Remuneration

With commercial real estate, due diligence is far more expansive than in residential, particularly regarding large and/or complex transactions. Prospective commercial buyers must carefully assess all risks associated with a business and/or property acquisition, with emphasis on factors impacting ongoing income stability. In the case of commercial transactions, your due diligence, as a salesperson, will typically focus on financial, legal, structural, and environmental considerations. Most are customized to suit individual circumstances, but ultimately the goal is to relay knowledge of all relevant facts. Due diligence can range from investigating an inquiry by the buyer to a team of accounting, legal and other professionals scrutinizing every aspect of a property and developing a substantial, customized audit. It is your responsibility, as the salesperson, to show properties that meet the buyer’s requirements without regard to the remuneration payable (per Code, Sec. 19). Your primary objective when working with the buyer should be to satisfy the buyer’s needs and wants and to show properties that match their specifications. Exam Study Guide

Lesson 1 | Page 5 of 22

Obligations Regarding Material Facts

As a salesperson, you will need to inform a buyer of all known material facts (any fact that could affect a person’s decision to acquire a specific property or the price paid), as required by Section 21 of the Code. Material facts should be differentiated from unimportant or trivial detail. Material facts may include items such as a leaky roof, major problems with mechanical systems, environmental hazards, overall market conditions, the possibility for re-zoning, details of any leases being assumed, and incorrect building measurements, among others. The seller must disclose all known latent defects (physical deficiencies or defects not readily observable through reasonable vigilance by the person inspecting the property). Material latent defects include deficiencies that render the property dangerous (or potentially dangerous), unfit for habitation, unfit for the buyer’s purpose, and/or in violation of local authorities, and municipal requirements. It is your obligation to relay any such disclosures to prospective buyers. Failure to disclose material facts prior to purchase could result in a buyer later discovering that Exam Study Guide

the property cannot meet their business needs, resulting in loss of reputation and legal repercussions for you, the seller, and your brokerage. Although you and your brokerage will be representing the interests of clients, you must still treat all parties to the transaction with fairness, honesty, and integrity. A buyer/tenant or seller/landlord may not wish to be represented as a client with the brokerage but would rather be treated as a customer. While maintaining honesty, fairness, and integrity, you will provide customers with a more restricted level of service. Services provided to a customer may include showing the property or properties, drafting the offer, presenting the offer, etc. Brokerages use a Customer Service Agreement to document the services they are providing to a buyer/tenant or seller/landlord customer. Under REBBA and the Code of Ethics, you will still have disclosure obligations to your customer and must disclose all known material facts.

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Lesson 1 | Page 6 of 22

A buyer customer identifies two retail properties of interest but is concerned about properties with a history of damage. The salesperson meets with the seller of the first property of interest on the customer’s behalf. During the meeting, the seller informs the salesperson that there was some flooding in the property’s storeroom a few years ago. They also mention that there are a few public schools nearby, as well as a dumping site that produces the occasional unpleasant smell. When researching the customer’s second property of interest, the salesperson learns that the location is more to the customer’s liking, and there is no history of damage. The property is listed at a lower remuneration rate than the first property. Question # 1: What is the salesperson’s obligation in this scenario? There are four options. There is only one correct answer.

1

The salesperson should relay the proximity of the dumping site to the buyer, as this is a material fact.

2

The salesperson can show only the first property of interest, as it would result in higher remuneration.

3

The salesperson is required to further investigate the property on behalf of the customer after the seller gives them basic information about the property’s history of flooding.

4

The salesperson should relay the proximity of public schools to the buyer, as this is a latent defect.

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Lesson 1 | Page 7 of 22

Now that you have reviewed your obligations towards commercial buyers, we will discuss next how you can help identify the goals of users. Users are also identified as commercial tenants. Understanding a user’s unique goals is essential to providing competent service in commercial transactions.

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Lesson 1 | Page 8 of 22

Establishing a Buyer Profile To determine a buyer’s requirements, as a salesperson, you should conduct an interview to establish a buyer profile, as you would do for residential buyers. In commercial transactions, users will be seeking to grow viable and successful businesses. If you have not discussed needs and wants, or taken expressed needs and wants into consideration, then properties selected and shown are likely to be inappropriate for a given buyer.

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Lesson 1 | Page 9 of 22

Commercial Users’ Spatial Needs As a salesperson, meeting with your buyer will give you a better understanding of the type of space that they are looking for, and the ways in which they use that space. The following four sections contain examples of the spatial considerations for commercial users.

General spatial considerations There will be sites that are easily distinguished as inappropriate for certain uses, (such as ruling out a restaurant property with a large kitchen for a buyer interested in office space), whereas others will require a more critical perspective. Example: A retail user estimates a need for 650 m2 (approx. 7000 sq. ft.) to open an infant apparel boutique. You find a property in a strip mall plaza that fits the square metres requirements, but the layout features a narrow entryway and a set of stairs; your buyer client has specified that they need a layout that is easily accessible for strollers. Your knowledge of the buyer’s needs can help you decide whether the property is a viable selection.

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Spatial considerations for retail properties When considering retail users, a knowledge of store sizes by retail category can help you select properties that optimize sales for a particular buyer tenant. Requirements are determined by considering individual retail categories, for example, furniture/household goods, personal care, apparel, etc. From these recommended requirements, approximate area and an indication of sales productivity (sales per square metre) can then be estimated for different tenants within a retail space. Further retail considerations will be discussed later in this module.

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Spatial considerations for office properties Office building users will have unique spatial needs, specific to the number of employees, businesses, or tenants anticipated on the premises. Square metres (sometimes still measured as square feet) and layout will be a determining factor, depending on the office’s intended use. Example: An office user is looking to relocate her marketing business to accommodate the company’s growing number of employees. She expresses the need for an office space with multiple side rooms that can function as separate employee offices, as well as a larger room than can serve as a conference room. She envisions an open concept office, so would prefer a large single-floor plan that can accommodate multiple desks and separate rooms on the side. Further office building considerations will be discussed later in this module.

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Spatial considerations for industrial properties Industrial users will have unique spatial needs, specific to their industry. Generally, space and layout will be determined on the need for an industrial site constructed for general, special, or single purposes. A buyer will often know how much space they need based on previous experience. Sometimes, industrial and/or consulting engineers can be referred to for recommendations on space and lay-out requirements for various industrial processes or functions. Industrial specialists, when assessing sites, rarely use a standard checklist of needs, given the wide diversity of user requirements. Needs vary significantly depending on whether the user specializes in service, manufacturing or warehouse facilities. Industrial users are faced with various situations not commonly addressed in other commercial acquisitions; each situation will impact the buyer’s required space and layout. Further industrial considerations will be discussed later in this module.

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Lesson 1 | Page 10 of 22

Location and Community Profiles As the salesperson, you should consider factors such as the location of the property, access to transportation routes and availability of a workforce in the property selection process. All these factors primarily depend on needs identified through your preliminary conversations with the buyer. The following three sections contain information on further considerations for commercial users.

Location A buyer’s choice of location depends on the type of business the buyer would like to operate and the customer demographic they intend to attract. An industrial business owner, for instance, may prefer a property located on the outskirts of the city in an industrial park. Conversely, a retail store may prefer a property that is located in shopping malls with ample parking and access to public transit. Location can mean the difference between a business succeeding or failing, so it is important to discover the buyer’s preferred location.

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Workforce availability An available workforce depends, largely, on local demographics. If the buyer’s business is labourintensive, they may require a large workforce; however, a small retail shop may require only a small workforce of a few employees. A leading practice may include evaluating municipal services on your client’s behalf when assessing areas or properties to determine if they will meet their needs. Labour-intensive industrial businesses often require information concerning wage levels, availability of an appropriately skilled labour force, training facilities, and access to the site via public transportation. Local economic development offices provide detailed information on the following: • Census and demographics • Labour statistics • Private employers • Transportation • Quality of life issues • Financial services • Real estate profiles (including residential)

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Transportation routes As noted, transportation routes can have an impact on workforce availability and are often included in community profiles. For instance, remote commercial locations, combined with a high percentage of workers who rely on limited public transportation, can pose problems for buyers who will need to recruit and retain employees. Further, the frequency of shipping products or raw materials and product size can determine the need to purchase a property near transportation routes; this may be especially relevant in urban settings. In rural industries, (such as feed mills, farm services, etc.), transportation routes don’t seem to be a problem, as businesses tend to be set-up closer to their customer base. In an urban setting, this may not be possible, so transportation accessibility becomes more of an issue. Example: If a buyer ships large quantities of raw materials or goods, then they may want a property near transportation routes. Similarly, an urban buyer opening a retail store for clothing, cosmetics, or accessories, may also need public transportation routes nearby. Each case will vary, but a buyer can use transportation data to make an informed decision on whether a location can meet their business’ transportation needs.

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Lesson 1 | Page 11 of 22

Parking and Utilities Access to an available workforce and transportation routes are not the only needs that buyers will have. Users of commercial properties will have specific requirements related to parking and utilities. The following two sections contain information on further considerations for commercial users.

Parking Parking facilities provided to tenants and guests will have an impact on property value. Inadequate parking (related to high demand or low availability) can negatively impact property value, as essential uses are affected and the property’s appeal to tenants lessens. Other factors may reduce the impact of limited parking including adjacent parking lots, the availability of public transit services, owner demographics, and unit sizes. As a salesperson, you should discuss a buyer’s parking needs for staff and clients and use this information when selecting properties. Municipal bylaws can also regulate parking spaces based on property use. For example, a bridal shop may not be allotted as many parking spaces as a medical office. As another example, if a buyer is looking for a medical office and it has very limited parking, that can also affect the value and the buyer’s decision to purchase.

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Utilities and other services When compared to residential units, the cost of utilities is higher for commercial properties, and therefore it is a significant consideration for commercial buyers. Utilities and services may include hydro power, heating systems, water supply, telephone, and internet access. You should identify both a buyer’s utility needs and their associated budget. A buyer’s need for utilities will vary based on their business. For instance, a retail buyer may not require more than a proper ventilation system, a stable internet connection for debit transactions, and electricity for sufficient lighting. Conversely, an industrial buyer may have a greater need for power such as a higher functioning heating system or specialized lighting. As a salesperson, understanding your buyer’s needs can help you select appropriate properties that support various business operations.

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Lesson 1 | Page 12 of 22

Financial Considerations There are many factors that make a property attractive to a user, but one of the most important will be ensuring the affordability of any property they intend to lease. Utilities tend to be higher in commercial properties than in residential ones, but these are not the only expenses a user will need to consider. The following three sections contain information on financial considerations for commercial users.

Affordability Affordability is determined based on the price that a buyer can or will pay for a property and that a seller will accept. Determining affordability requires that various factors be considered, such as the cost of borrowing and the anticipated returns that a property can earn. Financing a property can be a difficult undertaking for some users, as lenders can have significant, and often restrictive requirements before committing to financing a transaction. Commercial buyers should expect to receive only partial financing and to provide a larger down payment than typical residential buyers. You will learn more about this later. Management costs are expenses incurred to manage the operations of the intended business. Common management costs to consider include the services of lawyers, accountants, and building managers. Depending on the business, each buyer’s requirements will vary in terms of management needs. Exam Study Guide

Finances and the salesperson It is essential that you, as a salesperson, recognize that risk and return are never far from a buyer’s mind. While user groups are distinct from investor groups, investment objectives are interwoven in the decision-making process. A great deal of commercial activity surrounds the issue of needs related to users’ finances, such as capital, credit and financial history, and other financial resources available to a given buyer. A clear understanding of the finances available to the buyer will help in your search for affordable properties.

Business plans The development of a business plan helps buyers forecast business goals, benchmarks, and strategies to increase revenue. Buyers that require financing as part of their business plan should consult with professionals, such as a mortgage broker, institutional lender, and, in some cases, venture capitalists. Venture capitalists are individuals or companies who will provide investment capital (funds), often at a reduced interest rate, in exchange for equity participation (shared ownership). As a salesperson, a buyer’s business plan can be consulted to help you select properties with the potential to meet or exceed these projected Exam Study Guide

business needs. A well-designed business plan should: • Demonstrate the buyer’s commitment to a structured plan • Force the buyer to realistically analyze business opportunities • Provide an ongoing, reference document for management guidance • Create a positive impression for those seeking information regarding the business • Focus effort through a documented blueprint As a salesperson, you should never advise directly on the contents of a business plan. However, you should understand business plans at a high level to highlight their importance, recommend that buyers consult third-party professionals, as needed--such as accountants, business planners, and mortgage brokers--and select properties that align with goals based on buyer requirements identified in their business plan.

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Lesson 1 | Page 13 of 22

A paper company is expanding and is looking to purchase office space. As they are new to acquiring office space, they ask the salesperson for information on factors that will influence the affordability of an office property. Question # 2: Select information that the salesperson can relay to the buyer. There are five options. There are multiple correct answers.

1

Affordability for users is determined by exclusively considering the cost of borrowing.

2

It is common for commercial buyers to receive full financing from investors on a given property.

3

Common management costs include the cost of the services of lawyers, accountants, and building managers.

4

Compared to residential properties, commercial utility costs tend to be lower.

5

Common commercial utilities and services may include hydro power, heating systems, water supply, and telephone and internet access.

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Lesson 1 | Page 14 of 22

Investor buyers will have a greater financial interest in the property, as they seek to own commercial real estate, rather than lease. Investors acquire properties with the objective of realizing a profit from a tenant and a capital gain on re-sale. Investment properties can include industrial, retail, office, land, or other specialized commercial operations. This topic focuses on the investor and specifically on the key factors that ensure investment success. You may more commonly encounter investors who tend to focus on one market segment, such as selling and buying industrial or retail properties; however, other investors will invest across multiple market segments, if there is a potential for profit. As a salesperson, you will play a vital role in the process of bringing investment goals and strategies to fruition. You must understand the basis for investment decisions to properly provide counsel and services to buyers. Exam Study Guide

Lesson 1 | Page 15 of 22

Investor Goals There are multiple investor needs that will be identified by a given commercial buyer. Generally, needs will fall under the following categories: 1.

Investor/User Objectives - This includes the general goals of the buyer such as type of property being sought, investment returns (if applicable), lease versus own, type of ownership, etc.

2.

Physical Requirements - This includes specific needs. For e.g., HVAC requirements, transportation etc.

3.

Financial Requirements - This includes amount of capital, financial resources financial history etc.

For the purpose of this portion of the module, we will focus on objectives (or goals). Goals, in terms of investors, relate in large part to investment returns. The following four sections contain information on investor goals.

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Commercial investment returns Return is the yield realized on an investment. Expressed as a percentage, it can be either positive or negative. In real estate, as with other investments, risk and return are tied. Generally, the higher the risk (cost), the higher the return.

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Types of risks A fair presentation to an investor will highlight both advantages and disadvantages of investing in commercial property. Keep in mind that you will be competing for investment dollars within the broader local, national and international marketplace. A wellinformed buyer must know the rewards and risks of real estate to make an informed decision. Risk analysts tend to acknowledge factors beyond the property as distinct from factors within the property. While authoritative texts differ on terms used, most divide risk into several broad segments. • Financial (for example, interest rates and purchasing power of future dollars: Interest rates rise; operating costs increase; sales activities slow; increase in inventories results; causes further rise in operating costs) • Market (for example, real estate market trends and occupancy rates: Occupancy rates rise; returns based on existing rent; lease renewal occurs; higher rent is unavoidable; lower profit results; less capital available for new equipment; competitors arrive; price drop) • Business (for example, taxation, economic activity, and investment climate: Tax incentive provided; an economic downturn occurs; forecasted profits not realized; tax incentive removed; higher costs realized; profit disappears) Exam Study Guide

• Building risks (for example, physical deficiencies: Resale building acquired; substantial damage suffered; insufficient insurance coverage; new building code and zoning requirements enforced; increased cost result; profit is lost)

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Types of returns There are two types of returns: • A return OF the investment The recapture of initial funds at some future date through cash flow. • A return ON the investment A return on funds invested through cash flow (operations cash flow or sale proceeds cash flow) Ideally, a buyer will achieve both forms of investment return to make a profit (rather than simply breaking even through a return of the investment). You should discuss such investment goals with a buyer to determine whether the projected return on a given building meets investment goals. The buyer can then review a property’s documents to understand its financial standing.

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Calculating investment returns Value can be determined once a commercial property’s financial details are determined. Value is estimated by dividing a property’s net operating income (NOI) by the capitalization rate. NOI is the income derived from all sources less the expenses incurred to generate that income. The capitalization rate is the initial return from the acquisition of a real asset, calculated by dividing NOI by the property’s sale price (value). The capitalization rate is typically calculated using the NOI generated during the first year of ownership. Using basic formulas (as seen to the right), is useful when comparing potential properties to show or use in discussions with the buyer. In some situations, you may even make these calculations on a buyer’s behalf to help them make an informed decision based on a forecast of financial outcomes. Example: A buyer client is considering the purchase of a multiunit residential property. A review of the financial statements indicates that the net operating income (NOI) for the previous year is $32,000. The buyer’s salesperson has reviewed three recent comparable sales and learned that the “Capitalization Rate” (rate) for these sales is 5.5 per cent (NOI/Sales Price or Value). The salesperson estimates the value of the building using the income approach as follows: 32,000 ÷ 0.055 = 581,818 or 582,000

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Lesson 1 | Page 16 of 22

Tenant Mixes Some tenant mixes are more likely to create better returns. As a salesperson, the tenant mix is something that you should discuss with buyers of retail properties to determine their preferred mix. Example: A buyer uses knowledge of a neighbourhood’s demographic to help determine the type of business mix that will complement the various tenants. The following three sections contain information on tenant mixes for commercial investors who are interested in retail properties.

Tenant mixes Tenant mix refers to the mix of goods or services that will be provided to customers of a shopping centre when all the centre’s tenants are considered. The proper tenant mix is critical to the success of a shopping centre, as the centre must provide retail stores and services that meet customer needs. In cases of unbalanced or insufficient tenant mixes, there is the risk that customers will shop elsewhere. Consider, for instance, a shopping centre with two competing hair salons and no grocery store; chances are that customers will be lost to a more diverse shopping centre. Example: If a shopping centre already has four shoe stores, there would not likely be a demand for another unless it is a large regional mall. It could also mean that the sales could be divided with a larger number affecting profit for each of the businesses. Exam Study Guide

Ideal tenant mixes A well-balanced tenant mix will achieve several goals. It will: • Cater to the needs of the customers within the trading area • Develop customer traffic in the shopping centre • Encourage customers to stay longer in the centre while shopping • Provide stores that complement each other

Investor influence on tenant mixes Often, it is tenants who will express an interest for a certain location, making tenant selection partially market-driven. However, the owner of the property has the final say and is ultimately the one who will be signing the lease document with the tenant. When a good relationship exists between the owner and the property manager, recommendations made by the property manager regarding potential tenants will usually be given serious consideration by the owner. As well, with existing centres where the property manager is responsible for filling vacancies as they come up, the identity of the property and the quality of professional management will play a large role in determining the type of tenants who express interest in locating at the property, and in the success of lease negotiations. Exam Study Guide

Lesson 1 | Page 17 of 22

Potential Revenue Sources

Every building has a variety of different revenue sources, depending on the type of property and its use. Any sources of income (or expenditure, which will be discussed next) is of interest to an investor and should be discussed both in preliminary discussions regarding buyer needs, and throughout the investigation of properties of interest. Detailed knowledge of revenue sources and expenses will help the buyer decide whether they want to invest in a property. The primary sources of revenue are rents, sales income, or a combination of both. Recovery of operating expenses from tenants by way of additional rent will also be considered revenue, such as common area and maintenance charges, property taxes, etc. Other sources of commercial revenues may include revenue from parking, storage, vending machines, and ATMs. For retail owners, there are three types of potential rental income: Exam Study Guide

• Base rent: often referred to as minimum rent, is the basic rent payable by the tenant under a lease, as distinguished from additional rents associated with operating costs and from percentage rent (explained later in the frame). Base rent is defined in the lease. Incremental increases in annual base rent may be defined in the lease agreement. This can also be referred to as periodic rental escalations. • Additional rent: additional rent is owed by the tenant in addition to the base rent and represents the tenant’s proportionate share of operating costs, as defined in the lease. Additional rent is typically estimated at the beginning of any fiscal or calendar year for the building, with the tenant paying equal monthly instalments in advance throughout the period for which the estimate is made. • Percentage rent: percentage rent is often encountered in a retail commercial lease as a form of additional rent. The tenant is required to make periodic payments to the landlord based on a percentage of their sales. The landlord believes that the tenant’s business success is dependent on the appeal of the landlord’s property (often a shopping mall or retail complex). Tenants benefit from their presence in the mall due to the volume of foot traffic; therefore, the tenant should share their revenue with the landlord. The method of calculating percentage rent, as well as the tenant’s accounting obligations for revenue earned, is defined in the lease agreement. Note that sometimes, instead of charging additional rent, a landlord will charge percentage rent to the retail tenant. This arrangement, however, would be a matter of agreed upon terms, as defined in the lease.

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Lesson 1 | Page 18 of 22

Potential Expenses Analyzing the expenses associated with a property will help an investor assess the return. This will be key in determining if the property will produce the return the investor wants. Like potential revenue sources, expenses will also vary based on property type and use. The following seven sections contain information on further considerations for commercial investors.

Potential expenses There is a range of potential expenses for investors to consider. Which expenses apply will depend, like revenue, on a given property type and its intended use. The following is a list of potential expenses an investor may need to factor into a purchase. • Utilities • Maintenance • Repairs • Heating, ventilation, and air conditioning (HVAC) • Janitorial • Administration Note that categories that expenses fall under can vary and are generally determined by an owner’s accountant.

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Utility expenses Utility expenses can include: • Electrical cost of lighting common areas within a building, parking areas, elevator operation, HVAC operation, and leased areas where applicable • Heating costs such as electricity, natural gas, oil etc., where applicable • Water and sewer tax: municipal or city charges for water supply and sewer maintenance • Internet service0073

Maintenance and repair expenses Maintenance and repair expenses can include: • Wages for in-house maintenance staff and payroll expenses • Maintenance contract: the cost of maintenance services provided under contract • Garbage disposal: rental of containers and dumping charges under contract • Security contract: fixed contract cost for security staff • Fire protection: the cost of maintenance of fire prevention equipment and systems

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• Small tools: replacement cost of lost or broken hand tools used by maintenance staff • Landscape maintenance: contract cost of maintaining landscaped areas including grass cutting, weeding, fertilizing, planting plants outside the building and planters inside the building • Parking lot maintenance: the cost of repairs, line and curb painting, sweeping, snow clearing, and catch basin cleaning • Roof: the cost of minor roof repairs, patching, and stopping leaks • Building general: the cost of all building repairs both interior and exterior, excluding HVAC • Electrical: the cost of all repairs to electrical systems, lighting, and heating where applicable • Plumbing: the cost of all repairs to plumbing in washrooms, janitor closets, and other common areas • Equipment: the cost of repairs to all mechanical equipment including sweepers, lawn mowers, garbage compactors, polishers, vacuums, etc. • Tenant improvements: the cost of repairs to tenant improvements, usually charged back to the tenant

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• Painting: the cost of painting common areas and residential units • Water treatment: the cost of chemicals for treatment of water used in hot water heating systems

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HVAC HVAC expenses can include: • Repairs and maintenance: the cost of routine maintenance of the HVAC system, and repairs when necessary (Note that these expenses can also be the tenant’s responsibility, as required periodically through the leasing agreement) • Maintenance contract: the cost of regularly scheduled service of HVAC machinery and equipment by qualified technicians • Energy conservation: the cost of contract maintenance of electronic energy conservation systems

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Janitorial expenses Janitorial expenses can include: • Wages for in-house janitorial staff and payroll expenses • Janitorial contract: the cost of janitorial services provided under contract • Cleaning supplies: the cost of polishes, detergents, and other chemical products used for cleaning • Washroom supplies: the cost of all paper products, liquid soap, contract supply of roller hand towels, and other products for washrooms • Miscellaneous: the cost of services or supplies not otherwise specified

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Administrative expenses Administrative expenses can include: • Payroll for office or other staff not included in maintenance, security, or janitorial categories • Office expense: the cost of rent, electricity, and repairs for the administration office • Telephone: the cost of telephone system operation including purchase or rental of equipment and telephone company charges, and fax machine operation • Office equipment: the cost of paper supplies, toner, and repairs for the photocopier, fax machine, and computer hardware • Stationery and supplies: the cost of all stationery and office supplies, including printing and postage • Advertising and promotion: the cost of advertising vacancies or promotional activities, and the cost of printing and supplying brochures • Travel expense: the cost of staff travel including local business calls, and attendance at conferences and seminars • Licences: the cost of city or municipal licences to permit the operation of the administration, and such items as an elevator licence Exam Study Guide

• Miscellaneous: the cost of miscellaneous items for administrative purposes not provided for in the budget, such as courier and postage costs

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Legal and managerial expenses • Legal: the cost of legal counsel and legal services • Accounting: the cost of operating the accounting system, including computer use and an annual audit • Insurance premiums for insurance coverage of the building • Management fee for contract management of the building

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Lesson 1 | Page 19 of 22

Investors and Cash Flow There are two forms of cash flow (the transfer of money into and out of a business) that can affect investor decisions. These are operations cash flow and sales proceeds cash flow. Real estate investment analysis factors in both operations cash flow and sale proceeds cash flow when determining yield on an investment property. The following three sections contain information on cash flow considerations.

Operations cash flow Operations cash flow represents periodic monies received from the operation of the investment. Cash flow can be positive or negative. As the salesperson, you can calculate a single year’s cash flow based on income and expense analysis to arrive at net operating income (NOI). Note that these calculations are often also made by a qualified appraiser, independently of any estimates you may make on your own.

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Sales proceeds cash flow Sales proceeds cash flow is the profit or gain realized after the sale of the property. The calculation for this form of cash flow will be the actual sales price on a property, minus the adjusted cost base, (that is to say, all expenses associated with the sale, such as legal, accounting, and real estate remuneration, less any capital improvements made to the property during the seller’s ownership) and minus any registrations against the property, like mortgages. The resulting sum is called net proceeds of the sale, which could also be considered capital gains. There are income tax considerations on capital gains. Traditionally, sale proceeds have been viewed separately from operations cash flow and treated as capital appreciation. This approach was particularly popular in inflationary periods when operations cash flows were either small (or negative), and investment decisions were made solely on anticipated sale gains. However, stable economic periods require a more all-encompassing perspective on investment return. Capital appreciation, while valid, is only one dimension within a larger picture.

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Cash flow and salespersons As a salesperson, you should ensure that a buyer is aware of cash flow information by obtaining all relevant due diligence documents, such as leases, cash flow statements, and profit and loss statements with relevant support documentation, prior to the removal of any due diligence conditions in a commercial transaction. Having the knowledge of cash flow from both operations and sales proceeds may help a buyer determine the income potential of a property, and, in turn, better understand its value.

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Lesson 1 | Page 20 of 22

The Durability and Stability of Income Streams

As a salesperson, your assessment of potential income for investors should include investigating the durability and stability of that income. The state of income streams is usually determined by verifying income derived from leases or other types of contracts. Your financial due diligence will focus on the financial health of the business being analyzed. Part of the consideration is the length of time remaining on existing leases/contracts, any opportunities for renewals, and any rent/revenue escalations in the contracts, etc. In other words, investigating income streams should project how long a buyer can reasonably expect to receive a given amount of income. One leading practice is to look at the property’s leases, which can provide information on how long it will be before they need to be renegotiated by the new owner. An income-producing property should undergo a thorough analysis of documents, including income statements, balance sheets, rent rolls and leases, bank statements, tax bills and returns, employee records, and detailed information regarding operating costs. You should also consult various seller-supplied documents including all financial records, lease documents, inventory of equipment and other assets, utility bills, building service contracts, and insurance policies. Exam Study Guide

Example: In looking at a lease for a tenant in a commercial property on behalf of an investor, you note that there are four remaining years on the lease. From this information, you can inform a buyer that stable income from the tenant lease should be in place for at least four years (barring any unforeseen circumstances with the tenant). Similarly, a look into parking revenue that shows a steady increase over the past three years can help the investor infer that parking will be another stable source of income.

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Lesson 1 | Page 21 of 22

A first-time investor asks a salesperson what they should know about investing in a commercial office property. They specifically ask the salesperson about investment returns, cash flow, rent, and how to estimate income. Question # 3: What aspects of investment properties should the salesperson explain to the buyer? There are five options. There are multiple correct answers. 1

The salesperson can describe the return of the investment as the recapture of initial funds at a later date

2

The salesperson can estimate the Net Operating Income by using the following formula: Value x Rate (or V x R)

3

The salesperson can inform office buyers of three potential sources of income; these are base rent, additional rent, and percentage rent

4

The salesperson is responsible for determining which specific categories a commercial buyer’s expenses will fall under

5

The salesperson can relay property information pertaining to cash flow to the buyer after due diligence conditions in the agreement are removed

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Lesson 1 | Page 22 of 22

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were covered in this lesson.

Obligations when working with clients and customers

In commercial transactions, your due diligence will typically focus on financial, legal, structural, and environmental considerations. As the salesperson, it is your obligation to show all properties of interest to the buyer regardless of the amount of remuneration that can be earned through the sale of any particular property (per Code, Sec. 19). You will also need to discover and disclose material facts (per Code, Sec. 21).

Users’ needs

Before the property selection process, you should determine a user’s needs and property requirements. In commercial transactions, users will be looking to grow viable and successful businesses. If you have not discussed needs or taken expressed needs into consideration, then properties selected and shown are likely to be inappropriate for a given buyer. Common considerations include: • Space and layout • Location, workforce availability, and transportation • Utilities and other services • Parking • Affordability

Investors’ needs

Investor buyers will have a greater financial interest in the property, as investors acquire property with the objective of realizing a profit from a tenant and a capital gain on resale. Investment decisions may be based on: • Investment goals (such as return on/of investment) • Preferred tenant mixes • Potential revenue sources and expenses • Potential operations cash flow and sales proceeds cash flow Exam Study Guide

• Stability and durability of income streams (based on key documents) • Future value of the property

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Lesson 2 | Page 1 of 26

Lesson 2: Leading Practices for Showing Commercial Properties

This lesson introduces the leading practices for commercial showings, including the provision of key information on properties of interest to buyers.

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Lesson 2 | Page 2 of 26

Having a firm understanding of the leading practices in preparing to show commercial properties will help you, as a salesperson, to provide competent service for both sellers and buyers. Without this knowledge, you can jeopardize both the transaction and your reputation, as a salesperson, and that of your brokerage. This lesson will discuss showing commercial properties in general terms. We will discuss unique considerations for showing and providing advice for office, retail, and industrial properties in the lessons that follow. Upon completion of this lesson, you will be able to: • Gather detailed information on commercial properties for the buyer • Describe leading practices for preparing to show commercial properties • Describe leading practices when showing commercial properties • Describe leading practices for following up after showing commercial properties Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

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As a salesperson, it will be essential for you to be able to accommodate commercial buyer clients and customers based on their needs and wants. You will find that some leading practices will be the same as those in residential transactions, while others differ due to the unique needs of users, investors, and commercial sellers.

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Lesson 2 | Page 4 of 26

Gathering Key Material Facts As a salesperson, you will be obligated to disclose all material facts to buyers in commercial transactions (per Code, Sec. 21). When gathering information on behalf of commercial buyers, due diligence involves investigating four key aspects of a property to discover material facts: • Legal standing (existing leases and the property’s compliance with them, any registrations on title, like mortgages, liens, easements, and other encumbrances registered against the property, etc.) • Environmental hazards, if any exist • Financial/operational concerns • Structural issues and overall property conditions Specifics of these four aspects of investigation will be discussed next.

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Lesson 2 | Page 5 of 26

Gathering Information for Buyers: Documentation As a salesperson, you will be tasked with collecting various documents for buyers. There are many legal documents with important information, but one of the other documents that you may need to obtain is the Record of Site Condition (RSC). The RSC and other legal documents will inform the buyer of any legal issues attached to the title. These are material facts and must be disclosed to a commercial buyer. The following two sections contain information on gathering information to discover material facts for commercial buyers.

Record of a site’s condition Whenever possible, it is leading practice to obtain a record of a site’s condition (i.e., the RSC). Currently, law requires that prescribed standards are adhered to during the clean-up process for certain industrial properties, based on proposed land use and sitespecific conditions. Legislation also provides various quality assurance measures, such as certification standards for clean-up professionals, sign-off by such professionals, an auditing process to ensure compliance, and mandatory reporting to a site registry. Registry sites contain records pertaining to a property’s condition, if they exist; it is unlikely that you will be expected to request such reports, but you may do so in some cases. Requesting an RSC is usually done by third-party professionals like the buyer’s site assessors, lawyers, etc. As a salesperson, it will be your obligation to ensure that any offer submitted by a buyer client or customer contains a condition allowing the buyer to carry out a Exam Study Guide

due diligence investigation regarding environmental matters, such as having the opportunity to discover any RSCs. However, a leading practice is for you to request an RSC if the buyer is uncomfortable submitting an offer without one.

Legal matters Easements, encroachments, and restrictive covenants attached to a property’s title must also be investigated for commercial transactions. Legal agreements attached to title should be disclosed by the seller. In review: • Easement rights are granted by one property owner (the servient tenement) for the benefit of at least one other property owner (the dominant tenement), usually allowing them special use of the granter’s land, such as a right of way • Encroachment rights arise from the unauthorized intrusion onto the lands and property of another. The right to an encroachment by one landowner over an adjoining owner’s property is sometimes granted by express written agreement • Restrictive covenants are limitations placed on the use of property. A restrictive covenant involves a contract between two landowners, by which the person obtaining the promise (the covenantee) acquires the right to restrain the covenantor from putting the land to certain specific uses Exam Study Guide

As part of your due diligence, you can recommend that a buyer has any leases and other due diligence documents (for example, financial statements, service contracts, etc.) reviewed by a qualified thirdparty professional, such as lawyers, accountants, etc.

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Gathering Information for Buyers: Zoning Buyers will want to ensure that the property in question will meet their needs. As a salesperson, when gathering information for buyers you must check the municipal zoning. The municipal zoning indicates allowable, legal uses for a given property. Zoning can impact how a buyer will use the property and so must be checked. The following three sections contain more information on gathering information to discover material facts for commercial buyers.

Zoning Commercial zone regulations are usually categorized using sequential numbering (for example, C1, C2, C3, and C4) or location-specific identifiers. Common location-specific identifiers include: • LC (Local Commercial) • MD (Mixed-Use Downtown) • AM (Arterial Mainstreet) • NC (Neighbourhood Commercial) Commercial activities within these zones must abide by restrictions including, but not limited to front, side and rear yard minimums, maximum gross floor area, building coverage specifications, minimum landscaped buffers, and minimum/maximum heights. Commercial activities typically must meet required minimum separation distances from residential zones. The distance will vary based on specific use. For example, a restaurant might require a 60-metre separation, while an auto repair operation could Exam Study Guide

require 120 metres. Other provisions include setbacks from greenbelt zones, provisions for outdoor garbage facilities, setbacks for arterial roads and provincial highways, and parking requirements.

Zoning for parking As you learned about spatial considerations for buyers earlier in Lesson 1, parking requirements for commercial activities are stringent and can be key spatial considerations that impact a buyer’s decision, particularly in retail spaces. Zoning requirements include minimum width and depth requirements (for example, 2.6 metres x 5.9 metres), with increased sizes when abutting a building or other structure, acceptable surface treatments, and drainage requirements. Total allowable off-street parking spaces are typically established based on the particular retail use and gross floor area. Mixed-use developments may have special zoning requirements given shared parking, such as parking to accommodate retail, office, and residential uses. A formula based on peak period requirements for respective uses can determine adequate daytime, evening, and weekend parking. Required parking for persons with disabilities is usually fixed as a ratio of required parking spaces.

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Verifying zoning As the salesperson, you can verify zoning by inquiring at city hall in person or by researching the property online. Most municipalities will include zoning information as part of their online presence. You can search zoning maps or actual addresses to determine related zoning designations. Copies of the zoning bylaws, including permitted uses, can also be downloaded. This is often part of Geographic Information System (GIS) mapping.

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Lesson 2 | Page 7 of 26

Gathering Information for Buyers: Income Streams and Risks In addition to gathering information on the physical site, as a salesperson, you should discover any zoning restrictions and legal issues that buyers will want to know to ensure that they fully understand the economic costs, benefits, and risks of buying a given property. You will also need to gather further information on income streams and their associated risks. The following four sections contain more information on gathering information to discover material facts for commercial buyers.

Income streams A salesperson will need to gather relevant documents on key income streams if a commercial buyer is an investor. These are referred to as due diligence documents and may include: • Income and bank statements • Balance sheets • Rent rolls and leases • Tax bills and returns • Employee records • Detailed information regarding operating costs • Inventory of equipment and other assets • Utility bills • Building service contracts • Insurance policies

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Property Risks Buyers will also want to know about the risks associated with the property, and may ask you, as their salesperson, to research these risks, including: • Tenant risks: may include the longevity of leases, the type of lease, and whether or not the lease can be renewed. This information can be found through rent rolls and lease documents, as identified above. • Building condition risks: may include the age of the building, age of the heating system, age of the roof, and age of all systems, including sprinklers. This information can be found on listings and key documents provided by the seller and through the buyer’s third-party service providers. • Economic condition risks: may include a downward trend in retail sales, poor workforce availability, high interest rates, and nearby market-competitors. This information will likely be determined based on familiarity with your given trade area and, in some cases, through accessing a municipality’s public community profiles online. You can also make use of services provided through economic development offices and Geowarehouse® (discussed in the following links).

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Economic development offices Local economic development offices provide detailed information on census and demographics, labour statistics, private employers, transportation, quality of life issues, financial services, and real estate profile. All of these can provide you with material facts about a given community. Keep in mind that the scope of data available from across economic development offices will vary. Your best point of contact, as the salesperson, will be the economic development officer (or a person of similar title; for example, investment and business development officer). This individual is typically responsible for facilitating the economic development process, developing community profiles, collecting information about available properties, partnering with local organizations to assist incoming business clients, summarizing key incentives available to those businesses, and generally promoting the community from a business perspective.

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Geowarehouse® Another good source of information is Geowarehouse®, which you learned about in Course 2: Residential Real Estate. Geowarehouse® is a provider of information that the brokerage can use. Members and subscribers can request a report about a property and the surrounding neighbourhood’s sales and demographics through Geowarehouse’s website. As a salesperson, it is a leading practice to reference such reports to provide commercial buyers with information that could impact their purchase decisions.

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Lesson 2 | Page 8 of 26

Gathering Information for Buyers: Building Maintenance and Energy Efficiency Buyers will want to have a sense of the cost of maintaining the property, and develop a schedule of repair and maintenance items that will require resources at various points. As a salesperson, it will be a leading practice for you to request any documentation related to the property’s mechanical and energy efficiency systems. The following four sections contain more information on gathering information to discover material facts for commercial buyers.

HVAC systems Heating, ventilation and air conditioning (HVAC) systems are a consideration that applies to all commercial buildings and especially industrial properties. Industrial HVAC mechanical units regulate the even distribution of heating, cooling, and fresh air throughout a building. This is vital to certain industrial uses that require continuous air quality or temperature maintenance. A broad range of HVAC systems are used in the marketplace. Industrial HVAC systems are often roof-mounted with supply air diffusers strategically placed within that ceiling, along with return air ducts. It is important to obtain any available information regarding HVAC systems, as this can make a buyer aware of future improvements they may need to plan for financially. Poor HVAC systems can also be a safety hazard, depending on the buyer’s intended use for the property. Some components of note include: • Air Handler – The blower or series of fans within an HVAC system used to move heated Exam Study Guide

or conditioned air through the structure, normally by means of duct work. • Condensing Unit – Normally situated outside the structure, the condensing unit contains a compressor that compresses coolant and provides a cooling effect within an airconditioning unit. • Ductwork – A series of ducts used for the distribution of warm or cool air throughout a structure to various rooms, offices, and work areas. The ducted system permits the return flow of air back from various portions of the structure to the HVAC unit. • Roof Top HVAC – A large HVAC unit mounted on the roof of a structure that provides cooling and heating for the structure. • Unit Heater (or Space Heater) – A large interior, roof-hung unit that heats open areas. As the salesperson, you should be aware of the terminology, but should not expect to assess the condition of HVAC systems; assessments are reserved for third-party service providers. You should, however, be concerned with the overall condition of a unit, as indicated by service/repair records provided by the owner or listing salesperson. If none are available, you can recommend that the buyer has the unit(s) serviced by a qualified technician as part of the due diligence investigation.

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Energy efficiency Buyers are often interested in knowing about a property’s energy efficiency. High efficiency buildings are both cost effective and can positively contribute to their business’ reputation. Natural Resources Canada offers the Eco ENERGY program through its Office of Energy Efficiency. The Eco ENERGY program provides financial support to homeowners, small and mediumsized businesses, and industrial facilities. Commercial and industrial facilities can receive incentives (based on annual energy savings). Current program details can be discovered through the Office of Energy Efficiency. It is important to relay any discovered information on energy efficiency so that a buyer is aware of future improvements they may need to plan for financially. Information on energy efficient components of a building can also determine whether a building is granted LEED-certification (discussed next).

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Leadership in Energy and Environment Design (LEED) A piece of information that may be important to many buyers is a property’s Leadership in Energy and Environment Design (LEED) certification and/or qualification. Buildings with this certification meet criteria in categories such as: • Location and transportation • Water efficiency • Sustainable sites • Energy and atmosphere • Indoor environmental quality • Material and resources • Innovation

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LEED importance A property’s LEED certification is important to buyers for the following reasons: • Certification can provide building owners with direct access to expert technical support • Certification can help with financing for the building, as people are confident that a LEED-certified property is water and energyefficient • Certification shows buyers that operational costs will be lower due to energy-efficient initiatives already in place To discover if a property has LEED certification on behalf of a buyer, you can access Project Profiles through the Canada Green Building Council website. Project Profiles is Canada’s largest database of LEED-certified building projects.

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Lesson 2 | Page 9 of 26

Gathering Information on Commercial Condominiums

For commercial condominiums, you should always gather information relating to the condominium corporation on behalf of a buyer. As a salesperson, you can request a status certificate to get a comprehensive view of the unit and the condominium corporation’s financial standing. A status certificate will tell a buyer essential information, or material facts, about the condominium’s fees, planned cost increases, any special upcoming assessments, and any issues for the unit regarding debt owing (arrears or liens) (per the Condominium Act). Among restrictions on unit uses, sellers or property managers may also provide you with information about restrictions for common areas, such as main lobbies and washrooms.

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Lesson 2 | Page 10 of 26

Understanding Broker-Protected Signs

It’s important to note that, unlike most residential properties, many available commercial properties will not be listed in the local listing service. In such a case, an owner will put up a sign on the property that says “broker-protected,” which means brokers or salespersons can bring them clients and the owner agrees to pay remuneration for their service. Whether there is a sign in place or not, you should always confirm the payment of remuneration, preferably through a Seller Customer Service Agreement, or a similar document, before you present your offer to sellers. Although many commercial properties are not listed, they may still be properties that satisfy the needs of a buyer. As a salesperson, you can discover these unlisted properties to provide conscientious and competent service to buyers through your knowledge of the marketplace and through networking.

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Lesson 2 | Page 11 of 26

When gathering information on commercial properties for a buyer client who is interested in leasing a retail property, a salesperson should be aware of their obligations and know leading research practices. Question # 4: Which one of the following is an appropriate course of action for a salesperson to take when gathering information for a commercial buyer? There are three options. There is only one correct answer.

1

A salesperson investigates the property’s legal standing to discover any existing leases and registrations on title.

2

A salesperson uses an internet search engine, such as Google, to discover any professional reports regarding a property and its surrounding neighbourhood’s sales and demographics.

3

A salesperson contacts the seller representative or the seller to gather detailed information on censuses, demographics, and labour statistics regarding the property.

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Lesson 2 | Page 12 of 26

A salesperson represents a buyer who is interested in investing in an industrial property. During the research process, the salesperson identifies a property that seems to meet many of the buyer’s criteria. However, this is only one aspect of the salesperson’s due diligence; they must also ensure that all material facts are discovered. Question # 5: Which of the following actions should the salesperson take in order to discover this information? There are four options. There are multiple correct answers.

1

The salesperson is obligated to obtain the record of site condition through a site registry.

2

The salesperson is obligated to obtain any information about legal matters attached to a property from the seller.

3

The salesperson should obtain due diligence documents to confirm income streams from the seller when working with an investor.

4

The salesperson should obtain information on the age of the building’s roof and sprinkler system by consulting the property listing, seller-provided documents, and third-party service providers.

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Lesson 2 | Page 13 of 26

A salesperson is investigating local office condominiums on behalf of a commercial investor buyer. Question # 6: Which of the following options accurately represent how and from where a salesperson should gather information on these properties? There are four options. There are multiple correct answers.

1

The salesperson should inquire through the local economic development office to verify a property’s zoning designation.

2

The salesperson should access the Project Profiles database to discover if a property is LEED-certified.

3

The salesperson should request a commercial condominium’s status certificate to discover important information, such as any debt owed on a unit, among other things.

4

The salesperson should search Project Profiles to discover Eco ENERGY program details for small and medium-sized business owners.

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Lesson 2 | Page 14 of 26

Now that you have a better understanding of material facts as they relate to commercial buyers, we will discuss leading practices when preparing to show commercial properties. As a salesperson, you will find that many of these leading practices relate to providing a buyer with information gathered. Once you have prepared sufficiently, you will show the property, keeping in mind special considerations related to both commercial sellers and buyers. Following the showing, you will need to follow-up with a buyer. We will discuss these topics in generalities, with details related to special considerations for office, retail, and industrial properties discussed later in this module.

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Lesson 2 | Page 15 of 26

Providing a Package of Information to the Buyer

After you have discussed the buyer’s wants and needs, as a salesperson, you should supply a list of available commercial properties that meet key criteria and highlight properties that best meet the buyer’s needs (in accordance with Sections 4 and 5 of the Code of Ethics, which mandates obligations regarding best interests, as well as conscientious and competent service, respectively). Following your preliminary research, you should ideally be able to provide the buyer with the following package of information prior to showing a property: • Map of the site and surrounding area • Images of the site and surrounding area (for example, aerial photographs, site plans, and general photographs) • Survey • A summary highlighting vital points, such as any problematic past uses of the property that could pose issues for the buyer’s future use As the salesperson, your disclosure of all relevant information pertaining to the property will not only help the buyer make an informed decision regarding their purchase; it will also demonstrate your competence and avoid any future legal repercussions, should issues arise after the transaction closes. Exam Study Guide

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Preparing to Show a Property: Discussion with Seller’s Representative

Prior to showing a property to a buyer, as the salesperson, you should contact the seller’s representative. During discussions, it is a leading practice to discuss any safety and accessibility requirements that will need to be observed during the on-site showing. This list may include, but is not limited to, the wearing of hard hats, protective footwear, and safety precautions while walking through non-restricted areas. If possible, you should try to visit the property on your own before scheduling a showing with the buyer. This preliminary viewing will give you better sense of the layout so that you can point out areas of interest when touring the buyer through the property. While this is ideal, visiting the property beforehand is not always possible, and will depend wholly on the seller’s and the buyer’s timelines. Depending on a property’s use, a seller may also require that certain discretion be shown when viewing the property, such as conducting viewings of the property only during set hours or keeping the sale of the property confidential from employees and customers. If viewing times have some flexibility, you can ask the buyer for their preferred time. Safety, accessibility, and discretionary observances vary across commercial property uses, and will be explored in more detail later in this module.

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Lesson 2 | Page 17 of 26

Preparing to Show a Property: Confidentiality Requirements

It is important to note that no matter the property’s use, a seller’s requirements related to confidentiality should always be taken seriously and relayed in full to the buyer. Failure to adhere to a seller’s requirements can create future legal issues, jeopardize your own and others’ physical safety, and negatively impact your reputation and that of the seller’s business. A confidentiality agreement is used when one party is entrusted with secret or private matters by another. In real estate negotiations, confidentiality agreements are fairly common between sellers and buyers. For example, a listing salesperson may have to inspect books of account or other documentation relating to a commercial property in order to relay information to a buyer. The prospective buyer, in turn, may be required to sign a confidentiality agreement before receiving the information. In some cases, a confidentiality agreement may need to be signed prior to being permitted access to a property. Such agreements may be used when the buyer and the salesperson will be viewing sensitive business or manufacturing processes that are considered to be trade secrets. Alternately, the seller may designate that certain areas of the property are off limits until such a time that substantial interest has been expressed by the buyer. Exam Study Guide

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Before showing a commercial office property to a buyer, a salesperson prepares ahead of time in their performance of due diligence. Question # 7: Which one of the following actions should the salesperson take as part of their due diligence when representing a buyer? There are three options. There is only one correct answer.

1

The salesperson should always visit a property without the buyer first. This step must be performed before a showing with the buyer can be scheduled.

2

The salesperson should discuss any safety and accessibility requirements to be observed during the onsite viewing with the seller’s representative before a property is shown.

3

The salesperson should book property showings only during business/operational hours.

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Lesson 2 | Page 19 of 26

An organic food processing company is looking for a new location for their food processing plant. Before showing an industrial property, a salesperson identifies a possible location and prepares to discuss certain aspects of the property with the buyer in advance of the showing based on information obtained from the seller’s representative. Question # 8: Which of the following actions by the salesperson would be appropriate as part of their pre-showing due diligence? There are three options. There are multiple correct options.

1

The salesperson should suggest that they view the property with the buyer prior to gathering information on the property, as the buyer’s questions during the showing will define the research process.

2

The salesperson should inform the buyer if they will be made privy to any proprietary or confidential information during the showing and remind them of the need for discretion.

3

The salesperson’s knowledge of the prior use of the property, especially if it could pose problems for the buyer’s future use, should be shared with the buyer.

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Lesson 2 | Page 20 of 26

Showing a Commercial Property: Describing Off-Site Considerations Once you have established set parameters and appropriate viewing times with the seller, as the salesperson, you can proceed with scheduling a showing with the buyer. While touring the property, you should discuss any detailed information of interest to the buyer, using knowledge from your preliminary research and any prior personal visit to the property. As you learned about material facts earlier in this module, details such as the impact of location and accessibility should be relayed to the buyer. Depending on the buyer’s intended use, some considerations may hold more or less weight in their decision than others. Retailers, for instance, will be impacted by range, clustering, threshold, and competition; whereas, office and industrial properties may have fewer concerns about competition and clustering. Regardless, you should be prepared to review all pertinent criteria in detail. The following four sections contain information on these considerations.

Range Range normally refers to the maximum distance that a typical consumer will travel in order to acquire a specific product or service. Range, a special economics term, includes both time and distance considerations (that is, travel time). As a general guideline, shoppers will generally travel a greater distance to acquire goods and services if travel time is reduced through direct highway systems and ease of access, assuming that all other things are equal. Interestingly, travel times can be either perceived or real. Transportation modes (for example, subway, bus, or streetcar stations) also positively impact drawing power for a retail complex within a specific trading area. Of course, physical barriers (for example, undeveloped lands, rail lines, and expressways), Exam Study Guide

industrial areas, and run-down neighbourhoods may impede pedestrian, public transit and/or private vehicular traffic, and limit the potential trade area.

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Clustering Clustering impacts consumer behaviour in terms of merchant (tenant) mix within a shopping complex or other commercial district. Shoppers are influenced by retail groupings and will consolidate shopping trips if several needed products are available at a single destination: the better the mix, the bigger the draw. In the consumer’s mind, the greater travel distance is offset by reduced search costs. A mix of retailers with similar products, but different price points, can also be effective in attracting diverse shoppers.

Threshold Threshold involves both demographic and economic considerations. From a demographic perspective, threshold refers to the population size necessary to support a specific business. For example, a home improvement centre requires a much higher threshold (or local population size) than an auto parts store, a florist, or a fast food restaurant. Population is the primary threshold indicator but factoring in age groups and household units within the trading area produce even more precise estimates. Threshold analysis also takes economic variables into account, such as household income and household expenditures. Both factors directly impact retail price points and product mixes. Threshold analysis can help owners determine the market demand for their products in a given area. Exam Study Guide

Competition Competition analysis rounds out the trading area analysis. Generally, consumers will travel no further to obtain a product than necessary. Assuming no other factors are in play, the shopper will pick the closest location if two or more competitors are offering the same product, and the same service, at a similar price. Consequently, retailers and other service businesses tend to aggregate on main arterial roads, leading between work areas and residential districts, to ensure both exposure and ease of access. All possible competition within the trading area must be fully analyzed in order to determine what retail demand and market share can be anticipated for a new shopping complex or a stand-alone operation.

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Lesson 2 | Page 21 of 26

Showing a Commercial Property Using Leading Practices

As a salesperson, you will use the showing to point out any areas that might be of interest to the buyer. Showing in this way can be especially useful if there are details easily overlooked, such as small fixtures. Common details to look for in office, retail, and industrial settings will be explored later in this module. No matter the property type, it is always a good idea to have a measuring tape or measuring device on hand in case dimensions need to be confirmed. Any new information discovered during your showing, or any items of curiosity to the seller, should be noted for follow-up later. You should be certain that you always observe discretionary requirements and respect seller restrictions (such as the use of photographic devices) while conducting your showing, especially if the showing is during operational hours. Before leaving the property, you should confirm that the buyer is satisfied and feels that they have completed a full viewing. If the buyer is not satisfied, a second viewing may be arranged, ideally at less obtrusive hours. Open items, or questions that you cannot answer, may require following up with the seller’s representative, and receiving permission to consult a third-party service provider, or recommending that the buyer seeks the services of a thirdExam Study Guide

party. Most sellers will not permit third-party inspections/assessments without an accepted, conditional agreement already in place. Variations, however, can occur. In the case of commercial condominiums, you should follow your tour of the main unit with a showing of the common areas, again keeping any seller requirements in mind. Any known restrictions for a tenant’s use of common areas, such as lobbies and washrooms, should be detailed to the buyer.

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Lesson 2 | Page 22 of 26

A salesperson shows an office condominium to a buyer during business hours. The seller notes that certain areas of the unit, including the main board room, may not be available for showing during the buyer’s preferred viewing time due to confidential meetings. Question #9: Which leading practices should the salesperson follow when showing the property to the buyer? There are three options. There are multiple correct answers.

1

The salesperson should advise the buyer that they can view the unit of interest and the common areas, with the exception of the main board room. They will need to schedule another viewing to see that space.

2

The salesperson should confirm that the buyer was satisfied with the showing prior to leaving the property.

3

The salesperson’s first and only obligation is to their client or customer, so they should show the buyer everything they need to feel comfortable about a given property.

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Lesson 2 | Page 23 of 26

A salesperson and a buyer view a retail property of interest during peak shopping hours. During preliminary discussions with the buyer, they mentioned specific shipping and receiving requirements that they must have in a property. Prior to the tour, the seller noted that the use of cameras was prohibited during the showing. Question #10: Which of the following statements is applicable to this scenario? There are three options. There is only one correct answer.

1

The salesperson should show the property by using preliminary research gathered. Additional items of interest may be discussed if brought up by the buyer for discussion.

2

The salesperson should show the property by using a standard checklist of common buyer wants and needs. Additional items of interest may be discussed if brought up later by the buyer for discussion.

3

The salesperson and the buyer should expect to sign a confidentiality agreement, as this is standard practice for most commercial showings.

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Lesson 2 | Page 24 of 26

Following Up After a Commercial Property Showing

Once the viewing is over, the next step for you, as a salesperson, is to follow-up as soon as possible on any remaining concerns the buyer has expressed. When applicable, follow-up may require seeking the advice of third-party service providers; a leading practice is to refer two to three professionals in a given field for a buyer to contact. The follow-up process should include a formal call (or ideally, an in-person meeting) with the buyer, where you summarize the information learned while showing a property, tailoring the discussion to their wants and needs. In the case of multiple property viewings, this summarization may include a comparative discussion, chart, or checklist that outlines the pros and cons of each property selection on any given number of items. The goal of a follow-up is ultimately to ensure that a buyer feels confident that you have provided a clear and unbiased summary of the best options available to them. Example: A salesperson has viewed three properties of interest with a buyer. Following the showings, the salesperson prepares a spreadsheet based off notes they took during each showing. The spreadsheet includes key property features that are checked/unchecked in columns, so that the buyer is presented with a comparative chart of the properties.

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Lesson 2 | Page 25 of 26

A salesperson follows up with a buyer after showing them a property of interest. The buyer feels that the property holds promise, but they are concerned that there may be some aspects of the property that have not been fully investigated. In particular, they express a concern about the functionality of the HVAC systems, as a well-ventilated working environment will be essential to their business needs. Question #11: What should the salesperson do in this scenario? There are three options. There is only one correct answer.

1

As a leading practice, the salesperson should refer the buyer to two or three third-party professionals to assess the property’s HVAC system.

2

As a leading practice, the salesperson should not look into the property’s HVAC system, as it is outside of their area of expertise and it would be inappropriate for them to offer a buyer advice on the HVAC system.

3

As a leading practice, the salesperson should further investigate the property’s HVAC system on behalf of the buyer.

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Lesson 2 | Page 26 of 26

Congratulations, you have completed the lesson! There are four sections on this page with a summary of the key topics that were covered in this lesson.

Gathering information on properties

Due diligence involves investigating key aspects of a property to discover material facts: • Legal standing (existing leases and the property’s compliance with them, and any registrations on title like mortgages, liens, easements, etc.) • Environmental hazards, if any exist • Financial or operational concerns • Structural issues and overall property conditions

Preparing to show properties

When preparing to show properties, you should supply a buyer with a list of available properties and highlight key points on properties of interest. You should be able to provide the buyer with a package of information and inform the buyer of any known potential problems, such as a previous use that might have created an environmental contamination. Prior to the showing, you should discuss requirements and conditions for showing a property with the seller or the seller representative. If possible, you should visit the property without the buyer first. You can determine through discussions with the seller or the seller representative, which are optimal times to show the property. Any privacy and confidentiality requirements to be followed during the showing must be relayed to the buyer.

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Showing properties

When touring a property with a buyer, you should discuss and detail information you have discovered about the property. You may want to discuss the property’s location and accessibility, as well as any specific features noted by the buyer. As directed by the seller or the seller representative, you should observe all requirements for discretion, confidentiality, and safety during the showing. You should ensure that a full viewing has been completed and that the buyer is satisfied. If not, a second viewing may be arranged and/or it may be possible to have inspections by third parties conducted with the seller’s permission. In the case of commercial condominiums, you should ensure that the buyer has not just seen the unit(s) of interest, but also common areas.

Following up after showing properties

After showing a property, you should be prepared to follow up by discussing any buyer concerns. You may need to assist in analyzing changes required by the buyer and recommend third-party service providers. Finally, you should create a summary (ideally in writing) of each property shown so that the buyer has a clear and unbiased understanding of their options.

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Lesson 3 | Page 1 of 9

Lesson 3: Show and Advise on Office Properties of Interest

This lesson details how to use identified buyer needs and wants to select and show office properties of interest.

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Lesson 3 | Page 2 of 9

Having a firm understanding of leading practices in preparing to show commercial properties will help you provide competent services for both sellers and buyers. This lesson will focus on unique considerations related to showing and advising on office properties of interest to a buyer. Upon completion of this lesson, you will be able to: • Identify buyer needs and property requirements to select appropriate office properties to show • Identify office properties of interest to the buyer • Describe leading practices for showing office properties 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 9

As a salesperson, it will be essential for you to be able to accommodate commercial buyer clients and customers based on their needs and wants. Buyers of office buildings will often prioritize a property’s accessibility for employees, visitors (like clients and customers), and a specific layout for their business’ workforce. Understanding office buyers’ unique business needs will enable you to provide professional and competent service.

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Lesson 3 | Page 4 of 9

Office Buyer Wants and Needs As a salesperson, when determining office buyer wants and needs, you will need to consider building types, office layouts, and employee spaces. The following three sections contain information on specific wants and needs to determine for office buyers in order to select appropriate properties.

Free-standing offices and office condominiums Office buyers will usually prefer for either a freestanding office building or an office condominium. Preference will largely depend on affordability and the buyer’s business needs. For instance, free-standing office buildings can showcase a company’s individuality in a given area, which may be otherwise lost among multiple businesses. Free-standing buildings are also free of the added maintenance fees, bylaws, and regulations associated with condominiums. In many cases, a free-standing building can be a better investment as capital appreciation may be greater than that of a condominium. Generally, if affordability is not a factor, then a freestanding building would usually be preferred. Alternately, office condominiums can be attractive to those seeking independence from occupancy costs and landlord controls found in commercial leasing. Modern office condominiums offer a variety of facilities and services. Those focused on premium business/professional applications may include a shared boardroom, reception area and Exam Study Guide

meeting room space, full building video surveillance, entry passcard systems, computer servers, fibre optic lines and IT support, and fully featured telephone systems. The goal of such developments is to appeal to the smaller entrepreneur seeking a quality building, while maximizing space within the individual unit. Alternatively, you will find specialty buildings with a mix of retail and office spaces.

Office layouts To understand a buyer’s office layout wants and needs, you should ask the buyer to list their specifications. Layout considerations to ask about may include: • Boardrooms, private offices, and workstations • Reception and central service areas (for example, photocopiers, A/V equipment) • Kitchens/lunchrooms • Flooring types (for example, wood or tiling), lighting, and acoustics • Storage spaces

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Employee spaces In addition to general layouts, office buyers will also often have specific needs related to the space and division of employees. The existence of (or room for) a certain number and size of cubicles may be required, as well as specific individual office rooms. In terms of workforce divisibility, a buyer may require floors or separated rooms for multiple departments. In the case of unestablished businesses, you may simply need to collect information from an office buyer on their estimate of how many employees will need to be accommodated in a given layout. In other cases, the buyer will have a distinct vision in mind, such as an open-concept office or a more traditional office structure that you can use to search for suitable properties.

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Lesson 3 | Page 5 of 9

Selecting Office Properties Once you have determined a buyer’s preference for a free-standing building or an office condominium, you can seek out properties that fit this criterion. Depending on the buyer’s expressed business needs, you may need to select properties with a certain number of floors and/or with layouts that are easily alterable. For instance, a multi-floor unit selected to house several departments of a business operation may require room to install cubicles or individual offices. In the case of office condominiums, you will also need to consider other services and common areas in the building. For instance, you may not want to select a unit in a building that features a competitor or another company within the same industry as the buyer’s business. You should also discover other businesses that will be sharing common areas such as main lobbies, elevators, and washrooms. In some cases, problems can arise regarding a lack of privacy between businesses in common meeting areas. Shared maintenance costs and room availability (that is, policies regarding reserving rooms vs. “first come, first served”) and clean-up expectations should also be discussed so that the buyer is aware of how common areas may impact their business operations. Although shared spaces are always prone to creating conflict, disclosing known information to a buyer can help them make an informed decision and will demonstrate your conscientiousness as a salesperson.

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Lesson 3 | Page 6 of 9

A salesperson is representing a buyer who is interested in purchasing a free-standing office building or a condominium unit. Affordability is a concern, as the buyer will be relocating their small, but growing company to the property. Currently, the business owner is looking at office condominiums as properties of interest. Question #12: Which of the following statements apply to this scenario? There are three options. There are multiple correct answers.

1

The salesperson should recommend that the buyer consider a free-standing building instead of an office condominium, as these are generally more affordable.

2

The salesperson should inquire about the number of employees the business owner has to determine layout needs.

3

The salesperson should discover other businesses of interest in the office condominium complex on behalf of the buyer.

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Lesson 3 | Page 7 of 9

Showing Office Properties

As a salesperson, prior to showing an office property (whether it is occupied or vacant), you should contact the seller’s representative to determine the time of day that would be appropriate and least disruptive to occupants. You must also determine who must be present during the showing, how access is to be obtained, availability of parking and if there are designated areas for visitors, and any security measures to be observed during the showing. Buyers may be required to follow set procedures for entry and exit to ensure the current business’ security. Without proper knowledge of the office’s access points and protocols, you and the buyer may be unable to fully inspect the property. It is also recommended that prior to the showing you should gather property details for the condominium, personnel, tenancies, and utility costs, as well as obtain advice on any improvements that may be necessary (and whether the seller is willing to make some of the improvements).

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During the showing, you should take note (preferably in writing) of any concerning office features, such as a layout that does not appear conducive to a buyer’s intended use. While such information is ideally discovered during the property selection process, some structural restrictions may not be apparent until you and the buyer have actually seen the office space. A significant material fact for office buyers may relate to parking availability for employees, so any evidence of limited parking or restrictions, such as controlled access, should also be noted. Following the property tour, you should further document any buyer questions or concerns needing further investigation. In the case of office condominiums, investors in particular may have specific queries about common elements and tenant mixes that you should follow up on to satisfy their criteria.

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Lesson 3 | Page 8 of 9

A salesperson schedules a tour of an office condominium that may be of interest to a buyer who hopes to establish a consulting firm in a busy downtown area. Question #13: How should the salesperson conduct the office showing? There are three options. There is only one correct answer.

1

The salesperson should contact the seller’s representative during the showing to discuss any security measures to be aware of.

2

The salesperson should direct the buyer to note anything of concern so the salesperson can focus exclusively on showing the property.

3

The salesperson should end the showing by documenting any questions the buyer may have regarding common elements and tenant mixes.

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Lesson 3 | Page 9 of 9

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were covered in this lesson.

Office buyer wants and needs

When determining office buyer needs, you will need to discover their preference for either a freestanding office building or an office condominium. Each will have unique benefits and drawbacks. Based on the buyer’s business, you can also discover their needs regarding layouts, floor numbers, and workspaces for employees.

Selecting office properties

Once you have determined an office buyer’s wants and needs, you can begin the selection process by searching for appropriate types of buildings or units. Your knowledge of the buyer’s number of employees and intended business use can also help you narrow your search based on the number of floors, layout (or layouts that are easily divisible/altered), and available space. In terms of office condominiums, you can select properties with services and common areas that align with the buyer’s business needs. Special consideration should be taken to discover and share condominium details with the buyer, such as businesses operating in other units and details regarding shared common areas.

Showing office properties

Prior to showing an office property, you should contact the seller or the seller representative to collect key property information and discover any time constraints and security measures to comply with during the showing. This information should be relayed to the buyer. During the showing, you should document (ideally in writing) any concerns related to the property (including layout and parking) that can affect the buyer’s intended use. Taking notes will help you after the showing, when you identify items to follow-up on and summarize properties of interest for the buyer. Office condominiums, in particular, may have specific criteria items you will need to follow-up on for the buyer through additional research.

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Lesson 4 | Page 1 of 13

Lesson 4: Show and Advise on Retail Properties of Interest

This lesson details how to use identified buyer needs and wants to select and show retail properties of interest.

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Lesson 4 | Page 2 of 13

As a salesperson, having a firm understanding of leading practices in preparing to show commercial properties will help you to provide competent service for both sellers and buyers. This lesson will focus on unique considerations related to showing and advising on retail properties of interest to a buyer. Upon completion of this lesson, you will be able to: • Identify buyer needs and property requirements to select appropriate retail properties to show • Identify retail properties of interest to the buyer • Describe leading practices for showing retail properties 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 13

As a salesperson, it will be essential for you to accommodate commercial buyer clients and customers based on their needs and wants. Buyers of retail spaces will often prioritize return on investment (in the case of investors), and a property’s accessibility for consumers and layouts that can accommodate their products. Understanding retail buyers’ unique business needs will enable you to provide professional and competent service.

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Lesson 4 | Page 4 of 13

Retail Buyer Wants and Needs: Building Types, Location, Space, and Utilities Retail buyers will have unique wants and needs with respect to the building they choose and the surrounding area. The following three sections contain information on specific requirements of retail buyers in order to select appropriate properties.

Building types and surrounding retail properties Retail buyers will usually prefer either a freestanding retail building or units in a mixed-use building, shopping mall, or plaza. Certain retailers will only locate stores in free-standing buildings. Free-standing buildings can be found in busy urban areas, arterial roads, and in close proximity to shopping centres. Free-standing locations are often favoured by businesses with unique marketing services and an established patronage, including gas/convenience stores, banks, and restaurants. Other common free-standing retailers include furniture stores, drug stores, and home products/decor merchandisers. In other instances, merchandisers can gain the advantages of a freestanding presence due to lower real estate costs in outlying areas or low-density urban centers. Free-standing structures provide for greater vehicular exposure, visual separation, and a distinct geographic identity. Alternate to free-standing buildings, mixed-use buildings combine office, residential, and/or retail uses together in one complex. High- and low-rise mixed-use buildings are common in city core and suburban areas. These developments have gained in popularity due to Exam Study Guide

the effective intertwining of shops, workplaces, and residential units within a single space. Mixed-use units may appeal to buyers seeking more identity within communities, including politicians, planners, environmentalists, and consumers who are searching for a community, convenient services, pedestrianfriendly layouts, attractive meeting places, and vibrant town centres. It is common to see existing retail units at street level of office buildings, which may be rental or condominium units. Mixed-use buildings tend to be popular due to their greater affordability over freestanding buildings. In terms of condominium units, the downside of mixed-use retail spaces relates to condominium fees and sharing common area costs with other commercial owners. Often, retailers prefer to be in areas with multiple surrounding businesses and a diverse tenant mix, as these features can drive traffic to a given shopping area or complex. As the salesperson, you should not assume that the buyer will find the existence of other retail businesses to be detrimental to their own, although nearby competitors selling the same products or services should be taken into consideration and noted to the buyer as a material fact. A buyer may even prefer a property with industry-related businesses in the surrounding area. The buyer may want their property to be near complementary businesses (such as a, “one stop shop” plaza) that can offer a variety of products and services.

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Product display and storage A buyer’s needs with respect to the space and storage for product display depends on the type of business they have and the kinds of products that will need to be stored on-site. Larger and heavier products, such as furniture and some home appliances will require large, open spaces. Conversely, smaller products may not require a large amount of space. Based on predicted inventory, buyers may have a specific amount of space they intend to allot for storage, versus space allotted for consumer-facing product display. When selecting properties for a buyer, these two needs must be taken into consideration.

Utilities As the salesperson, you must also understand that a given retail buyer’s business needs will determine a property’s utility requirements. For instance, certain retail environments will have lower or higher lighting requirements, such as a purposely low-lit restaurant versus the bright display lighting found in jewelry stores. Depending on where certain fixtures are needed, you may need to check for outlet placement and any problematic fixtures already in place. Other utilities to consider may include the property’s ability to support security systems, such as closedcircuit television (CCTV), and controlled entryways to prevent theft. Lighting in parking lots may also be a consideration for some owners. For specialized uses,

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such as pet stores, ventilation systems will have a high importance due to their role in exhausting odours. Refrigeration units in food stores and similar retail businesses will need an above-average electrical supply.

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Lesson 4 | Page 5 of 13

Retail Buyer Wants and Needs: Traffic, Visibility, Operating Hours, Parking, and Shipping/Receiving The following four sections contain more information on specific requirements of retail buyers in order to select appropriate properties.

Traffic flow As detailed earlier in this module, community profiles are valuable sources of information that can help predict a retail store’s traffic flow. Traffic flows are extremely important to retailers, as the greater the business’s exposure, the more people are likely to use that business at some point in the future. In the case of mixed-use buildings, the volume of potential consumers accessing a retail business can, in part, be predicted by current traffic flows for the surrounding businesses in a given shopping complex. In the case of more remote, off-highway franchises, such as restaurant chains, a higher traffic flow may be anticipated to a business based on fewer surrounding competitors and high demand for the business’ goods and services. Traffic flows in a shopping mall can also be used by the owner to establish rents. For example, the number of people visiting the mall daily indicates the likelihood of a shopper visiting a particular store. Mall owners would charge accordingly.

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Business signs and hours Retail buyers will often have concerns and requirements regarding signage for their business and visibility for consumers. Usually, signage will require changing a previous owner’s sign installations. You should communicate to a buyer that new signage must be provided at their own expense, unless otherwise agreed upon with the seller. You should also alert buyers to local zoning requirements that place restrictions on signage, such as setbacks from the road and/or sidewalks. Zoning can impact a business’ potential visibility, so it is important to relay any such known information that can impact a buyer’s aesthetic plans for their retail business. Based on known information regarding targetclientele, community profiles, and traffic flow, buyers in free-standing buildings or those who are independent retailers have the freedom to establish their own hours that would be consistent with customer preferences. In some cases, however, as a salesperson, you will need to relay to the buyer any known restrictions on business hours. A landlord, for instance, can specify hours of operation. In a retail condominium environment, there can also be rules and regulations establishing hours of operation for all unit owners. These would be items that can be addressed in the agreements for sale or lease. Generally, retail units located in shopping malls will open and close within the same hours, as hours of operation are often a component of the lease and the retailer must comply with the fixed hours of the Exam Study Guide

mall, this is to say that stores must open and close at specific times. Specialized retail chains, such as those operating in hospitals, may also need to operate at set hours.

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Parking requirements As a salesperson, you should advise buyers that parking for retail spaces will be impacted by zoning requirements and/or the municipality’s parking bylaw. These include minimum width and depth requirements (for example, 2.6 metres x 5.9 metres), with increased sizes when abutting a building or other structure, acceptable surface treatments, and drainage requirements. Total allowable off-street parking spaces are typically established based on the particular retail use and gross floor area. Mixed-use developments may have special zoning requirements for retail. A formula is sometimes used based on peak period requirements for the respective uses to ensure adequate daytime, evening and weekend parking. Required parking for persons with disabilities is usually fixed as a ratio of required parking spaces. Parking requirements can be found through your knowledge or consultation of a municipality’s bylaws and a standard in the Accessibility for Ontarians with Disabilities Act (AODA). Depending on a buyer’s business needs, insufficient parking can impact their decision to purchase or lease a given property.

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Shipping and receiving A salesperson should always consider a buyer’s needs for the shipping and receiving of products. If a retail store requires the shipping of large and/or heavy items, then the buyer may require a property that is located near main transportation routes with facilities like loading docks. A business’ shipping and receiving activities can also impact some buyers’ choice between mixed-use and free-standing buildings. In some cases, shared retail spaces may not provide a retailer with sufficient space to ship and receive products. Further, some mall owners may require that shipping and receiving activities be carried out during off-peak hours to avoid negative customer experiences. Example: The owner of a paint store will look for truck-level door access, which they require for building contractors who buy large amounts of their supplies and for deliveries to the store. The majority of multiunit buildings do not have these kinds of doors, so the buyer would be interested in free-standing buildings. A retailer’s needs can vary widely; as the salesperson, you should work to discover how business needs will impact individual clients and/or customers.

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Lesson 4 | Page 6 of 13

A buyer expresses interest in opening a pet store in a busy urban area. They anticipate carrying and storing a large inventory of popular products, such as big bags of pet food and litter. The buyer asks their salesperson to obtain measurements for the main floor area in any properties of interest. The salesperson investigates a small shopping plaza unit on the buyer’s behalf. During their research, the salesperson learns of several longrunning businesses located in the same plaza, including a nail salon, a dog grooming boutique, and a grocery store. Question #14: What actions should the salesperson take in this scenario? There are three options. There is only one correct answer.

1

The salesperson should advise the buyer that a free-standing building should be considered instead, as these buildings are likely to be more affordable in busy urban areas.

2

The salesperson should advise the buyer to consider storage space in addition to the main floor area due to the large amount of inventory the buyer will have.

3

The salesperson should advise the buyer that the presence of other businesses, such as the dog grooming boutique, will negatively impact their business.

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Lesson 4 | Page 7 of 13

A buyer is interested in purchasing and renovating a shopping complex with a few existing tenants who, at the time of purchase, will remain for the duration of their lease agreements. The buyer intends to rename the complex with new signage, to attract additional tenants, and to draw a broader clientele. The buyer also hopes to expand the current parking area to accommodate a higher volume of regular consumers. Question #15: What information can the salesperson provide to the buyer in this scenario? There are three options. There are multiple correct answers.

1

The salesperson can consult community profiles and traffic studies to find information that can help the buyer predict traffic flow and to plan for parking spaces accordingly.

2

The salesperson can inform the buyer that the seller will be obligated to take down current signage so that the buyer can install their own signage.

3

The salesperson can inform the buyer that parking for retail spaces can be impacted by the property’s zoning designation and the municipality.

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Lesson 4 | Page 8 of 13

Selecting Retail Properties

As a salesperson, once you have determined a buyer’s preference for a freestanding or mixed-use building, you can seek out properties that fit this preference. In the case of mixed-use buildings, shopping malls, and plazas, you should gather information regarding current tenant mixes to present to the buyer prior to showing. For any building, general knowledge of retail properties in the surrounding area will also help the buyer identify any competitive business advantages or disadvantages. Once you know the building type required, you should narrow down your search based on product display and storage capacity. This will require examining listings for minimum or maximum square metres, respectively for product display and storage spaces. In cases where the client has specific needs for visibility and signage, you may need to inquire with the seller of a property about restrictions they may be aware of (and confirm them with the municipality), that may conflict with the buyer’s planned use, such as zoning requirements. You may also be required to research traffic flow requirements of a property of interest and the surrounding community’s profile. This information may help you select properties with sufficient parking space availability. Properties should also be analyzed for their ability to affordably supply utilities and other services that are integral to business operations. Often, cost estimates can be obtained from the current owner, especially in cases where the property will operate in a similar manner. Another business requirement that may affect property selection pertains Exam Study Guide

to product shipping and receiving. Based on a buyer’s stated needs and information from a current property owner, you can select properties that support a given volume of incoming/outgoing products.

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Lesson 4 | Page 9 of 13

A salesperson is in the process of selecting properties of interest on a buyer’s behalf. The buyer has expressed interest in operating as a franchise owner of a lucrative fast food restaurant chain with specific storage, signage, and electricity requirements. They are interested in free-standing buildings with high visibility near a busy urban intersection. Question #16: What should the salesperson do during the selection process? There are three options. There is only one correct answer.

1

The salesperson should begin the selection process by looking for any listings that can accommodate the buyer’s signage and visibility needs.

2

The salesperson should examine listings to determine the property’s overall area to accommodate the buyer’s storage and display needs.

3

The salesperson should access community profiles to discover properties that can accommodate the buyer’s utility needs.

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Lesson 4 | Page 10 of 13

Showing Retail Properties: Determining Optimal Times and Discussion Points

Prior to showing retail properties to a buyer who is looking to relocate their business to a specific location, as the salesperson, relevant information needs to be gathered so that you can discuss details of the property. Through preliminary research, you should know what the customer trends are for a given area, including the volume of customers who frequent the area at peak sale times. A prospective tenant will be concerned with the number of vacant premises and the volume of pedestrian traffic. Buyers are often unaware of this information prior to their visit and, depending on the time of day and week when the property is shown, attempting to assess trends based on a walk of the property alone will likely result in an inaccurate representation of consumer activity. Buyers may be interested in viewing the property at peak times rather than simply during any business hour, if possible. It is important to consider the seller’s stated needs for showing times and use this information to schedule a walk of the property. When purchasing a commercial property, buyers will either have specific criteria because they are going to use the Exam Study Guide

building for themselves, or because they are an investor and with interest in the leases and revenue that the building can generate. In the case of buyers seeking a building for business operations, you should be aware of the buyer’s visibility preferences for their business and note a given property’s potential or drawbacks in this regard during the showing. Window display space may be of particular interest to certain buyers who wish to draw in customers with attractive product displays. Buyers’ preferences may depend on the status and reputation of their business’ brand. For newer businesses looking to become a recognizable brand, you may want to emphasize ample display spaces during a showing; this will vary depending on needs previously identified by the buyer. Similarly, you should point out storage space areas for buyers with high-inventory businesses or large products. Any concerns should be noted (ideally in writing) for future reference by both yourself and the buyer.

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Lesson 4 | Page 11 of 13

Showing Retail Properties: Seller/Occupant Requirements and Considerations for Condominiums When showing a property during business hours, you should always comply with any seller requirements, to be sensitive to the needs of the current tenants and their customers. The buyer of the building will likely be assuming the lease contracts and should want to be sensitive to these needs, but they will also want to see all components of the building. Seller requirements may include conducting the showing with discretion or limiting your visit to specified hours. Following the property tour, be sure to document any buyer questions or concerns that you need to follow up on. In the case of retail condominiums, you should take special note of criteria the buyer mentions during the showing, as this information is not always readily available beforehand. A key follow-up step to perform on behalf of interested buyers is to obtain the unit’s Status Certificate, which will provide information regarding expenses of common areas (such as hallways and washrooms), reserve fund amounts, the board of directors, and other material facts.

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Lesson 4 | Page 12 of 13

A buyer intends to purchase a condominium unit in a mixed-use building to open a hair salon. During initial discussions with the salesperson, the buyer expresses concerns about condominium fees, as they expect to be on a tight budget for the first few years of business. They’re looking for a highly visible location that will allow their business to grow. Question #17: What would be the most appropriate thing for the salesperson to do when showing properties of interest? There are three options. There is only one correct answer.

1

The salesperson should determine consumer trends in the area by walking the property with the buyer and observing pedestrian traffic during peak shopping hours.

2

The salesperson should consider current tenants and their customers when preparing for, and conducting the showing of, a mixed-use property.

3

The salesperson should follow up with the buyer after a showing and advise them to obtain the unit’s Status Certificate to find out more details about the condominium’s fees.

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Lesson 4 | Page 13 of 13

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were covered in this lesson.

Retail buyers’ needs

When determining retail buyer needs, you will first need to discover their requirements for either a free-standing or mixed-use building, or shopping complexes. You should also discover how surrounding retail properties and location will negatively or positively impact traffic flow to their business. Depending on business operations and the types of products/services offered, buyers will have specific needs regarding: • Space for product display and storage • Signage, visibility, and hours of operation • Utilities and services • Parking • Product shipping and receiving

Selecting retail properties

Once you have determined a buyer’s needs, you can begin the property selection process. You should start your search based on building type. Select retail properties to show, based on the building type required and location, then factor in the buyer’s additional needs to narrow your list of potential properties of interest. In some cases, important information regarding a property, such as estimates in terms of utility costs, can be gleaned through discussions with the seller or the seller representative.

Showing retail properties

Prior to showing a retail property, you should contact the seller or the seller representative to discover the optimal time to show the property and any safety/discretionary protocols to be observed to avoid disturbing the current retailer and their customers. These should be relayed to the buyer. During the showing, you should take note (ideally in writing) of any items of concern that may need to be followed up on later, including visibility to potential retail customers. Buyers may have particular concerns or queries regarding condominium units that you should take note of and further research following the showing. Exam Study Guide

Lesson 5 | Page 1 of 14

Lesson 5: Show and Advise on Industrial Properties of Interest

This lesson details how to use identified buyer needs and wants to select and show industrial properties of interest.

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Lesson 5 | Page 2 of 14

Having a firm understanding of leading practices in preparing to show commercial properties will help you, as a salesperson, to provide competent service to buyers. This lesson will focus on unique considerations related to showing and advising on industrial properties of interest to a buyer. Upon completion of this lesson, you will be able to: • Identify buyer needs and property requirements to select appropriate industrial properties to show • Identify industrial properties of interest to the buyer • Describe leading practices for showing industrial properties 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 14

As a salesperson, it will be essential for you to be able to accommodate commercial buyers based on their needs and wants. Buyers of industrial spaces will often prioritize a property’s suitability for specific business operations and its accessibility to transportation routes for distribution needs. Unlike office and retail properties, industrial sites are often purposely removed from urban centres and can range widely from raw land (that is, a potential building site not yet serviced and without approvals to begin development in place), to high-tech buildings. Understanding industrial buyers’ unique business needs will enable you to provide professional and competent service.

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Lesson 5 | Page 4 of 14

Industrial Buyer Wants and Needs: Floor Loads, Spatial Allocation, Ceilings and Bays, and Door Combinations Industrial buildings have many features that are different from office and retail spaces. A buyer’s intended purpose for the space will impact the value they place on each of the different factors. The following four sections contain information on specific wants and needs for industrial buyers in order to select properties with appropriate features.

Floor loads Floor loads refer to a floor’s ability to support a live load. Live loads consist of the weight of persons, equipment and furnishings, and stored materials. According to the Ontario Building Code, a building’s use determines its floor load requirements (usually in kilograms per square metre). As a salesperson, you will not be responsible for determining a buyer’s floor load needs based on their intended use; this determination should always be made by a qualified engineer, whether you need to refer the buyer to an engineer, or they already have an engineer to consult. Once this professional guidance has been provided, specifications for floor loads can aid you in your search for appropriate properties.

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Office and shop allocation Depending on the buyer’s intended use, the square metres needed for shop space versus office space will differ. It is important to learn a buyer’s allocation needs for each. If there are specific dimensions they are looking for, this information can be obtained through the listing or by taking onsite measurements, in some cases. Shop/office allocations are often a component of a zoning bylaw. If this information is important to the buyer, then you should refer to the bylaw for a specific property and discuss any restrictions with the buyer to ensure that there will be sufficient shop and office space.

Ceiling height and bay dimensions Bay depth is an important consideration in the layout of industrial buildings. A bay is an unfinished area located between a row of columns and the load bearing (support) wall. A bay is usually the smallest area into which a building floor can be partitioned (divided). Bay depth refers to the distance from the bearing wall to a row of columns within a building, or the distance from one row of columns to another. Bay depth is important in deriving the most efficient use of space, as is bay height. In order to accommodate these design characteristics, an industrial user would need to consider the location of support columns and the corresponding dimensions

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of the bays when designing their manufacturing process. Another consideration relates to ceilings, namely clear height. Clear height refers to the unobstructed distance from floor to the underside of the lowest hanging object on the ceiling, for example lighting or sprinkler system. Light industrial and warehousing facilities normally range between 15 and 30 feet clear height. Both bay size and ceiling height needs will vary depending on a buyer’s intended use. The buyer’s needs with respect to unobstructed areas must be determined, as this will significantly impact the design of their industrial processes and functions (that is, manufacturing and warehousing).

Door combinations Door combinations may include what type of door(s) a buyer prefers for the building. Preferences and needs may include single doors, double doors, automatic doors, garage doors, loading dock doors, etc.

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Lesson 5 | Page 5 of 14

Industrial Buyer Wants and Needs: Loading Docks, Mezzanines, and Sprinkler Systems Industrial buildings have many features that are different from office and retail spaces. A buyer’s intended purpose for the space will impact the value they place on each of the different factors. The following three sections contain information on specific wants and needs for industrial buyers in order to select properties with appropriate features.

Loading docks A loading dock is an area found primarily in commercial and industrial structures designed for the on-loading and off-loading of products, usually at truck-level height. Common components of docks to be aware of include: • Shelters: flexible, enclosed canopies designed to reduce wind drafts between trucks and interior areas. • Levellers: rated in terms of lift capacity and are normally driven by hydraulic motors. Levellers provide an adjustable platform between trucks and the permanent docking areas. • Wells: service inclined dock areas for structures built at grade level. The inclined areas require storm drains that pose problems due to accumulations of snow and ice and debris, as a result of windstorms and heavy rain. The drains often get plugged and

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are rendered ineffective. For these reasons, wells are not as popular in modern buildings. • Docks: high-loading docks that offer direct loading have become popular. The dock height will depend on the type of facility being serviced (for example, a courier company will have lower dock levels to accommodate package vans, while a food distribution terminal will have higher docks for tractor-trailer units. Railway loading docks, as another example, can be part of the main building or be separated from the main building in other cases). • Grade levels: loading for areas that are level with surrounding parking and related areas permit direct access to and from the structure by forklifts and other vehicles. Various big box retailers provide grade level loading areas for customer pickup; for example, electronic, building materials, and furniture stores. Some buildings have features of particular interest to specialized industrial processes; for example, distribution centres that have extensive loading dock facilities. Often such buildings have loading docks on both sides to facilitate cross-docking. As the salesperson, you should be familiar with the terminology and components of loading docks. However, if loading docks are a material fact for a buyer, then you should thoroughly investigate these items to ensure the property is appropriate for its intended use. Exam Study Guide

Mezzanines A mezzanine is a raised floor surface that is often used for additional office space, storage, and maintenance within an industrial facility. It is usually placed along the perimeter of the facility and creates an intermediate or partial second floor. The design and construction of a mezzanine usually requires engineering approval and a building permit. Although a buyer may not specifically request a mezzanine, the availability of one in an industrial property can add to the utility of the building and appeal to many buyers

Sprinkler System In industrial buildings, sprinkler systems made up of interconnected pipes are installed throughout all or a portion of the building to provide water as a fire protection system. Most sprinkler systems can be manually operated or automatically controlled by smoke alarms or other heat-sensitive detectors. Note that the term sprinklered (often used in building codes) means that a building is equipped with a system of automatic sprinklers. Nearly all automatic sprinkler alarm systems include a trigger operated by a flow of water that sets off a water or electric alarm. Both systems can be connected to a local fire alarm. The release of carbon dioxide, a colourless, heavier-than-air chemical, has been a valuable system for extinguishing fires in electrical equipment, gasoline, oil, grease, and paints. Since Exam Study Guide

carbon dioxide leaves no residue, the area can be entered immediately. An industrial buyer may be interested in sprinklered properties, as this can mitigate risk of fire associated with business operations, as well as ensure that a building is up to code and may be insured at a reasonable rate.

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Lesson 5 | Page 6 of 14

Industrial Buyer Wants and Needs Structural needs are not the only needs that concern industrial buyers, they will also be concerned about vehicular access, municipal utilities and services, and health and safety. The following three sections contain information on these wants and needs in order to select properties with appropriate features.

Vehicular space and access Industrial properties often rely on trucks and trailers to transport materials to and from sites. Buyers will have specific needs regarding truck ingress and egress. Ingress refers to where a truck pulls onto the site, and egress refers to where it pulls out of the site and onto roadways. Ingress/egress locations can affect a buyer’s business if heavy truck traffic flow is anticipated, for instance, at a heavily trafficked highway. Busy roadways connected to a property can result in difficulty for incoming and outgoing trucks. On-site trailer storage space is another consideration, as vehicles may need to park overnight on the property. Buyer needs in this regard will depend on the number of vehicles they anticipate will need to be stored on-site at a single time to meet their business needs. Industrial properties may have large, heavy equipment, which can result in a buyer’s need for a property that has easy access to roadways and

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shipping routes, as this will make transporting such items less inconvenient.

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Utilities and services For industrial properties, additional utility needs (beyond those required for other real estate property types) tend to relate to unique and volume-sensitive electrical equipment and hydro power. On-site transformers may be required to regulate the service levels of electrical power. In particular, buyers in manufacturing businesses will need a significant volume of hydro power, and this is a cost they will need to consider when selecting properties. Utilities may also include heating and refrigeration systems used for specialized industrial operations.

Workplace health and safety Due to the nature of many industrial operations, a buyer will need a property to meet specific health and safety requirements for the protection of workers, the environment, and those in the surrounding area. A buyer will be specifically concerned with workspaces, as they will be required to maintain a safe and healthy work environment, per the Occupational Health and Safety Act. Additionally, compliance with the Environmental Protection Act will be required to control and/or eliminate emissions into the natural environment. These obligations are implemented in many ways, some of which could include: • The presence of backflow preventers in certain types of building (for example,

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manufacturing plants) to protect public water supplies from contamination • The presence of hard-wired smoke alarms with battery back-up in each room of a large building • The presence of integrated sprinkler and fire alarm systems • A low-activated radon protection system (meaning that the system activates under exposure to low amounts of radon) • Machine and equipment guarding • The provision of safety equipment, such as protective footwear and safety glasses, ventilation systems, and respirators to protect workers from noxious substances • Effluent treatment (the safe discharge of sewage or liquid waste) before releasing substances into the environment

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Lesson 5 | Page 7 of 14

A salesperson meets with an industrial buyer who is seeking a property that can be used as a manufacturing facility. During the meeting, the salesperson outlines some key considerations for the buyer. Question #18: What can the salesperson tell the buyer during their discussion? There are four options. There are multiple correct answers.

1

The salesperson can inform the buyer that a sprinklered property can reduce insurance costs.

2

The salesperson can inform the buyer that the property’s truck egress location will determine where shipments enter the property.

3

The salesperson can inform the buyer that due to the high volume of manufacturing processes that will occur at the property, hydro power may be a significant cost for their business.

4

The salesperson can inform the buyer that it is better to a have a high-activated radon protection system in place, as this can avoid false alarms that disrupt business operations.

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Lesson 5 | Page 8 of 14

Selecting Industrial Properties

Industrial structures can be broadly grouped under three categories. General purpose buildings offer features and facilities for a wide range of operations. Special purpose buildings offer selected features (for example, a custombuilt manufacturing plant or a distribution centre with numerous loading docks) but could be used for alternative purposes. Lastly, single purpose buildings are designed for a specific use with little or no potential for conversion to other purposes. Once you have determined a buyer’s preference for building requirements, you can begin your search by looking for properties that fit their criteria. As a salesperson, you should next narrow down your search based on the buyer preferences noted earlier (for example, buildings with specialized transportation needs, if applicable) and find properties that match the buyer’s truck ingress/egress and on-site storage needs. Once you have determined a property’s access to standard roadways, you may need to further narrow your search based on the availability of, or access to, rail spurs, air freight terminals, and other specialized transportation. Specialized transportation needs will depend on the product type(s) Exam Study Guide

a buyer will be manufacturing and shipment/receiving needs. If the buyer is manufacturing large furniture items to be shipped overseas, for instance, the buyer’s business will require easy access to air freight terminals or shipyards. Properties should also be analyzed for their day-to-day operational capabilities. This includes the affordable supply of adequate utilities and other services that are integral to business operations. Often, cost estimates can be obtained from the current owner, especially in cases where the property will operate for similar uses (such as in the case of special or single-use structures). Operational capabilities will also relate to property components that adhere to the business’ required health and safety requirements. In some cases, these latter considerations (utilities and health and safety components) can be installed by the buyer, if the property otherwise meets their requirements. You can confer with third parties (as you will learn later in this module) if needed to determine whether or not a given property is able to support needed updates and installations.

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Lesson 5 | Page 9 of 14

An industrial buyer wants to purchase property for dairy processing operations. The buyer notes that the property will need industry-specific features in place, such as large stainless steel storage tanks. The buyer anticipates incoming shipments of dairy via tanker trucks and outgoing shipments of dairy products to retailers via refrigerated trucks on a daily basis. The goal will be to have products on the grocery shelves of three cities within two days of processing. A salesperson researches properties on the buyer’s behalf. Question #19: What kind of properties should the salesperson search for in the selection process? There are three options. There is only one correct answer.

1

General purpose buildings.

2

Properties that have ample space for truck ingress and egress.

3

Properties that have easy access to railways for ease of shipping.

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Lesson 5 | Page 10 of 14

Showing Industrial Properties: Safety/Compliance Requirements and Discussion

Prior to showing industrial properties to a buyer, relevant information needs to be gathered so that you can discuss the property with the buyer. As the salesperson, you should determine safety and compliance requirements through a discussion with the seller’s representative in advance of the showing. Some businesses will provide safety items at the start of a showing, such as safety goggles and hard hats, but steel-toed boots and other special items may need to be obtained independently. Through discussions with the seller’s representative, you should be aware of which equipment seen during the showing will be included in the purchase of the property and be informed on the relevance of such items for the buyer’s intended use. You should further ask the buyer if there are any required items (chattels or fixtures), as their inclusion in the sale can be negotiated for in the agreement. Using your notes on the buyer’s wants and needs, you can use the showing to highlight items of interest. Particularly in the case of a buyer who intends to use a property for manufacturing purposes, you should discuss any of the buyer’s concerns regarding the water and sewage supply. Manufacturing requires the inflow and discharge of water, so the buyer may have certain conditions for where the water will flow out of the property or have concerns about Exam Study Guide

faulty sewage systems. You should be aware, through prior discussions with the buyer, of any concerns related to floor load capacity as it relates to the number of people and the type (and amount) of equipment that will be on-site at a given time. If you are aware of any limits to a floor’s load capacity, the showing is a good time to visually point out areas of concern to the buyer and to recommend that a third-party professional assessment be obtained (for example, through the services provided by a structural engineer). A walk of the property may result in a buyer voicing concerns regarding layouts. These should be discussed and documented in writing. Storage is at a premium in many industrial spaces, so you should pay special attention when discussing mezzanines, and additional storage space.

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Lesson 5 | Page 11 of 14

Showing Industrial Properties: Other Discussion Items and Considerations for Condominiums

The size and components of loading docks are other items you should be prepared to discuss in relation to the buyer’s intended use. In addition to health and safety measures to be observed during the showing, you should be prepared to discuss any of the property’s on-site installations that can be leveraged to prevent accidents, promote a healthy workplace, and protect the environment. Such installations may include eye wash stations, ventilation systems, flammable liquid storage facilities, existing machine guarding, and cranes and sprinkler systems (along with their inspection records). If you are showing an industrial condominium, there will be additional items for discussion, such as details about security systems, maintenance fees, restricted uses/prohibitions that may affect neighbouring unit owners, parking, and shipping and receiving details, such as whether these are centralized or individual aspects of the property. From a security point of view, each industrial owner’s condominium unit is self-contained and will usually need an individual security system to be installed. In the event of frequent break-ins, condominium owners may arrange for Exam Study Guide

intermittent security patrols to be instituted. There is usually no full-time security presence except in a major tenant operating on a continuous shift basis. During your discussion of any such security measures that may or may not already be in place, you should document any specific criteria the buyer mentions for future follow-up.

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Lesson 5 | Page 12 of 14

A salesperson shows a buyer a property of interest. The buyer intends to use the property to manufacture parts (such as door panels and seat covers) for an automotive assembly plant and has previously told the salesperson they expect to have 100 employees on site. Question #20: Which of these leading practices should the salesperson follow during the showing? There are three options. There are multiple correct answers. 1

The salesperson should inform the buyer that any equipment essential to their business seen on the property will be included in the property sale.

2

The salesperson should emphasize utility services, like electrical, water, and sewer, with the buyer due to their intentions to use the property for manufacturing purposes requiring large amounts of water and electricity.

3

The salesperson should note any known limitations regarding the floor’s ability to support the number of employees and equipment cited by the buyer.

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Lesson 5 | Page 13 of 14

A salesperson shows a buyer a property of interest. The buyer intends to use the property for automotive parts manufacturing and has previously told the salesperson about their facility requirements. Question #21: What leading practices should the salesperson follow during the showing? There are four options. There are multiple correct answers.

1

The salesperson should pay special attention to storage spaces and any mezzanines.

2

The salesperson should allow the buyer to determine safety measures to observe during the showing through their discussions with the seller or the seller representative.

3

The salesperson should discuss the size, type, and components of loading docks as it relates to the buyer’s manufacturing requirements.

4

The salesperson should note any current system or equipment installations that can be used to address health and safety concerns for the buyer’s intended use.

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Lesson 5 | Page 14 of 14

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were covered in this lesson.

Industrial buyer wants and needs

As the salesperson, you will need to identify an industrial buyer’s wants and needs before you can select properties of interest on their behalf. Common considerations include: • Size, floor loads, office and shop allocation, ceiling heights, bay size/depth, door combinations, loading docks, mezzanines, and sprinkler systems • Space for truck ingress/egress and on-site trailer storage and transportation for shipping and receiving • Utilities and services for industrial applications • Workplace health and safety for industrial applications

Selecting industrial properties

Once you have determined a buyer’s wants and needs, you can begin selecting properties that meet their criteria. You should start your search based on required size (usually expressed as square footage or square metres), and structural components, then narrow your property search from there.

Showing industrial properties

When showing industrial properties, it is important to take note of a buyer’s concerns during the showing and discuss and point out any property features that will impact the buyer’s intended use. Be sure to observe all safety and compliance requirements during the showing to ensure your own and the buyer’s safety.

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Lesson 6 | Page 1 of 13

Lesson 6: Salesperson Due Diligence and the Role of Other Professionals

This lesson reviews previous concepts related to a salesperson’s performance of due diligence and when to refer buyers to a professional third party. A focus will be put on identifying when an environmental site assessment (ESA) is required.

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Lesson 6 | Page 2 of 13

As the salesperson, you should be aware of how to practice due diligence and when to refer buyers to third-party professionals in a commercial transaction. Without this knowledge, you can jeopardize the transaction, put your client or customer at risk, and negatively impact your professional reputation and that of your brokerage. This lesson will explore the importance of referring commercial buyers to third parties who specialize in commercial properties. It will also discuss the importance of obtaining and reviewing environmental site assessment (ESA) reports. Upon completion of this lesson, you will be able to: • Describe the due diligence required of a salesperson when showing office, retail, or industrial properties • Recognize when to refer the buyer to a professional third party • Describe the process for environmental site assessments Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented. Exam Study Guide

Lesson 6 | Page 3 of 13

As a salesperson, it will be essential for you to accommodate the needs of commercial buyer clients and customers through the performance of your due diligence obligations. While many aspects of due diligence for commercial transactions are similar to those found in residential transactions, some material facts will vary between home buyers and those looking for commercial success.

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Lesson 6 | Page 4 of 13

Due Diligence: A Review

As a salesperson, due diligence should always be observed during commercial transactions. As you learned earlier: • You must deal fairly, honestly, and with integrity with all your clients and customers (Code of Ethics, Sec. 3) • Your loyalty ultimately rests with the client by protecting and promoting their best interests (Code of Ethics, Sec. 4) • You must provide conscientious and competent service to all your clients and customers (Code of Ethics, Sec. 5) • If you offer an opinion about the value of a client’s property, you must have appropriate education or experience to provide such an opinion. You must demonstrate reasonable knowledge, skill, judgement, and competence (Code of Ethics, Sec. 6) • You must advise your client or customer to obtain services from another person if you are not able to provide Exam Study Guide

the services with reasonable knowledge, skill, judgement, and competence, or if you are not authorized by law to provide the services (Code of Ethics, Sec. 8) • You must disclose to your customers all material facts that are known or should be known. When working with your client, you must make all reasonable efforts to determine material facts and disclose them to the client (Code of Ethics, Sec. 21)

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Lesson 6 | Page 5 of 13

Due Diligence and Commercial Showings As a salesperson, you should perform due diligence during a showing by documenting (in writing) any issues or concerns raised by the buyer that may need to be further investigated and addressed when drafting an offer. Documenting issues or concerns will help you to later follow-up and accurately draft offer conditions. The following is a list of questions you can use when discussing a property with a seller or a seller representative for a property on behalf of a buyer. The answers to these questions can help the buyer determine whether an offer needs certain conditions to be included. Note that the applicability of some questions will vary from property to property and, ideally, you can discover many of the answers prior to the showing. The more information you have gathered prior to the showing, the easier it will be to point out items of interest to the buyer as you walk the property.

Limitations and/or title-related matters 1. Does any other party have an ownership interest (for example, spousal, partnership, joint venture) in the property? 2. If the seller owns adjoining land, has a consent to sever been obtained within the last two years? 3. Is the title subject to the first right of refusal, option, lease, rental agreement, or other listings? 4. Is the seller aware of any encroachments, registered easements, or rights-of-way? 5. Is the seller aware of any restrictive covenants that run with the land?

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6. Has the seller received any notice or claim affecting the property from any person or public body? 7. Is the seller aware of any public projects planned for the immediate area; for example, road widenings, new highways, expropriations, etc.? 8. Is the seller aware of any current or pending heritage designations for the property? Is the property in an area designated as a heritage conservation district? 9. Is the seller aware of any local levies or unusual taxes being charged at the present time or contemplated? If so, what are they and at what costs? 10. Are there any conditional sales contracts or equipment leases? If so, are they assignable or will they be discharged? 11. Is the property subject to any pending power of sale proceedings? 12. Are there any special circumstances relating to the harmonized sales tax or other taxes that the salesperson should be aware of when marketing this property? 13. Is the property or any portion thereof under the jurisdiction of a local conservation authority? 14. If the property is a commercial condominium unit, are there any special assessments approved or proposed, Exam Study Guide

restrictions, or pending rule or bylaw amendments, which may alter the use of the property?

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Tenancy 15. Can the seller provide rental information for all tenants, including the name, current rent, any default, date of last increase, deposit amount held (if applicable), expiry date, rental inclusions, and copies of leases?

Zoning 16. What is the zoning on the subject property? 17. Do the uses of the subject property conform to the zoning? If not, is it legal nonconforming? 18. Is the seller aware of any applications for re-zoning within the area?

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Sewer systems and water supply 19. Is/are the building(s) connected to the municipal sewer? 20. Is/are the building(s) connected to municipal water? 21. Is/are the building(s) connected to a private or community water system? 22. If there is a well: a) Is the seller aware of any problems regarding the quality or quantity of the water? b) What is the depth? c) Is it dug or drilled? d) What is the “litre-per-minute” flow rate? e) Can this information be verified with documentation? 23. If there is a septic tank: a) Is the seller aware of any problems with the system? b) Is there a sketch of the system attached or any related documentation concerning approvals? c) Has the septic tank been pumped? If so, what date? 24. Is the seller aware of any drainage restrictions?

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Condition of buildings, systems, and equipment 25. Are there any defects in equipment included with the property? 26. What is/are the approximate age(s) of the building(s) and any addition(s)? 27. Is the seller aware of any structural problems with the building(s) and addition(s)? 28. Has the seller done any renovations, additions, or improvements and what records are available relating to these, including any final inspection reports and related permits? 29. Is there a plan of survey showing the location of all buildings and improvements? What is the date of that survey? 30. Is the seller aware of any deficiencies or noncompliance with the Ontario Fire Code? 31. Are there any problems with the HVAC system? 32. Is the seller aware of any moisture or water problems in the basement or crawl space? 33. Is the seller aware of any damage due to the wind, fire, water, insects, termites, rodents, and/or wood rot? 34. Is the seller aware of any roof leakage or unrepaired damage? What is the approximate age of the roof? 35. Is the seller aware of any problems with the Exam Study Guide

electrical system? What is the rating of the electrical service? What is the wiring type?

Environmental considerations 36. Is the seller aware of any possible environmental problems or soil contamination of any kind on the property or in the immediate area? 37. Is the seller aware of any waste dumps, disposal sites, or landfills in the immediate area? 38. Is the seller aware of any pending real estate developments or projects in the immediate area? 39. Is the site affected by a floodplain map? 40. To the best of the seller’s knowledge, has the building(s) and/or addition(s) ever contained any environmentally hazardous substances; for example, urea-formaldehyde insulation, lead, or asbestos? 41. Is there any lead or galvanized metal plumbing on the property?

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Special municipal tax assessments In the case of special municipal tax assessments, you should ask the listing salesperson to provide any documentation or notification from the municipality describing the details of the special assessment, including whether the owner will agree to pay out the assessment before closing. Before, or at the time of the showing, you must disclose any information regarding this to the buyer.

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Lesson 6 | Page 6 of 13

A salesperson is preparing to show a commercial property to a buyer client. The buyer’s representative notices that in the promotional material provided by the listing salesperson there is a special tax assessment issued by the municipality. Question #22: What should the salesperson do to satisfy due diligence obligations? There are three options. There are multiple correct answers.

1

Contact the listing salesperson and determine the details of the special assessment and ensure that those details are disclosed to the buyer and included in the buyer’s file.

2

Ask the listing salesperson to provide any documentation or notification from the municipality describing the details of the special assessment, including whether the seller will agree to pay out the assessment before closing.

3

Confirm with the municipality that the current property taxes are applicable to the subject property.

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Lesson 6 | Page 7 of 13

Third-Party Professional Referrals

As a salesperson, it is important that any opinions on a transaction should only be given if you can display reasonable knowledge, skill, judgement, and competence (Code of Ethics, Sec. 6). In cases where a buyer needs information that is outside your area of knowledge or expertise, it is your duty to recommend a third-party professional to the buyer (Code of Ethics, Sec. 8). If you fail to recommend a third-party and provide the buyer with inaccurate information, you may be liable for future issues the buyer may have with the property. In commercial transactions, it is common to encounter buyers who will need extensive information on HVAC, mechanical, electrical, and fire safety issues, among others. It is important that you refer the buyer to professional third parties in such fields to lend their expert assessment. Once a third-party’s services are acquired, you should share any relevant information you have on the property with them so that they can thoroughly conduct their inspections/assessment. Ideally, the buyer and third-party can meet on-site to conduct and discuss findings of any inspections. Afterwards, the third-party must provide a written report detailing their findings. It is your obligation to ensure that Exam Study Guide

the buyer understands the contents of the report and is prepared to either proceed with the transaction or to discontinue the transaction on the basis of the findings contained in the report. If you are unable to provide a suitable explanation of the report’s contents to the buyer, then you should refer the buyer to a third-party professional (usually, the author of the report) for further explanation. It is important to maintain records of any third-party professionals consulted, so that you can follow-up with them later to confirm or clarify the results of an assessment. The assessment results may be addressed in an agreement of purchase and sale. Example: As part of a due diligence investigation of a property, an HVAC specialist has been retained to inspect the roofmounted HVAC units. The specialist identifies one unit that will need extensive repairs and/or replacement over the next 12 to 24 months and recommends replacement rather than repair at a cost of approximately $20,000. Based on the findings of the HVAC specialist, the buyer asks that their agreement contains a clause requiring the seller to replace the unit before the transaction closes. If the seller is unable or unwilling, then the buyer may, through subsequent negotiation, reduce their offer price accordingly.

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Lesson 6 | Page 8 of 13

A commercial buyer asks a salesperson for more information about some electrical panels at a property of interest. While pointing out the electrical panel, the salesperson, who has some knowledge on the topic, notices an issue with the wiring, which they disclose to the buyer. Question #23: What should the salesperson do? There are three options. There are multiple correct answers.

1

The salesperson and/or the buyer should arrange for a licensed electrician to conduct an inspection and meet with the buyer on-site.

2

The salesperson should advise the buyer on the electrical panels so that the issues can be addressed as expediently as possible.

3

The salesperson should make a note of the buyer’s concern for potential inclusion in an agreement of purchase and sale.

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Lesson 6 | Page 9 of 13

Environmental Site Assessments (ESA) In addition to ensuring that a property is structurally sound, buyers will often have questions about the condition of the site itself. As a salesperson, you can gather material facts about the site for a buyer by reviewing multiple documents, including any existing ESA or advising that one should be conducted, if applicable. The following four sections contain information on environmental site assessments.

ESA phases As you learned earlier, an ESA consists of the three phases. Phase 1: A report is used to file a Record of Site Condition (RSC). If the report does reveal one or more areas of potential concern in close proximity, a Phase 2 study may be recommended or requested. This phase provides the buyer with a snapshot of the environmental condition of a property at the time of purchase and contain one of two conclusions: 1) Contamination is likely a Phase 2 is recommended for an intrusive investigation of the issue(s) 2) Contamination is not likely, and no further investigation is required Phase 2: This phase assesses the scope of environmental problems or contaminants identified in Phase 1 and determines recommendations for remedial action. This phase can be costly and may involve various tests, hazardous waste assessment/analysis, and Exam Study Guide

soil/water sampling. The results at this phase can also be filed as an RSC. Phase 3: This final phase involves detailed remedial steps and costs associated with circumstances identified in Phase 2.

Performing ESAs When a Record of Site Condition (RSC) is required, a Qualified Professional must perform the ESA. In Ontario, the Qualified Professional must be a member of the Association of Professional Geoscientists of Ontario (APGO) or the holder of a licence issued by Professional Engineers Ontario (PEO). If an RSC is not required, a professional other than a member of APGO or PEO may perform the work, although in Ontario it is common practice to use APGO or PEO members.

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ESA costs As a salesperson, you should inform the buyer that an ESA can become costly if remediation is needed, as this tends to be the most time-consuming and expensive stage of an ESA. However, the cost will vary based on the nature and scope of the assessment, local conditions, and other factors. In many cases, remediation occurs in multiple steps, combining some aspects of the Phase 2 investigation with remediation. It is possible that testing, monitoring, and evaluation will need to continue for an extended period of time. For these reasons, timing and costs of this stage vary widely.

ESAs and property value As a salesperson, you should be aware that an ESA’s results can impact the value of a commercial property. A positive ESA report can mean that there is no contamination or that existing contamination is within the specified guidelines. The questions asked by an EPA assessor are: • Is the degree of contamination below the guideline levels established by various authorities like the Ministry of the Environment, Ministry of Conservation and Parks (MOECP) and the Environmental Protection Act (EPA)? • Is it likely that the existing contamination will migrate onto adjoining properties or enter the

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aquafer thereby causing harm to other property owners or the public at large? If the answer to these questions is “no,” then remediation may not be required. However, lenders and insurers may be more likely to invest in/cover a contaminated property if some remedial action is taken. You should inform the buyer that financing or insurance for a property is often dependent on the results of a Phase 1 ESA and that investors and financiers are difficult to secure for a property that fails to fulfill environmental conditions. Since property value can be impacted by the results of an assessment, poor ESA results may deter some buyers from purchasing a given property. If a buyer accepts a property with poor ESA results “as is” and chooses to clean it up themselves, additional investigations to ensure compliance with various standards may be needed. These could be costly and need to be factored into the overall transaction costs. Scenarios like this are quite common when purchasing a brownfield property.

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Lesson 6 | Page 10 of 13

Environmental Site Assessments (ESA, Continued) The ESA will help a buyer determine if a site will be suitable for their intended use, or if remediation is required. An up-to-date ESA may be required for insurance or financing purposes.

ESA review and due diligence As a salesperson, you should obtain and show the property buyer any ESA reports previously produced. Usually, an insurer or lender will require an up-todate ESA. If the existing ESA is two years old, for example, significant environmental damage could have occurred during that period. For this reason, most diligent and conscientious buyers will insist on a new ESA. If you are aware of an existing ESA report, you should obtain a copy and give it to the buyer for review. At the same time, you should recommend that a thirdparty professional be consulted to give an independent review and opinion of the ESA’s content. This will be part of your due diligence obligations. In cases of pre-existing ESAs, the seller may also put a condition in an agreement that requires the buyer to review the existing report, and accept or reject the ESA results, or obtain a new ESA at their own expense. Typically, a buyer will want to carry out their own ESA, but the third-party assessor may find an existing report useful as a “baseline” document in their investigation. Exam Study Guide

Risk-based site assessments (or due diligence investigations) Risk-based assessments refer to assessing the buyer’s intended (future) use from a perspective of risk. These are commonly referred to as a due diligence investigation. Such investigations involve any assessment done on the property to determine if the buyer’s intended use has the potential to create, in this context, environmental or contamination issues. A buyer who understands the risks associated with their industrial processes will want to assess the unique features of a property and determine if, in fact, their use of the land could cause harm. Example: A paint manufacturer may reject a property that has some water feature like a stream or pond because, should a spill occur, the stream could facilitate the migration of the contaminants onto adjoining properties, thereby exacerbating the situation.

Exam Study Guide

Brownfields As you learned earlier, brownfields are underused or vacant plots of land that are slightly contaminated and have the potential to be redeveloped for commercial or industrial uses. Ontario brownfields legislation encourages the clean-up and revitalization of abandoned or contaminated land due to their prime urban locations. Such properties typically have the advantage of in-place infrastructure such as roads, utilities, water/sewer servicing, schools, and transit facilities. As a salesperson, you can inform interested buyers that rehabilitating a brownfield property requires a significant financial investment; however, they can receive tax incentives if they choose to do so. Financial benefits can also be derived as the properties can often be purchased at well below their potential market value. When clean up has been facilitated in accordance with required standards, these properties often become valuable pieces of development land.

Exam Study Guide

Lesson 6 | Page 11 of 13

A buyer is interested in purchasing a property. The current property owner had a Phase 1 of an ESA conducted within the past year, which indicated the presence of contamination. The contamination was judged by the ESA assessor to be within regulatory guidelines and to pose low risk to surrounding properties. Question #24: What can the salesperson tell the buyer? There are three options. There is only one correct answer.

1

The salesperson can inform the buyer that if they accept the property “as is,” no additional investigations will be needed.

2

The salesperson can inform the buyer that they may be able to determine financing and insurance for the property based off the Phase 1 ESA report.

3

The salesperson can inform the buyer that due to the low-risk of the existing contamination, there are no benefits to taking remedial steps.

Exam Study Guide

Lesson 6 | Page 12 of 13

A buyer is seeking a property for use as a rubber manufacturing plant. They make general inquiries about the benefits and drawbacks associated with brownfield properties. Question #25: What can the salesperson tell the buyer? There are three options. There is only one correct answer.

1

The salesperson can tell the buyer that brownfield properties are often sold at above-market value due to their prime locations.

2

The salesperson can tell the buyer that a risk-based assessment is advisable to determine any preexisting contamination or environmental issues present on a brownfield property.

3

The salesperson can tell the buyer that the expenses associated with rehabilitating brownfield properties can be partially mitigated through tax incentives.

Exam Study Guide

Lesson 6 | Page 13 of 13

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were covered in this lesson.

Due diligence when showing commercial properties

To perform due diligence in a commercial transaction, you should discuss all material facts with a buyer and observe Sections 3, 4, 5, 6, 8, and 21 of the Code of Ethics. When showing a commercial property, you should be prepared with information (or obtain information during the showing) that the buyer can use to determine items to address in an offer.

Referring sellers and buyers to third-party professionals

If you cannot provide expert advice on any item of interest to a buyer, you should always refer them to a third-party professional. Ideally, the buyer can meet with third-party professionals on-site to obtain an assessment of the property’s conditions. In cases where further information or clarification is needed (particularly when preparing an offer), you should contact the third-party professional for advisement.

Environmental site assessments

An ESA is composed of three phases and must be conducted by a qualified professional. Phase 1 results are often used to determine insurance and financing for a property. A poor ESA result can negatively impact a property’s value and jeopardize financing. A buyer should be made aware that remediation (in the case of contamination) can be costly to pursue. Previously conducted ESAs should be cited, but another ESA may be required. Risk-based assessments differ from ESAs, as these assessments are used to determine if a buyer’s intended property use can cause potential contamination or environmental issues, whereas ESAs determine pre-existing issues on a property. Brownfield properties have several financial benefits and drawbacks; although rehabilitation can be costly, these properties often sell at below-market value, and there are tax and other financial incentives.

Exam Study Guide

Lesson 7 | Page 1 of 7

Lesson 7: Summary Practice Activities

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

Exam Study Guide

Lesson 7 | 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.

Exam Study Guide

Lesson 7 | Page 3 of 7

A salesperson meets with a buyer who is interested in purchasing a small retail condominium with existing tenants as an investment property. There are vending machines on the premises that the current owner operates, in addition to a common area lobby. The buyer is a first-time investor and has some questions for the salesperson regarding cash flow and the potential stability and durability of the income streams. Question #26: Which of the following statements are applicable to this scenario? There are four options. There are multiple correct options.

1

The salesperson can inform the buyer that they can charge tenants percentage rent, which is calculated based on a pre-determined rate of allowable annual rent increases.

2

The salesperson can inform the buyer that there may be revenue from the vending machines.

3

The salesperson can use a retail condominium’s current leases to help verify the stability and durability of income streams.

4

The salesperson can inform the buyer that operations cash flow is the periodic money that will be received from the operation of their investment property.

Exam Study Guide

Lesson 7 | Page 4 of 7

An investor buyer is looking at purchasing a particular office property. The buyer is attracted to the property because they have heard that it is a well-maintained building with many long-term tenants. The buyer has asked the salesperson to gather information on their behalf so that they can verify the information for themselves. Question #27: What should the salesperson do in the information gathering process? There are four options. There are multiple correct options.

1

Request documentation to determine the age of the roof, as an older roof can be considered a risk.

2

Use seller-provided documents, like a current income and expense statement, to determine potential income streams.

3

Gather records related to a site’s condition through a third-party professional, such as a site assessor or a lawyer.

4

Search a site registry to obtain a record of site condition as part of their research process.

Exam Study Guide

Lesson 7 | Page 5 of 7

A salesperson prepares to select and show office properties to an investor buyer. The buyer will assume any existing tenants and, if necessary, attempt to fill vacancies with new tenants. The buyer is looking for a centrally located building that will appeal to a large base of potential tenants. As such, it will be important to gather as much information as possible on potential properties of interest. Question #28: What should the salesperson do? There are four options. There are multiple correct options.

1

Prepare a list of available properties and tell the buyer to identify which properties will best suit their needs.

2

Disclose the known history of a property of interest, particularly if past uses could pose issues for the buyer’s intended use.

3

Ask the buyer to propose properties of interest in their preferred area to research on their behalf.

4

Give the buyer a package of information about the property before showing it.

Exam Study Guide

Lesson 7 | Page 6 of 7

A salesperson meets with a buyer who is interested in a special purpose industrial property for industrial baking products. The plant will house mixing and baking equipment and several hundred employees who will all be on the floor at the same time. Several times a day, trucks will arrive at the plant with raw materials and leave with processed products, like bread, cookies, and other baked goods. The buyer is interested in a property that is currently being used for a similar operation, which is located on a main arterial road. Question #29: Which of the following considerations should the salesperson discuss with the buyer? There are three options. There is only one correct answer.

1

Discuss with the buyer whether the floor load capacity will be sufficient to meet their needs.

2

Discuss how the property’s proximity to a main arterial road will be beneficial for the buyer’s frequent incoming and outgoing shipments.

3

Discuss the benefits of obtaining current utility costs from the property seller.

Exam Study Guide

Lesson 7 | Page 7 of 7

Congratulations, you have completed the lesson!

Exam Study Guide

Module Summary | Page 1 of 3

Module Summary

This lesson contains a summary of the entire module.

Exam Study Guide

Module Summary | Page 2 of 3

Congratulations, you have completed this module!

This lesson will present a summary of key learning objectives of this module.

Exam Study Guide

Module Summary | Page 3 of 3

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

Introduction to Showing Commercial Properties

When completing commercial transactions, you should be aware of how your obligations apply to all buyers, as well as how needs will differ between users and investors. Completion of this lesson has enabled you to: • Describe the obligations of a salesperson when working with buyers, whether as clients or as customers • Identify a commercial buyer’s needs and property requirements as a user • Identify a commercial buyer’s needs and property requirements as an investor

Leading Practices for Showing Commercial Properties

When preparing to show and showing commercial properties, you should be aware of how to gather relevant information, conduct showings, and follow-up in a way that accommodates both a seller’s and a buyer’s needs. Completion of this lesson has enabled you to: • Gather detailed information on commercial properties for the buyer • Describe leading practices for preparing to show commercial properties • Describe leading practices when showing commercial properties • Describe leading practices for following up after showing commercial properties

Show and Advise on Office Properties of Interest

When showing and advising on office properties, you should be aware of how building types, ownership options, and structural components will impact your property selections and showings. Completion of this lesson has enabled you to: • Identify buyer needs and property requirements to select appropriate office properties to show • Identify office properties of interest to the buyer • Describe leading practices for showing office properties

Exam Study Guide

Show and Advise on Retail Properties of Interest

When showing and advising on retail properties, you should be aware of how building types, ownership options, and structural components will impact your property selections and showings. Completion of this lesson has enabled you to: • Identify buyer needs and property requirements to select appropriate retail properties to show • Identify retail properties of interest to the buyer • Describe leading practices for showing retail properties

Show and Advise on Industrial Properties of Interest

When showing and advising on industrial properties, you should be aware of how building purposes, structural components, and environmental conditions will impact your property selections and showings. Completion of this lesson has enabled you to: • Identify buyer needs and property requirements to select appropriate industrial properties to show • Identify industrial properties of interest to the buyer • Describe leading practices for showing industrial properties

Salesperson Due Diligence and Third-Party Assessments

When showing and advising on retail properties, you should be aware of how to perform due diligence with regard to referring a buyer to a third-party professional, and how to engage with third-parties to ensure complete information on a property is obtained and communicated to a buyer. You should also be aware of the importance of various phases of ESAs and other assessments used by buyers to ascertain whether a property is appropriate for their intended purpose. Completion of this lesson has enabled you to: • Describe the due diligence required of a salesperson when showing office, retail, or industrial properties • Recognize when to refer the buyer to a professional third party • Describe the process for environmental site assessments

Exam Study Guide

Appendix | Page 1 of 2

Appendix Answer Key Question #1: 1 Question #2: 3, 5 Question #3: 1, 2 Question #4: 1 Question #5: 2, 3, 4 Question #6: 2, 3 Question #7: 2 Question #8: 2, 3 Question #9: 1, 2 Question #10: 1 Question #11: 1 Question #12: 2, 3 Question #13: 3 Question #14: 2 Question #15: 1, 3 Question #16: 2 Question #17: 2 Question #18: 1, 3 Question #19: 2 Question #20: 2, 3 Question #21: 1, 3, 4 Question #22: 1, 2 Question #23: 1, 3 Question #24: 2 Question #25: 3 Question #26: 2, 3, 4 Exam Study Guide

Appendix | Page 2 of 2 Question #27: 1, 3, 4 Question #28: 2, 4 Question #29: 3

Exam Study Guide

Module: Preparing to Lease Office, Retail and Industrial Properties This is a study guide to help you prepare for the qualifying exam. There are multiple study guides that are provided for preparation. Each study guide contains several decision points to test your knowledge. The answer key to these decision points is present in the “Appendix” section at the end of the guide. Please use Adobe Acrobat Reader (Recommended version 9 or above) to navigate through this PDF. Real Estate Pre-Registration 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 PreRegistration Program learner.

Exam Study Guide

Module: Preparing to Lease Office, Retail and Industrial Properties

This module is designed to provide you with the foundational knowledge for leasing commercial properties. In this module, you will learn about different types of commercial leases and essential components of a lease, as well as the responsibilities of parties involved in a lease transaction. You will also explore the services provided to tenants and landlords, so that you will be well-positioned to perform effectively in your role as a real estate salesperson. By the end of this module, you will have a basic understanding of how to complete commercial lease transactions, your duties and responsibilities to tenants and landlords, and how to advise tenants and landlords on their rights and obligations in a commercial lease.

Exam Study Guide

Menu: Preparing to Lease Office, Retail and Industrial Properties Number of Lessons

12 Lessons

Lesson Number

Lesson Name

Lesson 1

An Introduction to Commercial Leases

Lesson 2

Key Considerations When Leasing a Commercial Property

Lesson 3

Considerations for Office, Retail, and Industrial Leases

Lesson 4

Key Regulations Affecting a Commercial Lease

Lesson 5

Due Diligence Obligations of a Salesperson

Lesson 6

Services Provided to a Tenant or Landlord

Lesson 7

Responsibilities of Landlords and Property Managers in Commercial Real Estate

Lesson 8

Calculate Areas and Related Linear Measurements

Lesson 9

Prepare a Comparative Market Analysis

Lesson 10

Factors Affecting Advertising and Marketing

Lesson 11

Summary Practice Activities Module Summary Appendix

Exam Study Guide

Lesson 1 | Page 1 of 16

Lesson 1: An Introduction to Commercial Leases

This lesson will provide an overview of different types of commercial leases and rent structures. It will provide you with an opportunity to understand how these various types of leases may specifically serve the needs and preferences of individual tenants and landlords.

Exam Study Guide

Lesson 1 | Page 2 of 16

A lease is a contract between a landlord (lessor) and a tenant (lessee) for the occupation or use of the landlord’s property by the tenant, for a specified time and for a specified rent. A commercial lease can be defined as any lease involving a property that is primarily used for business activity, that is, an agreement between a landlord and a tenant to rent a property for business purposes. Commercial leasing can be complex for several reasons; commercial properties are diverse and a commercial lease involves specialized wordings relating to industrial, office, retail investment, and vacant land leases. While commercial leases can vary widely in language, use and property type, depending on the type of property, they share common elements and can be categorized into a few defined types. Upon completion of this lesson, you will be able to: • Explain the types of commercial leases • Detail the types of rent a landlord could charge Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

Exam Study Guide

Lesson 1 | Page 3 of 16

Lease Components

A landlord’s standard form of lease refers to the standard lease prepared by a landlord that is applicable to all tenants in a specific complex. It can be best described as a general form of agreement designed to suit as many tenants and requirements as is practical. Given the individual demands and preferences of various tenants, special tailoring of the landlord’s standard form of lease is often necessary to reflect the specific needs or responsibilities of the tenant. Precise word varies, but certain minimum elements are required in all leases. These elements include: • Names of all parties • Description of the leased premises • Rent • Permitted uses • Commencement and expiration dates • Rights and obligations of the parties Each of the elements listed will be examined in more detail later in the module.

Exam Study Guide

Lesson 1 | Page 4 of 16

Commercial leases can be classified into several different types, depending on the arrangement and calculation of the rent involved: • Gross lease • Net lease – single, double, and triple net leases • Percentage lease • Retail ground lease In this lesson, you will learn about the unique features, as well as the pros and cons, of each type of commercial lease.

Exam Study Guide

Lesson 1 | Page 5 of 16

Types of Commercial Leases: Gross Lease A gross lease is an agreement in which the tenant pays a fixed rent and the owner pays all operating expenses associated with the property. This type of lease is very common, as many tenants desire security in terms of rent costs. Many landlords need a gross lease because of the cost of separating utilities, and installing individual heating and cooling of premises. Sometimes, it is impossible to set up separate billing for hydro and heat per tenant because of physical constraints of the building; in other cases, it is simply easier to have a gross lease. This arrangement has largely given way to various forms of net leases which will be detailed next. Landlords prefer net leases as sudden increases in costs must be absorbed by the owner under a gross lease. While landlords must be able to absorb sudden and unexpected increases in costs, and may suffer potential misuse of resources by the tenant, there are certain measures that can be put in place in a gross lease to mitigate any negative financial impact on the landlord. As such, many gross leases have annual escalation clauses built into the lease to allow for changes in operating costs.

Exam Study Guide

Lesson 1 | Page 6 of 16

Types of Commercial Leases: Net Lease In a net lease, the tenant pays a portion of expenses associated with the leased property. Depending on the arrangement of rent, there are three types of net leases: single net (Net), double net (Net Net), and triple net (Net Net Net) leases. Alternative terms may be used, such as base rent and additional rent. The following three sections contain information about these three types of net leases.

Single net lease

Tenant pays the base (minimum) rent plus additional rent, such as property taxes. The landlord pays the remaining expenses.

Double net lease

Tenant pays base rent plus additional rent, such as property taxes, maintenance, and sometimes insurance. Roof replacement, structural repair and replacement, and some of the operating expenses are often the landlord’s responsibility.

Triple net lease

Tenant pays base rent plus additional rent, which includes all of the expenses related to the operation of the complex plus roof replacement, structural repairs, and replacements.

Exam Study Guide

Lesson 1 | Page 7 of 16

Types of Commercial Leases: Percentage Lease

A percentage lease is mainly found in the retail property market. In this type of arrangement, the tenant is typically required to pay a fixed minimum monthly rent (i.e., to cover taxes, maintenance, and insurance as the bare minimum), plus a percentage of gross monthly income in excess of base sales calculated using the minimum rent. This creates a type of partnership between the landlord and tenant, and rates can be negotiated, depending on the type of business and certain factors, such as the volume of business generated per square foot and markup levels of goods sold or services offered. Percentage leases are generally used to establish a minimum rent as a percentage of income that will revert to a fixed rent, as sales grow. For grocery-type stores that pay a low base rent in a triple net lease, percentage leases provide an opportunity for the landlord to boost the rent when sales are good, while allowing the tenant to pay only the minimum rent when sales are poor. Most percentage leases include articles or sections to cover the following: • Reporting of monthly sales figures to help the landlord receive monthly interim cheques for any percentage rent due without having to wait until the end of the year • A continuous reporting of sales levels of tenants that enable the landlord to calculate accurate percentage rents, and to monitor tenant success levels and risk of failures Exam Study Guide

Lesson 1 | Page 8 of 16

Types of Commercial Leases: Retail Ground Lease

A retail ground lease refers to the rental of land only, and is also known as a land lease or pad lease. Despite the name, retail ground leases are also found in office, industrial, and recreational sectors, and are common for standalone retail or restaurant sites. A retail ground lease is often of a long duration involving a tenant who covenants to build a structure on the leased land. The building serves as security for rental payments, and upon default by the tenant, the landlord may terminate the lease. Retail ground leases can be attractive to both tenants and landlords for the following reasons: • They offer advantages to owners of land in highly desirable areas, that is, they get an improved site at the end of the lease (typically 10–20 years) for which someone else put the money up, and they can also benefit from activities on the site that may, in turn, spur more development. • They allow tenants to construct a building while avoiding additional capital outlays for the property. Exam Study Guide

• They allow tenants to leverage existing financial resources and potentially use land at a lower cost than purchasing the property. However, difficulties can arise if expansion of the building is required, or the tenant needs additional financing and the landlord opposes these changes, given their equitable position as owner of the land and landlord under the lease. Any changes in financing often depend on the tenant’s covenant (or ability to pay). The integrity of the transaction may be jeopardized if the tenant’s covenant is not strong enough; thus, salespersons are advised to exercise caution when working with such a transaction.

Exam Study Guide

Lesson 1 | Page 9 of 16

Rent is defined as a tenant’s regular payment to a landlord for the use of property or land. Depending on the type of lease, rent can include base rent (minimum rent), additional rent (to cover TMI – taxes, maintenance and insurance), utilities, and structural and roof repairs, etc. These amounts, combined in some manner within the lease, are referred to as “rent”. There are different types of rent in commercial leasing, including: • • • •

Base rent Additional rent Percentage rent Fixed rent

In this lesson, you will learn about the definition and key features of each of these types of rent. As a salesperson, you should be able to understand how these different arrangements of rent can affect lease transactions.

Exam Study Guide

Lesson 1 | Page 10 of 16

Types of Rent: Base (Minimum) Rent

Base rent is the minimum rent payable by a tenant under a net lease. It is the landlord’s determination of the apportioned physical building and the land costs over the lease term. Base rent does not include the variable expenses of real property. An example of a typical lease wording for base rent involving an office complex would be similar to the following: The tenant will, throughout the term, pay to the landlord at its head office, or at any other place designated by the landlord, in Canadian funds, without demand and without deduction, abatement, or compensation, as base rent, the annual sum of $96,000 payable in equal consecutive monthly installments of $8,000 each in advance on the first day of each calendar month. The base rent is calculated by applying the annual rate of $8.00 per sq. ft. to the rentable area of the premises.

Exam Study Guide

Lesson 1 | Page 11 of 16

Types of Rent: Additional Rent

Additional rent refers to the tenant’s proportionate share of the operating costs of the complex, in addition to the base rent, as established in the lease document. Additional rent is generally estimated at the beginning of any fiscal or calendar year for the building. The tenant pays additional rent as equal monthly installments, in advance, throughout the period for which the estimate is made and reconciled shortly after the fiscal or calendar year, as defined in the lease. The sum of base rent and additional rent makes up the rent for a commercial lease. It is important to advise the tenant to concentrate on exclusions to additional rent, rather than the exhaustive list of inclusions often found in net leases. Items typically included in additional rent can vary depending on the type of lease. In a typical office lease, additional rent (or operating costs) often includes utilities, whereas utilities are generally not included in an industrial lease.

Exam Study Guide

Additional rent is usually composed of recoverable items (i.e., expenses related to maintaining a property that can be billed to tenants as opposed to expenses incurred by the owner that cannot be recovered from the tenants), including, but not limited to: • Operating costs • Property taxes • Utilities • Landlord’s insurance • Snow removal • Grass cutting • Landscaping • Paving and repaving • Line painting • Garbage removal It is important for the tenant’s lawyer or other representative to carefully scrutinize the lease document to ensure that rechargeable items are truly operational in nature, as distinguished from capital in nature. For example, the collection of taxes would normally include the collection of a tenant’s proportionate share of property taxes for the complex, but not the landlord’s corporate taxes.

Exam Study Guide

Lesson 1 | Page 12 of 16

Types of Rent: Percentage Rent

Typically used in retail shopping centres, percentage rent is computed as a percentage of a retail tenant’s sales effected from a lease premises. Landlords usually prefer to have a percentage rent calculation that requires the rent to be the greater of the minimum or base rent and the percentage rent. This allows the tenant to have the benefit of a lower base rent and allows the landlord to share in the success of the tenant. Recall that a Percentage Lease is primarily found in the retail sector, most often in shopping centres but can involve any businesses where the income to the operation is based on gross sales, and differing rates apply to various types of businesses. The rates of percentage rent tend to vary depending on markup levels of goods sold or services offered, the typical turnover of goods or sales volume, and the profitability of the operation. Generally, the greater the volume of business generated per square foot, the lower the percentage charged. Higher markups on products are usually associated with higher percentages. Higher amounts of business brought by the tenant to the shopping centre (versus generated by the shopping centre) will decrease percentages. Also, historically, the percentage varies significantly with the type of business, e.g., hardware store (low) and video arcade (high). Exam Study Guide

The following example calculates percentage rent in a retail lease, So: 1. Square footage is 180 sq. metres 2. Minimum rent is $150/sq. metre per annum and Total minimum rent/annum is $27,000 3. Rate of percentage rent is four per cent 4. Projected sales is $710,000 The percentage rent calculation will be: $710,000 x 0.04 = $28,400 $28,400 - $27,000 = $1,400

Exam Study Guide

Lesson 1 | Page 13 of 16

Types of Rent: Fixed Rent

Fixed rent is the type of rent found in gross leases. This rent arrangement allows the tenant to pay an agreed fixed amount as rent while the landlord is responsible for all operating costs associated with the property. The following example illustrates a gross lease with fixed rent: ABC Chartered Accounts LLP. is establishing a new branch office. Available space in an older strip mall is approximately 2,450 sq. ft. The market for retail space is very weak at present. While the landlord would prefer a net lease, he understands the market conditions and is prepared to settle for a gross lease save and except for utilities, which the tenant will pay. He is willing to lease the property based on a gross lease at $15 per sq. ft. per year, including all expenses (TMI) over a five-year period. ABC Chartered Accountants LLP. agrees to the annual rent of $36,750 (2,450 x $15) and provides monthly cheques to the landlord for $3,062.5 + utilities + HST. The tenant is not responsible for any expenses, including TMI, or any common area charges. Often the tenant is responsible for utility costs in a gross lease, but this can be a matter of negotiation between the parties. Exam Study Guide

Lesson 1 | Page 14 of 16

A salesperson is currently working with five different tenants who are looking to lease commercial space from which to run their respective businesses. The salesperson has shown all of them a variety of different properties based on their needs and preferences. In deciding whether to make an offer to lease, each tenant will need to consider not only the properties they have seen, but the type of commercial lease that they will be required to sign. Question #1: Identify the true statements regarding the type of lease each tenant is considering. There are five options. There are multiple correct answers.

1

The first tenant is considering a Gross lease in which they will be paying a fixed rent with the landlord paying all the property’s operating expenses.

2

The second tenant is considering a Percentage lease in which they will pay the rent plus certain defined expenses associated with the leased premises.

3

The third tenant is considering a Single net lease in which they will be paying minimum rent plus a certain portion of the annual gross sales achieved by the tenant’s business.

4

The fourth tenant is considering a triple net lease in which they will be paying all the expenses related to the leased premises’ such as the maintenance, operating costs and property taxes, in addition to the base rent.

5

The fifth tenant is considering a retail ground lease in which they will only be renting land but will be committed to constructing a standalone building themselves which will contain their business.

Exam Study Guide

Lesson 1 | Page 15 of 16

A commercial real estate salesperson, Andrew, is representing a prospective retail tenant who is exploring the following two leasing options: • Option 1 – Premium City Mall is listed at $15.50 per sq. ft., with a percentage rent of 6.0 per cent of gross sales over base minimum. • Option 2 – Lakeview Mall is listed at $14.25 per sq. ft., with a percentage rent of 6.25 per cent of gross sales over base minimum. Both lease listings offer a rentable area of 2,000 sq. ft., and the tenant’s anticipated annual gross sales is $750,000. Question #2: Which one of the following options provides the most economic overall annual rent with the correct amount of annual rent calculated? There are four options. There is only one correct answer.

1

Option 1; annual rent of $76,865

2

Option 1; annual rent of $45,000

3

Option 2; annual rent of $74,000

4

Option 2; annual rent of $46,875

Exam Study Guide

Lesson 1 | Page 16 of 16

Congratulations, you have completed the lesson! There are two sections on this page with a summary of the key topics that were covered in this lesson.

Types of commercial leases

A Gross Lease allows the tenant to pay a fixed rent, while the landlord is responsible for all operating expenses associated with the property. A Single Net Lease requires the tenant to pay the rent and certain defined expenses related to the leased property. A Double Net Lease (Net Net) requires the tenant to pay maintenance and operating expenses, as well as property taxes, but the tenant is exempted from paying for structural repairs to the external structure. In a Triple Net Lease (Net Net Net), the tenant is responsible for all expenses and the landlord receives fixed monthly rent payments. In a Percentage Lease, the tenant pays a fixed minimum rent, plus a percentage of gross monthly income in excess of base sales calculated using the minimum rent. A Retail Ground Lease refers to the rental of land only and allows the tenant to use land at a lower cost than purchasing the property.

Types of rent a landlord could charge

Base Rent or Minimum Rent is the actual rent for the premises, whereas Additional Rent is the recovery of the variable costs, e.g., TMI, common area maintenance charges, and utilities. Additional Rent is usually composed of recoverable items (i.e., expenses related to maintaining a property that can be billed to tenants as opposed to expenses incurred by the owner that cannot be recovered from the tenants).

Exam Study Guide

Percentage Rent is calculated by combining an additional rent equal to an agreed-upon percentage of gross sales, with a Base Rent that is intended to cover the operating expenses associated with the property. In the type of rent paid by the tenant in a Gross Lease, with the landlord responsible for paying all operating expenses associated with the property, an escalation clause is often included in the lease to cover changes in the variable costs, utilities, taxes, insurance, maintenance, etc., to protect the landlord from an unexpected increase in costs. Also, where metering exists, tenants often cover utilities.

Exam Study Guide

Lesson 2 | Page 1 of 11

Lesson 2: Key Considerations When Leasing a Commercial Property

In this lesson, you will learn about important considerations and issues when leasing a commercial property. This lesson will also highlight the essential elements required in a commercial lease.

Exam Study Guide

Lesson 2 | Page 2 of 11

Given the specialized and complex nature of commercial leasing, describing commercial leases in general terms is often challenging and requires a specialized skill set. However, there are minimum components required in any lease. Typically, as a salesperson is employed to show the space and to draft the offer to lease, it is important for the salesperson to fully understand the language in a lease, and explain the terms and clauses. As such, this lesson will provide a detailed overview of the required content in a lease, as well as various terms and concepts widely used in commercial leasing. Upon completion of this lesson, you will be able to: • Describe key considerations when leasing any commercial property 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 11

Benefits of Tenant and Landlord Representation in the Lease Negotiating Process

Commercial lease agreements are highly complicated documents and the focus of the salesperson is to obtain the best transaction for their client at all times acting fairly and in good faith with all parties. To properly and professionally represent landlords and tenants, salespersons must learn the language of leasing, understand the intricacies of the real estate they are representing or presenting, and know the needs and wants of their clients and customers they are working with. When representing landlords and tenants, a salesperson can: • Provide access to information, as the salesperson can efficiently research properties by doing the ground work and provide a comparative market analysis (CMA) o In the commercial market, often properties are not listed on the local listing service, as compared with those in the residential market, and only the listing salesperson often has direct access to these properties. o A salesperson can provide expert advice on commercial properties and ensure that the right questions are asked about the property such as measurements (premises, complex, common areas, and rentable area), maintenance and repair, reconciliation, operating costs (i.e., what is included), insurance, parking, restrictions, etc. Exam Study Guide

• Draft an offer to lease, which is legally binding, and ensure the needs and wants of both the landlord and tenant are properly set out • Identify opportunities by understanding the perspective of the other party • Improve the speed and efficiency of the lease negotiating process

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Lesson 2 | Page 4 of 11

Rent Terms to Include in a Lease In all leases, certain components must be present, while the precise wording may vary. The lease must contain specific information; otherwise, the agreement may become problematic and difficult if not impossible to execute. The following five sections contain information about the required minimum elements of a lease and examples of how each element may appear in the lease document.

Names of all parties

The parties to the lease should be sufficiently described so that the individuals or other legal entities are identifiable. A minimum of two signatories (i.e., legal signatures) are included on the lease, namely, the landlord and the tenant.

Description of the The specific location of the premises should appear, with reference to the site plan that is attached to and forms part of the lease. leased premises • In the case of a single purpose property with a dedicated parking lot, the leased premises will be the building itself (i.e., address and legal description), the land under the building, and the parking lot. • In the case of more than one building on a common parking lot, the leased premises will usually be identified as the full municipal address and unit number, with rights to and from the complex in common with others. There will be a schedule to the lease that identifies the leased premises relative to the complex and a separate schedule identifying the legal description of the complex.

Permitted use of the premises

The use of the premises must be clearly and simply defined, and precisely limited in scope. In the case of a shopping mall, every tenant operates within a narrowly defined store type. While anchor tenants can demand a broad-use definition, smaller tenants are typically only permitted to limited uses. In some cases, it is important to identify non-permitted uses in a multi-tenant building that can restrict a tenant’s use.

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Commencement and expiration dates

The lease must specify a period of time during which the landlord grants a lease to the tenant, known as the term of the lease. The term is defined by commencement and expiration dates, and at the end of the lease term, the premises must revert back to the landlord, subject to renewal rights and overholding provisions (i.e., provisions permitting the tenant to remain in possession and the landlord to receive income for a reasonably brief period following the end of the lease term).

Rights and obligations of the parties

The rights and obligations of the parties refer to any restrictions, special privileges, additional costs, and exclusive covenants as governed by the particular circumstances (i.e., specific needs and wants of the parties).

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Lesson 2 | Page 5 of 11

Minimum Elements of a Lease, Continued All leases must articulate the terms and conditions as a reference document used to address detailed procedures, such as dispute resolution mechanisms and rent calculation methods. The following components must be included in a typical lease to ensure a full account of rent terms. The following three sections contain information about the required minimum elements of a lease and examples of how each element may appear in the lease document.

Term of the lease, including any renewal options

A lease contract must specify a period of time during which the landlord transfers the premises, or grants a lease, to the tenant. The stipulated period is required to pass, and the premises must revert back to the landlord when the lease term expires; if the lease fails to establish a reversion of the property back to the landlord, it is not a lease, but a sale of the property. Often, leases contain a rent-free period or a tenant fit-up period, where the tenant is given time to renovate the leased premises, to stock shelves, and otherwise prepare the premises to begin operations. During the rent-free period, the tenant may be required to pay utilities and operating costs (TMI), but not the minimum rent. The rent-free period can vary depending on the fit-up required, the size of the leased premises, and the term of the lease. Small spaces with short terms do not warrant much attention in terms of rent-free periods, while large spaces with significant tenant improvements and longer terms do warrant significant rent-free periods, often as much as six months or more. General lease renewal terms and conditions are negotiated coincident with the original lease negotiation. Typically, the tenant has to notify the landlord that they want to renew the lease for a further term. If the renewal clause specifies the new term and rent, there is no negotiation. The landlord prepares a lease amending and extension agreement. Upon signing by each party, the lease is renewed. Often, the lease provides for rent and renewal term to be negotiated or arbitrated. Just as often, the renewal rent is calculated as the rent at renewal plus percentage change in the consumer price index (CPI) over the previous

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term. There are a myriad of formulas, but these are usually established during the original lease negotiation and contained in the original lease.

Rent calculation methods

In all leases, any rent payable by the tenant must be clearly defined by demonstrating how the base rent, additional rent, and/or percentage rent is calculated. The lease should also state the manner and schedule of rental payments; for example, the base rent for the first year of the term is payable in advance on the first day of each month in equal installments of $2,000 plus HST. In the case of additional rent, the tenant’s proportionate share of this rent is used to calculate the amount of rent payable by the tenant for additional charges. For example, if the total area of the property is 7,000 square metres and the tenant occupies a 200-squaremetre unit, the tenant’s proportionate share of the additional rent is 200/7,000, that is, 2.857 per cent. The landlord typically provides a statement of the actual amounts payable by the tenant that details calculations of the additional rent. A typical rent clause would state: Annually, the landlord shall reasonably estimate the tenant’s proportionate share of additional rent (TMI) for the leased premises. The tenant shall pay additional rent in advance. Within 90 days of the end of each calendar year, the landlord shall complete a reconciliation of the additional rent estimate to the actual, and the tenant shall pay any shortfall on invoice or the landlord shall credit any excess to the tenant. Similarly, in a percentage lease, the rentals payable clause normally sets out the calculation of the percentage rent payable by the tenant with the mutually agreed-upon percentage.

Non-payment of rent

This is the default clause that provides for remedies in case of the tenant’s failure to pay the rent, in order to protect the landlord’s rights. Specifically, the non-payment of rent clause should establish the landlord’s rights to: • Charge interest on unpaid rent • Specify a time limit within which the tenant must pay the rent • Terminate the lease after due notice of a default

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• Enter the leased premises to perform the work the tenant has failed to do, with all expenses payable by the tenant • Make payments due by the tenant to a third party This clause is an important element of a lease that you need to understand as a salesperson. However, there are many examples of default in a lease that are beyond the scope of this module. Further, it is unlikely that you will get involved in a discussion of default, except to remind your clients that the tenant is expected to pay the rent, and if not, they are in default of the lease and the landlord can take steps to take back the premises.

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Lesson 2 | Page 6 of 11

Common Area Maintenance

In a commercial lease, the common area refers to all areas used by two or more tenants and/or third parties that are not under the control of any one tenant, such as lobbies, elevators, corridors, stairways, parking lots, and landscaped areas (i.e., virtually everything that is not rentable space). With respect to commercial leasing, common areas are distinct from common elements associated with condominiums. Common area maintenance (CAM) can be defined as the landlord’s costs attributable to the common areas of the complex (land and buildings) related to the repair, maintenance, operation, supervision, and administration of such areas, property taxes, and property insurance. CAM charges are usually billed as part of additional rent and pro-rated among the building tenants. The CAM charges for the building/complex and the tenant’s responsibility in that regard are defined in the CAM clause, based on the tenant’s proportionate share of the complex. The following demonstrates wording that is typical for the CAM clause for a tenant in an office: Exam Study Guide

It is the intent of the parties hereto that the rents reserved pursuant to this lease shall be absolutely net to the landlord, free and clear of all payments, charges, or obligations whatsoever, excepting only taxes personal to landlord, including income tax on the income of the landlord and landlord’s financing costs, and that all costs, expenses, or outlays of any kind related to the premises shall be borne by the tenant and that the tenant shall, by payment of the tenant’s proportionate share of the landlord’s occupancy costs, share in the burden of all costs, expenses, and outlays of any kind related to the common areas, except as aforesaid.

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Lesson 2 | Page 7 of 11

A salesperson with a local commercial brokerage is working with a client who wishes to lease retail space for their clothing store. The client has decided to make an offer to lease a 2,500 sq. ft. unit within a shopping mall which has a total area of 100,000 sq. ft. The client will be paying minimum rent as well as additional and percentage rent. Question #3: Which one of the following statements is correct with respect to a commercial lease? There are four options. There is only one correct answer.

1

When percentage rent is included in a lease, the commencement date of a lease must be the same as the date of commencement to pay rent.

2

If all the tenants of the mall are paying additional rent, then the client would be responsible for paying 2.5 per cent of the common area maintenance charges.

3

Common area maintenance charges will typically include repair and maintenance costs, property and income taxes, property insurance, base rent, and capital cost allowance.

4

If the client signs a lease and then fails to pay rent, a landlord is entitled under the Commercial Tenancy Act to both seize and dispose of a tenant’s property and change the locks.

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Lesson 2 | Page 8 of 11

Assignment Versus Subletting When working with a tenant or landlord, you may encounter transactions involving matters related to assignment or subletting. As a salesperson, you should understand these terms and how to properly establish relevant clauses in a lease. The following two sections contain information about the terms related to assignment and subletting.

Privity

Differentiating between assignment and subletting requires an understanding of the legal concept of privity. While you are not required to fully understand the legal complexities around privity, assignments, and subletting as a salesperson, you should be aware of the basics. Privity of contract, in general, is defined as the legal proposition that a contract, including rights and obligations, is only enforceable on the parties to that contract. This should be distinguished from privity of estate, which refers the legal relationship between two or more parties who hold an interest in the same real estate property. At the end of a lease term, the premises must revert back to the landlord, and this creates a privity of estate between the tenant and the landlord. For example, if the tenant assigns their entire lease to a third party, a privity of estate is established between that third party and the landlord. The original tenant, or assignor of the lease, has no privity of estate left with the landlord (unless the assignor is required to remain on the covenant).

Assignment versus subletting

If the tenant assigns their interest in a lease to an assignee, the assignee assumes the tenant’s obligations and rights under the lease. Thus, the original tenant no longer has privity of estate with the landlord and cannot occupy the premises as of the effective date of the assignment. However, the original tenant retains their privity of contract with the landlord, unless otherwise defined. This means that the original tenant remains responsible for the tenant’s obligations under the lease, unless the landlord expressly releases the

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tenant. A commercial tenant is typically not permitted to assign, sublet, or transfer their interest in the lease without the written consent of the landlord. The lease will often define if and on what terms assignment is permitted. On the other hand, if a tenant sublets the leased premises, no privity of contract is established between the incoming subtenant and the landlord, implying a lack of any legal relationship. The privity of contract and estate remains between the original tenant and landlord. In order to enable the landlord to pursue action either against the tenant or the subtenant, leases often specify that a subtenant must directly covenant with the landlord. The lease will also, like the assignment clause, require the landlord (often acting reasonably) to consent to the sublease.

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Lesson 2 | Page 9 of 11

Landlord and Tenant Dispute Resolution and Protection Parameters If a landlord (or a tenant) fails to carry out their obligations stated in a lease, a tenant (or a landlord) has two options: to take the landlord (or the tenant) to Small Claims Court, or to go to Superior Court of Justice. In both cases, tenants/landlords should seek legal advice to assess the situation and weigh the options. However, it is important for salespersons to advise their client that litigation is not the only solution to a dispute, but should be a last resort. Efforts to resolve the dispute, such as meeting, negotiation, mediation, and arbitration, should be pursued before considering litigation. The following two sections contain information about the resolution and protection parameters for landlord and tenant disputes.

Small Claims Court A tenant/landlord can take the matter to Small Claims Court to ask for compensation for losses incurred as a result of the landlord’s/tenant’s actions, such as reduced sales or damage to the premises/building. As of January 2020, the current limit for small claims is $35,000.

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Superior Court of Justice A tenant/landlord can go to the Superior Court of Justice to obtain a court order that requires the landlord/tenant to abide by the conditions and terms of the lease. In court, the tenant/landlord can also seek compensation for reduced revenue and/or any costs incurred.

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Lesson 2 | Page 10 of 11

A salesperson with a local commercial brokerage is working with a client who owns a large office building with multiple tenants. One of the tenants in the office building wants to move and would like to assign their lease. Another tenant is downsizing and no longer needs all their office space and would like to sublet a part of their unit. Question #4: Which one of the following statements is correct with respect to the common law as it relates to either an assignment of a lease or subletting? There are four options. There is only one correct answer.

1

In an assignment, a privity of contract will exist between the landlord and the assignee but not between the landlord and original tenant as the lease has been assigned.

2

In a sublet, there is no privity of contract between the landlord and the incoming subtenant. There is no legal relationship between the two.

3

In an assignment, all the responsibilities under the lease remain with the original tenant. The assignee is only responsible to the original tenant and not to the landlord.

4

In a sublet, the subtenant becomes directly responsible to the landlord for all the terms under the lease. The original tenant is released from all responsibilities once the sublet is complete.

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Lesson 2 | Page 11 of 11

Congratulations, you have completed the lesson! There is one section on this page with a summary of the key topic that was covered in this lesson.

Key considerations when leasing any commercial property

The benefits of tenant and landlord representation by a salesperson in the lease negotiating process are: • Access to information, efficient property search, and a comparative market analysis (CMA) • Expert advice on commercial properties, such as measurements, maintenance and repair, reconciliation, operating costs (i.e., what is included), insurance, tenant fixtures and improvements, trade fixtures maintenance and repair, parking (exclusive, public), hours of operation, etc. • Drafting an offer to lease • Understanding of the other party’s perspective • Improved speed and efficiency of lease negotiations Protection of the client’s interests and fair negotiations. The required minimum content a lease must contain is: • Names of all parties • Description of the leased premises • Intended use of the premises • Commencement and expiration dates • Rights and obligations of the parties The lease must also contain a full account of rent terms: • Term of the lease, including any renewal options

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o Specific time period should determine the term of the lease, after which the premises revert back to the landlord o Lease should specify if the tenant has the option to renew the lease upon providing advance notice • Rent calculation methods o Clear demonstration of how the minimum rent, Additional Rent, and/or Percentage Rent are calculated is important, as well as how and when rental payments should be made • Non-payment of rent: This clause ensures the landlord’s rights are protected in case of the tenant’s failure to pay the rent Common area maintenance (CAM) refers to the landlord’s costs associated with the repair, maintenance, operation, supervision, and administration of the common areas, property taxes, and property insurance. Realty taxes are not usually part of CAM, but they are a proportionate recoverable charge in additional rent in net leases. CAM charges are included in additional rent and calculated based on the tenant’s proportionate share of square footage. Assignment and subletting can be differentiated, based on the existence of privity of contract and estate between the landlord and the tenant. Tenants and landlords can take matters to Small Claims Court or Superior Court of Justice to seek compensation for any costs incurred or reduced income.

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Lesson 3 | Page 1 of 25

Lesson 3: Considerations for Office, Retail, and Industrial Leases

This lesson will discuss the key components and considerations required for leasing each property type – office, retail, and industrial. This lesson will help you understand property features that may be of importance to a tenant or landlord interested in leasing a specific type of property.

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Lesson 3 | Page 2 of 25

Every commercial property has unique attributes, and there are often special circumstances that require attention when drafting offers to lease and negotiating lease terms. These attributes, specific to each commercial property type arise from differences in the construction techniques, typical uses and designs, and market trends associated with commercial properties. Thus, in addition to an understanding of the essential components common to all commercial leases, you will need to take into consideration the unique attributes that define each property type, in order to ensure the tenant gets the right building fit, and both parties get mutually fair and beneficial terms and conditions. Upon completion of this lesson, you will be able to: • Describe key components of leasing an office property • Describe key components of leasing a retail property • Describe key components of leasing an industrial property 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 25

Helping your client or customer in selecting the right office space and environment may produce economic efficiencies, boost productivity, and increase employee satisfaction and retention. For landlords, having the right tenant and/or tenant mix can result in a stable, improving income stream and increased building value. Thus, as a salesperson, you must understand key considerations in leasing an office property to help prospective tenants find properties best suited to their needs and to enable landlords to obtain stable income by having high-quality tenants. This section will discuss lease elements that have specific significance in office properties, such as LEED certification, ability to customize space, shared meters, shared facilities, and parking details and restrictions.

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Lesson 3 | Page 4 of 25

LEED Certification

LEED, which stands for Leadership in Energy and Environmental Design, is a green building rating system with a blueprint to create healthy, efficient, and cost-saving green buildings. LEED certification is increasingly important for both tenants and landlords in the commercial leasing market, especially for larger companies. With improved public awareness of environmental protection and energy efficiency, leasing an office space in a LEED-certified building is a priority for some tenants. LEED-certified buildings can offer several benefits to both landlords and tenants, such as: • Enhanced corporate image as a business that makes a positive commitment to both company sustainability and the environment • Improved employee relations, as people consider companies leasing LEED-certified office spaces as a relatively safe and productive environment to work in • Efficient waste control, allowing for reduced waste-handling costs and ability for tenants to sell recycled materials • Reduced utility consumption resulting in a reduced cost of heating, ventilation, and air conditioning (HVAC) systems, electricity, water, and gas o The cost savings in energy consumption may not be obvious to some tenants, as leasing in a LEED-certified building itself can be more expensive than leasing in a non-LEED-certified building Exam Study Guide

Lesson 3 | Page 5 of 25

Ability to Customize the Space

One of the main considerations for tenants looking to lease office space is whether they can customize the space for their business needs, this is also known as tenant fit-up. Tenants often need to ensure that the floor area of an office building allows for expansion or contraction of their occupied space to accommodate changes in their business growth. The importance of a tenant’s ability to customize their space largely depends on the type of space as well as the tenant’s needs. Downtown office buildings now commonly have open-concept office areas that can be customized to tenant needs, and a tenant can partition the floor to create individual offices and a reception area as needed. For example, if there are four existing offices in a floor area, but a prospective tenant only needs two offices, the floor area can be reconfigured relatively easily by tearing down non-bearing walls to create two large offices. To attract a wide range of tenants with various business needs, landlords can include a clause regarding space customization in the lease as tenant allowance or inducement. However, this customization typically excludes structural alterations to the building and only refers to alterations within the confines of the walls surrounding the space.

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Lesson 3 | Page 6 of 25

Shared Meters

Electricity can be one of the biggest rent-related expenses for many tenants. If a building has only one meter that measures the total usage by all tenants in the building, a tenant’s electricity charges may be included in the rent. Depending on the lease, there are different ways to charge the tenant: • The landlord can estimate the tenant’s electricity based on the amount of the office equipment using electricity and the number of hours the tenant uses each piece in an average day or week. This method could be risky for tenants, however, due to the inherent inaccuracies of estimation. Tenants may suffer from unjustified electricity costs that could add up over time. • In some cases, the landlord includes the electrical charges in their operating costs, and the resultant electricity costs would be shared proportionately by all the tenants in the complex.

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• In other cases, an internal meter is available within the electrical system that specifically measures the electricity used by a tenant. The landlord pays the master meter electrical charges, and then separately and accurately charges the tenant back based on the internal metered cost. Shared Facilities One of the most common items that are referred to as shared facilities in office leasing is a common boardroom. Some properties have meeting rooms that can be rented by the tenants on an as-needed basis, but these are very rare. Shared facilities are a highly specialized need by a limited number of tenants and not highly desired by tenants in general; in some cases, they can even make a property less attractive to prospective tenants.

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Lesson 3 | Page 7 of 25

Accessibility

New buildings or retrofit situations must comply with accessibility legislation. As a salesperson, you may still encounter buildings, which are not accessibility-compliant. Accessibility is an important factor from a legislative perspective. It is also important for companies and businesses in search of an office space, and that wish to attract and accommodate a wide range of employees and/or customers. As such, a tenant may ask the landlord for renovations to improve building accessibility and to comply with current accessibility legislation. While you will not be required to deal with accessibility issues directly as a salesperson and should advise your client or customer to seek third-party advice, you should be aware of some key issues, including: • Determining if the landlord can safely represent that the leased property complies with the Accessibility for Ontarians with Disabilities Act (AODA) or the Ontario Building Code • Establishing in the lease whether the leased property will comply with the Ontario Building Code, in case the tenant pursues extensive renovations that could trigger a compliance requirement Exam Study Guide

o Per the Ontario Building Code, existing buildings must comply fully for extensive renovations, such as revamping an entire floor for a new tenant o Existing buildings undergoing basic renovations are not required to comply with the requirements set out in the Ontario Building Code; basic and extensive renovations are defined and distinguished in the Code • Identifying and specifying in the lease, who will pay for the renovations that are needed for compliance with the accessibility requirements Improving building accessibility in compliance with the Code may be an added financial burden to the landlord; however, it may serve as an opportunity to distinguish the building in the real estate marketplace.

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Lesson 3 | Page 8 of 25

Parking and Signage Parking and signage are important items to consider in an office lease. As a salesperson, you must understand the details and restrictions involved in these issues, to ensure that proper terms and conditions are included in a lease. The following two sections contain information about parking and signage details.

Parking details and restrictions Easy and convenient access to parking for an office building can be critical to attracting good employees and a high volume of business. In addition to the number of parking spots and price per month, there are other elements to consider when establishing parking details and restrictions. It is important to ensure that a lease contains a schedule that indicates: • Parking spaces are stated in terms of a ratio per square foot (e.g., four parking spots per 1,000 sq. ft. of the rentable area) to enable the number of parking spaces to reflect any changes in the area of the occupied office space, for example, in case of company growth or downsizing • The required number of parking spots is in line with the actual demand for parking by employees and/or customers • If the parking is free, it is stated as such for the term of the lease and any renewals Reserved spots are requested, if necessary, which can be useful at times of high parking demand • The obligations of the landlord to install charging stations for electric cars are clearly stated, if necessary Exam Study Guide

Signage Signage can be important for any company; effective use of signage can help the company stand out, boost the corporate image, and make it easier for potential employees and/or customers to find the company. As such, signage rights are subject to negotiations in a commercial lease, with a focus on the following considerations: • Detail the specific signage location, with references to any applicable tenant directories in lobbies, sign pylons, corridor signs, or window signs • Ensure compliance with municipal regulations o Tenants must obtain permits

o In multi-tenanted buildings, landlords need to ensure the tenant’s signage does not exceed the allowable total signage permitted in the municipal bylaw • Identify who is responsible for signage and associated costs o Such costs can include initial installation, required approvals, ongoing maintenance, and removal at the end of the lease term o There are often additional rent charges for the use of a pylon or a portion of a pylon sign o The tenant is often responsible for signage costs

• Determine any signage-related restrictions by the landlord (e.g., all signs must be in black and white, and no larger than 2 ft.)

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Lesson 3 | Page 9 of 25

A salesperson works for a large commercial brokerage that specializes in office leasing. The salesperson is well aware of the key considerations that influence a tenant's decision. Question #5: Which one of the following would be a key consideration for tenants when looking to lease office space? There are four options. There is only one correct answer.

1

One of the most important issues that will influence a tenant’s decision to lease office space would be the required number of hours and times during which the tenant’s office must be open for business.

2

It is essential for tenants in an office building to include an exclusive use clause in their lease in order to protect their company’s sales. This exclusive use clause is quite common in office buildings and it prevents the landlord from leasing to more than one tenant in the same line of business.

3

One key issue for tenants when looking to lease a unit in an office building, is the ability to customize the space to meet the needs of their business.

4

A key consideration for the majority of tenants in today’s market is the requirement for an office building to have shared facilities such as a meeting or a boardroom that can be rented on an as-needed basis.

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Lesson 3 | Page 10 of 25

The retail real estate market is diverse, including neighborhood commercial operations, chain, discount, and luxury retailers, department stores, regional shopping centres, power centres, and lifestyle centres. Retail leases are equally varied, with each retail tenant having unique requirements, depending on the type, scale, and location of their business operation. While variations exist among retail leases, it is important to recognize that there are certain common components in most retail leases. This section will discuss these common important considerations for retail leasing, as distinguished from other types of commercial leases.

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Lesson 3 | Page 11 of 25

Ability to Customize the Space Retail tenants are typically allowed to customize their space as they see fit for their business needs. As each retail business has unique requirements and characteristics, tenants are often granted control over how their space can be altered to support their businesses, provided that these alterations are in compliance with the relevant lease provisions, the building code, and relevant municipal regulations. Retail tenants, especially chain stores, typically have their own look, including lighting, flooring, and other interior design elements that can be easily altered as needed to fit the space in the mall. In the case of an indoor mall, the tenant will provide their own standardized store front. All of these activities by tenants to modify or customize a space are referred to as tenant improvements. Landlords will typically accommodate or assist in tenant improvements as an inducement to attract tenants. However, this does not mean landlords will comply with all requests to customize the space. As a salesperson, you must establish who is responsible for the costs (and if the landlord is, how the cost can be recovered), and the precise types and range of improvements that are permitted, both legally and under the lease.

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Lesson 3 | Page 12 of 25

Benefits of an Anchor Tenant

An anchor tenant is defined as the leading, featured, big-name business that leases retail space, ranging from shopping malls to outlet malls. Typically, anchor tenants in a shopping centre occupy a large proportion of the total square footage. Based on the intrinsic value that anchor tenants bring to retail properties, landlords often allow anchor tenants to pay lower rent than other tenants and to have some say in the tenant demographics or business make-up of the shopping centre. Anchor tenants provide several benefits to retail properties by: • Increasing foot traffic flowing through the property, boosting the business of the other shops in the shopping centre as a result • Attracting other smaller “satellite” businesses to the area, as the presence of a big-name company might suggest suitability of the area for running businesses • Allowing for long lease terms, which translates into a source of steady income for the landlord The Hudson’s Bay department store is a good example of an anchor tenant. A significant proportion of the major shopping malls in Canada contain a Hudson’s Bay store. Exam Study Guide

Potential Restrictions to Leases Due to an Anchor Tenant Given the significant advantages that anchor tenants can confer on a shopping centre, a landlord may offer exclusive use clauses to an anchor tenant, promising to restrict leases to businesses that offer competitive products or services. Further, the location of leasable space for other tenants is typically determined by the location of major anchor tenants. Access to parking for smaller tenants may also be restricted, since the customers of smaller retail tenants are often forced to walk through the anchor tenant’s space to get to the small retailer. Therefore, a potential tenant should be mindful of the profound effect of an anchor tenant, structure, price, and character of a shopping centre, as well as any influence on the tenant’s use of its space.

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Lesson 3 | Page 13 of 25

Exclusive Rights (Non-Permitted Use Schedule) of a Tenant

As retailers continue to expand the products and services offered, to protect their sales potential, some tenants seek exclusive rights to operate their type of business. Importantly, an exclusive rights clause can be more about conflicting components of uses, rather than different tenants having the same use. For instance, if a convenience store in a shopping centre has an automated banking machine, it should be determined whether this conflicts with the bank’s exclusive rights as a fellow tenant in the shopping centre. When drafting an exclusive rights clause, focusing on the primary use instead of the products helps to prevent any unreasonable restrictions on the rights of a tenant. If, for example, a clause provides a grocery store anchor with the exclusive right to sell soft drinks, then a drug store in the shopping centre may be prevented from selling soft drink products which may be considered an excessive restriction. Instead the landlord would grant an exclusive right for the primary use, to ensure that the grocery store will be protected against another grocery store, while allowing secondary tenants to sell products, such as soft drinks sold by the drug store. However, the secondary tenant may be restricted to a limited amount of shelf space to sell specific products.

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In some cases, rather than an exclusive rights clause, a non-permitted use schedule may be attached to a lease involving a multi-tenant complex. The non-permitted use schedule is added to every lease for every tenant in a mall. This schedule lists every restriction to every tenant in the complex. For example, it may require one financial institution only in the complex, outlining what constitutes a financial institution. This is particularly important for a grocery store with secondary pharmacy and dollar store tenants, as the grocery store may only allow a specified amount of counter space to the smaller tenants. In such cases, the non-permitted use schedule as a standard part of every lease works well.

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Lesson 3 | Page 14 of 25

Minimum Hours of Operation

Some leases may contain clauses specifying the required hours of operation, for example, shopping centre or big-box store leases. These landlords seek the greatest level of control over the daily operation of the shopping centre or big-box stores. These clauses can have a significant impact on maintaining the overall reputation and status of the shopping centre, while enabling tenants to achieve high sales volume and to maximize percentage rent. Some business improvement areas (BIA) in older downtown cores try to put minimum hours of operation in their malls, but the landlord or BIA manager must be vigilant with respect to enforcement. Important considerations when negotiating the required hours of operation for a retail lease are as follows: • The clause must have some flexibility to extend their operations in peak periods o Certain stores, such as restaurants and movie theatres, need to stay open longer than others, due to the nature of the products or services offered. In this particular case, the landlord will likely calculate and consider additional costs incurred (e.g., maintenance and utilities costs) • The shopping centre must operate as an integrated unit and allow customers to shop at all of the stores during stated hours

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Lesson 3 | Page 15 of 25

Accessibility Generally, newer retail properties such as shopping malls are designed to be accessible to persons with disabilities, making them popular with retail tenants. On the other hand, some older malls and plazas are considered functionally obsolete, as they lack accessibility features, such as ramps for wheelchair users. When new tenants move in, or the existing uses change such that the building requires renovations, the municipality will often require upgraded facilities with accessibility features as part of the document review and permit process. A retail unit that requires an accessible washroom for its customers and employees will need to modify its washrooms to make them wheelchair-friendly. This modification will require a building permit. Landlords may also be required to provide curb cuts with any building permit application. A curb cut is similar to the depression in a sidewalk, and has to be in place to provide wheelchair access from a parking lot to the store or office when the space is being renovated.

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Lesson 3 | Page 16 of 25

Stock Delivery and Parking Establishing proper access for products, sufficient and convenient parking access, and effective signage, are essential for the successful operation of any retail business. Thus, these requirements should be carefully considered and negotiated in retail leases. The following three sections contain information about key considerations for these components of a retail lease.

Delivery of stock requirements and restrictions Possible restrictions on the time and location allowed for delivery of stock should be considered, as well as any tenant-specific requirements, for example, delivery and loading of large items, such as furniture, to minimize interference with the operating hours.

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Parking details or restrictions This clause restricts tenant and employee parking to certain areas of the parking lots. Typically, the tenants and their employees are required to provide their licence plate numbers to the property manager for the purposes of managing and monitoring the parking.

Signage This clause provides the landlord with control over the location, format, and content of the tenant’s signs. The tenant may be required to comply with certain standards regarding signage, which will be specified in the lease. Consent for changes to the signage would need to be obtained from the landlord through the property manager. Importantly, the tenant must ensure that their signs comply with the municipal requirements per signage bylaws and must obtain required permits. As with the case of an office lease, the tenant is usually responsible for all costs associated with signage. The landlord (property owner), however, is responsible for signage non-compliance. Signage issues can be complex, especially when group pylon signs are involved that are located at a distance from the leased premises, for example, a retail complex. The space on the sign is usually restricted by the landlord.

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Lesson 3 | Page 17 of 25

Question #6: Which of the following statements related to commercial leasing are correct? There are four options. There are multiple correct answers.

1

Most retail tenants leasing in a shopping complex are allowed to customize their space to support their specific business needs, per the relevant lease provisions.

2

Some retail tenants seek exclusive rights to use specific parking spots to protect their sales potential.

3

These rights are often granted to anchor tenants, given the significant advantages they can confer on a shopping centre. Another important consideration for a retail lease is signage.

4

The tenant often has control over the specifics of the tenant’s signs, while the tenant is responsible for obtaining the required permits per the municipal bylaws.

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Lesson 3 | Page 18 of 25

Industrial real estate is a specialty field with many unique needs, while sharing certain common features with office and retail. Both industrial tenants and landlords have special requirements, notably: the requirements for sufficient water supply, considerable electric power, specialized loading docks and/or direct access to a highway, high ceilings, good column spacing, sprinklers, and parking for tractor trailers. As such, salespersons negotiating industrial leases must take these needs into consideration and be familiar with the distinctive terminology commonly used in industrial real estate. In this section, key factors affecting an industrial lease will be examined, with a focus on building features specific to industrial properties.

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Lesson 3 | Page 19 of 25

Allocation of Space to Office and/or Showroom

While industrial properties are traditionally associated with single-use buildings, larger multi-use buildings are becoming increasingly popular to attract potential tenants. Depending on the municipal zoning bylaw, industrial zones may provide for office floor area (often less than five per cent of the overall building area) to accommodate administrative staff and in-house professional or technical staff, either within the manufacturing facility or in a separate building on the same lot. The tenant has the option to determine total area to be leased, with internal wall construction and finishing completed after lease negotiations. One of the approaches to accommodate multiple uses in industrial leasing involves industrial malls. An industrial mall can involve a single or group of buildings, owned individually or divided into units for separate occupancy or uses. This type of property is often established as a condominium with individual units, shared parking facilities with separate or common loading facilities, and other common services.

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Lesson 3 | Page 20 of 25

Property Features When dealing with an industrial lease, it is essential to understand and consider the unique features associated with a given property, based on the specialized requirements of the individual tenant. The following seven sections contain information about property and building specifics in an industrial lease.

Floor load Floor load refers to the weight that a floor of an industrial building is engineered to support if uniformly distributed and is usually expressed as a maximum weight per square foot. Knowing the precise floor load of an industrial property can be important for tenants who require heavy equipment and/or products to be stored.

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Live load and dead load Live load is composed of: • The weight arising from the assembly of persons • The weight of equipment and furnishings • The weight of stored materials Dead load refers to the weight of the structural components of a building. Live load and dead load together make up a floor load. The Ontario Building Code sets out live load requirements according to use and occupancy, typically expressed in terms of pounds per square foot for various types of uses. Thus, tenants must ensure that the floor load of an industrial property can support their intended use.

Electrical system It is important for industrial tenants to know their electrical needs and not exceed the permitted limit. It is critical that the landlord knows the total capacity of their complex and the maximum cumulative consumption of all their tenants.

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Sprinkler density Sprinkler density is a measurement of the volume of water released in a given period of time over a certain area. It is crucial for protecting personal property and staff from potential fire hazards. For warehouses, several variables are involved in determining an appropriate sprinkler density. These variables include the type of commodity, packaging, storage configuration, aisle widths, storage height, pile stability, clearance between top of storage and sprinklers, and type of sprinkler, among others.

Clear height/ceiling height Clear height is the unobstructed distance from floor to ceiling. This feature is important for industrial tenants who are required to safely store their products. Normally, light industrial and warehousing facilities range between 20 and 30 ft. of clear height. However, due to increasing demand for higher warehouse volume, clear heights required by tenants have been growing, with some tenants requesting up to 36 ft.

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Bay size/bay depth A bay refers to an unfinished area located between a row of columns and the demising wall. Bay depth is the distance from the bearing wall to a row of columns within a building, or the distance from one row of columns to another. Bay depth is an essential factor in ensuring the most efficient use of space and the layout of space in industrial buildings as well as commercial warehouses.

Heating, ventilation, and air conditioning HVAC is of particular importance for industrial uses that must maintain stable air quality and temperature. Industrial HVAC systems are usually roof-mounted with supply air diffusers and return air ducts.

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Lesson 3 | Page 21 of 25

Availability of Utilities, Requirements, and Costs

In an industrial lease and leases for large commercial logistics operations, the tenant is usually responsible for paying utilities, taxes, maintenance, and property insurance (i.e., triple net or carefree to the landlord net lease). As a result, the lease must specify all the items that are included in the operating costs, as well as the items that are not included. If a new tenant is considering a larger industrial use, the tenant should consider the availability of utilities that are currently in place to service that use, and any costs associated with upgrading them.

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Lesson 3 | Page 22 of 25

Loading Docks and Delivery Areas

A loading dock refers to an area designed for the on-loading and off-loading of products from a pickup truck, cube van, or tractor trailer, and is mainly found in commercial and industrial structures. Prospective tenants, particularly if their industrial processes rely heavily on the use of loading docks equipped with dock levelers, must ensure that their estimation of space and loading facility requirements is accurate. For example, distribution centres usually require extensive loading dock facilities, such as loading docks on both sides for cross-docking. Also, tenants should consider how products will be delivered (e.g., via 18 wheelers or cube vans), which affects the required height of the loading docks. If, for instance, trucks or other similar-sized vehicles need to be driven into the warehouse, this will require grade level loading. While a salesperson will benefit from having a general understanding of different features, and the significance of loading and delivery details of industrial leases, it is the tenant’s responsibility to define their specific requirements. Exam Study Guide

Lesson 3 | Page 23 of 25

A salesperson works for a large commercial brokerage and focuses working with landlords and tenants wanting to lease industrial buildings. The salesperson is fully aware of the key considerations that influence a tenant’s decision as to which building to lease. Question #7: Which of the following regarding the leasing of industrial space is correct? There are four options. There is only one correct answer.

1

The floor load is an important consideration in leasing an industrial property. The floor load is the difference between the live load and dead load.

2

In an industrial lease, typically it will be the landlord that pays operating costs such as utilities and water. This is because it is the landlord’s responsibility to ensure that the utilities support the intended use of the industrial tenant.

3

Distribution warehouses usually require extensive loading dock facilities such as loading docks on both sides of the building for cross-docking.

4

Bay depth is an essential factor in industrial leasing. It refers to the interior square footage of an industrial building minus the office space.

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Lesson 3 | Page 24 of 25

Environmental Issues

Depending on the nature of the prospective tenant’s intended use of the premises, environmental protection must be taken into account, as the landlord could incur liability (e.g., if the tenant’s industrial operation involves discharge of effluents, smoke, or noxious odours, and clean-up is required). In such cases, special waste disposal services or waste processing facilities may need to be installed. Consideration should be given to the cost incurred from providing any of these special services and/or facilities, as well as to the cost of removing such facilities upon expiry of the lease. The Ministry of Energy and Environment (MOEE) or other regulatory bodies have jurisdiction over a particular use or process. In addition to the specific requirements, industrial tenants might have an impact on their surroundings via noise, steam, and/or storage and disposal of hazardous materials. These uses will be restricted to heavy industrial zones per the municipal zoning bylaw. As such, environmental factors play a role in determining which industrial zone a business falls into and should be considered when searching for an industrial property to lease. Further, the impact Exam Study Guide

of a prospective tenant’s industry will be different for a single isolated building than it is for a building in an industrial park. Importantly, the landlord should consider the safety of people and property from possible hazards, including fire, explosions, and toxic leaks, to prevent any potential liability. Many industrial landlords will provide a baseline environment assessment for their property and require the tenant to complete a second environmental assessment at the end of the lease term, confirming there is no change in the environmental condition of the property at that time. Should there be any environmental issue discovered, the tenant would need to remediate the site to the pre-tenancy at their own expense.

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Lesson 3 | Page 25 of 25

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were covered in this lesson.

Office lease considerations

Features that may attract office tenants include LEED certification that may attract larger companies seeking to enhance their corporate image as a safe and socially responsible workplace. Tenants also may be interested in customizing the space to fit their business needs. Shared meters are often used for office buildings. In these cases, the electricity costs per tenant are based on estimates of single usage or total electricity costs for the building shared proportionately by all the tenants. Shared facilities in office leasing can also be a feature. Tenant may also request the landlord complete renovation to improve building accessibility, in compliance with the Ontario Building Code, to attract more employees and customers with the costs being recovered over the lease term. Parking and signage requirements are also factors that must be specified in the lease to ensure sufficient parking spots for the tenant. Signage requirements and responsibilities for associated costs are also detailed.

Retail lease considerations

Retail tenants typically have control over how they can customize a space to support their business requirements. Landlords need to ensure tenants have final-passed inspection reports from the municipality, or they may be liable for deficiencies or improperly built improvements. An anchor tenant is a leading, featured, big-name business that rents retail space and may be granted exclusive rights by the landlord due to various benefits that it may provide to the shopping complex.

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Operating hours are specified in the lease to ensure the tenant and retail complex can achieve their sales volume requirements. Newer shopping retail complexes can have features to accommodate customers with accessibility issues. The lease should specify tenant requirements for deliveries, any delivery restrictions such as, time or location and any restrictions on shared delivery facilities. The signage location, the party responsible (often the tenant) for related costs, and any restrictions are also specified in the lease.

Industrial lease considerations

Industrial leases can provide for the allocation of space on the premises to non-industrial uses to accommodate administrative and other staff, with related details specified by the tenant. Tenants should ensure that the building features, such as electrical system, sprinkler density, clear height, bay size, floor loads, column spacing, appropriate heating ventilation, and possibly air conditioning, can accommodate their industrial use. Live load and dead load should be sufficient to support the tenant’s intended use. The tenant typically pays the operating costs in an industrial lease, and factors such as utilities must be assessed for suitability or possibility for upgrade to support their intended use. Loading docks and delivery areas must also be assessed for suitability. Environmental impacts of a tenant’s operation need to be given careful consideration to prevent any harmful consequences to the environment and/or surrounding area, as well as any required waste-processing facilities or disposal services. Tenants are often required to provide an environmental assessment to verify the environmental condition of the site is intact; otherwise, they will be responsible for restoring the site condition.

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Lesson 4 | Page 1 of 12

Lesson 4: Key Regulations Affecting a Commercial Lease

This lesson will explain the key regulations that affect all commercial lease transactions. It will also discuss the role and responsibilities of tenants, landlords, and salespersons in fulfilling all the pertinent legal requirements.

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Lesson 4 | Page 2 of 12

A commercial tenancy can be generally defined as any property subject to a leasehold interest that involves land and/or building used for business activity. The Commercial Tenancies Act contains provisions that set out specific rules governing all commercial tenancies. Commercial tenancies are complex due to their inherent diversity and specialized wordings, particularly with regard to industrial, retail, and office leases. The legal requirements and principles concerning commercial tenancies can also be highly detailed and complicated compared with those pertinent to residential tenancies. This lesson will review the regulations that apply to commercial leasing. Salespersons should seek professional legal advice, should they require additional guidance. Upon completion of this lesson, you will be able to: • Explain the impact of key regulations on the leasing of a commercial property 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 12

Statute of Frauds According to the Statute of Frauds, certain contracts, including real estate contracts, must be in writing to be enforceable by law. With reference to leases, the Statute of Frauds states that a lease of fewer than three years’ duration need not be in writing; however, it would be in the best interest of all parties to establish a written lease. In case the formal lease is not involved, the courts have ruled favorably on such situations, based on the doctrine of part performance. Essentially, this doctrine applies to contracts of land that are not in writing, where one party has actually performed their part of the bargain (i.e., occupied the leased premises and paid rent), supporting very clearly the existence of a contract. However, it should be highlighted that if this part performance is not clear, this favorable judicial outcome may be in jeopardy. Thus, salespersons should minimize any risk of legal debates by establishing a complete and comprehensive agreement to lease, describing the intention of the parties with the formal unsigned landlord’s standard form of lease attached.

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Lesson 4 | Page 4 of 12

The Short Form of Leases Act Lease agreements are sometimes drafted according to the Short Forms of Leases Act. The Act provides that selected short form wordings may be used instead of lengthy wordings, if the lease document is sealed and made in accordance with a prescribed format. Two columns are specified in the Act, Column One provides the abbreviated wording and Column Two provides the detailed equivalent wording. The use of these two columns is demonstrated in the following examples: 1. Example 1: About rent payment o Column One: To pay rent.

o Column Two: That the lessee will, during said term, pay unto the said lessor the rent hereby reserved, in manner hereinbefore mentioned, without any deduction whatsoever. 2. Example 2: About taxes o Column One: And to pay taxes, except for local improvements.

o Column Two: And also will pay all taxes, rates, duties, and assessments whatsoever, whether municipal, parliamentary or otherwise, now charged or hereafter to be charged upon the demised premises, or upon the said lessor on account thereof, except municipal taxes for local improvements or works assessed upon the property benefited thereby.

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Lesson 4 | Page 5 of 12

Commercial Tenancies Act

The Commercial Tenancies Act outlines the rights, obligations and relationships between commercial landlords and their tenants. To help a client enter into a commercial lease, as a salesperson, you should be familiar with basic requirements included in this act. A signed lease agreement sometimes takes precedence over the Act. The lease agreement specifies the obligation the landlord and tenant enter into such as rent, maintenance, operating costs, leasehold improvements, and other matters. The Act specifically recommends careful reading of the agreement before the parties sign it. • Non-payment of rent – A landlord may change the locks of the rental unit and evict the tenant on the 16th day after the day rent was due. The landlord is not obligated to notify the tenant that the locks will be changed. After the locks have been changed, landlords should allow tenants reasonable access to the rental unit to remove their property. • Rent increases – The Act does not regulate rent increases. Most lease agreements will outline details related to the amount of rent changed and the frequency of rental fee increases. Landlords should give tenants Exam Study Guide

reasonable notice in writing of a rent increase. The lease agreement may require a landlord to pay interest on a security deposit or last month’s rent, although the Act does not require the landlord to pay interest if not stipulated in the lease agreement. • Notice to end a tenancy – For month-to-month tenancy agreements, either a landlord or a tenant can terminate a tenancy with a minimum of a one-month written notice. For fixed-term tenancy agreements, which specify the length or term of the lease, once the tenancy ends, the tenant no longer has the right to occupy the premises. • Commercial landlord rights and obligations – Landlords must notify tenants in writing of specific breaches of the lease and allow a reasonable period of time for them to comply. When tenants fail to fulfill their obligations as outlined in the lease, landlords may have the right to terminate a tenancy. If a tenant does not pay their rent, a landlord has the right to apply to Small Claims Court or the Superior Court of Justice (depending on the amount owed) to seek damages for loss of rental income. • Commercial tenants’ rights and obligations – Tenants must fulfill their obligations as outlined by the lease agreement and pay their rent on the due date agreed to in the lease. They cannot hold back rent because a landlord has failed to fulfill their obligations outlined in the lease. Tenants have the right to take their disputes with the landlord to Small Claims Court or the Superior Court of Justice (depending on the amount of money involved in the dispute). You may also want to advise your client to seek legal advice to understand and determine which specific policies of the Act apply to their situation.

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Lesson 4 | Page 6 of 12

A tenant leases 2,800 sq. ft. of retail space in a shopping mall and has operated a men’s clothing store in that space for a number of years. Unfortunately, the business has not been doing well for the past several months. The last rent payment was due on July 1, but the tenant did not have the money to pay it. The landlord understands that the tenant’s business is in trouble. On July 25, the landlord changes the locks to the leased unit and evicts the tenant. Question #8: Based on the requirements of the Commercial Tenancies Act, was the landlord entitled to change the locks and evict the tenant on July 25? There are four options. There is only one correct answer.

1

Yes, the landlord is entitled, 16 days after the rent was due, to change the locks, evict the tenant as well as seize and dispose of the tenant’s property in the leased unit.

2

No, a landlord must wait 30 days after nonpayment of rent to change the locks on the leased unit and must give five days’ notice of the change of locks.

3

Yes, a landlord can change the locks of the leased unit and evict the tenant 16 days after the rent was due. The landlord does not have to notify the tenant that the locks are going to be changed.

4

No, a landlord is entitled to seize and dispose of a tenant’s property to pay for the unpaid rent but is not allowed to change locks until the tenant has been evicted.

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Lesson 4 | Page 7 of 12

Commercial Tenancies Act, Continued Commercial leases are governed by the provisions of the Commercial Tenancies Act. Salespersons should have a basic understanding of the legal principles that govern commercial lease negotiations, keeping in mind the differences from the residential counterpart. The following four sections contain information about the Act.

Rights and obligations

Landlords: • Must inform tenants, in writing, of specific breaches of the lease and allow a reasonable period of time for them to comply • May have the right to terminate a tenancy when the tenant fails to fulfill obligations as stated in the lease • Have the right to apply to the Superior Court of Justice (or Small Claims Court) to seek damages from the tenant for the loss of rental income owed for the balance of the term of the lease Tenants: • Must inform landlords, in writing, of specific breaches of the lease and allow a reasonable period of time for them to comply • Cannot withhold rent because a landlord has failed to fulfill their obligations as stated in the lease • Must fulfill their obligations as outlined by the lease agreement

Signing authority

Commercial leases usually involve corporations, partnerships, and, in some instances, associations or societies. In each case, careful consideration must be given to ensuring that such organizations have the authority to enter into contractual arrangements and that appropriate individuals have signed the lease documents. Often, leases involving corporations, especially new corporations, have personal guarantees included.

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Termination

Month-to-month The Act provides that either a landlord or a tenant can terminate a month-to-month tenancy with a minimum one-month written notice. The written notice of termination should include: • Landlord’s name • Tenant’s name • Address or description of the rental unit • Termination date • Date the notice is served Fixed-term Fixed-term tenancies are associated with a specified length or term of the lease. The Act establishes that once the tenancy ends, the tenant no longer has the right to occupy the premises. If a tenant continues to occupy the leased premises after the landlord has asked the tenant to move out, the tenant may be subject to a penalty of two months’ rent for every month they remain on the premises, plus applicable costs. As such, most leases would contain an overhold clause that would permit short-term occupancy by a tenant, but with a significant penalty, for example, twice the amount of the rent. In addition, the landlord may also apply to the Superior Court of Justice to obtain an eviction order.

Trade fixtures

Trade fixtures are items installed by a commercial tenant necessary for the tenant’s business and removable by the tenant before the lease expires. Typically, trade fixtures are personal property and not true fixtures. All alterations, decorations, additions, and improvements made by the tenant or by the landlord on behalf of the tenant become the property of the landlord, given that the tenant shall be responsible for the insuring of such affixed alterations, decorations, additions, and improvements. However, trade fixtures are excluded and remain the property of the tenant, unless the tenant abandons such fixtures at the expiration of the lease.

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Lesson 4 | Page 8 of 12

In addition to understanding the Acts that apply to commercial leasing, a salesperson must also recognize and advise their client of municipal zoning and any other rules or regulations that may affect their lease or use of the property.

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Lesson 4 | Page 9 of 12

Municipal Zoning and Bylaws

As a salesperson, you should advise your client to ensure the property is zoned appropriately for their needs. It is essential to understand what is and is not permitted in the premises, given that zoning restrictions with respect to commercial real estate can be strict. In the context of commercial real estate, the following issues should be considered: • Ensure you are aware of any changes to existing bylaws, as zoning bylaws change over time. You should not assume that the specific use by the previous occupant or tenant would also be permitted for the incoming tenant. With a zoning change, the existing permitted use for a property may not apply to future businesses that occupy that location. • If your client requires a building permit for the leased premises to make any tenant improvements or alter the existing use of the site, it is important to ensure these improvements comply with applicable bylaws.

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• In the case of heritage buildings, there may be more restrictions than others regarding the range of alterations allowed. Thus, advise your client to consider this if they are contemplating any alterations or improvements for a heritage building. • Ensure you understand the signage requirements per the municipal bylaws, such as the permitted sizes and placement of signs. • Confirm there are sufficient parking spaces for the property; if not, determine if existing bylaws allow for more parking spaces.

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Lesson 4 | Page 10 of 12

Rules and Regulations of the Building/Condominium Corporation

Some of those who wish to invest in commercial real estate may consider a commercial condominium rather than a detached building for their business or as an investment. This allows them to share a building with other companies and benefit from sharing the cost of TMI, utilities, and hiring a property management company, to name a few. Rules involve directives and regulations by a condominium corporation that promote the safety, security, and welfare of owners, property, and assets of the corporation. Rules also prevent unreasonable interference with the use and enjoyment of common elements. Thus, it is important to understand that the owners and tenants of a commercial condominium are required to comply with the rules and regulations of the condominium corporation. As a salesperson, you should advise your client on how the rules and regulations of the condominium corporation can affect them, and include the following considerations: Exam Study Guide

• The owner of the unit must provide the tenant with a copy of the declaration, bylaws, and rules of the corporation. • The zoning bylaws or rules of the condominium corporation may exclude certain types of business from operating in the condominium. • If a tenant wants to make alterations to common elements, the owner would require consent from the condominium board of directors, at a minimum. • Restrictions may apply regarding the parking of commercial vehicles and small utility trailers. Ceiling clearances may be a factor as well in underground garages, depending on the size of vehicles driven.

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Lesson 4 | Page 11 of 12

Licensing Acts

A tenant’s business may need licenses and permits from the federal, provincial, and/or municipal levels of government. For example, any transfer of business ownership involving a liquor license must be accompanied by an application for a new liquor license, if required by the new tenant. Changes in ownership, also known as license transfers, must be approved by the Alcohol and Gaming Commission of Ontario. If a tenant plans to sell tobacco products on the leased premises, a relevant permit is required. Tobacco retailers should contact their municipality about any bylaws regarding the sale of tobacco products. Another example of a business requiring a license is a daycare centre. A tenant interested in operating a daycare facility must ensure that their intended use is in compliance with the zoning bylaw and that all required licenses can be obtained before occupying the premises. As a salesperson, you must inform your client that the offer to lease is conditional on the tenant obtaining, at the tenant’s expense, whatever permits or licenses as required, and allowing sufficient time for the application to be processed and approved; otherwise, the offer will be null and void. In addition to advising your client to inquire with the appropriate government authorities about the specific license requirements, you should assist them in taking the necessary steps to obtain all pertinent permits and licenses, or suggest they get legal advice and assistance. Exam Study Guide

Lesson 4 | Page 12 of 12

Congratulations, you have completed the lesson! There is one section on this page with a summary of the key topic that was covered in this lesson.

Impact of key regulations on the leasing of a commercial property

Real estate contracts, among other contracts, must be in writing to be enforceable by law. While a lease of fewer than three years’ duration need not be in writing, it should be standard practice to establish a written lease in every case. Certain short-form wordings may be used in place of lengthy wordings, if the lease document is sealed and made in accordance with a prescribed format. Commercial tenancies are regulated by the provisions of the Commercial Tenancies Act, which sets out requirements regarding various topics, such as continuous use, nonpayment of rent, and quiet enjoyment. Zoning bylaws establish permitted uses, building structure standards, and other necessary regulations. Tenants and landlords must ensure that their intended use meets the zoning bylaw requirements. Alternatively, they can apply to amend the bylaw to use the property in a manner not permitted in the bylaw. Condominium corporations establish rules and regulations to ensure the safety, security, and welfare of owners, property, and assets of the corporation. Licensing requirements must be satisfied, and any license transfer approved by the appropriate authority, if a tenant’s business requires a license or permit to operate.

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Lesson 5 | Page 1 of 9

Lesson 5: Due Diligence Obligations of a Salesperson

This lesson will discuss the legal compliance and due diligence required of a salesperson as it applies to a commercial lease transaction. Specifically, you will learn about the provisions in the Code of Ethics that define the duties and appropriate conduct of a salesperson when working with a customer or client.

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Lesson 5 | Page 2 of 9

Salespersons must understand their duties and responsibilities, and remain in compliance with the legal standards. To this end, this lesson will provide an overview of important obligations under the Code of Ethics and the appropriate due diligence required of a salesperson. Upon completion of this lesson, you will be able to: • Identify the compliance and due diligence required of a salesperson when leasing a commercial property. 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 9

Clients and Customers

A client is a person who is represented by way of a representation agreement, whereas a customer is a person who has entered into a service agreement but is not represented by the brokerage. Code, Sec. 10: Information Before Agreements states disclosure requirements to clients and customers pertaining to available services and representations. With respect to commercial leasing, a brokerage must inform a landlord or a tenant of the restricted nature of the services that it would provide to a customer in respect of a trade in real estate, if it also represents a client in that trade. It is important to understand that this provision identifies the requirement to explain relationship options and services, but does not determine what the relationship will be.

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Lesson 5 | Page 4 of 9

Documentation Requirements

The Code of Ethics establishes the requirements for representation and service agreements pertaining to the trading of an interest in real estate. The following four sections contain information about establishing and documenting the client or customersalesperson relationship.

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Contents of written agreements

This provision states requirements that apply to all representation and service agreements, including: • The effective date of the agreement • Remuneration • Amount payable to co-operating brokerage (seller or landlord-related agreements) • How remuneration will be paid • What services are being provided • Prominent displaying/installing for agreements exceeding six months • Provision for only one expiry date

Copies of written agreements

Each person signing a written agreement, a representation agreement, or service agreement must immediately be given a copy of the agreement.

Representation agreements

In leasing, landlord and tenant agreements must be reduced to writing, signed by an authorized representative of the brokerage, and submitted to the landlord or tenant for signature.

Agreements with customers

Agreements with customers must be reduced to writing, signed by an authorized representative of the brokerage, and submitted to the landlord or tenant for signature.

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Lesson 5 | Page 5 of 9

Material Facts The Code of Ethics contains a provision that specifies the responsibility of a salesperson to disclose relevant and sufficient facts to clients. Salespersons must take reasonable steps to discover and disclose material facts (i.e., a fact that would affect a reasonable person’s decision to acquire or dispose off property) to clients. For example, if a salesperson working with a prospective commercial tenant discovers the permitted use for an industrial property can no longer fulfill the tenant’s business needs due to a recent change in the zoning bylaw, they must inform the tenant of this fact. As you also learned earlier, in a customer relationship, salespersons shall at the earliest practicable opportunity, disclose to the customer, the material facts relating to the acquisition or disposal of an interest in real estate that are known by or ought to be known by the broker or salesperson.

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Lesson 5 | Page 6 of 9

Obligation to Verify All Pertinent Information Affecting the Leasing of a Unit or Building

Verifying key information pertaining to a real estate transaction is a widely accepted business practice known as due diligence. A commercial property typically requires more complex and in-depth due diligence compared to a residential property. For example, a prospective retail tenant must carefully assess the income potential and all risks associated with leasing a particular property. A salesperson should assist their client in requesting and obtaining necessary documents from the other party and verifying the information in the documents. The categories of key information that should be verified for a commercial lease vary, depending on the type of property: • For an industrial property, verifying the zoning information is key, given the wide array of activities found in industrial leasing. It is essential to ensure a tenant’s intended use, for an industrial property, is permitted Exam Study Guide

under the zoning bylaw, especially if the tenant wants to include a non-industrial use (e.g., office area for administrative staff) on the site. • For an office property, it is important to verify the history of a tenant as a company or business. Although a salesperson does not have access to a tenant’s financial information directly, the rental history and financial information of a tenant can be requested by a landlord. • Retail leases can involve due diligence on any license requirements and restrictions. The details of any operating licenses should be provided by the licence holder and the salesperson should determine if the tenant must obtain a new license or if a license transfer is possible. Any retail restrictions must also be verified with the landlord to understand clearly the permitted uses of the leased premises. For example, an existing restaurant might have permission to sell liquor under the Liquor Control Board of Ontario (LCBO), and under a clause in the lease that requires any other restaurant in the retail complex to sell only beer and wine, which restricts the types of liquor that an incoming tenant can sell.

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Lesson 5 | Page 7 of 9

A salesperson who works for a commercial brokerage is at a listing presentation with the owner of a retail plaza who needs to lease a unit that will become vacant in three months’ time. Question #9: Based on the given information and the obligations under the Code of Ethics, identify the statement that is true. There are four options. There is only one correct answer.

1

If the owner decides to enter into a representation agreement with the brokerage, then under REBBA that owner is required to sign a written agreement. It is illegal to have a verbal representation agreement in real estate.

2

If the owner signs a representation agreement, then a copy of that agreement must be given to the owner within 48 hours of it being signed.

3

Under the Code of Ethics, a representation agreement to lease the unit cannot be signed until the unit becomes vacant.

4

Before there is any agreement between the owner and the brokerage to list the unit for lease, the salesperson must provide certain information to the owner including the restricted nature of the services that the brokerage would provide to a customer in respect of a trade in real estate if the brokerage also represents a client in respect of that trade.

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Lesson 5 | Page 8 of 9

A salesperson, working for a large commercial brokerage, listed prime office space for lease four months ago. The owner of the office building told the salesperson verbally during one of their meetings that the unit had a usable space of 3,000 sq. ft. This information was used in all of the advertising and in the agreement to lease that was signed two months ago. The lessee had been represented by another salesperson working for a different brokerage. When the tenant moved in, it was discovered that the usable space of the unit was only 2,600 sq. ft. and this was a problem for the tenant as they required a minimum of 3,000 sq. ft. for their business. Question #10: Based on the given information and the requirements of the Code of Ethics, has the salesperson representing the landlord violated any obligations under the Code of Ethics? There are four options. There is only one correct answer.

1

Yes, RECO’s marketing guidelines were violated because the square footage of office space quoted in any advertising must be based on the rentable and not usable space. The rentable space is the actual size of the unit being rented.

2

No, it would only be the tenant’s salesperson who is required under REBBA to verify information provided by the landlord to their client.

3

Yes, the landlord’s salesperson should have verified the information provided by the owner of the office building and not have relied on what was verbally communicated.

4

No, the landlord’s salesperson received the square footage directly from the owner who should have been more careful in providing that information. The landlord’s salesperson can rely on that information and would be indemnified from any liability under the Code of Ethics as an agent of the owner.

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Lesson 5 | Page 9 of 9

Congratulations, you have completed the lesson! There are four sections on this page with a summary of the key topics that were covered in this lesson.

Explain client and customer relationships Establish and document the relationship Disclose material facts Verify all pertinent information affecting the leasing of a unit/building

• Code, Sec. 10 requires a salesperson to explain relationship options and services available to a client or customer • A brokerage must inform a landlord or a tenant of the restricted nature of the services that it would provide to a customer in respect of a trade in real estate, if it also represents a client in that trade • Ensure all representation and service agreements include all of the essential components • Each person signing a written agreement must be given a copy • Landlord and tenant agreements must be in writing, signed by the brokerage, and submitted to the landlord or tenant for signature Salespersons must determine what a landlord or tenant considers a material fact and disclose all such facts about a property. • Salespersons must verify key facts about a commercial leasing transaction through due diligence. • Focus of due diligence may vary depending on property type. • Salespersons are required to request and verify pertinent information supplied by a landlord or tenant.

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Lesson 6 | Page 1 of 25

Lesson 6: Services Provided to a Tenant or Landlord

This lesson will explain the services a salesperson is expected to provide to a tenant/landlord when leasing a commercial property. You will also learn about the ways in which a brokerage can be compensated for lease negotiations.

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Lesson 6 | Page 2 of 25

This lesson will discuss what types of services a real estate salesperson is expected to provide to a landlord or tenant. Some of the services required for a commercial lease may be different from those required for the sale or purchase of a commercial property. This lesson will also examine common methods used to calculate remuneration that is used to compensate a brokerage for lease negotiations. Upon completion of this lesson, you will be able to: • Describe the services a salesperson could provide to a tenant • Describe the services a salesperson could provide to a landlord • Identify how a brokerage can be compensated for lease negotiations 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 25

Tenants vary in terms of their knowledge and expertise in commercial leasing, and consequently, in terms of their need for salesperson representation. Highly sophisticated, experienced multi-use tenants who are well represented and experts in commercial leasing themselves often require real estate services to draft and interpret complex lease terms. For tenants who are newer to the commercial leasing market or have smaller, single-use businesses, it is particularly important to ensure their interests are protected by having representation. For existing tenants who are leasing a commercial space, a salesperson can advise on whether to relocate or renew their current lease by evaluating all available options. As a result, a tenant stands to benefit from being represented by a competent salesperson during the lease negotiating or renewal process. The following section will explore the services for a commercial tenant that are essential to a salesperson’s ability to provide adequate and effective representation that protects the tenant’s interest.

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Lesson 6 | Page 4 of 25

Searching for Properties per Tenant Requirements

To ensure efficient search for properties that can meet a tenant’s criteria, the following search categories can be used to select an acceptable property: • Location: general location, amenities, demographics, adjacent services, and proximity to transportation routes • Site: soil conditions, zoning, access/egress, land size, and environmental factors • Building: size, ceiling heights, office finishes, utilities, sprinkler systems, HVAC, loading docks, security, and building construction • Economic/Financial: rent, taxes, utilities, insurance, responsibility for maintenance and repairs, expected sales volume, and the tenant’s financial objectives Once properties have been selected using these search criteria, all relevant properties, including those currently not listed for lease, should be analyzed and summarized on a comparative basis to determine best options for the client. Per the Code of Ethics, a brokerage has a legal obligation to inform their client of properties that meet the tenant’s criteria, regardless of the amount of remuneration to which the brokerage might be entitled. Exam Study Guide

Lesson 6 | Page 5 of 25

Recommending Third-Party Professionals During a Lease Negotiation

As discussed in the previous lesson, a salesperson must recommend third-party professionals if they are unable to provide appropriate services. At certain stages of a lease negotiation, for example, the tenant may benefit from the services of a lawyer and therefore should be advised to engage one. Building inspectors and electrical consultants may also be required to inspect the conditions of the building, HVAC, or electrical systems.

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Lesson 6 | Page 6 of 25

Verifying Landlord or Listing Brokerage Supplied Information

A salesperson is required to verify information provided by the landlord, wherever they can, such as zoning details and permitted uses. Sometimes, the salesperson may not be qualified to confidently verify the information, such as complex area measurements, floor loads, or sprinklers. In such cases, the salesperson must recommend that their client seek third-party professional advice.

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Lesson 6 | Page 7 of 25

Confirming Any Lease Restrictions Affecting Tenant Use

Restrictions on the activities of the tenant can be put in place by the landlord to ensure a proper mix of tenants in a shopping centre. For instance, a retail establishment may be permitted to sell doughnuts and coffee, but not sandwiches. The restricted uses clause in a lease lists the basic types of uses that the landlord will automatically exclude. Further, the restricted uses would often be considered in conjunction with the permitted uses of the premises. Thus, it is important for a salesperson to identify and verify any restricted uses affecting the prospective tenant’s business, as well as the permitted uses of the leased premises. A salesperson would do so by consulting with the landlord about any restrictions and exclusive uses granted to other tenants, and by confirming the relevant provisions in the lease document.

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Lesson 6 | Page 8 of 25

Analyzing Tenant Mix

Confirming specifics on the existing tenants in a retail property with the landlord is fundamental to finding an appropriate property that can support a prospective tenant’s business operation. For shopping centres, provisions on tenant mix are typically included in the lease, which can be used by a salesperson to obtain detailed information. The salesperson can also make inquiries to the landlord about any exclusive uses by other tenants that might restrict the client’s intended use. Further, the salesperson can ask the landlord for the schedule of uses that are not permitted, and confirm if the client’s use would be permitted or wanted. An important consideration when analyzing tenant mix is whether the tenant mix in a retail property creates a synergistic effect that benefits all businesses within that property. For instance, a medical plaza containing clinics with various clinical specialties can attract more customers and businesses because of its ability to accommodate a wide range of needs, compared to a medical plaza composed of clinics with similar specialties competing with each other to attract patients. While a salesperson can describe the tenant mix, they would not try to conduct a full analysis of all the tenants. This would be considered beyond the expertise of the salesperson. Most knowledgeable tenants know how their operations will fit in with an existing tenant mix in a complex.

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Lesson 6 | Page 9 of 25

Preparing and Negotiating the Terms of an Offer to Lease

It is essential for a salesperson to negotiate the lease terms with the client’s best interests in mind. Depending on the type of property the client is interested in leasing, the salesperson would focus on specific requirements and considerations that could significantly affect the tenant’s business when negotiating lease terms. When preparing and negotiating the terms of an offer to lease, as a salesperson, you would: • Understand your client’s business needs and goals, such as their current and expected future space needs, budget, and desired location. If the client is not clear on their long-term needs and/or plans, they may consider a shorter lease • Explain lease options to the client (e.g., gross lease versus net leases) • Confirm market rents in the area the client is considering and compare them with the landlord’s asking rent, so you can negotiate an appropriate rent Exam Study Guide

• Research the property with a focus on the tenant mix, parking details, CAM costs, local foot traffic, experience of existing tenants in the building or area, and the landlord’s reputation, to name a few • Ask the landlord for inducements to rent the property, since the landlord may be willing to offer favourable terms to entice your client to rent. For example, if the space has been vacant for a while, the landlord may offer two or three months rent-free • Negotiate leasehold improvements to ensure the lease terms and zoning bylaw allow for your client’s leasehold improvements • Review termination conditions to ensure your client has the option to renew the lease at the end of the lease term, if needed • When working with a retail client, ask the landlord for a restrictive use clause, which requires the landlord to obtain the tenant’s consent to lease space in the building/complex to a competitor; this may be important for your client • Carefully review all terms before your client signs the document to prevent unexpected costs for your client

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Lesson 6 | Page 10 of 25

A tenant is looking to lease 4,000 sq. ft. of space for his business. He has approached XYZ Real estate Ltd., a commercial brokerage in Anycity and is discussing the services they can offer in finding and leasing the right rental space for his business. Question #11: Identify the true statements with respect to services that commercial brokerages typically offer prospective tenant clients. There are four options. There are multiple correct answers.

1

Whenever possible, a salesperson representing a tenant should verify information provided by the listing brokerage.

2

One of the most common types of service that any salesperson can provide to a prospective tenant looking to lease in a shopping mall or retail plaza is for that salesperson to conduct a full analysis of all the tenants to ensure that the tenant mix would be advantageous to the tenant.

3

A commercial brokerage is entitled to only inform a tenant client of properties that both meet that client’s criteria and also provide a sufficient amount of remuneration that would cover both the brokerage’s costs and provide a reasonable profit.

4

A commercial brokerage representing a tenant looking to lease retail space in a shopping mall should identify and verify any restricted uses impacting that prospective tenant’s business as well as the permitted uses of the leased premises.

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Lesson 6 | Page 11 of 25

Commercial landlords seek to attract high-quality tenants to ensure a steady income and to enhance their asset value, while reducing financial risks. A salesperson can perform property and market analysis, provide marketing and leasing strategy, and conduct leasing negotiations. A key element in providing these services is an in-depth understanding of the landlord’s property to position the property in a way that will attract the right tenants for the landlord. While brokerages often provide a wide range of landlord representation services, including developing long-term investment strategies and property management, the following section will focus on the core services typically expected of a salesperson that are fundamental to a successful leasing transaction.

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Lesson 6 | Page 12 of 25

Demonstrating Conscientious and Competent Service Salespersons are expected to provide conscientious and competent service to both clients and customers. When working with a commercial landlord, a salesperson must demonstrate reasonable knowledge of the leasing market, the lease negotiation process, the landlord’s property and financial goals, the landlord’s criteria for tenant selection, and any changes in the current zoning, existing bylaws, and other legislation that might affect the leasing of the property, to name a few. Also, the salesperson must show adequate skill and judgement in providing the services the landlord may require, including negotiating lease terms in the best interest of the client and referring them to a third party when unable to provide adequate service.

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Lesson 6 | Page 13 of 25

Gathering Information for the Listing and Marketing of the Property

Landlords have the obligation to provide accurate information about the property to brokerages and salespersons. It is then the salesperson’s responsibility to ensure that the information supplied by the landlord is verified and is effectively used for the listing and marketing of the property for lease. While the types of information involved in the listing and marketing process may vary, depending on the type of property, the salesperson typically includes property facts, such as geographical location, area measurements, rent, additional rent, TMI, or other expenses. When listing and marketing an industrial property, the loading dock specifics, measurements, and ceiling heights are often key information, whereas frontage measurements and amount of foot traffic are important for listing and marketing retail properties. While landlords are required to ensure the accuracy of any information regarding a property, salespersons also have the duty to take reasonable measures to verify landlord-supplied facts. For instance, if the area measurements of an office property provided by a landlord are evidently inaccurate as assessed by a visual inspection, the salesperson would confirm the accuracy of the measurements with the landlord before using the information to list the property on the market. Exam Study Guide

Lesson 6 | Page 14 of 25

Identifying Potential Uses for the Premises A salesperson may identify new uses for their landlord client’s space after taking into consideration various features associated with the property. Expanding the range of uses for a property can allow the salesperson to market to a wider target audience of potential tenants. For instance, if a salesperson perceives their client’s office space to be suitable for a family medicine clinic, in addition to the existing use as a dental office, they may suggest to their client accordingly, and market the property to both dentists and family physicians. Also, across the real estate sectors, existing buildings are often repurposed to accommodate new uses for various reasons, such as changes in the type of industries occupying the area, demographic changes, an increasing need for a new type of business or industry, etc. Thus, if a landlord owns a property that can no longer yield rental income through the existing use, the salesperson would assist the landlord in identifying a potential use for the property and repurposing the property for that new use to attract tenants.

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Lesson 6 | Page 15 of 25

Preparing and Implementing Marketing Plans

Creating targeted marketing plans for the leasing of a commercial property can be accomplished by following a series of steps: • Analyzing the market condition and identifying where the greatest demand is • Determining the target tenant profile based on an understanding of tenant criteria, that is, features that tenants desire in a property • Highlighting the strengths of the property • Researching and selecting appropriate marketing media These steps will be discussed in more depth in a later lesson.

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Lesson 6 | Page 16 of 25

Assisting in Assessing the Quality of a Prospective Tenant

For a potential landlord, the most important criterion for evaluating a tenant is the ability to pay rent or the strength of the tenant’s covenant to pay rent. This requires verifying the tenant’s credit information and history as a tenant in another commercial property. It is typically the landlord who verifies the credit-worthiness of the tenant; the salesperson’s responsibility is limited to advising the tenant that a credit check and references will be required. Generally, the mutual suitability of a tenant and a property depends on the combination of the prospect’s business attributes and the building’s capacity of meeting the prospective tenant’s requirements. As a salesperson, the following steps may be taken to assess the quality of a prospective tenant: • Obtain all relevant information regarding the prospect’s business, prior experience, and future plans, etc.; the landlord then can follow up with specific inquiries • To qualify the prospective tenant, discuss the space specifics, rental rates, inducements, and tenant allowances with the prospective tenant • Assess the potential for a long-term tenancy, given the greater financial benefit for your client associated with longer tenancies • Once the tenant is deemed suitable for the property, the landlord can conduct the final verification of the tenant’s financial capabilities

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Lesson 6 | Page 17 of 25

Receiving, Conveying, and Negotiating Offers to Lease

Offers received by a salesperson must be presented at the earliest practicable opportunity to the landlord client. When negotiating the terms of the lease, it is important to act on behalf of the landlord with their best interest in mind, which includes the following: • Best possible income generated from the lease • Assurance of long-term, consistent lease income and maintenance or appreciation of the property value, through selection of high-quality tenants • Well-documented agreement to lease and subsequent lease that accurately and completely define the tenant’s obligations during the lease period A salesperson would also advise the landlord on their knowledge of the tenant’s covenant, which may include obtaining financial statements from the tenant, references, and other pertinent information, such as the tenant’s history or lack thereof.

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Lesson 6 | Page 18 of 25

Lease Renewal Negotiations

The basic components that should be addressed during lease renewal negotiations include the following: • Length of the renewal term can be established when negotiating the original lease. • Rental rate is generally negotiated based on comparable properties at the time of renewal. In the rare cases in which both parties are unable to agree on a rental price, the issue can be brought to arbitration per the Arbitration Act, if the lease permits arbitration. • Leasehold improvements are negotiable, but the tenant typically has no rights to the leasehold improvements as specified in the original lease. Blend and Extend To allow landlords (and tenants) some flexibility in response to fluctuating business conditions and/or market demands, the “blending and extending” strategy can be used. Blend and extend is a common practice that refers to renegotiating the terms of an existing lease before the end of the lease term, possibly with a new rental rate and/or increased or decreased area of the occupied space. In other words, the remaining term in an existing lease is extended and the current rental rate is “blended” with a newly agreed-upon rate.

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Lesson 6 | Page 19 of 25

Commercial landlords generally aim to attract high-quality tenants and ensure a steady income from their rental property. To assist them in achieving this goal you must have a clear understanding of the services you could provide to a landlord in a commercial lease transaction. Question #12: Which of the following statements about a salesperson’s services for a landlord are FALSE? There are five options. There are multiple correct answers.

1

The salesperson is responsible for preparing and executing marketing plans for the landlord’s property by identifying the target tenant profile, showcasing the strengths of the property, and selecting effective marketing media.

2

If the landlord wants to explore other potential uses for their property and market accordingly, the salesperson should advise otherwise to ensure the property does not undergo costly renovations to support other uses and protect the landlord’s financial interests.

3

Once potential tenants who are interested in leasing the property have been identified, the salesperson should help the landlord assess the quality of these tenants, using their potential for a long-term tenancy as the most important criterion.

4

The salesperson should negotiate the terms of the lease with the goal of achieving the best possible rental income for the landlord while ensuring fairness to both parties.

5

In case the landlord wants to combine a few different uses for the property to attract more tenants, the salesperson should consider blend and extend.

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Lesson 6 | Page 20 of 25

Real estate brokerages or salespersons receive remuneration when performing various duties, as set out in written representation and service agreements, or other arrangements negotiated in the course of leasing a commercial property. When doing so, the brokerage or salesperson must ensure that such agreements meet regulatory requirements and are based on sound business practices. To this end, salespersons must be fully aware of key remuneration provisions established in REBBA. This section provides an overview of permitted methods to calculate remuneration under REBBA, as well as common practices in determining the amount and timing of remuneration payment with respect to commercial leasing.

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Lesson 6 | Page 21 of 25

Calculating Remuneration per REBBA

REBBA contains various remuneration provisions pertaining to entitlement to remuneration and how remuneration is to be calculated. Under the REBBA Remuneration Provision, remuneration can be an agreed amount, a percentage of the rental price, or a combination of both. If a percentage is used, the percentage does not have to be fixed, but may be expressed as a series of percentages that decrease as the rental price increases. Remuneration must never be calculated based on the difference between the listing price and the actual rental price. Salespersons are prohibited from indicating directly or indirectly that remuneration is fixed or approved by administrative or government authorities, real estate boards, or real estate associations. Typically, the landlord or the listing brokerage is responsible for payment of the remuneration, but this does not create a representation relationship between the salesperson representing the tenant and the landlord. If no remuneration is to be paid by the landlord or the listing brokerage, the tenant assumes the responsibility for paying the entire remuneration. Also, the tenant must pay any deficiency between the contracted amount and the amount actually paid by the landlord or listing brokerage. Exam Study Guide

Lesson 6 | Page 22 of 25

Common Methods Used for Calculating Remuneration on Leasing The most common method of calculating a remuneration is to multiply the aggregate value of the lease (i.e., the net rent to be paid over the entire term of the lease by the tenant) by an agreed percentage amount. Remuneration is usually paid in a lump sum when the lease commences. However, the method for calculating remuneration can vary depending on the type of commercial properties. Fees vary from market to market. The following two sections contain information about the remuneration calculation method commonly used in each property type.

Office Remuneration is usually based on a price per square foot per annum, regardless of rental rate, with remuneration solely dependent on the area of the leased space. For example: If office area is 1,000 sq. ft., lease term is five years, and agreed remuneration rate is $1 per sq. ft. per annum. The total remuneration is $5,000 payable at beginning of lease term. Typically, remuneration is split equally between the two salespersons involved in the lease. However, in some cases, the salesperson who brings in the tenant receives two-thirds of the remuneration and the listing brokerage receives one-third, depending on the market condition.

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Industrial and retail Remuneration is calculated using a percentage of the net rent (i.e., the total rent paid by a tenant, less the amount paid by a landlord for taxes or any maintenance expense associated with the leased premises) over the lease term. For example: If agreed remuneration rate is 8 per cent of net rent for first year + 3.5 per cent for each year thereafter, net rental rate is $10 per sq. ft. per annum for first year + $15 for each year thereafter, leased area is 5,000 sq. ft., and lease term is five years, total remuneration is calculated as: Remuneration for first year of lease: $10 x 0.08 x 5,000 = $4,000 Remuneration for remainder of lease: $15 x 0.035 x 5,000 x 4 = $10,500 Total remuneration payable to the salesperson/ brokerage: $4,000 + 10,500 = $14,500 This method, however, is not the standard for all leases, and there may be variations.

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Lesson 6 | Page 23 of 25

Paying Remuneration on a Multi-year Term Lease

Generally, the total remuneration amount on a lease is calculated and paid at the beginning of the lease term. However, many landlords are reluctant to pay remuneration for long-term leases up front, as some tenants may decide to leave early due to changes in their financial circumstances or low business profitability. While salespersons or brokerages prefer to be paid as soon as possible after the lease agreement is signed, which may be included as a condition in the listing agreement, landlords typically benefit from agreeing to pay only after the tenant moves into the premises and starts paying rent. This can ensure that the salesperson brings in a tenant who is capable of paying rent immediately and remaining financially stable for the lease term. Landlords may also want protection from having to pay remuneration for the remaining lease term, following early lease termination by the tenant, by including a clawback clause in the lease. A clawback clause provides for the responsibility of the tenant to pay back the portion of remuneration to the landlord for the remaining lease term, in case they leave the leased premises early.

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Lesson 6 | Page 24 of 25

A tenant and landlord have signed a 5-year lease on a unit in a suburban retail complex. The unit is 2,050 sq. ft. and leased at a net rent of $12 per sq. ft. per annum. The tenant pays an additional rent of $6,523 in property taxes and $2,482 in property maintenance and insurance annually for the unit’s proportionate share of the complex’s operating costs. The salesperson representing the landlord during the lease negotiations is entitled to a remuneration as outlined in representation agreement. The landlord and salesperson agreed on a remuneration based on seven per cent of the net rent for the first year and three per cent of the net rent thereafter. Question #13: What will be the total amount of remuneration payable to the salesperson for the entire duration of the lease term? There are three options. There is only one correct answer.

1

$4,674.00

2

$4,974.00

3

Any other number

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Lesson 6 | Page 25 of 25

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were covered in this lesson.

Services a salesperson could provide to a tenant

When working with a tenant, a salesperson can: • Research properties that best suit tenant requirements based on location, site, building features, and financial characteristics • Recommend third-party expertise as necessary, such as lawyers and professional measuring companies • Request relevant information from the landlord or listing brokerage • Confirm any lease restrictions that might affect the tenant’s use via consultation with the landlord • Determine the tenant mix and assess whether the existing tenant mix would be beneficial for the tenant’s business • Prepare and negotiate the terms of an offer to lease with considerations for the type of the property, market conditions, and tenant needs with the goal of obtaining favourable terms for the tenant

Services a salesperson could provide to a landlord

When working with a landlord, a salesperson can: • Collect all relevant information for the listing and marketing of the landlord’s property, as well as ensuring the accuracy of the information • Develop marketing plans based on market analysis, target tenant profile, property strengths, and proper marketing media • Assist in selecting a qualified tenant by obtaining all pertinent information about the tenant and evaluate the suitability of the tenant, based on the cost of putting the tenant in place versus the income potential

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• Receive, convey, and negotiate offers to lease that maximize the landlord’s financial gain from the lease • Negotiate lease renewals by renegotiating lease terms, such as the rental rate and leasehold improvements • Renew or extend the existing lease terms via the practice of blend and extend, before the expiry of the current lease term, to assist the landlord in obtaining improved financing, in case of any changes in the landlord’s financial status

Compensation calculations

Allowable methods to calculate remuneration are established under REBBA. One of the common methods used for calculating remuneration is by multiplying the aggregate value of the lease by an agreed percentage amount. The timing of remuneration payment can be at the beginning of the lease term, or after the tenant moves in and starts paying rent, depending on the length of the lease term.

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Lesson 7 | Page 1 of 22

Lesson 7: Responsibilities of Landlords and Property Managers in Commercial Real Estate

In this lesson, the roles and responsibilities of a landlord and property manager in commercial leasing will be discussed. This lesson will provide an overview of how landlords and property managers work together to properly maintain commercial properties, and ensure quiet and safe possession for tenants.

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Lesson 7 | Page 2 of 22

As you learned earlier in this module, the types of commercial properties vary widely, from single purpose to multipurpose. However, regardless of size, design, type of construction, or the use of the property, there are a number of landlord and property management responsibilities that are common to all commercial properties, such as compliance with the building codes, access to accurate property information, and maintenance and repairs. Upon completion of this lesson, you will be able to: • Describe roles and responsibilities of an owner or landlord • Describe roles and responsibilities of a property manager 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 22

Earlier, we reviewed the laws that apply to commercial leasing. Full and comprehensive compliance with these legal requirements means that a landlord is obligated to fulfill certain roles and responsibilities. This lesson will explore the duties and roles performed by a landlord in a commercial lease.

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Lesson 7 | Page 4 of 22

Responsibilities of a Landlord Landlords have the obligation to provide accurate and up-to-date information to the brokerage or salesperson, and allow prospective tenants access to the premises so that the tenants can make an informed decision on leasing the property. As a salesperson, you have an obligation to verify such information for your client or customer. The following two sections contain information about a landlord’s responsibilities for providing accurate information and ensuring access to the property for showing prospective tenants.

Provide accurate information to the brokerage or salesperson A landlord is responsible for providing accurate information about the property being listed for lease. Property facts, such as zoning, area measurements, amenities, and features need to be accurate, as supplied by the landlord. Depending on the type of property, key information may vary, but it is the landlord’s obligation to ensure the accuracy of all information pertinent to the property, which will be further verified by the salesperson.

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Ensure access to the unit for showing Prospective tenants or salespersons require access to commercial properties for a thorough inspection. Landlords are required to grant and ensure access to the leased premises, to assist the other party in verifying key information and making informed decisions.

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Lesson 7 | Page 5 of 22

Ensuring Compliance with the Building Codes All buildings in Ontario must meet the requirements set out by the Ontario Building Code. While building codes change over time, buildings remain static. Often, when a tenant leases a building or part of a building, and wants to change the existing use, the building must be upgraded to suit the tenant as well as meet the requirements of the Ontario Building Code. This work can be performed by the tenant with the consent of the landlord to change the use. Since prospective tenants want to ensure there are no compliance issues with the space they are considering to lease and will likely verify the property on this matter, landlords should confirm that their buildings comply with the latest building code standards. Typically, a schedule attached to the lease will specify that any work by the landlord or tenant must comply with the building codes and obtain necessary permits. Given the specialized uses and needs that certain industrial tenants may seek, industrial properties are required to comply with the live load requirements established in the building codes. Also, if a tenant has any accessibility requirements and the lease includes terms requiring the landlord to accommodate these requirements, the landlord is responsible for ensuring all the accessibility features and that any necessary renovations are compliant with the building code.

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Lesson 7 | Page 6 of 22

Honouring Obligations Stated Within the Lease Agreement

Each landlord may have a very specific lease with varying obligations; thus, salespersons should advise their clients to carefully examine the lease document and clearly understand their obligations. It is usual that the lawyers on both sides will clarify obligations. It is also important to ensure the obligations established in the lease are specific enough to protect the landlord from excessive or unreasonable requests by the tenant. For example, if a landlord agrees to provide interior cleaning services for the tenant under an office lease as the landlord’s obligation, the obligations clause should specify the scope of the cleaning services that the landlord is responsible for, such as specifying what is included in the cleaning and when and how often it is to occur. Thus, while landlords must honour all the obligations established in the lease agreement, these obligations should be specific enough to have clear and reasonable limits in order to prevent any confusion.

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Lesson 7 | Page 7 of 22

Allowing the Tenant Quiet Possession of the Property As set out statutorily and by common law, a landlord must allow a tenant possession of the leased property for the duration of the lease. Also, per the Commercial Tenancies Act, a typical lease agreement includes a quiet enjoyment covenant. This covenant states that the landlord is required not to interfere or intrude upon the tenant’s premises, or be a party to a situation which will adversely affect the tenant’s operation. However, upon the tenant’s default, this covenant is broken and the landlord is protected. As you learned earlier in this module, if the tenant has failed to pay the rent, the landlord may either change the locks of the unit and evict the tenant, or seize and dispose of the tenant’s property contained within the leased premises.

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Lesson 7 | Page 8 of 22

Arranging for Proper Maintenance of the Property

The goal of property maintenance is to keep the property in good repair. The types of maintenance include preventive maintenance to prevent deterioration; corrective maintenance to repair wear and tear, breakage, and damage caused by vandalism; and routine maintenance to keep the premises clean, maintain the landscaping, clear snow and ice, etc. In order to effectively organize property maintenance, the landlord should arrange for regular inspections of the building or site. The tenant may be required to provide access to the leased unit for regular inspections and to submit a copy of the report to the landlord, which is a particularly common practice for commercial and industrial properties. The landlord can ensure effective maintenance of the property by employing a property manager, as well as in-house and/or contract maintenance staff, depending on the size of the building or site. The roles of a property manager in maintaining a commercial property will be explored in this lesson.

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Lesson 7 | Page 9 of 22

Arranging for Proper Insurance for the Property

It is the responsibility of the landlord to arrange for proper insurance for a property. Commercial landlords consider their properties as an investment, and to protect their buildings and property within the buildings from potential risks, they need insurance. The specific insurance coverage required should be determined in consultation with the insurance broker, as buildings may have particular requirements, and insurance policies can be difficult to interpret or understand. Key insurance coverage for commercial landlords includes the following: • Loss of rental income or business interruptions to insure against lost rental income during any renovations or repairs on the property • Third-party liability as a protection from public liability (e.g., personal injury from slipping on ice or falling down steps) and property damage as a result of carrying out landlord duties and operations • Machinery and equipment, in case HVAC, electrical system, or elevators need extensive repairs or replacement Tenant insurance is another matter altogether and is best dealt with between the tenant, their insurer, and the landlord.

Exam Study Guide

Lesson 7 | Page 10 of 22

The owner of a small office building in Anycity has a unit in the building that will become vacant in three months and has asked a salesperson to lease the unit. The salesperson works for a local commercial real estate brokerage. The salesperson has inspected the building and the unit in question. It is clear to the salesperson that the building has been well maintained and that the landlord has good relations with the tenants. Question #14: Which one of the following would be a correct statement with respect to the owner’s role and responsibilities as a landlord? There are four options. There is only one correct answer.

1

A landlord is responsible for providing accurate information about the property being listed for lease. However, under statutory and common law, a landlord cannot be held liable for providing any inaccurate information to the salesperson representing them since under REBBA the salesperson is supposed to verify all listing information.

2

While the building code does not establish live load requirements for buildings, the landlord should ensure that the tenant does not have live loads that exceed the physical capacity of the property.

3

A landlord needs to ensure that there is sufficient insurance coverage for their property. One important type of insurance coverage would be for loss of rental income due to a fire or flood.

4

An owner should make sure that the property is kept in good repair. One way of doing this is by carrying out preventive maintenance. Examples of this type of maintenance would include such things as making repairs as soon as possible for broken or damaged elements or wear and tear.

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Lesson 7 | Page 11 of 22

Responding in a Timely Manner to the Tenant’s Issues Landlords are obligated to address tenants’ issues in a timely manner in general. This obligation requires the use of good judgement and discretion by a landlord. Since the word “timely” may have very different meanings in a practical sense to some tenants, this may be addressed in the lease. An obligation can be included in the lease to establish the landlord’s responsibility in this regard, but should not specifically define individual events and the timing of the landlord’s response. In addition, it is important to remind the tenant that they also have the obligation to ensure adequate tenant insurance for their property. Salespeople must remember that not all leases require the landlord to perform maintenance and repair, depending on what the lease dictates. The lease may provide that the tenant will repair, maintain, and replace. Tenants often prefer this, since they can control the cost directly, rather than pay the landlord plus a 15 per cent administration fee.

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Lesson 7 | Page 12 of 22

Question #15: Identify the correct statement. There are two options. There is only one correct answer.

1

Landlords have the responsibility to provide accurate and up-to-date facts about the property to the salesperson, and access to the premises to prospective tenants.

2

Landlords have the responsibility to provide accurate and up-to-date facts about the property to the salesperson, and the list of the previous tenants to prospective tenants.

Exam Study Guide

Lesson 7 | Page 13 of 22

Question #16: Identify the correct statement. There are two options. There is only one correct answer.

1

Property facts, such as area measurements, zoning and amenities, should be supplied by the landlord. It is the salesperson’s job to verify the accuracy of such information, so the tenant can make an informed decision on the leasing of the property.

2

Property facts, such as area measurements, should be supplied by the landlord. It is the salesperson’s job to verify the accuracy of such information, so the tenant can make an informed decision on the leasing of the property.

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Lesson 7 | Page 14 of 22

Question #17: Identify the correct statement. There are two options. There is only one correct answer.

1

The landlord is also responsible for ensuring compliance with REBBA, especially when the tenant wants to upgrade or renovate the premises to accommodate a different use.

2

The landlord is also responsible for ensuring compliance with the Ontario Building Code, especially when the tenant wants to upgrade or renovate the premises to accommodate a different use.

Exam Study Guide

Lesson 7 | Page 15 of 22

Question #18: Identify the correct statement. There are two options. There is only one correct answer.

1

2

According to the Commercial Tenancies Act, the landlord is required to allow the tenant quiet possession of the property. This partly depends on the landlord’s obligation to ensure sole possession of the property, and to this end, landlords often hire professional property managers. According to the Commercial Tenancies Act, the landlord is required to allow the tenant quiet possession of the property. This partly depends on the landlord’s obligation to ensure Quiet possession of the property, and to this end, landlords often hire professional property managers.

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Lesson 7 | Page 16 of 22

The most important role of a property manager is to manage the property by keeping it up to the standards, as defined in the lease and as expected by the landlords and tenants. Property managers can also play an important role in attracting and selecting quality tenants, and in ensuring compliance with the covenants established in the lease agreement. While a salesperson’s role is focused on negotiating and completing a lease transaction, a property manager’s role becomes important once the lease begins and the tenant occupies the premises. While an in-depth discussion of the duties and roles involved in professional property management is beyond the scope of this module, the following screens will provide a general overview of the various roles and responsibilities of a property manager as related to commercial properties.

Exam Study Guide

Lesson 7 | Page 17 of 22

Managing and Maintaining the Property

A property manager is required to fulfill the responsibilities of professional property management, and the key is to establish control in the following areas: • Energy management • Maintenance and repairs • Periodic property inspections and preventive maintenance • Insurance and risk management (security and safety) • Staffing and supervision of personnel • Contract negotiation and administration • Environmental protection • Collect rent Exam Study Guide

• Pay bills • Annually reconcile tenants’ accounts • Coordinate third-party contractors • Generally, manage a property as would a prudent landlord

Exam Study Guide

Lesson 7 | Page 18 of 22

Responding to Tenant Concerns

A property manager’s primary responsibility is owed to the landlord and secondary responsibility to the tenant. In a commercial lease, most elements of the landlord relationship with the tenant are delegated to the property manager within the parameters of the management agreement. From the tenant’s perspective, the property manager is the landlord’s agent. Thus, tenant relations are the responsibility of the property manager. When a tenant contacts the property manager, it is often in regard to some issue. Responses to all requests and concerns must be made with a minimum of delay, and the property manager should advise the tenant when the problem will be addressed. It is important to respond to reasonable tenant requests; however, the property manager cannot always satisfy the tenant at the landlord’s expense. Also, property managers should neither ignore tenant requests nor deny tenants services for the purposes of saving expenses and increasing the landlord’s financial gain. The property manager must understand and abide by the terms of the lease, and be able to explain the obligations of both the landlord and the tenant if the tenant request is related to matters that are not the landlord’s responsibility. Also, the property manager should explain to the tenant why no action can be taken, as a non-response to a request can frustrate tenants and adversely affect the landlord-tenant relationship. Exam Study Guide

Lesson 7 | Page 19 of 22

Financial Management

A property manager’s responsibilities extend beyond physical and operational maintenance to financial management, to maximize revenue from the property under the guidelines provided by the landlord and any applicable government regulations, while keeping the operating expenses at a reasonable level. The financial aspect of property management includes the following components: • Bill payments • Budgeting (operating and capital) • Rent billing and collections • Accounting and bookkeeping • Review of property tax assessments • Rent-related issues (Commercial Tenancies Act) • Other financial tasks (e.g., cash flow projections)

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Lesson 7 | Page 20 of 22

Ensuring Adequate Property Insurance

The responsibility for insurance rests with the landlord and includes liability insurance for the common and other areas for which the landlord is responsible. The landlord has an obligation to ensure that the tenants have an allrisk policy to cover the tenant’s interests including liability insurance. The landlord can contract with a property manager to ensure these insurance policies are in place. Following is a list of typical coverages: • Fire and extended coverage • Comprehensive general liability and property damage • Multi-peril risk policy (“all risks” or a combination policy) providing a pre-packaged group of coverages • Errors and omissions (relating to the managing agent) • Catastrophe (damage to adjacent buildings due to negligence) • Rental income (loss of rental income due to building damage) Exam Study Guide

• Boiler and machinery coverage • Money and securities • Employee benefits • Additional hazards (e.g., elevators, swimming pools, and motor vehicles) The insurance policy is an all-risk policy. In addition to including all necessary coverages, a property manager must ensure the landlord is named in the tenant’s insurance policy as its interests may appear. Further, the insurance coverage must be at a minimum of 90 per cent of replacement cost or the landlord risks co-insurance if there is a significant claim. Property managers should seek expert advice on all insurance matters from insurance brokers who have the skills and knowledge to package coverages to meet specific property and property management needs.

Exam Study Guide

Lesson 7 | Page 21 of 22

Security

A landlord or a contracted property manager has a duty of care toward all the tenants, and often, members of the public in any building that they manage. This duty is dependent on the type of use, number of tenants, terms of the lease, and management contract, and if the public has access to the property. It is the property manager’s responsibility to ensure that adequate security is in place, including security personnel if these are required to protect the tenants and the public. A key aspect of ensuring the security of the building and every person in the building is the preparation of an emergency procedures manual and the planning for every conceivable emergency, which can be a daunting task. Some of these emergency situations may stem from events caused by human beings or from the forces of nature over which no property manager has control. When preparing an emergency procedures manual, property managers should be aware of potential hazards and risks, such as fire, explosion, bomb threat, vandalism, environmental contamination, armed robbery, malfunctioning, and power failure, among others. Judges and courts enforce the premise that tenants are entitled to expect management to take reasonable care in protecting them. Therefore, it is important to understand that ensuring the security of a property requires more than just superficial security procedures. To this end, property managers should create and establish welldesigned, modern security systems by including such elements as people and management, in addition to putting in place appropriate security hardware elements. Exam Study Guide

Lesson 7 | Page 22 of 22

Congratulations, you have completed the lesson! There are two sections on this page with a summary of the key topics that were covered in this lesson.

Roles and responsibilities of a landlord

In commercial leasing, landlords have responsibilities to: • Provide accurate property information to the brokerage and salesperson • Provide access to the property/unit for showing prospective tenants • Comply with the building codes to ensure sufficient structural strength and integrity of the building • Honour the obligations set out in the lease agreement • Allow the tenants quiet possession of the property, as required statutorily and by common law • Ensure proper maintenance of the property by arranging for regular inspections of the building and/or hiring a property manager • Arrange for adequate property insurance against financial loss or business interruptions, third-party liability, and/or extensive machinery and equipment repairs and replacement • Respond to the tenant’s issues in a timely manner, depending on the urgency of the issue

Roles and responsibilities of a property manager

Property managers have responsibilities to: • Manage and maintain the property by establishing control in various areas, such as energy management, maintenance and repairs, and risk management • Respond to tenant concerns as a conduit of the landlord to maintain positive tenant relations

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• Manage the financial aspects of property management, including bill payments, rent billing and collections, and accounting • Set up proper insurance for the property by ensuring coverage for various risks, such as fire, property damage, and general liability • Ensure the security of both the property, tenants, and members of the public in the property • Conduct scheduled inspections of the property to ensure that the use of the property remains in compliance with the lease and the property is being maintained adequately • Assist the tenants in their maintenance duties by providing them with simple rules regarding repair requests, building regulations, and energy conservation

Exam Study Guide

Lesson 8 | Page 1 of 11

Lesson 8: Calculate Areas and Related Linear Measurements

In this lesson, you will learn about the standards and methods used to measure areas in commercial real estate. This lesson will highlight the importance of accurate area measurements for calculating rent in commercial leases.

Exam Study Guide

Lesson 8 | Page 2 of 11

The method used to calculate the square footage of a commercial property directly affects the amount of rent charged, which is a critical component of any lease negotiation. Therefore, establishing and understanding the standard for measuring various aspects of space affecting a commercial lease is foundational to successful lease negotiations. Upon completion of this lesson, you will be able to: • Identify standards for measuring a commercial unit or building • Explain key aspects of area calculation Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

Exam Study Guide

Lesson 8 | Page 3 of 11

Area measurements are essential for landlords to ensure that appropriate rents are being charged for commercial space. To ensure that floor areas are measured according to a standard method across the real estate market, the Building Owners and Managers Association (BOMA) International, an organization of professionals in the office building industry, established a standard method of measuring office space in 1915. Subsequently, BOMA introduced the Industrial Floor Measurement Standard in 2004, which provides two methods of measuring industrial buildings. While technical discussions of the BOMA standards are beyond the scope of this course, this lesson will provide a general overview of the BOMA standards, as well as common methods and tools used to measure a unit or building.

Exam Study Guide

Lesson 8 | Page 4 of 11

Building Owners and Managers Association Standard

The standard methods for measuring floor area in office buildings was initially developed by BOMA to ensure consistency and promote an industry standard. The standard has undergone successive revisions, the most recent is a building-wide method to ensure that measurement is applied on a consistent, floor-by-floor basis and procedures to measure the gross building area, as well as rentable and usable areas. Before the revisions, the standard addressed each floor individually. Thus, landlords operating with the BOMA standard now can include additional common areas within rentable measurements that would otherwise not be included in a floor-by-floor calculation. It is important to highlight that the BOMA standards are complex and require professional advice. Salespersons must exercise caution when advising their clients, customers, and direct commercial landlords to private flooring measuring companies who use laser technology for exact measurements. Salespersons should also keep in mind that BOMA standards are not universally used. Tenants are well advised to seek independent professional advice to ensure that landlord-provided measurements are consistent with the actual square footage being leased.

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Lesson 8 | Page 5 of 11

Tools and Methods for Measuring a Commercial Unit or Building

The area of a commercial unit or building can be measured using a tape measure or a laser measuring device. The area of a rectangular space can be obtained simply by multiplying the length of the room in ft. by its width. When measuring the area of an irregularly shaped section, the space can be split into shapes with easy-to-calculate areas and measured by adding up the measurement of each individual area. For verification purposes, a salesperson may also need to measure the clear height of an industrial property, as well as other building specifics. However, a salesperson is seldom required to measure areas. Use of a Surveyor or Drawings to Confirm Unit or Building Size Landlords generally have as-built drawings from when the space was first constructed. Salespersons can confirm that the area to be leased is accurate from these drawings, which minimizes the need for a professional measurement. If there is a discrepancy between the drawings and the salesperson’s measurement, or a lack of proper drawings, the salesperson can involve a professional building-measuring company that can provide a floor layout and the usable/rentable space. This is also useful in the marketing of the space. While it is important for a salesperson to understand how the space is properly measured, the measuring standards are complex, and only a very experienced salesperson should undertake to establish the usable/rentable area.

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Lesson 8 | Page 6 of 11

Calculating the area of commercial space can be complicated and requires thorough attention to detail. Understanding the process and rationale by which different areas are measured in a commercial lease is critical to a prospective tenant’s decision to rent the space. Key to making an informed decision is the ability to identify the different concepts commonly used for area calculation in commercial real estate. Tenants who fail to appreciate these various aspects can be unknowingly burdened by hidden costs and usable spaces that may not align with their expectations. Thus, it is important for salespersons to have a solid understanding of the terms and concepts involved in area calculation, in order to assist their clients in accurately assessing commercial leases.

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Lesson 8 | Page 7 of 11

Rentable Area Determining the total rentable area is one of the initial steps in assessing a commercial property. Doing so requires an understanding of two key concepts, rentable area and usable area. The following two sections contain information about rentable building area and usable building area.

Rentable area Rentable area can be defined as the usable area of the tenanted space, plus an allocation of floor common areas, such as the lobby, janitorial areas, washrooms, and electrical room. This concept is most commonly found in office leases. According to the BOMA standards, the total rentable area of an office property is the gross floor area, minus any areas occupied by columns or projections (e.g., elevator shafts, stairways, or ventilation shafts).

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Usable area Usable area is the area within walls of the tenant space, in other words, the actual space occupied by the tenant. The actual difference in square footage between the usable and rentable area is often referred to as the loss factor. Per the BOMA standards, the usable area of an office floor is calculated by measuring the total area enclosed by the finished surfaces of the office side of corridor walls and other permanent walls, the centre line of partitions separating individual tenanted areas, and the dominant portion of the vertical perimeter wall. No deduction is made for any supporting columns or projections necessary to the overall building structure. BOMA provides detailed guidelines related to such measurements, particularly in terms of the perimeter walls that may have unique glass/masonry/steel configurations. While the BOMA standards are widely used in Canada, variations exist in the marketplace.

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Lesson 8 | Page 8 of 11

Rentable/Usable Factor

The rentable/usable (R/U) factor, also referred to as the loss factor, add-on factor, or conversion rate, is a mathematical relationship between rentable and usable areas in commercial real estate. The R/U factor can be expressed as a decimal or a percentage. The following example illustrates how the R/U factor associated with a commercial property can be calculated: If the rentable area of a leased office is 1,650 sq. ft. and its usable area is 1,450 sq. ft., the R/U factor is 1,650 ÷ 1,450 = 1.1379. Consequently, to determine the amount of rentable space when the usable space is known, the usable space is multiplied by the R/U factor. In some instances, the R/U factor is merely expressed as an additive figure, that is, 0.1379 or 13.79 per cent, as opposed to the true R/U factor, which is 1.1379. In multi-level buildings with multiple tenants on each floor, the landlord normally computes R/U factors and exact usable and rentable areas of all suites for the information of prospective tenants.

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As a matter of practical importance, not all rental buildings are accurately measured for usable and rentable areas. In fact, the factor stated by the landlord may not precisely reflect rentable/usable areas, but merely represent an approximation. Depending on the strength of the local market, the add-on could be smaller or larger than a true measurement would reveal. Further, if the landlord is using BOMA standards, the calculation of rentable area will vary, depending on whether the more recent BOMA whole building calculation is being used or the previous floor-by-floor approach is being applied. R/U factor formulae: Rentable area ÷ usable area = R/U factor Rentable area ÷ R/U factor = Usable area Usable area x R/U factor = Rentable area

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Lesson 8 | Page 9 of 11

A prospective tenant is about to make an offer to lease a unit in an office building from which to run a marketing company. This unit has a usable space of 2,000 sq. ft. The tenant will be paying additional rent on top of the base rent. Question #19: Which one of the following would be a correct statement with respect to the usable space of the unit that the tenant is about to make an offer on? There are four options. There is only one correct answer.

1

The unit’s usable area would be the rentable area of the unit plus an allocation of the building’s common areas.

2

In commercial real estate the terms usable and rentable area mean the same thing. They both refer to the actual space that would be occupied by the tenant.

3

The unit’s usable area would be the area within the walls of that unit. It is the actual space that will be occupied by the tenant.

4

In commercial real estate the terms usable and rentable area mean the same thing. It is the actual space that will be occupied by the tenant plus an allocation of the building’s common area.

Exam Study Guide

Lesson 8 | Page 10 of 11

As per BOMA standards, there are several aspects of area calculation involving a commercial building. These measurements are important for calculating rent and maintenance costs in a commercial lease. The following three sections contain information about gross building area, gross leasable area, and common area.

Gross building area The gross building area can be defined as the total gross floor area of a building, based on external measurements, excluding any unenclosed areas. However, two professionals using the same measuring standard can arrive at different total areas. BOMA acknowledges a two per cent permitted variance for differences in interpretations of standards and associated measurements, suggesting that two independently conducted area measurements that are within two per cent of each-other are considered equal.

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Gross leasable area The gross leasable area is a measurement of the total floor area designed for the occupancy and exclusive use of tenants in a commercial enterprise, such as a shopping centre or office complex. Though BOMA standards are widely accepted, methods to calculate gross leasable area may differ in various parts of the province.

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Common area The common area includes all areas used by two or more tenants, and/or third parties, and not under the control of any one tenant; for example, lobbies, corridors, elevators, washrooms, and stairways. As you learned earlier in this module, common area maintenance (CAM) refers to landlord’s costs attributable to the common areas involving factors such as the repair, maintenance, operation, supervision, administration, etc. of such areas. CAM charges are usually pro-rated among the building tenants and billed as additional rent (over and above the base rent). Essentially, CAM charges payable by a tenant reflect the tenant’s proportionate share of the landlord’s occupancy costs. CAM charges and the associated obligations of the tenant are typically outlined in the CAM clause in the lease.

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Lesson 8 | Page 11 of 11

Congratulations, you have completed the lesson! There are two sections on this page with a summary of the key topics that were covered in this lesson.

Standards for measuring a commercial unit or building

The BOMA standards refer to the methods for measuring floor area in office buildings established by BOMA to ensure consistency and to promote an industry standard. They are complex and require technical expertise to understand. A tape measure and a laser measuring device are often used to measure the area of a commercial unit or building. Salespersons can use as-built drawings to confirm the accuracy of area measurements. In case of a discrepancy between the salesperson’s measurement and the drawings, or a lack of drawings, a professional building company can be involved. Rentable area is defined as the usable area of the tenanted space, as well as an allocation of floor common areas. Usable area refers to the actual space occupied by the tenant or the area within walls of the tenant space.

Key aspects of area calculation

The R/U factor represents a mathematical relationship between rentable and usable areas in commercial real estate, and can be expressed as a decimal or a percentage. The gross building area is the total gross floor area of a building calculated using external measurements, excluding any unenclosed areas. The gross leasable area is defined as a measurement of the total floor area designed for the occupancy and exclusive use of tenants in a commercial enterprise. The common area includes all areas used by two or more tenants, and/or third parties, and not under the control of any one tenant, such as lobbies, corridors, or elevators.

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Lesson 9 | Page 1 of 8

Lesson 9: Prepare a Comparative Market Analysis

This lesson will help you understand how to prepare a comparative market analysis (CMA) for your client when leasing a commercial property. You will learn about the steps and considerations required for conducting an informative CMA.

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Lesson 9 | Page 2 of 8

A properly prepared comparative market analysis (CMA) can be critical for a lease negotiation. The CMA can be generally described as an analysis to assist the landlord in comparing their property with others in the marketplace in order to establish a rental rate. The CMA helps assess how the landlord’s property stacks up against the competition based on other similar properties that are now for lease, leased, or expired/removed from the market. Comparable property specifics are limited and no detailed adjustments are made. Well-prepared CMAs are useful for salespersons to obtain the highest rent for the landlord, while positioning the property correctly in the marketplace. Conversely, a CMA can help a tenant evaluate the pros and cons of rental properties, based on the priorities defined by the tenant. Upon completion of this lesson, you will be able to: • Prepare a comparative market analysis for a lease Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

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Lesson 9 | Page 3 of 8

Gathering Pertinent Information on Surrounding, Comparable Properties/ Units Depending on the client’s priorities, a salesperson should take into consideration the comparable properties of the actual site. However, as a salesperson, you should keep in mind that, if completed correctly, the CMA should be an honest assessment, regardless of the client’s priorities; otherwise, it can be flawed. The following seven sections contain information about the considerations for gathering information on comparable properties/units.

Location

Visit comparable properties, and identify strengths and weaknesses associated with the location of each property. Evaluate the properties in terms of convenience and access.

Prices and rents

Analyze the history of rental prices over the last five years in the area and identify trends, if any.

Building compliance and regulations Occupancy analysis

Understand the rules and regulations that apply to the property, with a focus on risk factors and potential liability issues that can affect property occupation or business.

Supply and demand

Analyze the status of the market in terms of supply and demand, and consider how it might affect the client’s interest.

Improvements

Evaluate properties, based on the perceived quality and types of the improvements, the services, and the amenities.

Time on market

Consider the length of time it usually takes to lease a commercial property when establishing listing terms and developing marketing plans.

When working with a landlord, assess the current leases, tenants/tenant mix, rents, and vacancies, as well as the history of the property.

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Lesson 9 | Page 4 of 8

Determine Market Trends and the Rental Rates of Comparable Properties

For a salesperson representing a landlord, one of the key questions to address when preparing a CMA is “what is the landlord’s property competing against?” By analyzing the competitive listings, the salesperson can assess the strengths and weaknesses of comparable properties that have recently been leased. This allows the salesperson to assist their client in determining an appropriate rental rate for the property and in identifying the positive property features that can distinguish the client’s property from others on the market. For a salesperson representing a tenant, it is important to consider all rents, CAM charges, taxes, maintenance, insurance, and other operating costs in the context of comparable buildings in the area (these factors may also be a landlord’s CMA criteria). These factors should be weighed against the benefits associated with the building’s location, amenities, access to transportation, appearance, inducements, improvements, etc. Also, the salesperson should consider any local developments to evaluate the availability of all rental properties in the area, as well as the demand for such properties. Taken together, these types of information that a CMA provides will help the tenant make an informed decision on a property that offers desirable features at an appropriate rental rate, considering market conditions and supply and demand forces. Exam Study Guide

Lesson 9 | Page 5 of 8

Management Fees as Additional Rent As management fees can vary from site to site, a CMA can identify the differences in the cost of the fees in relation to the apparent benefits associated with the fees. Management fees are considered as additional rent because they can be assessed on a square footage basis over and above the base rent, depending on the lease (i.e., the calculation method can vary from lease to lease). A CMA should compare the average management fees for the area, and if the management fees of the subject property are too high, the salesperson should identify the reasons and determine the relative value that such high management fees provide.

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Lesson 9 | Page 6 of 8

A salesperson works for a local commercial brokerage. The salesperson is preparing a Comparative Market Analysis for a 1,800-sq. ft. retail unit in a small shopping plaza on which a client is considering making an offer to lease. Question #20: Which one of the following would be a correct statement with respect to a properly prepared Comparative Market Analysis? There are four options. There is only one correct answer.

1

In a CMA, detailed dollar adjustments made to the rents of each comparable rental unit take account of any differences between the comparable and the subject unit.

2

In a CMA only the base rents of a comparable retail unit will be considered given that additional and percentage rents will differ depending on the retail unit being considered.

3

A CMA will compare the subject unit to other similar retail units that are currently for lease, leased and/or expired, or removed from the market.

4

Management fees are considered as being part of the base rent, rather than an additional rent as this is specific cost that would affect every kind of commercial property that is being leased.

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Lesson 9 | Page 7 of 8

Providing an Opinion of the Market Rent for the Subject Property

Market rent can be described as the rent amount that a landlord might reasonably expect to receive, and a tenant might reasonably expect to pay. It is a useful guide for landlords to determine the fair rental rate for the property. Ideally, the listing rental price is established to attract informed tenants, while keeping the property competitive with comparable properties on the market. A salesperson’s ability to effectively position a property in the marketplace can directly affect the actual rental income that the landlord can receive. If a landlord charges a substantially higher rent than the market rent, they might fail to attract prospective tenants.

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Lesson 9 | Page 8 of 8

Congratulations, you have completed the lesson! There is one section on this page with a summary of the key topic that was covered in this lesson.

Preparing a comparative market analysis for a lease

Consider a number of factors when gathering information on comparable properties, such as location, prices and rents, building compliance and regulations, occupancy analysis, supply and demand, improvements, and time on market. When preparing a CMA: • Research recent leasing transactions to determine how the landlord’s property compares with other properties in the area. This also allows the tenant to evaluate the pros and cons of properties with comparable features. • Research local developments to identify rental availability and market trends. Analyze the rents of comparable properties, with a focus on additional rents, CAM charges, TMI, and management fees, to weigh the relative benefits of each property against the associated costs. Advise your client on the market rent for the property to determine a rental rate that can attract quality tenants, while competitively positioning the property in the marketplace.

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Lesson 10 | Page 1 of 9

Lesson 10: Factors Affecting Advertising and Marketing

In this lesson, you will learn about the rules and regulations pertaining to marketing and advertising commercial properties. This lesson will also discuss how to effectively advertise and market a commercial property for lease.

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Lesson 10 | Page 2 of 9

When marketing any commodity or service, it is essential to be thoroughly familiar with that commodity or service, and know all of its strengths and weaknesses. This is particularly true when marketing rental properties. When a salesperson is given the responsibility of marketing and advertising a property for lease, it is important that they first create a marketing plan. Careful consideration must be given to the development of the marketing plan to include all of the important factors affecting marketing decisions. Further, all advertising and marketing activities in real estate must comply with the provisions under REBBA. This lesson will examine the key elements of a marketing plan, and the REBBA requirements with which a salesperson must comply when marketing and advertising a property. Upon completion of this lesson, you will be able to: • Identify key points in advertising and marketing Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented. Exam Study Guide

Lesson 10 | Page 3 of 9

A broker of record must have in place methods to closely monitor all of its salespersons’ advertising activities, based on six primary regulatory obligations. Detailed checklists are available to assist salespersons when creating or expanding internal advertising controls. The following six sections contain information about the REBBA requirements for advertising.

False and Misleading Advertising

REBBA provides that salespersons cannot make false, misleading, or deceptive statements in any advertising relating to a trade in real estate. The Registrar can order the removal of false advertising, as well as require salespersons to retract statements and publish corrections. The Registrar may also require the pre-approval of a salesperson’s advertising for a period up to one year, when that individual has been in violation of these advertising provisions.

Falsifying Information

REBBA defines falsifying information as an explicit offence by a salesperson to either falsify information, or counsel someone else to do so, in the context of a trade in real estate. An example would involve a salesperson advising a landlord to falsify information about their property.

Promises/Inducements A salesperson must not, as an inducement to lease real estate, make any

representation or promise that the salesperson or any other individual will lease the real estate. For example, a salesperson must not market themselves by guaranteeing they will lease their client’s property themselves if they are unable to find an appropriate tenant within a certain period of time. However, this provision does not apply if the salesperson has entered into a written contract with the person to whom the promise is made, which obligates the salesperson to comply with that promise. For instance, a salesperson may promise to lease the landlord’s property or guarantee its rental price. This promise must be established in a written contract, with the landlord detailing exactly what is being promised.

Salesperson Name/Identification

The General Regulation sets out requirements at time of registration and the Code of Ethics addresses ongoing advertising, that is, the salesperson’s registered name and

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registration designation of the employing brokerage. Salespersons must not use any term in their advertising that could cause confusion as to the salesperson’s status under REBBA.

Information about Parties, Properties, and Agreements

Salespersons must not identify parties, specific real estate, or particulars of agreements without written consent of both the landlord and tenant, regardless of whether the transaction has closed.

Inaccurate Representations

A salesperson must not knowingly make an inaccurate representation regarding a trade in real estate. Also, a salesperson must use their best efforts to prevent any error, misrepresentation, fraud, or any other unethical practice relating to a trade in real estate.

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Lesson 10 | Page 4 of 9

A salesperson works for a commercial brokerage and had listed 4,000 sq. ft. of space for lease in a commercial building. Based on information provided verbally by the owner of the property, the advertising for this listing showed that the zoning would allow for light industrial use. After six months, the salesperson leased the unit to a company in the consumer electronics business. However, it turned out that the owner unintentionally misinformed the salesperson about the zoning for this property which, in fact, did not allow for any industrial uses including consumer electronics. This mistake was discovered just before the tenant company moved in. Question #21: Has the salesperson violated any of his obligations under the Code of Ethics? There are four options. There is only one correct answer.

1

Yes, the salesperson should have asked the owner to verify the zoning and confirm that in writing. Clearly the salesperson has violated Code: Sec. 37 in that he has knowingly made a misrepresentation in the marketing of the property.

2

No, the salesperson is entitled under indemnification to rely on information provided to them by the owner of a property. The Code of Ethics only applies to fraudulent misrepresentations that are made knowingly.

3

Yes, the salesperson should have verified the zoning himself and has in fact violated Code: Sec. 38 in that he did not use best efforts to avoid a mistake/misrepresentation regarding the zoning.

4

No, because the mistake was discovered prior to the tenant moving in and therefore, the salesperson would have no liability under the Code of Ethics.

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Lesson 10 | Page 5 of 9

Identifying the Target Tenant Profile

The tenant profile or type of tenant most suited to a building, is based on different criteria for each property type. Conversely, tenants also have certain criteria for the type of the space that they are seeking. It is the standard, not only of the structure itself, but also of all the amenities, services, and facilities that it provides. Understanding the tenant criteria (i.e., needs and wants) is essential for presenting an effective sales pitch to prospective tenants. It allows the salesperson to emphasize all the positive features of a particular building and to downplay the weaknesses. Defining the target market may not always be straightforward; for example, identifying a specific type of target tenant is often much more difficult for a large office building, with potentially many different uses, than for an industrial building, with a limited number of highly specialized uses.

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Lesson 10 | Page 6 of 9

Showcasing Key Features of the Property and Neighbourhood

As you learned earlier in this module, knowing the tenant criteria is useful for emphasizing the positive elements of a property. These tenant criteria heavily depend on the type of property and determine what features should be highlighted in an advertising campaign. For example, access to public transportation and parking are often highlighted when advertising a retail or office lease, while loading dock specifics and access to major highways are often considered important for an industrial lease.

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Lesson 10 | Page 7 of 9

A salesperson working for a large commercial brokerage has just leased 20,000 sq. ft. of retail space in a power centre. The client, the owner of the power centre, is delighted with the salesperson as they obtained a much higher than expected rental rate. The salesperson feels that if she could advertise the rental rate she achieved, she would likely get more business from other retail landlords in the area. She wants to advertise the rent she achieved for the owner prior to the start of the lease. The tenant was represented by another salesperson working for a different brokerage. Question #22: Which one of the following statements regarding advertising the rental rate achieved in a lease and the Code of Ethics is correct? There are four options. There is only one correct answer.

1

The salesperson only needs the consent of her client, the landlord, to advertise the amount of rent obtained in the lease agreement.

2

Before the transaction closes, the salesperson would only need the consent of the client to advertise the amount of rent obtained in the lease agreement. After the tenant moves in, the salesperson would also require the consent of the tenant.

3

The salesperson can advertise the rent obtained on the retail space provided the written consent of both the landlord and the tenant is obtained.

4

The salesperson would only be able to advertise the amount of rent obtained in the lease agreement after the tenant moves in and it would require only the written consent of her client to do so.

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Lesson 10 | Page 8 of 9

Selecting Appropriate Marketing Materials and Channels

Advertising in a variety of forms is an integral part of the marketing process, with the aim of drawing the attention of potential tenants, while providing sufficient information to stimulate their interest. In all advertising campaigns, the most important issues to address are how to reach the greatest number of people and which media to use. To achieve the greatest impact in advertising, a salesperson is typically concerned with reaching the maximum number of potential tenants using several different channels. Some of these marketing materials and channels which may be considered include newspapers, business magazines, professional journals, brochures, websites, social media, on-site signs, and advertising agencies. Regardless of the marketing media used, the information in it must be concise and informative. Creating innovative ways of reaching a large number of prospective tenants, and drawing their attention using unconventional marketing channels and materials can also lead to an effective advertising campaign.

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Lesson 10 | Page 9 of 9

Congratulations, you have completed the lesson! There is one section on this page with a summary of the key topic that was covered in this lesson.

Key points in advertising and marketing

REBBA sets out advertising requirements for salespersons in the following provisions: • False and misleading advertising • Falsifying information • Promises/inducements • Registrant name/identification • Particulars regarding property, parties, and agreements • Inaccurate representations Determining the target market for a commercial property involves identifying a tenant profile based on tenant criteria of what potential tenants would consider as important property features. Selecting key property features that should be highlighted in advertising depends on the type of property and tenant criteria. It is important to showcase the strengths of the property while downplaying the weaknesses, with specific considerations in the target tenant profile and tenant criteria. The two most important considerations when developing a marketing strategy are how to reach the greatest number of people and which media to use. Some of the commonly used marketing channels in real estate include newspapers, business magazines, professional journals, brochures, websites, social media, on-site signs, and advertising agencies.

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Lesson 11 | Page 1 of 7

Lesson 11: Summary Practice Activities

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

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Lesson 11 | 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 11 | Page 3 of 7

This module covered the foundational knowledge for leasing commercial properties from both a landlord and tenant’s perspective. It covered the different types of commercial properties, common terms used in leases, the roles and responsibilities of landlords, tenants, property managers and salespersons. It touched on calculating additional rent and percentage rent as well as the obligations of REBBA and the importance of a Comparative Market Analysis. Question #23: Given that some of the statements will follow a scenario, identify those statements that are true with respect to the leasing of commercial properties. There are five options. There are multiple correct answers.

1

Additional rent is generally calculated at the end of any fiscal or calendar year for the building and is paid by the tenant as a lump sum once the actual costs are known.

2

The common area maintenance charges are the landlord’s costs attributable to the common areas related to the repair, maintenance, operation, supervision, and administration of such areas. These charges would not include property taxes, or property insurance.

3

The following would be examples of two different types of exclusive use or rights clauses in a shopping centre: John is the only tenant allowed to run a men’s clothing store in the shopping centre, and John is the only tenant that can sell men’s shoulder bags.

4

Signage can be very important for any business. Signage rights and who pays for the signage would be subject to lease negotiations.

5

Based on the provisions of the Commercial Tenancies Act if fixed-term tenants continue to occupy leased premises after the end of the lease term and after being asked to move out by the landlord, those tenants may be subject to a penalty of two months’ rent for every month they remain on the premises, plus applicable costs. In addition, the landlord may also apply to the Superior Court of Justice to obtain an eviction order. Exam Study Guide

Lesson 11 | Page 4 of 7

Ahmed is a tenant who is about to make an offer to lease retail space in a shopping centre. He is represented by a salesperson who tells him that the listing indicates the unit has 3,000 sq. ft. of usable space. The unit has a very irregular shape and the salesperson does not have the expertise to measure the unit. The salesperson puts a condition in the offer to lease that makes the offer subject to a third-party expert confirming that the unit is in fact 3,000 sq. ft. The offer is accepted by the landlord. It turns out that the unit measures only 2,500 sq. ft. and as a result is not large enough for Ahmed’s business. The agreement to lease becomes null and void and Ahmed eventually rents space in another plaza. Question #24: Identify the statement that is true. There are two options. There is only one correct answer.

1

Based purely on the information provided in the scenario, the salesperson has violated the Code of Ethics’ obligation with respect to material facts. The material facts should have been determined and reported to Ahmed prior to him making an offer.

2

A salesperson should provide a Comparative Market Analysis to a client landlord prior to listing space for lease or to a client tenant prior to preparing/making an offer to lease. When gathering relevant information for a CMA, a salesperson should consider such factors as location, prices and rents, quality of the improvements, services and amenities, as well as conduct an occupancy and supply and demand analysis.

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Lesson 11 | Page 5 of 7

Helenka leases 3,000 sq. ft. of retail space in Anywhere shopping centre. She has three years left on her lease but needs to move into a much larger space given the success of her business. Terry is a salesperson working for a commercial brokerage and he has been showing Helenka some prime space to lease in another shopping centre, 5 kilometers away from her current location. Based on a verbal promise that he will easily be able to obtain an assignment of her current lease, Helenka makes an offer to lease a larger space in the other shopping centre. That offer is accepted. Question #25: Providing Terry fulfills his promise to obtain an assignment of her lease with the Anywhere shopping centre, that promise would not violate any of his obligations under REBBA. Identify whether the statement is true with respect to the leasing of commercial properties. There are two options. There is only one correct answer.

1

True

2

False

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Lesson 11 | Page 6 of 7

The total rentable area of a 10-storey office building is 125,400 sq. ft., and the usable area is 103,600 sq. ft. The landlord determines additional rents for each individual tenant using the tenant’s rentable area. The total common area maintenance (CAM) charges are $520,550 for the current year. One of the tenants has 3,650 sq. ft. of usable area and pays minimum rent of $18 per sq. ft. Question #26: Based purely on the given information, how much additional rent would this one tenant pay for the current year? There are three options. There is only one correct answer.

1

$18,339.84

2

$19,400.91

3

Any other number

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Lesson 11 | 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 the module!

This lesson will present a summary of Learning Objectives.

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Module summary | Page 3 of 3

There are 10 sections on this page with a summary of the key topics that were covered in this module.

An introduction to commercial leases

Types of commercial leases can be classified into gross, net, and percentage leases, based on the structure and arrangement of rent payments. Certain lease types are more commonly found in a particular type of property. Base rent refers to the minimum rent payable by a tenant, while additional rent represents the proportionate share of operating costs, in addition to the base rent. Completion of this lesson has enabled you to: • Explain the types of commercial leases • Detail the types of rent a landlord could charge

Key considerations when leasing a commercial property

All leases must contain the minimum required content and a full account of rent terms, including the rights and obligations of the landlord and tenant. Representation during the lease negotiating process provides several benefits to both the landlord and tenant. Common considerations and issues in commercial leasing include CAM charges, the ability to customize the space and resolution, and protection measures for any landlord and tenant disputes. The specific key considerations in a lease should reflect the type of the commercial property involved. Completion of this lesson has enabled you to:

Considerations for office, retail, and industrial leases

• Describe key considerations when leasing any commercial property For office leases, LEED certification may attract larger company tenants who seek to enhance their corporate image as a safe and socially responsible workplace. Tenants can customize open-concept office areas to fit their business needs related to the number of office spaces and reception area. Shared meters are often used for office buildings. Tenants may request the landlord for renovations to improve building accessibility, in compliance with the Ontario Building Code, to attract more employees and customers, with the costs being recovered over the lease term. Parking requirements should be established in the lease to ensure sufficient parking spots for the intended use by the tenant. Any signage-related details and restrictions Exam Study Guide

must be specified in the lease, in addition to the party responsible for associated costs. For retail leases, tenants typically have control over how they can customize a space to support their business requirements. Some tenants may seek exclusive rights to operate their type of business to protect their sales potential. Shopping complexes and malls generally have features to accommodate customers with accessibility issues, while older properties lacking such features attract fewer tenants. Possible restrictions on the time and location allowed for delivery of stock, as well as any tenant-specific requirements for stock delivery, should be set out in the lease. Specific signage location, the party responsible (often the tenant) for related costs, and any restrictions should be indicated in the lease. Industrial leases can provide for the allocation of space on the premises to nonindustrial uses to accommodate administrative and other staff, with related details specified by the tenant. Tenants should ensure that the building features, such as electrical system, sprinkler density, clear height, bay size, floor loads, column spacing, and HVAC, can accommodate their industrial use. The tenant typically pays the operating costs in an industrial lease, and those who seek a larger industrial operation should ensure that their required utilities are available on the premises or can be upgraded to support their intended use. Requirements for loading docks and delivery areas are often determined by the type of the delivery vehicle, the mode of delivery, and/or the nature of the industrial operation. Environmental impacts of a tenant’s operation need to be given careful consideration to prevent any harmful consequences to the environment and/or surrounding area, as well as any required waste-processing facilities or disposal services. Completion of this lesson has enabled you to: • Describe key components of leasing an office property • Describe key components of leasing a retail property • Describe key components of leasing an industrial property

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Key regulations affecting a commercial lease

Important regulations that govern commercial leases include the Commercial Tenancies Act, municipal zoning and bylaws, licensing acts, the Statute of Frauds, the Short Form of Leases Act, and rules and regulations of the building/condominium corporation. Always seek the advice of third-party professionals, such as lawyers, for guidance on any legal issues. Completion of this lesson has enabled you to: • Explain the impact of key regulations on the leasing of a commercial property

Due diligence obligations of a salesperson

A salesperson’s conduct regarding a trade in real estate should comply with the requirements established in the Code of Ethics and fulfill the responsibilities related to due diligence. As a salesperson, you must verify all pertinent information about the property, as well as information provided by the landlord or tenant. When unable to provide the necessary services, you must refer your client to a third-party professional. Completion of this lesson has enabled you to:

Services provided to a tenant or landlord

• Identify the compliance and due diligence required of a salesperson when leasing a commercial property A salesperson has obligations to provide their client with the services required to ensure that the client can make informed decisions, and obtain lease terms that are fair and beneficial to both parties. Such services include gathering pertinent information, conducting due diligence, and preparing and negotiating the terms of a lease. Brokerages or salespersons can be compensated for their services, according to the allowable methods for calculating remuneration as established under REBBA. Completion of this lesson has enabled you to: • Describe the services a salesperson could provide a tenant • Describe the services a salesperson could provide a landlord • Identify how a brokerage can be compensated for lease negotiations

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Responsibilities of parties involved

Landlords or property owners have several responsibilities, including providing quiet and safe possession of the leased premises to the tenant, and supplying accurate information about the property to the salesperson. Property managers have general responsibilities related to maintaining the property in terms of financial, physical, and operational aspects. They also play a key role in facilitating communication and a good relationship between landlords and tenants. Completion of this lesson has enabled you to: • Describe roles and responsibilities of an owner/landlord • Describe roles and responsibilities of a property manager

Calculate areas and related linear measurements

The BOMA standards are widely used when measuring a commercial building. A salesperson may be required to measure building areas for verification purposes using various tools, namely, measuring tapes and laser measuring devices. Area calculation involves several key aspects, such as the R/U factor, rentable area, and gross leasable area, all of which are important for calculating base and additional rents. Completion of this lesson has enabled you to: • Identify standards for measuring a commercial unit or building • Explain key aspects of area calculation

Prepare a comparative market analysis

A CMA is designed to assist a landlord in comparing their property with other similar properties on the market, and a tenant in assessing the pros and cons of rental properties. A salesperson can prepare a CMA by conducting research on properties in an area, analyzing market trends, and evaluating the features of each property. Completion of this lesson has enabled you to: • Prepare a CMA for a lease

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Factors affecting advertising and marketing

All advertising activities in real estate must comply with the relevant provisions under REBBA. Advertising and marketing a commercial property involves identifying the target market, showcasing the key features of the property, and selecting appropriate marketing materials and channels. Completion of this lesson has enabled you to: • Identify key points in advertising and marketing

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Appendix | Page 1 of 2

Appendix Answer Key Question #1: 1, 4, 5 Question #2: 2 Question #3: 2 Question #4: 2 Question #5: 3 Question #6: 1, 3 Question #7: 3 Question #8: 3 Question #9: 4 Question #10: 3 Question #11: 1, 4 Question #12: 2, 3, 5 Question #13: 1 Question #14: 3 Question #15: 1 Question #16: 1 Question #17: 2 Question #18: 2 Question #19: 3 Question #20: 3 Question #21: 3 Question #22: 3 Question #23: 3, 4, 5

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Appendix | Page 2 of 2 Question #24: 2 Question #25: 2 Question #26: 1

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Module: Transactions Involving Brokering the Sale of a Business This is a study guide to help you prepare for the qualifying exam. There are multiple study guides that are provided for preparation. Each study guide contains several decision points to test your knowledge. The answer key to these decision points is present in the “Appendix” section at the end of the guide. Please use Adobe Acrobat Reader (Recommended version 9 or above) to navigate through this PDF. Real Estate Pre-Registration 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 PreRegistration Program learner.

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Module: Transactions Involving Brokering the Sale of a Business

This module provides an overview of a salesperson’s obligations, as set out in the Real Estate and Business Brokers Act (REBBA) and other applicable legislation, when trading in businesses. As a salesperson, you will need to know how REBBA defines a business, the components of a business sale, and the importance of documents such as financial statements, chattels and fixtures statements, leases, agreements, and licences. You will need to know how to prepare to list a business and which clauses to include in the offer that promote and protect the best interests of a client. You will need to be able to differentiate between an asset sale and a share sale and between turnkey and franchise businesses, and understand the various methods of valuing a business. This module also reviews the compliance challenges you may face as a salesperson when trading in businesses. To ensure you are complying with your regulatory obligations of providing conscientious and competent service, you will need to recognize what may go wrong when closing a transaction and what preventive or corrective actions you can take. Once you are registered with RECO, you will be permitted to trade in any type of property, including businesses. However, trading in businesses is complex; every business trade will have unique characteristics and challenges. Since you will not be an expert in all areas of business trades, you will need to advise a seller or buyer to obtain the services of third-party professionals, such as accountants, lawyers, or taxation experts. More importantly, if you are interested in this specialized area of real estate, you are encouraged to pursue further relevant learning opportunities to ensure you can provide services and act in the best interests of your clients. Exam Study Guide

Menu: Transactions Involving Brokering the Sale of a Business Number of Lessons Lesson Number

12 Lessons Lesson Name

Lesson 1

REBBA's Impact on the Sale and Purchase of a Business

Lesson 2

Additional Regulations and Legislation Impacting the Sale of a Business

Lesson 3

Providing Services to a Seller or Buyer

Lesson 4

Understanding Financial Statements

Lesson 5

Key Considerations when Selling a Business

Lesson 6

Valuing a Business

Lesson 7

Role of Third-Party Professionals

Lesson 8

Turnkey and Franchise Businesses

Lesson 9

Preparing to Sell a Business

Lesson 10

Pre-closing Issues for a Business Trade

Lesson 11

Summary Practice Activities Module Summary Appendix

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Lesson 1 | Page 1 of 10

Lesson 1: REBBA's Impact on the Sale and Purchase of a Business

This lesson provides a definition of a business and explains the regulatory requirements of salespersons under REBBA. This lesson also explains that trading in businesses is a specialty within the real estate profession that requires specific skills and additional education.

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Lesson 1 | Page 2 of 10

REBBA's Impact on the Sale and Purchase of a Business

Selling or buying a business is complex considering every business has unique qualities and requirements. As a salesperson, you will need to know how the Real Estate and Business Brokers Act (REBBA) defines a business and the components of a business sale. You will also need to know about the regulatory requirements of Ontario Regulation 567/05 that relate to business trades. With this knowledge, you will be better able to advise your seller or buyer clients and identify situations where you will need to advise them to consult an appropriate third-party professional, such as an accountant or lawyer. Trading in businesses is a specialty area within the real estate profession. As such, you will also need to be able to differentiate between the sale of a business with and without real property. As highlighted earlier, you are encouraged to pursue further relevant learning opportunities to ensure you can provide services and act in the best interests of your client when trading in businesses.

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Upon completion of this lesson, you will be able to: • Identify the application of REBBA when a salesperson facilitates the trade of a business • Explain business brokerage as a specialty within the real estate profession • Detail the requirements under REBBA that affect the purchase or sale of a business 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 10

Trading in Businesses A brokerage is legally viewed as the agent in a real estate trade. A salesperson, who must be employed by a brokerage to trade in real estate, is a representative of the brokerage and acts on the brokerage’s behalf. A salesperson involved in business trades must comply with REBBA. In particular, a salesperson must know how REBBA defines a business and the components of a business sale. A salesperson must also understand the provisions of Ontario Regulation 567/05 (General) that pertain to business trades. The following two sections contain information on the definition of business and the impact of REBBA on salesperson activities.

Definition of business and components of a business sale REBBA defines a “business” as an undertaking carried on for gain or profit, including any interest in any such undertaking. A business operation is a separate entity and different from real property, although the two may sometimes coincide. For each trade, components of the sale depend on the particular circumstances of the business operation. The sale of a business may include one or more of the following components: An agreement of purchase and sale for real property A lease of premises A purchase of business assets, such as inventory, equipment, and others The transfer of the shares of the business A combination of any of the above

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The nature of the sale of business can also involve the sale of only assets or shares. You will learn more about the sale of business assets and shares later in this module.

Regulatory requirements A salesperson must comply with sections of Ontario Regulation 567/05 that relate specifically to trading businesses, as follows: • If a salesperson negotiated the purchase on behalf of a seller, this listing salesperson must deliver to the buyer before a binding agreement of purchase and sale is entered into, three statements signed by the seller or signed on behalf of the seller. • There are consequences for not providing these statements. These statements include: (1) a profit and loss statement; (2) a statement of assets and liabilities; and (3) a statement containing a list of all fixtures, goods, chattels, other assets and rights not included in the trade. You will learn more about these statements later in this lesson. • In certain circumstances, such as if financial statements are not available, a listing salesperson may need to provide a buyer with an affidavit statement signed by the seller under oath. You will learn more about this topic later in this module.

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Lesson 1 | Page 4 of 10

Business Brokerage as a Real Estate Specialty

A business brokerage is a specialty within the real estate profession. Any salesperson registered with RECO may trade in businesses as they would in any type of real estate. Some salespersons may even view trading in businesses as a natural extension of commercial leasing because businesses are frequently located in leased premises. However, brokerages that specialize in business trades will generally only facilitate these types of transactions. In this type of trade, a sale involves the transfer of ownership of the business entity and not the real property, although real property may be a component of the sale. In such situations, the real estate is usually marketed as separate from the business enterprise. In other situations, a seller retains the property and assumes the role of a landlord. Trading in businesses may also involve the sale of only assets or shares. You will learn more about assets and shares later in this module. As a salesperson, if you are interested in trading in businesses, you are encouraged to pursue further relevant learning opportunities to ensure you can provide services and act in the best interests of your clients.

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Lesson 1 | Page 5 of 10

Business Brokerage as a Real Estate Specialty

The examples that follow demonstrate the complexity of trading in businesses and the additional factors a salesperson may need to consider. Example 1: A salesperson is representing a buyer interested in purchasing a restaurant and the property on which the restaurant is located. The salesperson finds a restaurant located in a free-standing building and the restaurant owner owns the real property. The business and the real property are separate entities. Therefore, the salesperson needs to prepare two separate agreements of purchase and sale – one for the sale of the business and one for the sale of the real property. Example 2: A salesperson is representing a buyer interested in purchasing a dry-cleaning business listed for sale in a leased space. The buyer only wants to purchase the dry-cleaning business and does not want to relocate. The buyer’s offer is conditional upon the buyer receiving approval by the landlord to continue to lease the space. The buyer would be purchasing the business as a separate entity and would not be purchasing the real property. Therefore, the salesperson needs to prepare only one agreement of purchase and sale, for the sale of the business.

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Lesson 1 | Page 6 of 10

Regulatory Requirements Under REBBA Affecting the Purchase of a Business As a salesperson, you will need to know the regulatory requirements of Ontario Regulation 567/05 that relate to the sale of a business. For example, if you are representing a seller, you will need to discuss with the seller their obligation to provide the buyer with specific information, such as a profit and loss statement, an assets and liabilities statement, and a statement listing the fixtures, goods, chattels, other assets, and rights not included in the trade. Failure to do so would result in consequences for the seller. The following three sections contain information on these regulatory requirements.

Providing statements to the buyer A salesperson negotiating the sale of a business on behalf of a seller must provide the following statements to the buyer before the parties enter into a binding agreement of purchase and sale: 1. A profit and loss statement for the business for the preceding 12 months or since the seller acquired the business 2. A statement of the assets and liabilities of the business 3. A statement containing a list of all fixtures, goods, chattels, other assets, and rights relating to or connected with the business that are not included in the trade These statements must be signed by the owner (that is, the seller or the signing authority for the business). You will learn about the required course of action when a seller is not able to provide one or more statements later in this lesson. Exam Study Guide

Consequences of not providing the list of items not included in the transaction If a salesperson does not provide the list of items not included in the transaction and the agreement of purchase and sale does not specify which assets are excluded from the sale, then the fixtures, goods, chattels, assets, or other rights will be considered included in the trade.

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Affidavit statements Sometimes, a seller is unwilling or unable to provide the profit or loss statement or the statement of assets and liabilities. In such situations, the listing salesperson needs to provide the buyer with an affidavit statement, signed by the seller under oath, stating that the seller will not or is unable to provide financial statements. The buyer (or their signing authority) will then sign and acknowledge that they have received and read a statement from the seller (or someone acting on their behalf), which was sworn under oath or affirmed. This affidavit statement sets out the following: 1. The terms and conditions under which the seller holds possession of the premises in which the business is being carried on. 2. The terms and conditions under which the seller has sublet a part of the premises in which the business is being carried on. 3. All liabilities of the business. 4. A statement that the seller has made available the books of account of the business that the person possesses for inspection by the purchaser, or that the person disposing of the business has refused to do so or has no books of account of the business, as the case may be. The affidavit statement is a means of protecting a buyer client.

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Lesson 1 | Page 7 of 10

Complexity in Selling a Business

Selling a business is complex because the financial and legal aspects of each type of business differ. A salesperson trading in businesses must provide the same level of care and exercise the required due diligence set out in REBBA. A salesperson must also comply with all applicable municipal, provincial, and federal legislation that affect business trades. For example, legislation pertaining to environmental issues, taxation, pension, securities, health and safety, labour, real property, personal property, liens, and privacy laws. In addition, you will also need to pursue further relevant learning opportunities to ensure you can provide services and act in the best interests of your clients.

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Lesson 1 | Page 8 of 10

A buyer interested in purchasing a dry-cleaning business wants to review the financial statements and other relevant information before entering into a binding agreement of purchase and sale. The listing salesperson advises the seller about what documents the seller must provide to the buyer. Question #1: Which of the following documents is the seller NOT required to provide to the buyer? There are four options. There is only one correct answer.

1

A statement of the assets and liabilities of the business

2

A profit and loss statement for the business

3

A current list indicating preferred customers and major suppliers of the business

4

A statement containing a list of all fixtures, goods, and chattels not included in the sale

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Lesson 1 | Page 9 of 10

A listing salesperson advises the seller of a dry-cleaning business that they need to provide specific documents to the buyer. The seller tells the salesperson they have only been in business for one year and can only provide a profit and loss statement for that period. The seller does not have any other documents they are required to provide to the buyer. Question #2: How should the salesperson advise the seller to proceed? There are two options. There is only one correct answer.

1

Provide the buyer additional information within three months of the closing of the transaction

2

Sign a statement under oath containing all the required information and provide this to the buyer

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Lesson 1 | Page 10 of 10

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were covered in this lesson.

Application of REBBA when a salesperson facilitates the trade of a business

REBBA defines a “business” as an undertaking carried on for gain or profit, including any interest in any such undertaking. The components of each business trade depend on the circumstances of the business operation, and may include one or more of the following: • An agreement of purchase and sale for real property • A lease of premises • A purchase of business assets, such as inventory, equipment, and others • The transfer of the shares of the business • A combination of any of the above The nature of the sale of business can also involve the sale of only assets or shares. A brokerage is legally viewed as the agent in real estate. A salesperson is a representative of the brokerage and acts on the brokerage’s behalf. When involved in the trade of a business, a salesperson must comply with REBBA and other applicable legislation that relate to the sale of a business. A salesperson must comply with sections of Ontario Regulation 567/05, as follows: • A salesperson negotiating the sale of businesses on behalf of the seller (person disposing of the business) must provide to the buyer before entering into a binding agreement of purchase and sale, the required statements signed by the seller under oath. (O. Reg. 567/05 GEN., Subsec. 21(2)) • If a salesperson does not provide the list of items not included in the transaction, and the agreement of purchase and sale does not specify which assets are excluded from the sale, then the fixtures, goods, chattels, assets, or other rights will be considered included in the trade. (O. Reg. 567/05 GEN., Subsec. 21(3)) Exam Study Guide

• In certain circumstances, such as if financial statements are unavailable, the salesperson may need to provide a buyer with an affidavit statement signed by the seller under oath. (O. Reg. 567/05 GEN., Subsec. 21(4))

Business brokerage as a speciality within the real estate profession

Any salesperson registered with RECO may trade in businesses. However, a salesperson is encouraged to pursue further relevant learning opportunities to ensure they can provide services and act in the best interests of their clients. Most sale of business transactions commonly pertain to leased space, although some transactions involve owned premises. In each particular transaction, the components of the sale depend on the nature of the business. A business trade involves the transfer of ownership of the business entity and not the real property; the business and the real property are separate entities. If real property is a component of the sale (that is, a buyer is purchasing both the business and the real property), a salesperson needs to prepare two separate agreements of purchase and sale – one for the sale of the business and one for the sale of the real property.

Requirements under A listing salesperson must obtain from a seller and provide to a buyer the following statements before the buyer enters into a binding agreement of purchase and sale: REBBA that affect 1. A profit and loss statement for the business for the preceding 12 months or since the the purchase or sale seller acquired the business of a business 2. A statement of the assets and liabilities of the business 3. A statement containing a list of all fixtures, goods, chattels, other assets, and rights relating to or connected with the business that are not included in the trade In situations when the profit or loss statement or the statement of assets and liabilities are not available, the seller or their signing authority will sign and deliver an affidavit statement to the salesperson, who will then deliver the statement to the buyer. The buyer signs and acknowledges that they have received and read this statement from the seller. If a salesperson does not provide a list of items not included in the transaction, and the agreement of purchase and sale does not specify which assets are excluded from the sale, then the fixtures, goods, chattels, assets, or other rights will be considered included in the trade. Exam Study Guide

Lesson 2 | Page 1 of 10

Lesson 2: Additional Regulations and Legislation Impacting the Sale of a Business

This lesson highlights other legislation and regulations from the three levels of government that impact business trade: bylaws, zoning, and permits at the municipal level; the Business Corporations Act and the Employment Standards Act at the provincial level; and the Income Tax Act, the Excise Act, and the Canada Labour Code at the federal level.

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Lesson 2 | Page 2 of 10

Additional Regulations and Legislation Impacting the Sale of a Business

In addition to REBBA, other legislation and regulations will have an impact on business trades. As a salesperson, you will need to have a general understanding of these other regulatory requirements to be able to advise your seller and buyer clients accordingly. At the municipal level are bylaws, zoning, and permits. At the provincial level, the Business Corporations Act regulates trade names, the Partnerships Act defines partnership agreements, and the Employment Standards Act protects workers’ rights. At the federal level, the Income Tax Act regulates taxation, and the Canada Labour Code regulates industries under the jurisdiction of the federal government. Upon completion of this lesson, you will be able to: • Outline the requirements affecting a business under municipal bylaws • Outline provincial legislation affecting a business • Outline the requirements affecting the sale of a business under federal legislation Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented. Exam Study Guide

Lesson 2 | Page 3 of 10

Impact of Municipal Bylaws on Business Trading

A municipality may require a buyer establishing a business to obtain a licence, depending on location and type of business activity. If the buyer is starting a new business (including a home-based business), building a new structure, or moving into an existing one, the buyer and their salesperson should first determine if the location is zoned for the intended use of the business and then obtain the appropriate permits. Municipal zoning bylaws control the use of land in the community. Enacted by municipalities, zoning bylaws regulate: • How land may be used • Where buildings and other structures can be located • Types of buildings permitted and how they may be used • Lot sizes and dimensions, parking requirements, building heights, and setbacks from the street

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Zoning bylaws also regulate the types of businesses located in each area of a municipality. Zoning restrictions will vary, depending on whether the business is light industrial (for example, manufacturing) or heavy industrial (for example, chemical manufacturer). Zoning bylaws may be stricter for heavy industrial businesses because of higher noise levels, waste, and odours. Example: A salesperson is representing a buyer interested in purchasing an existing business that offers fitness services. The buyer, a fitness equipment retailer, wants to expand the business to also sell fitness equipment. The zoning bylaw may only permit the sale of services and not the sale of products. The salesperson needs to research the zoning bylaw to determine if the buyer’s intended use for the property is permitted.

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Lesson 2 | Page 4 of 10

Prohibitions on Businesses in Specific Areas of the Community A municipality may also choose to prohibit or restrict certain types of business activities in certain areas of the community, even if zoning bylaws permit these types of business. These types of business include cannabis shops, casino or gambling houses, and pay-day loan establishments. For example: • After cannabis was legalized for recreational use, some municipalities voted to not allow cannabis shops in their area. Other municipalities imposed restrictions limiting the number of shops that could be opened in the municipality. • Some municipalities held referendums on whether to allow casinos or gambling houses. • Some municipalities limit the number of pay-day loan establishments, believing that too many of these types of business would encourage excessive borrowing.

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Lesson 2 | Page 5 of 10

Other Provincial Legislation that Affects Trading in Businesses At the provincial level, two pieces of legislation that affect trading in businesses are the Business Corporations Act and the Partnerships Act. As a salesperson, you will sell businesses that are owned as sole proprietorships, corporations, and partnerships. You will need to understand that these forms of ownership are separate legal entities. You will need to have a general understanding of these forms of ownership because you will be required to know who has signing authority on behalf of the entity. The following two sections contain information on both pieces of legislation.

Business Corporations Act Business corporations are formed under the Business Corporations Act. The incorporation process involves choosing a name for the corporation, conducting a name search, completing the articles of incorporation, and filing the application for incorporation with the Ministry of Government and Consumer Services. A corporation is a legal entity and a salesperson needs to know who has signing authority on behalf of the corporation. A salesperson can determine who has signing authority on behalf of the corporation by: • Reviewing the articles of incorporation and identifying the officers of the corporation • Obtaining a copy of a corporate resolution that grants the authority to represent the corporation and signed on its behalf • Obtaining a copy of a letter signed by an officer of the corporation that grants the authority to represent the corporation and signed and its behalf Exam Study Guide

Partnership Act The Partnerships Act identifies two categories of partnerships a salesperson may encounter when selling a business—limited partnership and general partnership. A limited partnership, usually created for investment opportunities, is comprised of a managing general partner with unlimited liability and any number of general partners whose liability is limited to the amount of their investment. The managing general partner is responsible for the day-to-day operation of the business entity. The managing general partner has the authority to represent and bind the partnership. A general partnership is comprised of any number of partners, each of whom has unlimited liability and may bind all other partners with or without their knowledge. These types of partnership often have a partnership agreement whereby the scope of decisionmaking and actions of the partners are defined. A salesperson facilitating the sale of a partnership needs to review the partnership agreement or the partnership resolution to determine and verify who will be representing the partnership in a transaction and signing on behalf of all partners.

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Lesson 2 | Page 6 of 10

Impact of the Employment Standards Act on a Listing Salesperson

At the provincial level, a third legislation that affects trading in businesses is the Employment Standards Act. This legislation sets out the minimum standards in Ontario for levels of notice or termination pay in place of notice. A business owner must comply with this legislation during normal operations and when selling the business. As a salesperson, you will need to have a general understanding of the sections of the legislation relating to employees of a business being sold. You will need to know how length of service, terms of employment, and employee entitlements may impact the value of the business and its ongoing operation and management. You will need to know how the buyer will be affected if the seller did not comply with the termination notices and severance provisions of the legislation. If you are involved in this type of transaction, you will also need to advise the seller or buyer to consult an appropriate third-party professional, such as a lawyer. The following three sections contain information on the sections of the legislation that relate to employees of a business being sold.

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Continuity of employment

This provision establishes the length of service of an employee of the business. For example, if an employer sells their business or a part of their business and the buyer employs an employee of the seller, that employee’s employment is not considered terminated or severed. The employee’s length or period of employment is calculated at when the employee first joined the business and not when the business was sold.

Employee records A business owner/employer or another designated person is required to maintain employee records that include the following information: • • • • • •

Termination and severance of employment

Employee’s name and address Start date of employment Number of hours worked Wages Vacation taken Vacation pay

A business owner/employer may terminate an employee at any time as long as they provide proper notice or termination pay. If the business owner/employer were to sell the business, they would need to comply with the termination notice and severance provisions of the Employment Standards Act. A salesperson needs to know about these provisions because they may affect the sale.

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Lesson 2 | Page 7 of 10

Federal Legislation That Affects Trading in Businesses At the federal level, four pieces of legislation that affect trading in businesses are the Income Tax Act, the Excise Tax Act, the Protection of Personal Information and Electronic Documents Act (PIPEDA), and the Canada Labour Code. As a salesperson, you will need to have a general understanding of sections of these legislations and then advise the seller or buyer to obtain the services of a third-party professional, such as an accountant, lawyer, or tax specialist. The following four sections contain information on each section of the four pieces of legislation.

Income Tax Act: Capital gains A capital gain is the gain from the disposition of capital property, a percentage of which must be added to taxable income on disposition of the asset. A seller may be affected by capital gains deductions. A salesperson should advise the seller to consult a thirdparty professional prior to entering into an agreement. Example: A salesperson meets with a seller to discuss the potential sale of their business with premises. The salesperson advises the seller to first consult their accountant because they should be aware of any potential capital gains deductions available to them.

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Excise Tax Act: Harmonized sales tax (HST) The harmonized sales tax (HST) applies to the sale of all goods and services. A business seller may be able to jointly elect with the buyer to have no HST payable on the sale, as outlined in the agreement of purchase and sale, under one condition. Namely, the buyer acquires ownership, possession, or use of at least 90 per cent of the property that can reasonably be regarded as being necessary for the purchaser to be capable of carrying on the business as a business. Financial considerations may influence either a seller or buyer, depending on how the agreement is structured. The salesperson must advise them to consult an accountant.

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Personal Information Protection and Electronic Documents Act (PIPEDA) The Personal Information Protection and Electronic Documents Act (PIPEDA) provides that personal information cannot be collected, used, or disclosed in Canadian commercial activities without the informed consent of individuals providing such information. Personal information includes any factual or subjective information, recorded or not, about an identifiable individual. Example: A salesperson is representing a buyer interested in purchasing a restaurant. The offer is conditional upon the buyer being able to review the employee records. The seller counters the offer. The seller will provide copies of the employee records to the buyer if the buyer and their salesperson sign confidentiality agreements. The buyer must also sign a non-disclosure agreement.

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Canada Labour Code A business regulated by the federal government must comply with the standards set out in the Canada Labour Code. These standards apply to full-time and part-time employees who work in: • • • • • • •

Banking Federal Crown Corporations First Nations Band Councils Grain Interprovincial and international transportation Telecommunications and Broadcasting Uranium and nuclear energy production

Employment standards for employees who do not work for any of the above are regulated under the Employment Standards Act.

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Lesson 2 | Page 8 of 10

A buyer is interested in purchasing an existing variety store located in a strip mall and wants to expand it by adding a lottery ticket terminal. The salesperson representing the buyer drafts an offer, which includes a condition for the buyer to verify whether the zoning bylaws permit the buyer’s intended use for the property. Question #3: Which of the following issues should be verified to allow the buyer to add a lottery ticket terminal? There are three options. There are multiple correct answers.

1

If the business is licensed with the municipality

2

If the business location permits the buyer’s intended use

3

If there are limits or restrictions on the number of lottery businesses allowed in that municipality

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Lesson 2 | Page 9 of 10

In their offer for the variety store, the same buyer asks the salesperson to include another condition to terminate two of the three employees on the day of closing. The listing salesperson must ensure the seller understands how the terms in the agreement of purchase and sale will impact employees. The salesperson must also ensure that the seller complies with provincial legislation, such as the Employment Standards Act, when terminating any employees. The salesperson advises the seller that the terms of the agreement will be affected by the Employment Standards Act. Question #4: Which one of the following will affect the terms of the agreement? There are three options. There are multiple correct answers.

1

Continuity of employment provision

2

Employee records provision

3

Termination and severance provision

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Lesson 2 | Page 10 of 10

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were covered in this lesson. A municipality may require the buyer establishing a business to obtain a licence, depending Municipal bylaws affecting a business on business location and type of business activity. In some cases, the salesperson and buyer may need to determine if the location is zoned for the intended use of the business and obtain the appropriate permits.

Zoning bylaws regulate the types of businesses located in each area of a municipality. They also regulate: • How land may be used • Location of buildings and other structures • Types of buildings permitted and how they may be used • Lot sizes and dimensions, parking requirements, building heights, and setbacks from the street In addition to enforcing zoning bylaws, a municipality may also choose to prohibit or restrict certain business activities in certain areas of the community, such as casinos or cannabis shops.

Provincial legislation At the provincial level, the following legislation affects trading in businesses: affecting a business • Business corporations are formed under the Business Corporations Act. The incorporation process involves, among other things, choosing a name for the corporation. When facilitating the sale of a corporation, a salesperson needs to know who has signing authority on behalf of the corporation. • The Partnerships Act guides the terms of the business partnership agreement. When facilitating the sale of a partnership, a salesperson needs to review the partnership agreement or the partnership resolution to determine and verify which partner will represent the partnership in a transaction and sign on behalf of all partners. Exam Study Guide

• The Employment Standards Act protects the rights of the employees of the business being sold. When facilitating the sale of a business, a salesperson needs to know if the seller complied with the termination notices, and severance provisions of the legislation.

Federal legislation affecting the sale of a business

At the federal level, the following legislation affects trading in businesses: • The Income Tax Act regulates capital gains, defined as the gain from the disposition of capital property, a percentage of which must be added to taxable income on disposition of the asset. • The Excise Act references goods and services subject to the harmonized sales tax (HST). • Personal Information Protection and Electronic Documents Act (PIPEDA) regulates privacy matters involving business activities. • The Canada Labour Code applies to all employees in Canada who work in a federally regulated business industry.

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Lesson 3 | Page 1 of 8

Lesson 3: Providing Services to a Seller or Buyer

This lesson describes the different types of services a salesperson can provide to seller and buyer clients. This lesson also provides examples of salesperson compliance with specific provisions in the Act and the Code of Ethics.

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Lesson 3 | Page 2 of 8

Providing Services to a Seller or Buyer

A salesperson must demonstrate compliance with REBBA when representing a seller or buyer client. As a salesperson, you will need to know the types of services you may provide to seller clients, such as explaining the agreements of purchase and sale and confirming understanding, advising sellers on issues that may impact the transaction, and protecting the seller’s personal and business information using confidentiality agreements. You will also need to know the types of services you may provide to buyer clients, such as analyzing buyer requirements to identify businesses that meet their needs, drafting agreements of purchase and sale using appropriate clauses to protect the buyer’s interest, and advising the buyer to consult third-party professionals. Upon completion of this lesson, you will be able to: • Describe the services a salesperson could provide when the brokerage is representing a seller of a business

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• Describe the services a salesperson could provide when the brokerage is representing a buyer of a business • Describe activities of a salesperson that demonstrate compliance with requirements under REBBA in respect of business trades 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 8

Services Provided to Seller Clients A salesperson trading in businesses provides many types of services to seller clients. As a salesperson, you will need to know what types of services you will be providing, which may vary depending on the seller. The following seven sections contain information on the services salespersons provide seller clients when trading in businesses.

Note specifics about the business Specifics about the business, such as fixtures, goods, chattels, and other assets may affect the trade. To offset any potential issue, a salesperson should: • Create a detailed list of items of fixtures, goods, chattels, and other assets included in the trade, and a separate list of items excluded from the trade • Review the lists with the seller and confirm their accuracy Note that the list of items not included in the trade is a regulatory requirement. If not specifically documented as excluded, items are deemed to be included.

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Obtain and review documents required under REBBA A salesperson is required to obtain the following documents from a seller: • A profit and loss statement for the past 12 months or since the business was acquired by the person disposing of it (the latter only applies if the business was in operation for less than 12 months) • A statement of assets and liabilities • A list of items that are not included in the trade (as you just learned) A salesperson should review the above documents to ensure they are complete and provide copies to the buyer through the buyer’s salesperson. This information will enable the buyer and their salesperson to conduct due diligence. If a seller does not or is unable to provide financial statements, the seller must complete an affidavit stating that they are unable to comply with REBBA requirements and provide this affidavit to the buyer. A buyer would acknowledge they received the affidavit and sign it. By signing the affidavit, the buyer waives their right to receive the required documents.

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Create and implement a marketing plan A salesperson should create and implement a marketing plan specific for business trades, starting with a market feasibility study. This type of study may include the following elements: • Marketing analysis: trends, demand, space inventory, absorption rate, vacancy rate, competitors • Demographic studies • Location analysis: accessibility, proximity to amenities Second, the salesperson should develop a buyer profile; for example, what type of buyer would be interested in purchasing the business. Third, the salesperson should design a focused advertising plan based on the identified target markets and contact selected media such as trade magazines. Fourth, the salesperson may want to include a highest and best use analysis of the property, the result of which may be used to market the property to other potential buyers. Every business trade will be different, thus the marketing plan must be flexible enough to make appropriate adjustments.

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Marketing considerations Marketing a business to prospective buyers may be challenging because: • A seller may not want employees, customers, or competitors to know they are selling the business • A salesperson may not be able to place a “For Sale” sign on the property The salesperson must maintain the seller’s confidentiality and still be able to market the business.

Visit to the business Scheduling a visit to the business for the buyer, the buyer’s salesperson, or a third-party professional, such as a property inspector or banker, may be challenging because the seller may be concerned about: • Alarming the employees, who may begin to search for other jobs • Disrupting ongoing business operations (for example, business customers may think the service will change) • Making the sale of the public knowledge beyond the scope of interested investors • Alarming the seller’s creditors and lenders, who • may become concerned they will not be repaid When scheduling any visit, appointment, or third-party inspection, a salesperson should advise the parties on Exam Study Guide

how to conduct themselves and what to inspect based on the business and the buyer’s intended use.

Present and explain agreements The sale of a business may include one or a combination of the following: • An agreement of purchase and sale for real property; in this case, the seller is selling both the business and the real property that houses the business • An agreement to lease the premises; in this case, the seller does not own the real property or is not selling the real property • A sale of business assets, such as inventory and equipment • A sale of the shares of the business A salesperson must explain each term and condition in the agreement to a seller and confirm the seller understands before signing. A seller not fully informed about all terms and conditions may affect the closing. For example, the seller may fail to provide certain documents to the buyer, such as financial statements, within specified deadlines because they did not know about this requirement.

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Recommend third-party professional advice An agreement may include clauses that the offer is conditional upon the inspection of the business premises, assets included in the trade, and the financial statements of the business. If a salesperson does not have reasonable knowledge, skill, judgement, and competence to advise the seller about conditions, they must recommend that the seller consult a third-party professional, such as a lawyer or accountant. Third-party professionals to consult may also include: • • • • • •

Zoning officials Financial professionals Property inspectors Designated appraisers Environmental site assessors Contractors

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Lesson 3 | Page 4 of 8

Confidentiality Agreements A seller will most likely request signed confidentiality agreements before releasing sensitive business information, such as financial statements. As a salesperson, if a seller does not make this request, you will need to advise them to obtain signed confidentiality agreements from all interested parties, such as the prospective buyer, the co-operating salesperson and brokerage, and investors. The listing salesperson may also sign a confidentiality agreement on behalf of the brokerage if requested by the seller. The confidentiality agreement should be drafted to address the needs of the seller. Wording will vary but most agreements follow a similar structure. The following three sections contain information on the structure of a confidentiality agreement.

Parties The agreement sets out the parties to the agreement; for example, the seller and the agent, including applicable salespersons. The brokerage is the agent and the salespersons or brokers provide the service on behalf of the agent.

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Purpose Purpose is the reason why confidential information is provided. For example, to protect the seller’s financial information and to show proof that the seller has permitted the salesperson to provide sensitive information to certain parties. The agreement may also detail the conditions under which the buyer (or a thirdparty professional) can inspect the business.

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Provisions Examples of provisions included in the agreement: • Hold all information confidential and use such information solely for the intended purpose • Return all documentation at the conclusion of negotiations (or on demand) • Make no copies or retain any information whatsoever • Not disclose information to any other parties (unless the agreement also binds such parties) Confidentiality agreements commonly include a provision that the injured party may seek relief through legal proceedings in the event of a breach. Most agreements state that any information known by the commercial brokerage or its employed brokers and salespersons before the agreement, or generally known within the marketplace, do not fall within the scope of such agreements.

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Lesson 3 | Page 5 of 8

Services Provided to Buyer Clients A salesperson trading in businesses provides many types of services to buyer clients. As a salesperson, you will need to know what services you will be providing, which may vary depending on the buyer, and ensuring these services meet the buyer’s requirements. Ensuring your services meet the buyer’s requirements is part of any salesperson’s obligation to provide conscientious and competent service. The following five sections contain information on the services salespersons provide buyer clients when trading in businesses.

Identify business for the buyer and schedule appointments for viewing Before bringing any business opportunities to a buyer, a salesperson should first determine the buyer’s interests by asking the buyer about the following: • Type of business they want to buy • Location of business • Affordability (for example, available funds for investment) If a buyer is interested in the business, a salesperson schedules appointments for viewing. A business owner may not want anyone to know they are selling their business. Discretion is recommended for all parties viewing the business.

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Draft agreement of purchase and sale After a buyer views the property and wants to proceed with the transaction, a salesperson should draft an offer with conditions. The conditions will depend on the type of business. Examples of conditions to include for buyers include: • Obtaining a property inspection • Obtaining additional financing • Reviewing all legal, title, and zoning matters

Obtain necessary documentation from a seller As part of their due diligence, a buyer’s salesperson must obtain from a seller documentation about the business, such as: • • • • • •

Financial records Lease documents Inventory of equipment and other assets Utility bills Building service contracts Insurance policies

This information enables a prospective buyer to assess all risks associated with the business.

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Provide assistance and advice to complete the transaction A salesperson should ensure a buyer has all necessary information and documentation. The salesperson is responsible for: • Obtaining all the financial statements from a seller and providing them to a buyer • Including clauses and terms in the agreement that benefit a buyer • Providing a reasonable valuation of the business

Refer the buyer to third-party professionals A salesperson must refer a buyer to a third-party professional for certain services or to answer questions that are beyond the salesperson’s knowledge and skills. For example: • A designated appraiser is needed to value the business • A tax lawyer is needed if a buyer is unclear about who is paying the taxes

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Lesson 3 | Page 6 of 8

A buyer has accepted an offer on a furniture business. However, before waiving their conditions in the offer, the buyer has an opportunity to verify the financial statements of the business. The salesperson had included conditions for buyer due diligence when drafting the offer. Question #5: Identify the statement that is true with regards to buyer’s due diligence in the sale of the furniture business. There are four options. There is only one correct answer.

1

Due diligence allows a buyer to verify key facts in the sale of a business after waiving their conditions in the offer.

2

A buyer would not have the opportunity to review items pertinent to the sale unless the salesperson included conditional clauses and terms in the offer.

3

If a buyer's salesperson failed to include a clause in the agreement of purchase sale requiring the seller to provide financial statements, the seller would be under no obligation to do so.

4

A buyer should be prepared for a costly due diligence investigation, as it always involves a thorough investigation of every aspect of a business.

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Lesson 3 | Page 7 of 8

Salesperson Compliance Requirements A salesperson is a representative of a brokerage. A brokerage and a salesperson acting in an agency capacity with a client is responsible for duties outlined in the representation agreement, general obligations as set out in agency law, and fiduciary and regulatory obligations as set out in REBBA. A brokerage and a salesperson also owe selected general obligations (for example, exercising care/skill and ensuring honesty) and regulatory obligations to customers. As a salesperson, how you demonstrate compliance will depend on the type of business you trade and whether you are representing a client or providing services to a customer. The following six sections contain examples of complying with specific provisions in the Act and the Code of Ethics based on the type of business you are trading.

Fairness and honesty Example: A buyer client makes an offer on an upscale restaurant located on the main street in the downtown area. The listing salesperson learns that the road in front of the restaurant will be under construction in a few weeks, which may disrupt the business. The listing salesperson shares this information with the buyer and the buyer’s salesperson.

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Client’s best interests A listing salesperson presents an offer of $435,500 to the seller client for their upscale restaurant located on the main street in the downtown area. The restaurant was listed at $449,000. The seller wants to know if the offer is reasonable or should be signed back for a higher amount. The salesperson provides the seller with any information known about the buyer and updates the seller on general market conditions. The salesperson tells the seller that, ultimately, they must decide on whether to accept or reject the offer and provides advice on the contents of a counteroffer, should the seller find the offer unacceptable.

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Conscientious and competent service Example: A seller client asks their salesperson to review an offer they received for their upscale restaurant located on the main street in the downtown area. The salesperson reviews the offer with the seller and explains terms and conditions that would benefit or cause problems for the seller. One condition concerns the seller – the buyer and the buyer’s accountant want to visit the restaurant at a busy time to observe the volume of restaurant customers. The seller does not want employees and customers to know about the sale. The listing salesperson drafts a counteroffer with a condition that addresses the seller’s concern, yet encourages further negotiations with the buyer.

Providing opinions Example: A buyer client has expressed an interest in purchasing an older diner without a liquor licence, located near the waterfront. The buyer plans to renovate the diner and add more seating capacity. However, certain questions arise regarding zoning, permitted renovations to historic buildings, and parking requirements. The salesperson generally discusses these issues with the buyer, and then advises the buyer to consult a lawyer and the municipal authority.

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Services from others Example: A buyer client is considering purchasing an older restaurant with outdated wiring. The buyer asks their salesperson if the wiring can be replaced. The salesperson advises the buyer that wiring is beyond their expertise and provides the buyer with the names of three electricians to contact.

Disclosure of interest Example: A buyer client is considering purchasing an older restaurant with outdated wiring. The buyer asks their salesperson if the wiring can be replaced. The salesperson advises the buyer that wiring is beyond their expertise and provides the buyer with the names of three electricians to contact. One of the electricians is related to the salesperson. The salesperson discloses this information and obtains from the buyer written confirmation regarding the disclosure.

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Lesson 3 | Page 8 of 8

Congratulations, you have completed the lesson! There are two sections on this page with a summary of the key topics that were covered in this lesson.

Services provided to A salesperson provides many types of services to seller clients based on what is agreed to a seller of a business in the seller representation agreement. Examples of services include: • Noting and discussing specifics about the business (for example, chattels, fixtures, rental items, sublets) or any other issue that may impact the transaction • Obtaining and reviewing documents required under REBBA • Creating and implementing a marketing plan specific for the business being traded, including marketing a business discreetly • Scheduling visits to the business for the buyer, buyer’s salesperson, and any thirdparty professional in a manner consistent with the seller’s requests • Recommending that the seller obtain the services of a third-party professional for questions to which the salesperson does not have the knowledge, skills, expertise to provide or is legally permitted to provide (for example, designated appraiser, financial professional) • Obtaining confidentiality agreements from all interested parties (for example, listing and co-operative brokerage, buyer) before releasing sensitive business information

Services provided to A salesperson provides many types of services to buyer clients based on what was agreed to in the buyer representation agreement. Examples of services include: a buyer of a • Identifying businesses that may interest the buyer and scheduling appointments with business the listing salesperson to view the premises

• Drafting agreements of purchase and sale that protect the interests of the buyer (for example, including a condition for a property inspection) • Obtaining all necessary documentation from the listing salesperson (for example, financial records, lease documents) so the buyer can make an informed decision Exam Study Guide

about whether to proceed with the transaction • Assisting and advising the buyer, as required, to complete the transaction • Referring the buyer to third-party professionals (for example, designated appraiser, tax lawyer) when the salesperson does not have the skills, knowledge, or qualifications to provide this type of information

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Lesson 4 | Page 1 of 10

Lesson 4: Understanding Financial Statements

This lesson explains how financial statements of a business, such as income and expense statements and balance sheets, are used to assess the financial revenue generated by the business. This lesson also describes what a listing salesperson must do if a seller is unable to provide the financial statements.

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Lesson 4 | Page 2 of 10

Understanding Financial Statements

A buyer interested in purchasing a business will want to review the financial statements of the business, which include an income statement and a balance sheet, to assess the financial revenue generated by the business. A cover letter by the seller’s accountant explaining if the financial statements are audited or unaudited should accompany these statements. As a listing salesperson, you will need to know what documents you will need from a seller that must be provided to the buyer and what to do if the seller is unable to provide these documents. As a salesperson representing a buyer, you will need to know what these financial statements mean and how they apply to the trade of a business. Upon completion of this lesson, you will be able to: • • • •

Describe how an income and expense statement would be used by a salesperson, seller, and buyer Describe how the balance sheet would be used by a salesperson, seller, and buyer Describe the difference between an audited and unaudited statement Describe the notice to reader report

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

Income and Expense Statement

The income and expense statement, also known as a profit and loss statement, presents the financial performance of a business over a specified period. Exam Study Guide

Businesses generally include three key elements in the income and expense statement: • Revenue by sales • Operating expenses • Cost of goods sold (cost of merchandise) Revenues are recorded when the sale is made (usually when the sale is a completed transaction) or when revenue is generated and recorded in the accounting system. Expenses for most businesses include categories set out under two groupings: cost of sales and operating expenses. The income and expense statement include the revenue from all sources and the expenses incurred when generating that revenue to arrive at income before income taxes, also known as net operating income. The income statement begins with gross revenues earned from which expenses are deducted until the bottom line is reached, either profit or loss. The decision of how to organize an income statement is based on several factors, including the type of business, personal preferences, ease of reading or understanding the statement, and software package used. For example, the payroll expense category may have several general ledger accounts as subcategories, such as hourly employees, salaried employees, and government benefit deductions. The number of categories and subcategories listed is discretionary. The primary objective is to ensure accurate, meaningful information that has relevance to the owner’s financial management strategy. As a listing salesperson, you will need to obtain the income and expense statement from a seller to provide to a buyer. Giving the buyer this information is a regulatory obligation. You would then use this statement to: • Estimate the sale price of the business • Estimate the profitability of the business • Demonstrate to buyers if the business is viable If you were representing a buyer, you would need to ensure that the income and expense statement contains sufficient information for an analysis by a third-party professional, such as an accountant, who would use this information to: • Determine the net operating income of the business for a particular reported period • Calculate the possible value of that business over an accounting period You would need to advise the buyer to consult the appropriate third-party professional.

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Lesson 4 | Page 4 of 10

Balance Sheet

A balance sheet, also known as a statement of assets and liabilities, summarizes a company’s assets and liabilities, provides an indication of business stability, and helps assess financial risk for investors. A large corporation might create a consolidated balance sheet, which consists of the balance sheet of the parent company and subsidiary balance sheets of operating subdivisions. Assets are listed at the top of the page, followed by liabilities and equity. All debits must equal all credits in the accounting system, so the balance sheet includes the following three components: • Assets: Economic resources of the business, including items used in the business. Assets may be monetary or non-monetary, tangible or intangible, and either current or non-current. An intangible asset is an asset not physical in nature, such as goodwill, patents, and trademarks. For example, when a buyer purchases a business, they also generally inherit the customers of that business. This value is termed as goodwill and is considered an intangible asset because its value cannot be separated from the business itself. For tax purposes, most intangible

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assets are viewed as eligible capital property. The value of these intangibles is recorded at cost on the balance sheet and are subject to future adjustments if the value decreases. • Liabilities: Debts or obligations a business owes that are payable on a fixed or determinable future date. Liabilities are generally current or non-current. • Shareholder’s or owner’s equity: Investment in the company, plus the amount of undistributed earnings. The purpose of the balance sheet is to: • Understand how many assets and liabilities the company has • Determine the owner's equity in the business as of that date As such, the balance sheet provides a snapshot of the business operation’s financial position and displays what the company owns and owes. As a salesperson, regardless of representation, you will need to understand the balance sheet to determine the owner's equity in the business at a specific point in time. You will also need to consider the following equation when examining a balance sheet: Total Assets = Total Liabilities + Shareholders’ Equity. The above equation is used to identify the primary categories of business assets and liabilities. If a balance sheet is constructed using this equation, a buyer should be able to identify the shareholders’ equity, which is often thought to be the value of the business assets.

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Lesson 4 | Page 5 of 10

Audited and unaudited statements indicate the financial status of the business to potential buyers. Balance sheets are obtained from the seller’s accountant and are prepared for small businesses as unaudited statements used in the preparation of income tax returns. As a salesperson, if you are representing a buyer of a business, you will need to understand the difference between audited and unaudited statements and ensure that audited statements are accurate and have been verified by an accountant. You would also need to ensure that the drafted offer protects the buyer by including a conditional period of time for the buyer and their accountant to review all financial statements.

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Lesson 4 | Page 6 of 10

Audited and Unaudited Statements

Audited and unaudited statements, prepared by a seller’s accountant, indicate the financial status of the business to potential buyers. The main difference between an audited and an unaudited statement is the depth of review or research conducted by the accountant. Audited statements provide an accurate picture of the financial status of the business; unaudited statements, such as the review engagement statement and notice to reader report, may only contain partially reviewed information. Audited statements undergo a reasonable number of tests to make sure the assets and debts reported are accurate. For example, the seller’s accountant investigates and reviews every item that appears on an audited statement by locating all source documents that support each item entry. After performing multiple checks for all items present in the audited statement, the accountant provides an opinion on a letter on the top of the statement stating that they have performed the audit in accordance with International Financial Reporting Standards (IFRS). The accountant also states that, in their opinion, the financial statements “present fairly, in all material aspects, the financial position of the business for the year ended.” The accountant is responsible for ensuring that the audited statements are accurate. Exam Study Guide

In a review engagement statement, an unaudited statement, the accountant only performs spot checks and does not investigate or verify the complete financial statement of the business. If the spot checks are correct, the accountant provides their opinion on a letter on the top of the statement, such as “I have performed a review engagement on these financial statements for the year ended in accordance with Canadian generally accepted standards for review engagements and, accordingly, consisted primarily of inquiry, analytical procedures and discussion related to information supplied to me by the business owner. A review does not constitute an audit and, consequently, I do not express an audit opinion on these financial statements.” The accountant’s review of unaudited statements must also comply with International Financial Reporting Standards (IFRS).

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Lesson 4 | Page 7 of 10

Notice to Reader Report

Another type of unaudited statement is a notice to reader report, a basic and common financial statement prepared by a seller’s accountant. This statement contains information on the financial health of the business. However, the accountant does not provide a professional opinion. They only include a notice on the first page that states, “On basis of the information provided to me by the owner of the business, I have prepared the financial statements for the year. I have not audited, reviewed, or otherwise attempted to verify the accuracy or completeness of the information in these financial statements.” Since the seller’s accountant does not review this report as they would an audited statement, the buyer’s salesperson should advise the buyer to exercise proper due diligence by consulting their accountant first. For example, if the gross amount made by a business was different from the revenue amount indicated in the financial statement, the accountant would advise the buyer to only consider the actual revenue declared. This type of information will help the buyer evaluate the business based on actual verifiable income.

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Lesson 4 | Page 8 of 10

A buyer is interested in buying a greenhouse nursery business located on the corner of a main street. Prior to making an offer, the buyer’s salesperson receives the financial statements for the business, as noted in the accepted offer. Based on the information in the financial statements, the buyer’s accountant makes certain inferences regarding the business. Question #6: Identify the inferences made by the accountant that are applicable to an income and expense statement. There are four options. There are multiple correct answers.

1

Using this document, the accountant determines how much money the business owner is currently making.

2

Using this document, the accountant determines that the business has been financially stable over the last three financial years.

3

Using this document, the accountant determines that the business has been profitable over the last financial year.

4

Using this document, the accountant concludes that if the buyer proceeds with transaction and buys the business, the probability of financial risk is low because the business assets and liabilities balance each other.

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Lesson 4 | Page 9 of 10

A listing salesperson presents the required financial statements prepared by the seller’s accountant to the buyer’s salesperson. The buyer’s salesperson reviews the statement and tells the buyer that the seller’s accountant has verified the accuracy of several items in the financial statement and that the accountant had appropriate supporting documents for those items. Question #7: What type of financial statement did the salesperson review? There are three options. There is only one correct answer.

1

Audited statement

2

Notice to reader report

3

Engagement statement

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Lesson 4 | Page 10 of 10

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were covered in this lesson.

Income and expense statement

The income and expense statement, also known as a profit and loss statement, conveys the financial performance of a business over a specific period. Businesses generally include three key elements in the income and expense statement: revenue by sales, operating expenses, and cost of goods sold (cost of merchandise).

Balance sheet

A balance sheet, also known as a statement of assets and liabilities, summarizes assets and liabilities, provides an indication of business stability, and helps assess financial risk for investors. A balance sheet provides a snapshot of the business operation’s financial position and displays what the company owns and owes.

Audited and unaudited statements

Audited and unaudited statements, prepared by a seller’s accountant, indicate the financial status of the business to potential buyers. The main difference between an audited and an unaudited statement is the depth of review or research conducted by the accountant. Audited statements provide an accurate picture of the financial status of the business; unaudited statements may only contain partially reviewed information. A salesperson should understand the differences between the audited and unaudited statements and be able to confirm that the statements provided by the seller have been verified by the seller’s accountant and appear to contain the correct information. A salesperson should also understand the purpose and function of the following unaudited financial statements, prepared by the seller’s accountant: • Engagement statement – accountant only performs spots checks and does not investigate or verify the complete financial statement of the business • Notice to reader report – a basic, common financial statement; accountant does not provide a professional opinion on these statements

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Lesson 5 | Page 1 of 22

Lesson 5: Key Considerations when Selling a Business

This lesson details the key differences between the two main types of business sales: asset sale and share sale. This lesson also describes the key considerations regarding fixtures and chattels, leases, agreements, and licences a salesperson should be aware of when trading in business.

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Lesson 5 | Page 2 of 22

Key Considerations when Selling a Business

All parties involved in business trade should be aware of the two main types of business sales: asset sale and share sale. As a salesperson, you will need to know the key differences between these two types of sales because each will have different considerations. You will also need to know about other considerations that will affect a business trade, such as chattels included and fixtures excluded, leases, agreements, and licences. This knowledge will enable you to discuss business trades with your clients and help them make better informed decisions. Upon completion of this lesson, you will be able to: • • • • • •

Explain the key aspects of an asset sale and a share sale Describe key considerations when selling a business Describe an operating licence as a key consideration for the sale of a business Describe distribution rights as a key consideration for the sale of a business Describe how retention of current employees and key employees is a consideration for the sale of a business Describe seller financing as a key consideration for the sale of a business

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 22

Key Aspects of an Asset Sale and a Share Sale

A key factor in selling a business is establishing whether the shares of the business or its assets are to be sold. Both types of approaches will have tax implications. As a salesperson, you will need to know the difference between these two methods and discuss them with the client (either a seller or buyer). For tax queries, you will need to advise the client to consult an appropriate third-party professional, such as a lawyer, accountant, or tax specialist. This information will help the client make informed choices about whether to proceed with the sale or the purchase, and how to proceed. Trading in businesses is a distinct specialty area that requires unique skills and knowledge. Since you will not be an expert in all areas of business trades, you will need to advise a seller or buyer to obtain the services of third-party professionals. Providing guidance or advice with limited competence will expose all parties to significant risk. The following two sections contain information on an asset sale and a share sale. Exam Study Guide

Asset sale

An asset sale is a transfer of business assets, both tangible (for example, land, buildings, equipment, inventory) and intangible (for example, business name, clients, contracts, intellectual property, goodwill). If only physical assets are being sold, the seller normally assumes responsibility for any existing debt (for example, accounts payable) but retains all accounts receivables. The buyer acquires the remaining assets, such as equipment, inventory, and goodwill.

Share sale

A share sale occurs when shares of a corporation are being sold. In this type of sale, the buyer assumes all assets and liabilities. The buyer will have the use and benefit of items such as the company name, copyrights, leases, and real estate, unless otherwise agreed. The seller passes the shares of the corporation to the buyer, who replaces the seller as the owner. The seller must also report capital gains.

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Lesson 5 | Page 4 of 22

Asset Sale and Share Sale Considerations Income tax is a key consideration for both sellers and buyers about whether the business trade should involve the sale or purchase of assets, or the sale or purchase of shares. For example: Asset sale: • If a seller sells an asset for more than what they originally paid for it, the difference (the profit) is taxed. The seller identifies the capital gains tax on their next tax return and pays an income tax on that amount. Share sale: • If a seller sells a share, they may be eligible for a capital gains tax exemption. For a buyer, this may mean paying a lower purchase price for acquiring the shares than for acquiring the assets. • If a buyer is buying shares, they will assume all assets and liabilities of the corporation.

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Lesson 5 | Page 5 of 22

A buyer is interested in purchasing a garment business and approaches a salesperson for advice. The salesperson asks the buyer several questions to identify the buyer’s requirements. One of these questions is to determine the type of business sale the buyer is interested in: asset sale or share sale. The buyer wants to know the difference between these two types of sales. The salesperson highlights the features of each type. Question #8: Identify the options that are a share sale. There are three options. There are multiple correct answers.

1

A buyer obtains ownership of tangible items, such as land, buildings, equipment, and inventory, without assuming debt liability.

2

A buyer obtains ownership of tangible and intangible assets and assumes responsibility for liabilities.

3

A seller may be eligible for a capital gains tax exemption or pay tax on a lower amount.

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Lesson 5 | Page 6 of 22

Key Considerations When Selling a Business As a salesperson, you will need to remember several key considerations if you list a business on behalf of a seller, such as fixtures and chattels, leases, agreements, and licences. You will then need to discuss these considerations with the seller because they may need this information to determine if they are going to actually proceed with the sale. If you are representing a buyer, you will need to ensure the buyer has this information to be able to make an informed decision about whether to proceed with the purchase. The following seven sections contain information on considerations when selling a business.

Create a list of included and excluded items A listing salesperson must provide to the buyer and the buyer’s salesperson a list of all fixtures, goods, chattels, assets, or other rights not included in the sale. A leading practice is for the salesperson to create a comprehensive list of fixtures, goods, chattels, assets, or other rights included and excluded in the sale. Creating a list of included and excluded items minimizes misunderstanding between a seller and buyer about what is and is not included in the purchase price.

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Provide a copy of the lease to the buyer The content of a lease may affect both the value of the business and its marketability. If a seller leases the business premises, a listing salesperson should: • Ask the seller for a copy of the lease to review • Advise the seller to conduct a credit and financial check on the buyer to determine if the buyer is financially able of honouring the commercial lease assignment, which may encourage the landlord to approve the lease assignment • Advise the seller to consult a third-party professional, such as lawyer or accountant • On behalf of the seller, provide a copy of the lease to the buyer and the buyer’s salesperson A seller is responsible for fulfilling the terms and conditions of the lease. It would be in the seller’s best interest for the buyer to assume the existing lease. The salesperson should discuss this option with the seller.

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Review a lease If a buyer is interested in purchasing a leased business, the buyer’s salesperson needs to consider the following: • Whether the lease can be assigned • Under what conditions the assignment can occur • The remaining term of the lease, including any provisions for renewal • The terms, benefits, and restrictions contained in the lease If the lease has a short possession period remaining, the buyer may require assurances that a satisfactory extension of the lease agreement can be arranged. To allow for enough time to recover the money paid for the business, the buyer may make the agreement conditional to receiving the assurance of extension from the landlord. The salesperson should advise the buyer to consult a third-party professional, such as a lawyer or accountant, to determine if assuming the seller’s existing lease is in the buyer’s best interests.

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Disclose business to business sublets A sublet occurs when one business subleases the premises to another business. Most leases contain clauses stating the following: • Written consent from the landlord is required for subletting the premises or assigning the lease • The landlord may not unreasonably withhold consent • If consent has not been given and the tenant sublets or assigns the lease, the landlord reserves the right to terminate the lease • If consent is given for subletting, the original tenant will remain responsible for all the provisions of the lease if the subtenant defaults Based on the above considerations, a buyer would need to decide if purchasing the business is in their best interest.

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Disclose subleasing to the buyer A buyer needs to know if the business being sold is subleasing the business premises from another business or subletting the business premises to another business. If the business being sold is subleasing, the buyer will need to do the following: • Determine if the landlord has provided their consent to the sublease • Obtain the landlord’s consent to assume the sublease • Determine which obligations and responsibilities of the lease apply to the buyer, if any If the business being sold is subletting, the buyer will need to determine: • If the landlord has provided their consent to the sublease • What type of contract exists between the landlord and the subleased business Based on the above considerations, a buyer would need to decide if purchasing the business is in their best interest.

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Inventory valuation Inventory valuation tells a buyer if there is any additional amount to be paid for the inventory associated with the sale. Inventory is itemized in the sale of business agreement. When a transaction is about to close, the seller and potential buyer do an inventory count and verify the value of the inventory as stated in the agreement of purchase and sale. Either the seller or the buyer may request this valuation by providing written notice to the other party. If written notice is not provided, neither the seller nor the buyer may dispute the final amount of valuation of inventory. However, inventory is a fluid amount and there may be some discrepancy in the value of the inventory between the day both parties accepted the offer and day of closing. The seller and the buyer should do a final count and valuation of the inventory at the close of the sale. After the final count, if there is a difference in value, the purchase price may be adjusted to reflect the change in inventory, resulting in the seller taking or requiring the buyer pay for any excess inventory. The closing price will then be adjusted accordingly. Inventory is valued at cost as verified by the sellers’ invoices. Sometimes, payment for excess inventory can be made as a separate item from the agreed-upon selling price. If inventory is included in the purchase price, a buyer should have an opportunity to count it to determine its value. Exam Study Guide

Disclose subtenant sublets If a statement under oath, instead of the financial statement for the past 12 months, is used to satisfy the requirements of REBBA, then a seller has to disclose the terms and conditions under which the seller has sublet a part of the premises in which the business is being carried on.

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Lesson 5 | Page 7 of 22

A buyer is interested in a laundromat situated in a prime-location strip mall. The business has been leasing the property for a long time and the owner is now ready to sell. Question #9: Which of the following is not an applicable consideration for a buyer’s salesperson when advising the buyer about the business lease? There are four options. There is only one correct answer.

1

The business owner is unable to provide a copy of the lease to the buyer

2

The lease has a short possession period remaining

3

The landlord owns a restaurant business in the same strip mall

4

Certain clauses in the lease agreement entitle the landlord to a percentage of the gross sales of the tenant

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Lesson 5 | Page 8 of 22

A buyer is purchasing a drug store business. Before the close of the sale, the buyer’s salesperson advises the buyer to give the seller a written notice regarding valuation of inventory. Question #10: Identify the statements that are false regarding valuation of inventory in the sale of the business. There are three options. There are multiple correct answers.

1

Items, such as cleaning supplies, are not considered part of inventory.

2

Inventory is always valued at cost to the seller.

3

Inventory is fixed at the valuation amount before close of business and does not affect the final purchase price.

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Lesson 5 | Page 9 of 22

Other key considerations for the sale of a business are the operating licence, distribution rights, retention of current employees and key employees, and seller financing. As a salesperson, you will need to know how these considerations will impact the transaction and your activities.

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Lesson 5 | Page 10 of 22

Operating Licence

An operating licence is a permit from a government authority to buy and sell goods and services. A business without a valid operating licence is of no value to prospective buyers. Before listing a business, a listing salesperson should first ensure the seller has a valid licence. For example, a restaurant licensed to sell liquor. The licence is given to the owner (as an individual) of the restaurant and not to the premises. Any transfer of business ownership must be accompanied by the transfer of the liquor licence, subject to approval, to the buyer. As a salesperson representing a buyer, you will need to be aware of the details of the operating licence of a business for several reasons: • To help the buyer obtain the licence by including conditions in the offer for operating licences to be transferred by the correct governing body to the buyer • To determine the length of validity of the licence; a buyer may decide not to purchase the business if the licence is about the expire

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Lesson 5 | Page 11 of 22

Trade Unions

In a business where employees are represented by a trade union, the trade union sets or negotiates terms of employment, including wages. Acquiring a business where some or all employees are unionized may complicate a buyer’s role in the following ways: • The buyer may have to assume the trade union contract as part of the business sale. If a business has a major change in ownership, part of the terms of the sale may be the assignment of the trade union contract to the new owner. If the business sale documents do not specify, the buyer may have to inspect the contract itself. A good union contract could be added to the value of the company’s assets as an intangible asset. Sometimes, the buyer and the trade union may mutually agree to replace a previous contract with a new one. • The buyer cannot make any modifications to the employees’ terms and conditions. Should the buyer make any unwanted modifications, the employees may choose to strike. This situation would be an example of a bad union contract that may cause complications for value and termination of employees. As a salesperson representing a buyer, you will need to be aware of how a trade union may affect the sale of a business and include this information in the agreement to bring it to the buyer's attention. You will also need to provide information about trade unions to the buyer to help them make an informed decision about whether to proceed with the purchase. Exam Study Guide

Lesson 5 | Page 12 of 22

Intellectual Property Use Agreement

Intellectual property is a legal right for a person to use a certain name or product in the business. Anyone possessing an intellectual property use agreement may use the name or the product stated in the agreement as part of their business. Having the rights to a piece of intellectual property may increase the financial value of the property. When reviewing a business on behalf of a buyer, a salesperson needs to confirm that the business owns or has a valid licence for all key intellectual property and technology it uses. The salesperson needs to ensure that any agreements or licences vital to running the business are assigned to the buyer. This transfer of agreement or licence will allow the buyer to use a certain piece of equipment or technology in the business.

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Lesson 5 | Page 14 of 22

A successful entrepreneur and owner of a truck driving business is interested in purchasing a driving school in the same city. The entrepreneur discusses budget with their salesperson and says the budget is flexible. The only condition is that the entrepreneur wants to hire the employees. The salesperson finds two businesses in the city that seem to meet the entrepreneur’s requirements and provides them with the following information: Business A is selling the business on the condition that the real property is also included as part of the sale. The business is located about five kilometres from the truck driving business. The sale price is significantly higher than the entrepreneur’s stated budget. The business has an intellectual property use agreement that will need to be renewed after three years. Business B is selling the business with a guaranteed five-year lease on the property. The business is located about 1.3 kilometres from the truck driving school. The sale price is within the entrepreneur’s stated budget. However, the employees belong to a trade union. Question #11: Which one of the following considerations would influence the entrepreneur when deciding which business is a better choice? There are five options. There is only one correct answer.

1

Transferring the operating licence will be easier in Business A because the real property is included in the business sale

2

The intellectual property use agreement in Business A is due to expire in three years

3

Business B has a trade union Exam Study Guide

4

The sale price for Business A is significantly higher than the entrepreneur’s stated budget

5

Business B has a guaranteed lease included in the sale

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Lesson 5 | Page 15 of 22

A buyer is interested in purchasing the local coffee roastery that has a distribution rights agreement with a foreign bean supplier. The agreement provides the roastery with the exclusive distribution rights for the province and imposes a restriction on the roastery to exclusively use the bean products from the bean supplier. Currently, the roastery business only distributes to one café in the province that specializes in exotic speciality and gourmet coffee products. The buyer believes the business has growth potential and wants to expand the business throughout the province. Question #12: Based on the distribution agreement, which of the following can the buyer pursue to expand the roastery business? There are two options. There is only one correct answer.

1

Expand the range of coffee blends they offer to the café by sourcing from other coffee bean suppliers

2

Form agreements with other café retailers

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Lesson 5 | Page 16 of 22

Retention of Employees When Selling a Business

Key employees are those considered essential to the operation of the business. Without key employees, a business cannot run, which is why there is a value attached to them. For example, a well-known, world-class chef would be the most important employee of a restaurant. The chef would add value to the business if the business were to be sold and the chef decided to continue working at the restaurant. On the other hand, a buyer may be interested in purchasing a business but wants the seller to terminate all employees of the business except a few key employees. The buyer’s salesperson should include this condition in the agreement, so the buyer does not face any issues when assuming control of the business. If the seller agrees to the condition, it is the seller's responsibility to give notice of termination to the employees and pay the severance, notice, and other amounts owed until the date of takeover. If the salesperson does not include this condition, the new buyer may be required to pay the due amounts to the employees. If a buyer is purchasing a business with unionized employees, the buyer may be obligated to assume the employee contracts. The buyer may also be prevented from making any modifications to the employees’ terms and conditions because of existing collective agreements.

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Lesson 5 | Page 17 of 22

Seller Financing

Traditional lending institutions, such as banks, are often reluctant to provide financing for the purchase of a business because of the lack of assets available as collateral. Alternatively, the bank may require the principal owner (or the buyer of the business) to provide personal collateral against a loan on the business. A salesperson cannot assume a buyer will be able to obtain financing and should advise the buyer of this potential difficulty. Otherwise, the buyer may proceed with the offer, made conditional upon the buyer obtaining financing, and then not being able to do so. Example: A buyer needs financing for a flower shop they are about to purchase. The bank is not ready to finance the buyer for the following reasons: • The buyer is self-employed, and their pay scale is low • The buyer does not have income tax return statements for the past three years The salesperson informs the buyer about other ways of securing financing – namely, a seller financing agreement. Exam Study Guide

Buyers who are unable to secure necessary funds from traditional lending institutions may even approach the seller for assistance. A seller financing agreement is formed when the seller agrees to finance a portion of the purchase price to facilitate the sale. This agreement benefits the buyer because it allows them to proceed with the purchase. For example, a buyer has a 40 per cent down payment of the purchase price but is unable to obtain financing for the remaining amount from the bank. The seller agrees to finance the remaining 60 per cent of the purchase price, using the business assets as collateral, provided the buyer pays back the amount borrowed through seller take back financing. This demonstrates that the seller believes the buyer will be able to pay off the amount financed over a specific period of time.

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Lesson 5 | Page 18 of 22

Terms of a Seller Financing Agreement

Seller financing can be used to finance business purchase transactions. A seller may generally be reluctant to provide seller financing because of the risk that the buyer will not repay the loan. However, both the seller and the buyer may benefit from a seller financing arrangement. Benefits of seller financing to the seller include the following: • Increasing the number of prospective buyers making offers and better offers, and leading to a quicker sale • Paying a lower income tax by spreading the capital gain over the period of a sale instead of the total sale amount Benefits of seller financing to the buyer include the following: • Providing a source of funding not readily available through traditional lending institutions • Providing the buyer with access to additional capital because this type of funding is normally less expensive • Providing the buyer with a go-to resource for advice or guidance The following issues should also be considered: Exam Study Guide

• A buyer may not be comfortable with the involvement of the seller post closing • A seller may be quicker to retake the business if the buyer starts to miss payments The terms and conditions of the seller financing agreement are included in the agreement of purchase and sale. The terms and conditions are intended to protect to the seller’s interests should the buyer default on the loan. Examples of terms and conditions to include in the agreement: • The seller has the right to take control of the business within a specified period of time if the buyer misses a payment • The buyer must submit a business plan that will enable the seller to determine if the buyer’s operational • strategy will be successful • The buyer is required to provide the seller with an upfront down payment of at least 35 to 40 per cent of the purchase price • The buyer is to personally guarantee to the seller that they will be able to repay the loan • The buyer is required to keep inventories at certain levels The seller may also include expenditure and financing limitations in the agreement to restrict the buyer from spending or assuming additional financing while they still owe the seller money.

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Lesson 5 | Page 19 of 22

Seller Financing: Earnout

Earnout is a method of financing the sale of a business predicated on actual performance. An accountant would deduct the down payment on the business and then calculate the balance purchase price based on the actual performance (that is, productivity) of the business after closing. Using earnout as the basis for debt payment may often solve the difference between what a seller wants and what a buyer is willing to pay. A buyer may be unwilling to meet a seller’s price, even though the past performance of the business indicates the price is reasonable. The buyer’s unwillingness to meet the seller’s price may be a sign that the buyer is concerned about the future potential of the business. The balance of the payment can, therefore, be spread over a specific period of time, with the amount of each payment based on the earnings of the business. Example: A buyer is unable to obtain financing from a traditional financial institution. The salesperson advises the buyer to approach the seller, who advises the buyer to seek advice from their accountant (who knows the buyer’s financial position). This arrangement will allow the buyer to buy the business and make the payment as per the performance of the business. The seller and the buyer agree on the base period earnout method, based on the success of the business. The buyer makes a payment to the seller every year from the profits of the business.

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Lesson 5 | Page 20 of 22

Seller Financing: Types of Earnout Three basic types of earnout are found in the marketplace, although a wide range of possibilities exist based on the specifics of the business under consideration. The following three sections contain information on each type of earnout.

Base period earnout In the base period earnout method, additional payments are made every year in excess of the balance due on the purchase of a business. These payments are paid as a proportion of the increase in profits produced from the operation, over and above those profits derived in a particular base year. The base year is frequently the fiscal year immediately before the year the sale was closed. If the prior three to five years fluctuated noticeably, a weighted average would probably be taken to arrive at the necessary base amount. Increases achieved above the base are then capitalized at an agreed upon factor, established before closing, to arrive at the actual dollar value of the year-to-year earnout payment. This capitalization rate is frequently the same rate employed at the outset to estimate the value of the business. The seller would normally require full audit and inspection control capabilities.

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Incremental earnout This method is similar to the base period earnout except that additional payments over fixed debt are calculated on a proportion of the year-to-year increase, capitalized at the agreed rate. In other words, the profits must increase each year, relative to the previous year, for a payment to become due. This type of earnout favours the buyer. However, the seller can counterbalance this by demanding a lower capitalization rate and, therefore, a larger payment than might be considered reasonable under the base period approach.

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Cumulative earnout The cumulative earnout method is based on the total increase in earnings over the base year for the number of years contracted. This amount is then paid to the seller at the expiration of the term of the agreement, with or without interest. The disadvantage to the seller is that funds are not received until the end of the term and the payment could be received in depreciated dollars. Alternatively, if the owner remains as manager or consultant and is thus able to generate and verify increased profits, higher profits could be achieved over and above original anticipated levels. A variation to this approach is possible where a predetermined additional consideration exists for each year of the term as a fixed prepayment, subject to adjustments based on operating results. If the seller continues to be engaged in the business as a manager or consultant, they have the advantage of increased profits and thereby an increase in the end value of the business. Alternatively, the seller could negotiate fixed additional compensation for each successive year of payout of the earnout, subject to the final adjustment of actual results achieved at the end of the agreed upon term.

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Lesson 5 | Page 21 of 22

A buyer is interested in a business but is unable to obtain financing from an institution. The buyer’s salesperson finds out from the listing salesperson that the seller is willing to provide financing. The buyer asks the salesperson what types of financing the seller would be able to provide. The salesperson describes the various types and tells the buyer to consult their lawyer or accountant if they need additional information. Question #13: Which one of the following type of earnouts is based on additional payments being made every year in excess of the balance due on the purchase of a business? There are three options. There is only one correct answer.

1

Base period earnout

2

Incremental earnout

3

Cumulative earnout

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Lesson 5 | Page 22 of 22

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were covered in this lesson.

Key aspects of an asset sale

The key aspects of an asset sale are: • A buyer does not assume any existing liabilities such as debt • A buyer is eligible for tax deductions by claiming capital cost allowance on depreciable property during the ongoing operation of the business

Key aspects of a share sale

The key aspects of a share sale are: • A buyer essentially replaces the seller as the owner of the shares of a corporation • A buyer assumes all assets and accepts all liabilities • A seller benefits from a tax standpoint, since any gain to the seller on a sale of shares may be considered under the capital gain tax exemption

Key considerations when selling a business

Examples of activities of a listing salesperson trading in businesses include: • Creating a list of items included and items excluded in the sale • Providing a copy of the lease to the buyer • Reviewing a lease • Disclosing business-to-business sublets • Disclosing subleasing • Advising a seller about inventory valuation (applies to a buyer salesperson as well) • Disclosing subtenant sublets Key considerations that may affect the sale of a business include: • Operating licences • Trade unions and unionized employees • Intellectual property use agreements Exam Study Guide

• Distribution rights agreements • Retention of key employees • Severance payout to terminated employees • Seller financing

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Lesson 6 | Page 1 of 19

Lesson 6: Valuing a Business

This lesson describes the four methods for valuing a business: direct capitalization, gross profit multiplier, discounted cash flow, and adjusted book value and asset valuation. This lesson also describes the factors that may influence a salesperson’s choice of valuation method for the business.

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Lesson 6 | Page 2 of 19

Valuing a Business

Business valuations typically focus on gross income, but more refined measures may be used depending on business type and size. This lesson explains four methods for valuing a business: direct capitalization, gross profit multiplier, discounted cash flow, and adjusted book value/asset valuation. As a salesperson, you will need to consider each method and then select the method that aligns with the type of business you are trading. Upon completion of this lesson, you will be able to: • • • • •

Describe the direct capitalization method Describe the gross profit multiplier method Describe the discounted cash flow method Describe the adjusted book value/asset valuation methods Identify factors impacting the selection of the best or most appropriate valuation method

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 19

Direct Capitalization Method

The direct capitalization method is used to estimate market value because it is market-driven and has limited assumptions. This method is most frequently associated with small income investment properties. The use of capitalization in estimating value assumes a relationship between the income that a business is capable of earning and its value at any given time. In the direct capitalization method, the net operating income (NOI), derived from an income statement and generated by the business, is used to determine its value. This value is created by the current capitalization rates prevalent in the marketplace and is generally expressed in percentages. In simple terms, the direct capitalization method converts the income generated by a business into capital value using a capitalization rate. A salesperson can estimate an appropriate capitalization rate through market research by examining comparable business sales. Often, consultation with third-party professionals, such as accountants, lawyers, or business consultants, is required to identify current market rates. Direct capitalization is based on a single year's projected income and expenses in arriving at value. This method involves the straightforward division of NOI by an appropriate capitalization rate. For example, the NOI of a business is $100,000 and the prevailing capitalization rate is 10 per cent. By dividing the NOI by the capitalization rate ($100,000 ÷ 10%), the estimated value of the business is found to be $1 million. Exam Study Guide

Capitalizing earnings requires access to profit and loss statements. These statements show the gross income from the business, cost of merchandise, and the resulting gross margin (gross operating income). Expenses relating to the operation of the business are deducted from gross operating income to produce NOI (gross income ‒ operating expenses = NOI). As with income-related valuations, the expense statement should be reconstructed based on acceptable appraisal procedures before calculating NOI. As a salesperson, you will need to know how to apply a capitalization rate and estimate the value of a business. If you do not know how to use the direct capitalization method to apply a capitalization rate, you will not be able to estimate the value of a business you are trading.

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Lesson 6 | Page 4 of 19

Considerations for Using the Direct Capitalization Method The direct capitalization method can be relatively straightforward for valuing many types of commercial properties. As a salesperson, you will need to know when and how to use this method when trading in businesses. The following two sections contain information on considerations for using the direct capitalization method.

Benefits The direct capitalization method is straightforward and convenient. A salesperson can estimate the value of a business if the net operating income of the business and the prevailing capitalization rate are known. This method can be used in unique combinations when negotiating the value of a business. Sellers and buyers use capitalization for certain items (such as determination of goodwill based on excess profits derived from average earnings) and calculating depreciated cost (book value) on other items, such as equipment and stock, while applying wholesale values to others.

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Other considerations The direct capitalization method relies on the availability of comparable sold businesses and associated financial information. Establishing net operating income for comparable sales may be difficult. For example, net operating income is often affected by the extent of owner contribution, the seller’s unique skills in relation to a specific business, and other subjective factors. The resulting value is sensitive to minor adjustments to income and expenses. The capitalization rate used should be supported by recent sales and/or justified by solid data. Since direct capitalization reflects a one-year term, it is more appropriate as a measure of a business’s current value as opposed to future value.

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Lesson 6 | Page 5 of 19

A buyer is interested in a hardware business and wants to know the value of the business based on the income earned by the business in the last year. The seller has provided the profit and loss statements and the list of excluded chattels and goods to the salesperson. According to information obtained during research, the salesperson determines that the current capitalization rate for hardware stores is approximately 12 per cent. Based on the information in the financial statements, the business had a net operating income of $511,800. The gross operating income was $643,800, and operating expenses amounted to $132,000. Question #14: Which of the following is the correct formula to calculate the value of the business using the direct capitalization method? There are four options. There is only one correct answer. 1

Gross operating income ÷ capitalization rate

2

Net operating income ÷ capitalization rate

3

Net operating income x capitalization rate

4

(Gross operating income – operating expenses) ÷ (net operating income x capitalization rate)

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Lesson 6 | Page 6 of 19

Gross Profit Multiplier Method

The gross profit multiplier method represents the relationship between sale price (value) and gross profit and is derived from sales of comparable businesses. It is typically used if capitalization is not possible and gross income profit is the only available figure for comparable sales. In this method, the gross profit is multiplied by a factor, known as the gross profit multiplier. This factor is determined by the market, like the capitalization rate in the income approach, by studying the same type of business sold recently. The purchase price of a business may reflect three years of gross profit, producing a multiplier of three (based on gross profit). For example, a salesperson is establishing the value of a dry-cleaning business. Research involving other dry-cleaning sales over the past year indicate a gross profit multiplier of 2. If the business being valued has a gross profit of $128,000, the estimated value for marketing purposes would be: 2 x $128,000 = $256,000. The gross profit multiplier is not automatically included in the calculation. A salesperson needs to find the multiplier by reviewing the recent sales of similar types of businesses. Exam Study Guide

The gross profit multiplier can also be determined in situations where the business sale price and the gross profit of the business are known by dividing the final sale price by the gross profit declared by the business. For example, if the business being valued has a gross profit of $128,000 and the estimated value is $256,000, the gross profit multiplier would be: $256,000 ÷ $128,000 = 2. Terminology poses a challenge because gross profit, income, and total cash flow may inadvertently be used interchangeably in the marketplace. Further, some sellers may refer to gross sales (total sales volume), while others deal with gross sales less cost of merchandise. As a result, salespersons may have difficulty establishing accurate multipliers. Profit is also a matter of perception. Profit reported on tax returns may not truly reflect the value of the business given that this return may be manipulated or adjusted by the seller. As a result, a salesperson must analyze statements provided and make appropriate adjustments when arriving at gross profit.

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Lesson 6 | Page 7 of 19

How to Calculate a Weighted Average

As a salesperson, you will need to know how to calculate a weighted average because the financial statements of one year may be more important than other years. The buyer would attach more importance to that particular year. Therefore, that year should be assigned a higher weight than other years. When using the gross profit multiplier method, if a significant variance in the profit has occurred in the past few years, a weighted average can be applied proportionately to account for these variances. To calculate a weighted average, you will be given a set of data and the corresponding weight to each individual data. Instead of adding all the data and dividing the sum by the number of data to find out the simple average, the calculation of a weighted average involves extra steps. Each data is multiplied by the corresponding weight and their products are added together, the sum is then divided by the total weight (instead of the number of data). The formula for finding a simple average Given a set of data, there are n of them, D1, D2, … Dn Simple average = (D1 + D2 + … + Dn) ÷ n

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Example 1: Simple Average There are four classes of students. The age group of class A is 14, the age group of class B is 15, the age group of class C is 16, and the age group of class D is 17. The simple average age of the 4 classes = (14 + 15 + 16 + 17) ÷ 4 = 62 ÷ 4 = 15.5. (note: For the formula above, the n is 4 in this example). The formula for finding a weighted average Given a set of data, there are n of them, D1, D2, … Dn with the corresponding weight W1, W2, … Wn Weighted average = (D1xW1 + D2xW2 + … + DnxWn) ÷ (W1 + W2 + … + Wn) Example 2: Weighted average Use Example 1: Simple Average to continue our calculation. Since class A has more students than class B, class B has more students than class C, and class C has more students than class D, give the weights of 8, 7, 3, and 2 to the class A, B, C, and D, respectively. The weighted average age of the 4 classes = (14x8 + 15x7 + 16x3 + 17x2) ÷ (8 + 7 + 3 + 2) = 299 ÷ 20 = 14.95

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Lesson 6 | Page 8 of 19

Gross Profit Multiplier Method: Methods to Adjust Variances in Gross Profit

If a business demonstrates consistent profit over several years but exceptions exist in one or two years, a salesperson should gather all facts to determine reasons for the exceptions. Causes for exceptions may include major road repairs near the business, a recessionary period, high interest rates, or adjacent competition. A salesperson estimating the value of a business using this method should know how to correctly calculate the weighted average to obtain a more precise averaging of the profits. A weighted average that is greater than the simple average means the business has enjoyed higher profits during some years of operation. Example: A business has experienced significant fluctuations in gross profit during the past four years. The weighted average can help smooth out such fluctuations when analyzing profit for valuation or related purposes. Year 4: GROSS PROFIT ($) is $189,300 and WEIGHTED PROFIT ($) is x 4 = $757,200 Year 3: GROSS PROFIT ($) is $138,600 and WEIGHTED PROFIT ($) is x 3 = $415,800 Year 2: GROSS PROFIT ($) is $171,800 and WEIGHTED PROFIT ($) is x 2 = $343,600 Exam Study Guide

Year 1: GROSS PROFIT ($) is $146,500 and WEIGHTED PROFIT ($) is x 1 = $146,500 Total of GROSS PROFIT ($) is $646,200 and total of WEIGHTED PROFIT ($) is $1,663,100 So, Simple Average = $646,200 ÷ 4 = $161,550 and Weighted Average = $1,663,100 ÷ 10 = $166,310 As a salesperson, you will need to consider the overall fluctuations when estimating the value of the business. A business that has grown over a four-year period would be more attractive to potential buyers.

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Lesson 6 | Page 9 of 19

A business had a gross profit of $240,000, operating expenses amounting to $120,000, an asking price of $640,000, and a sale price of $600,000. Question #15: Which of the following is the correct formula for calculating the gross profit multiplier? There are three options. There is only one correct answer. 1

Gross profit ÷ sale price

2

Sale price ÷ gross profit

3

(Gross profit – operating expenses) ÷ (asking price – actual sale price)

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Lesson 6 | Page 10 of 19

Discounted Cash Flow Method

The discounted cash flow method uses a pre-determined interest rate to bring all future cash flows to the present value (known as discounting) to estimate the value of a business. Cash flow is the money expected to come into the business, which defines an investor’s expected return. Often considered more accurate than other methods, this method uses projected cash flows over a period of time to value a business. The interest rate used for discounting takes into consideration the risk and the time a buyer needs to recover their investment. This method involves three questions: • • • •

What is the buyer’s expected rate of return from the business (the capitalization rate, which determines the number of years of income be used)? How much is the future projected earnings in each year? How much is the interest rate for discounting (the market rate)?

Once the three answers are known, valuers can use this method to estimate the value of a business. The discounted cash flow method is most appropriate if both the business and real property are being sold as a package but can apply to other situations. In a sale of a business with real property, a buyer can establish value by discounting cash flows on the business enterprise and the real property. Projected cash flows derived from both Exam Study Guide

operations and the ultimate sale of the property are discounted based on an acceptable discount rate to arrive at value. This process is also referred to as yield capitalization. The discount rate is determined by the market in the same manner as the capitalization rate is used in the income method. The discounted cash flow method determines the yield or return in a business at that point in time. For example, if the prevailing returns on investment (yield) of a business is 10 per cent in the marketplace, then the value is estimated based on the income of the business calculated by yield.

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Lesson 6 | Page 11 of 19

Considerations for Using the Discounted Cash Flow Method As a salesperson, you will need to consider when and how to use the discounted cash flow method. The following two sections contain information on the considerations for using the discounted cash flow method.

Benefits The discounted cash flow method is popular among investors because it provides a dynamic portrayal of cash flows, as opposed to a static one-year projection used in direct capitalization. It is considered the most detailed form of investment analysis. After-tax analysis of cash flows is commonly associated with investment value estimates. However, the discounted cash flow method has relevance to both before and after-tax perspectives.

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Drawbacks The discounted cash flow method requires assumptions and complex calculations. Because these assumptions are based on a market that is constantly dynamic, the projected yields may fluctuate.

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Lesson 6 | Page 12 of 19

Adjusted Book Value and Asset Valuation Methods

The adjusted book value method is a subset of the asset valuation method and the methodology may vary in the marketplace. These valuation methods are normally associated with the sale of a business and are determined through analyzing component parts of the business. The exact combination of components and their relative importance is often determined by the negotiating stance of the parties and the type of business involved. Emphasis is typically placed on actual values of equipment, fixtures, inventory, and other assets. Value associated with the business itself may or may not be included. Assets are broken into component parts that are valued and summed to arrive at a selling price. In instances where the business is included, financial performance may have little or no impact on final value as acquisition risks (such as assuming leasehold interests) can equal or even exceed any value in retained earnings. Adjusted book value or asset valuation methods are frequently used to evaluate a business, particularly when a low return or (profit) loss exists. For example, the estimated value of a business is based on the assets shown in the balance sheet. A buyer may still purchase a business showing little profit but has many assets. Exam Study Guide

These methods can be useful as a secondary valuation method to confirm or dispute the capitalization, gross profit multiplier, or discounted cash flow methods. However, these methods may not reflect the actual market value of the business; the value may be higher or lower.

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Lesson 6 | Page 13 of 19

Examples of Adjusted Book Value and Asset Valuation Methods As a salesperson, you will need to have a general understanding of the adjusted book value and the asset valuation methods. The following two sections contain examples of each method used.

Adjusted book value method Approach: The latest statement of assets and liabilities provides the tangible net worth (retained earnings). Additional asset values would then be analyzed either at book value or at an adjusted value that more adequately reflects fair or market value. These adjusted asset values include: • Inventory at cost or fair value (as determined by the parties) • Equipment and/or fixtures at cost or fair value (as determined by the parties) • Leasehold improvements at cost or fair value (as determined by the parties) The final value estimate includes retained earnings, plus the adjusted book values. Example: A buyer is prepared to pay the seller an amount equal to the retained earnings for the immediately preceding year, book value for inventory, and fair value for equipment. While the entire business is being acquired, the buyer’s salesperson reviews the financial Exam Study Guide

performance of the business and finds that little value exists beyond retained earnings and basic assets. The buyer will not consider direct capitalization of income or discounted cash flow analysis given the poor, often erratic, performance of the business over the past five years. As the buyer will be assuming certain risks and potential liabilities, the salesperson rules out serious consideration of financial performance beyond retained earnings. Accordingly, the buyer’s salesperson values the business as follows: 1. Retained Earnings: $29,750 2. Adding Inventory (Book Value): + $63,760 3. Adding Fair Value of Equipment: + $37,000 So, Total Estimate of Value: $130,510 The fair value of equipment was included. The adjusted book value does not have to be equal to the fair value. In fact, a smaller value might have been negotiated, such as a value under forced sale conditions.

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Asset valuation method Approach: Goodwill can arise in negotiations regardless of the financial performance of a business. This non-tangible asset may have value in the form of the longstanding reputation of the business, the capabilities of management and staff, and product reputation. Goodwill is typically quantified by analyzing above average return on investment (attributable to goodwill). However, goodwill may also exist even with marginal earnings. The seller and buyer perspectives frequently drive negotiations. In such instances, goodwill is regarded like any other asset, such as equipment, inventory, or other tangible items. Asset valuation can involve various values, such as leasehold interests. Example: A buyer purchases a business and assumes the lease in the present business location. The business leases 2,000 sq. ft. with a particularly favourable rate of $7 per sq. ft., with four more years to go. The current market rent at the time of sale is $15, so the buyer saves $8 per sq. ft. per year. With a saving of $8 per sq. ft. per year, the existing leasehold benefit is: 2,000 sq. ft. x $8 / sq. ft. / year x 4 years = $64,000. Using the discounted cash flow and an appropriate rate, the present value of this economic benefit can be established and included in the value of the business.

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Lesson 6 | Page 14 of 19

When to Use the Adjusted Book Value and Asset Valuation Methods As discussed, the adjusted book value or asset valuation methods are frequently used to evaluate a business. As a salesperson, you will need to know when and how to use each method. The following two sections contain information on when to use each type of valuation method.

Adjusted book value method This method may apply when a business has marginal earning potential but notable retained earnings. Retained earnings represent value received in the purchase of the business and may be included as part of the overall adjusted book value. The book value or fair value (or combination) of asset components is summed to arrive at a final estimate. Fair value, the amount at which an asset could be bought or sold between willing parties, is frequently used by accountants when assets are fairly valued for purposes of financial reporting. Fair value in the accounting profession and market value in real estate brokerage are generally equivalent.

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Asset valuation method Often businesses are valued based on salable assets, without regard to financial performance. Inventory, equipment, fixtures, and supplies are analyzed separately with no consideration given to the operating business, as it is normally excluded from the sale. Asset valuation is a popular technique because an individual is not acquiring the business, only its assets. Any potential liabilities are not being assumed. Asset valuation can also be complex; for example, inventory for a retail sales operation (referred to as a distributive operation) is treated differently than a manufacturer’s inventory consisting of raw materials, work-in-progress, and finished goods. A seller will want the highest figure and the buyer the lowest. The amount paid for assets largely depends on the negotiating strategies of the parties. As with adjusted book value, bargaining typically ranges between book value and fair value for assets.

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Lesson 6 | Page 15 of 19

A buyer is interested in purchasing a business that has not been performing well and shows low returns for the past five years. Therefore, the buyer’s salesperson uses the adjusted book value method to calculate the value of the business. Question #16: Which of the following should the salesperson consider when using this method? There are three options. There are multiple correct answers.

1

Book value

2

Retained earnings

3

Financial performance of the business

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Lesson 6 | Page 16 of 19

Various factors have an impact on which valuation method is used to estimate the value of a business. As a salesperson, you will need to understand what these factors are, how they impact the selection of a valuation method, and when to advise clients to seek professional third-party advice.

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Lesson 6 | Page 17 of 19

Factors That Impact the Selection of a Valuation Method

Business valuations typically focus on gross income, cash flows, or more refined measures depending on the business type and size. Marketplace valuations can involve direct capitalization, multipliers, discounted cash flows, and asset valuation processes. The four main methods used for valuation of a business are: 1. 2. 3. 4.

Direct capitalization method Gross profit multiplier method Discounted cash flow method Adjusted book value/asset valuation methods

Deciding which method is the best one to be used for valuation depends on various factors. Seller-buyer negotiations typically infer value based on personal perspectives, historical cash flow performance, and present circumstances. This situation can frequently blur the lines between methods and create unique variations, regardless of whether bargaining is based on the complete business or simply its assets. A salesperson should remember the following basic principles about valuing a business: Exam Study Guide

• • • • •

Clearly identify the components of the business being sold Establish an effective date for the valuation Determine if market value or other type of value (for example, book value) is required Gather all pertinent documentation relating to identified components Provide an estimate only after careful evaluation of all facts

As a salesperson, regardless of the information that is available, you will need to advise your client to consult a thirdparty professional, such as an accountant or designated appraiser. These professionals have the necessary qualifications to advise seller clients on which valuation method should be used for their business. In addition, a designated appraiser is needed if the client requires an expert, unbiased opinion on the value of the business. For example, a seller of a competitive business with no comparable sales in the recent past.

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Lesson 6 | Page 18 of 19

A buyer has a sentimental attachment to a café and wants to purchase it. Before making an offer, the buyer asks their salesperson about the value of the business. After conducting due diligence, the salesperson determines the business does not have a good customer turnover. Moreover, since there were no comparable sales, the salesperson is unable to determine if the business is profitable. Question #17: Which of the following statements are true when selecting a valuation method for the business? There are four options. There are multiple correct answers.

1

If accurate information is not available, a salesperson can provide an estimate of value using assumptions about the business.

2

Business value can be inferred based on both logical valuation methods, the buyer’s personal perspectives, and present circumstances.

3

If sufficient market information is not available, the salesperson should advise their client to consult a third-party professional.

4

The type and size of the business influences the selection of a valuation method for that business.

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Lesson 6 | Page 19 of 19

Congratulations, you have completed the lesson! There are three sections on this page with a summary of the key topics that were covered in this lesson.

Types of business valuation methods

Business valuations typically focus on gross income, but more refined measures may be used depending on business type and size. The four methods to valuing a business are: • Direct capitalization – used to estimate market value; based on a single year's projected income and expenses; most frequently associated with small-income investment properties • Gross profit multiplier – derived from the sales of comparable properties • Discounted cash flow – determines the yield or return in a business at that point in time; uses future cash flow minus a discount; most appropriate method if both the business and real property are being sold as a package • Adjusted book value and asset valuation methods – value determined through evaluating assets of the business; used to evaluate businesses projecting low or negative returns (profit) The adjusted book value method is a subset of the asset valuation method and vary significantly in the marketplace.

Deciding which method to use to estimate the value of a business depends on various factors, Factors influencing choice including: • Business type and size of business valuation method • Personal perspectives • Historical cash flow performance • True financial statements • Present circumstances • Comparables Exam Study Guide

• Inventory • Equipment and/or fixtures • Leasehold improvements • Potential value of remainder of current lease

Basic valuation rules for businesses

Basic rules when deciding on a valuation method for a business include: • Identifying the components of the business being sold • Establishing an effective date for the valuation • Determining if market value or other type of value (for example, book value) is required • Gathering all pertinent documentation relating to identified components • Providing an estimate only after careful evaluation of all the facts

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Lesson 7 | Page 1 of 15

Lesson 7: Role of Third-Party Professionals

This lesson describes the financial, legal, structural, and environmental risks associated with business trades, and how third-party professionals help minimize these risks. This lesson also describes the various compliance concerns relating to business documentation that a salesperson may face when representing a seller or buyer.

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Lesson 7 | Page 2 of 15

Role of Third-Party Professionals

Business trades are complex. As a salesperson, you will need to ensure your client has the required information to make well-informed business decisions. You will also need to ensure your client is aware of any financial, legal, structural, and environmental risks relating to the business. These risks may require services of a third-party professional. You will need to discuss them with your client in a general way and then advise the client to consult a third-party professional. Upon completion of this lesson, you will be able to: • Identify the role of potential third-party professionals in business trades • Describe environmental due diligence for a business brokerage • Describe the due diligence required of a salesperson and brokerage during business trades • Describe business brokerage compliance challenges Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented. Exam Study Guide

Lesson 7 | Page 3 of 15

Role of Potential Third-Party Professionals in Business Trades Third-party professionals provide insight and expertise on those aspects of a business trade where a salesperson is not expected to have expertise. The following four sections contain information on each type of third-party professional.

Accountants Accountants create and review all financial statements of the business, such as: • • • • •

Balance sheet Income and expense statement Audited statement Unaudited statement Notice to reader report

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Lawyers Lawyers review the following: • • • •

Leases Franchise agreements Licences Any other legal documentation such as: o Contracts between suppliers and the business o Contracts between customers and the business o Contracts between trades and the business

Chartered business valuators Chartered business valuators assess and value businesses by quantifying profitability, tangible and intangible assets, and future cash flows. These trained valuation specialists consider the following: • • • • • • •

Capital Intellectual property Brand value Employees and management Past performance Profitability Market expectations

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Lenders Lenders provide financing for the purchase of a business. Lenders may be any one of the following: • • • •

Banks Private lenders Trust companies Government institutions (for example, Business Development Corporation)

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Lesson 7 | Page 4 of 15

As a salesperson, you will need to identify any potential environmental concerns associated with the business. Start by gathering key information about the site and searching for signs of possible sources of contamination. Certain sites and businesses are more likely to cause pollution or contamination. After conducting your environmental due diligence, you will need to discuss these concerns with the seller or buyer client and advise them to consult an appropriate third-party professional.

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Lesson 7 | Page 5 of 15

Sources and Locations of Site Contamination Sites that are more likely than others to be contaminated include: Gas stations, dry-cleaners, automobile maintenance garages, rail yards, refinery areas, and similar operations Old landfill sites Vacant land strewn with debris or abandoned structures Vacant land with surface water that is odorous or discoloured Property that has a lower grade level than an adjacent potential source of contamination Evidence of metal bulk storage containers or barrels, including remnants thereof Any indication of underground buried materials, such as surface vents and metal cover plates Buildings that have been altered or changed uses since original construction Older structures with few or no mechanical or structural upgrades, or in a general state of disrepair including surrounding grounds • Land planned for development, if there is any confusion at all about past uses of that land • • • • • • • • •

You will learn about the role of third-party professionals to address various environmental matters later in this lesson.

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Lesson 7 | Page 6 of 15

Legislative Impact A business must comply with municipal, provincial, and federal legislation. Two pieces of legislation that will impact business trades are the Clean Water Act and the Places to Grow Act. A business may be operating in a vulnerable area and a prospective buyer needs to know if their intended use for the business complies with each legislation. In such situations, the buyer would require the services of a third-party professional. The following two sections contain information on these legislations.

Clear Water Act This legislation ensures clean, safe, and sustainable drinking water for Ontario residents by protecting sources of municipal drinking water, such as lakes, rivers, and well water. The Ontario government established the Drinking Water Source Protection Program under this legislation. The multi-barrier approach to source water protection includes the following: • • • • •

Water treatment system Inspection Testing Distribution Drinking water

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Places to Grow Act This legislation provides for growth plans that establish long-term strategies for identified growth areas. An area may be designated under the Places to Grow Act for tourism, employment, or specific economic growth; for example, a marina, a resort, or a golf course. The legislation enables: • Designation of any geographic region of the province as a growth area with a specific focus • Development of a growth plan in consultation with local officials, stakeholders, public groups, and members of the public and Indigenous communities for a particular region Decisions about growth are to be made in ways that increase and promote greater housing and transportation options and investments in regional public service facilities in downtown areas, and maximizes infrastructure investments in communities while balancing regional needs for farmland and natural areas.

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Lesson 7 | Page 7 of 15

Due Diligence: Recommending Third-Party Professionals

Certain sites and businesses are more likely to cause pollution or contamination. A salesperson trading in businesses must refer their seller or buyer to a third-party professional, such as an environmental site assessor, lawyer, or insurance broker for guidance and advice. For environmental matters: • An environmental site assessor will inspect the property to determine if contaminants are present and, if so, the location and concentration of these contaminants. The environmental site assessor will complete a report that documents the study results and provide recommendations for any remedial action. • A lawyer will advise on environmental legislation, such as the Environmental Protection Act, that may affect the transaction. • An insurance broker will advise on environmental insurance options that provide liability coverage. For example, a lender takes possession of a mortgaged property under default. Due to pollution on the mortgaged land, the lender incurs liability under provincial environmental legislation. When drafting the offer, a salesperson should include a condition that gives a prospective buyer the opportunity to consult any third-party professional with sufficient time for them to conduct their investigations or reviews.

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Lesson 7 | Page 8 of 15

A prospective buyer of a business should carefully assess all risks associated with the acquisition. A seller should be able to answer all questions about the business. As a salesperson, regardless of whether you are representing a seller or a buyer, you will need to conduct due diligence to ensure that the seller and buyer each have accurate and sufficient information to make informed decisions.

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Lesson 7 | Page 9 of 15

Due Diligence: Financial, Legal, and Structural As a salesperson, your due diligence obligation will be to obtain sufficient and accurate information from the seller about the business to ensure that the buyer’s third-party professionals, such as an accountant or lawyer, may conduct an appropriate level of analyses and advise the buyer. The following three sections contain information on the specific information a third-party professional may review.

Financial Financial due diligence involves analyzing the financial health of a business, such as: • • • • • • •

Income statements Balance sheets Rent rolls and leases Bank statements Tax bills and returns Employee records Operating costs

Seller-supplied documents should also be reviewed, such as: • Various financial reports and records (for example, profit and loss statement; statement of assets, liabilities, and owner’s equity) • Lease documents • Inventory of equipment and other assets • Utility bills • Building service contracts • Insurance policies

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Legal Legal analysis of a business involves analyzing the following: • • • • • • • •

Evidence of ownership Major assets Existing mortgages and other encumbrances Surveys Licences Contracts Permits Zoning compliance

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Structural A commercial building condition report (also known as a building inspection report) is usually included if a business is being sold with real property. This report includes the following: • Visual inspection of the building • Review of relevant documentation (and interviews, if necessary) • Identification of physical deficiencies • Photo documentation • Detailed summary report The report also includes key facts about the building envelope, structural design, mechanical systems, electrical systems, interior finishes, and life safety systems. Identifying physical deficiencies is important; they reflect material defects and significant deferred maintenance items that must be addressed but would exclude normal maintenance and repair items.

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Lesson 7 | Page 10 of 15

Due Diligence: Verification of Ownership, Contracts, and Leases

During the process of a business sale, a salesperson needs to ensure the seller provides proof of business ownership. This proof varies depending on the type of business. For a sole proprietorship, the easiest way to demonstrate ownership is providing a copy of the owner’s tax return. For a corporation, proof of ownership requires conducting a corporate search, and the services of third-party professionals, such as a lawyer or accountant. In Ontario, a corporate search provides current details of the corporation or business including confirmation of whether the business is a corporation, legal address, current directors and/or shareholders, how long the business has been established, and if it is active. In addition, a Business Names Report provides details of the Master Business Licence including business address, owners, owners address, the date of registration, and business activity. A lawyer would be required to conduct a search to verify ownership and that owner’s right to sell the inventory of the business. A lawyer would also be required to review contracts and leases, if applicable. The lawyer would review these documents to ensure they are assumable by the buyer. An accountant would be required to check the financial statements of the business to verify if the inventory has been paid. This will help the accountant estimate a value for the business. As a salesperson, if you are representing a buyer, you will need to add a clause in the agreement and a condition that gives the buyer sufficient time to consult a lawyer and an accountant. Exam Study Guide

Lesson 7 | Page 11 of 15

While checking the valuation of inventory for a café, the salesperson discovers that the seller receives a daily consignment of the baked item from a renowned baker. According to the records, the seller usually makes a payment for this item at the end of the month. The closing date for the sale is set for the middle of the month, which would leave the item as an unpaid inventory item. Question #18: As part of their due diligence, what should the salesperson do to ensure that the inventory is paid in full on or before the close of the sale? There are three options. There is only one correct answer.

1

Include a clause in the offer stating that the seller must terminate the business contract with the baking supplier

2

Include a clause that allows the inventory valuation amount to be reduced to accommodate for the unpaid inventory

3

Include a clause that allows the buyer to arrange for additional financing from the lender to pay off the unpaid amount on the inventory

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Lesson 7 | Page 12 of 15

Compliance Concerns: Listing Salesperson Perspective As a salesperson trading in businesses, you will face several legislative compliance and leading practice challenges when representing a seller. These challenges include lack of sufficient due diligence documents; misrepresentation of income and expenses; outdated or incomplete financial reporting; inability to verify the condition of fixtures, goods, and chattels; and undisclosed liabilities. The following five sections contain information on compliance challenges when representing a seller.

Insufficient due diligence documents A salesperson must ensure that a seller provides all necessary documents to a prospective buyer. These documents will help the buyer make an informed decision about whether to proceed with the transaction. These documents should also be verified by third-party professionals. Examples of due diligence documents include: • • • •

Financial statements Franchise agreements (if any) Leases (if any) Confidentiality agreements

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Misrepresentation of income and expenses As you learned earlier in this module, an income and expense statement reflects the financial performance of a business for a specific time period. A salesperson needs to verify that this statement has been audited. Audited financial statements undergo a reasonable number of tests to make sure the assets and debts reported are accurate. A letter containing the accountant’s opinion accompanies the financial statement, which notes that the accountant has performed an audit “in accordance with Canadian generally accepted auditing standards.”

Outdated or incomplete financial reporting A salesperson must ensure that all financial reports are current and complete. However, the seller may not have true financial statements (as set out in O. Reg. 567/05). A salesperson should also be familiar with other documents used in marketing and negotiations, such as confidentiality agreements.

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Inability to verify the condition of goods, chattels, and fixtures A salesperson generally uses some type of seller disclosure before listing the property. This disclosure form helps the salesperson identify material facts. A salesperson is encouraged to follow these recommended guidelines to identify material facts: 1. Inquire – Ask specific questions about the condition of goods, chattels, fixtures, and the structure of the building (for example, roof, water seepage, HVAC system, plumbing and electrical systems). 2. Investigate – Analyze the condition of goods, chattels, and fixtures through direct personal inspection or advise the seller to consult a thirdparty provider. 3. Verify – Identify and discuss any deficiency with the seller. Request additional information and/or assurances concerning these deficiencies. Inform the seller that you must disclose material facts and they must disclose latent defects, if known. 4. Disclose – Disclose material facts to prospective buyers. Advise the buyer to consult third-party professionals if they want to further investigate these facts.

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Undisclosed liabilities A salesperson must discuss liabilities with a seller and ensure all liabilities are disclosed to prospective buyers. For example, a seller does not disclose that payment is owed to a supplier. Generally, all goods must be paid in full before a buyer acquires the business. The seller must provide a statement of liabilities to the buyer prior to a binding agreement.

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Lesson 7 | Page 13 of 15

Compliance Concerns: Buyer’s Salesperson Perspective

As a salesperson trading in business, you will face similar compliance challenges with buyers. For example, a buyer’s salesperson may receive information from the listing salesperson that may include: • • • •

Outdated, incomplete, or inaccurate financial statements Insufficient or no information relating to franchise agreement (if applicable) or leases (if applicable) A list of goods, chattels, and fixtures that have not been verified by a third-party professional, as necessary If the inventory is included or excluded from the purchase price

The buyer’s salesperson is responsible for advising the buyer about various clauses that may be included in the offer to address any and all of the above issues. In addition, the salesperson can also insert a condition giving the buyer’s thirdparty professionals an opportunity to review and approve the business information. Example: A women’s clothing store owner is selling their business. The owner has several boxes containing unsold dresses and skirts that are now out-of-date. The buyer does not want this inventory to be part of the purchase price. The salesperson includes a clause that clearly states that the unsold inventory shall not be included in the purchase price.

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Lesson 7 | Page 14 of 15

A restaurant owner in a leased space wants to sell the restaurant because of financial difficulties and personal health problems. An interested buyer asks their salesperson to submit an offer conditional upon the buyer being able to review the financial documents. While reviewing the financial documents, the buyer and their salesperson discover information about the business that may affect the final purchase price. They suspect the financial documents are incomplete and there is misrepresentation of income and expenses. Question #19: Which of the following are potential concerns associated with this sale of business? There are five options. There are multiple correct answers.

1

The owner’s daughters work in the restaurant on weekends as waitresses. They are not paid, and the owner does not include this service as part of the business expense.

2

The owner’s main supplier is a cousin. The owner enjoys a huge family discount.

3

The restaurant provides home-delivery on bulk orders and the delivery service is provided by the owner’s brother and nephew. The owner pays them in kind with a daily free meal, which is not included in the record of expenses.

4

The owner pays the cleaning staff with cash and does not include it in his record of expenses.

5

The owner has provided a copy of the existing lease outlining the rent payable and the remaining four-year term.

Exam Study Guide

Lesson 7 | Page 15 of 15

Congratulations, you have completed the lesson! There are five sections on this page with a summary of the key topics that were covered in this lesson.

Third-party professionals

A salesperson must advise the seller or buyer to consult a third-party professional in situations that require expert advice for which the salesperson does not have the knowledge, skills, or experience. Examples of third-party professionals and the services they provide in business trades includes: • Accountants – reviews financial statements such as balance sheets and income and expense statements • Lawyers – reviews leases, franchise agreements, licences • Chartered business valuators – reviews capital, intellectual property, brand value, employees and management • Lenders (banks, trust companies) – provide financing for the purchase of a business A seller or buyer will need expert advice to be able to make informed decisions.

Environmental due diligence

A salesperson’s environmental due diligence involves the following: • Identifying various site contamination locations and types of business that may be more likely to cause contamination, such as: gas stations, dry cleaners, refineries, old landfill sites • Recommending third-party professionals, such as environmental site assessors and lawyers, to address various environmental matters A salesperson must also have a general understanding of legislation that will impact business trades, such as the Clean Water Act and the Places to Grow Act.

Due diligence: Financial, legal, structural

A listing salesperson and a buyer’s salesperson must ensure their respective clients understand the risks of selling or buying a business. Due diligence is required to minimize these risks.

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A salesperson must take all reasonable steps to confirm financial, legal, structural, and environmental concerns. In areas where the salesperson is not an expert, they must refer the client to an appropriate third-party professional. Examples of areas that require due diligence include (but are not limited to): • Financial – review of income statements, balance sheets, and leases • Legal – verification of ownership; review of permits, licences, and contracts; review of zoning and zoning compliance • Structural – visual inspection of the building; identification of physical deficiencies • Environmental – possible site contamination

Compliance concerns: Listing salesperson perspective

Compliance concerns for a listing salesperson include:

Compliance concerns: Buyer’s salesperson perspective

Compliance concerns for a buyer’s salesperson include:

• • • • •

Seller provides insufficient due diligence documents Income and expense statement contains misrepresentations Financial reporting is outdated or incomplete Seller or salesperson cannot verify the condition of goods, chattels, and fixtures Seller does not disclose liabilities

• Outdated, incomplete, or inaccurate financial statements • Insufficient or no information relating to franchise agreement (if applicable) or leases (if applicable) • A list of goods, chattels, and fixtures that have not been verified by a third-party professional, as necessary • Clarification of whether the inventory is included or excluded from the purchase price

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Lesson 8 | Page 1 of 12

Lesson 8: Turnkey and Franchise Businesses

This lesson differentiates between two types of business trades a salesperson may facilitate—turnkey and franchise— and lists some common franchise categories. The lesson also highlights several characteristics of franchise businesses a salesperson should discuss with a potential buyer.

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Lesson 8 | Page 2 of 12

Turnkey and Franchise Businesses

Two other types of business trades a salesperson may facilitate are turnkey businesses and franchise businesses. While the most common type of turnkey business is a franchise, not all are. Likewise, not all franchises are turnkey. As a salesperson, you will need to know the difference between turnkey businesses and franchises and understand the considerations for each. Upon completion of this lesson, you will be able to: • Describe a turnkey business • Describe a franchise business 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 12

Turnkey and Franchise Businesses A turnkey business includes everything a new owner needs to start running the business. Tangibles (premises, inventory and equipment) and intangibles (reputation and goodwill) are already in place and the new owner only has to turn the key. A salesperson uses the term “turnkey” to advertise the sale of an established business that includes all equipment necessary to run it, or by a business-to-business supplier providing complete packages for a business start-up. Turnkey businesses vary considerably in terms of what is provided, and buyers must carry out appropriate due diligence. A common turnkey business is a franchise. A franchise is a style of business entrepreneurship under which the franchisor, for a fee or other remuneration, grants to the franchisee the right to sell goods or services perfected by the franchisor using the franchisor’s name, logo, and methods of expertise.

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Lesson 8 | Page 4 of 12

Considerations of a Franchise Business – Part 1

The buyer may gain the following benefits if they purchase a franchise: • Business format: The franchisor provides a complete format to assist both in start-up and ongoing operations. The format includes items such as trademark and logo, marketing techniques, operating systems, physical layout, personnel structure, and product selection. • Franchise expansion: The rapid growth of the franchisor increases the likelihood of success for the franchisee. A degree of flexibility and security is afforded by both franchisor and franchisee that is not possible under other marketing systems and, therefore, a greater probability of success exists. • Image: The franchisor typically has an established image in the marketplace that provides the franchisee with brand name identification to attract consumers. The franchisee can also benefit from the already established business relationships, such as advertisers and marketing teams. • Training: Franchises offer training for new franchise owners regarding operating systems. Training often extends to employees as well and may include additional topics such as general business techniques, marketing strategies, and financial record-keeping. Exam Study Guide

• Operating assistance: Most franchise agreements provide that the franchisor takes an active role in launching and supporting the new franchise unit. A franchisor typically assists with site selection, lease negotiation, decorating, obtaining equipment/products, and recruiting personnel. • Group purchasing: As the franchise grows, significant cost savings can be accomplished by coordinating the purchase of products and services for franchise units. • Easier business financing: Investors may be more willing to invest in a business with an established network, secure brand, and effective support structure which generally makes it easier to acquire business financing. Sometimes, the franchisor might provide the financing, which makes it easier for the buyer of the new business. • Business value appreciation: As the successful franchise grows, the franchise fee for new entrants generally increases, translating into added market value for existing franchisees. • Reputation: The actions of one franchisee owner or a positive incident at a particular franchise location can greatly improve the reputation of the franchise business as a whole. This directly translates into a positive impression of other franchisees.

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Lesson 8 | Page 5 of 12

Considerations of a Franchise Business – Part 2

A buyer may encounter the following issues if they purchase a franchise: • Cost: The initial cost for established franchise operations can be quite high. • Ongoing expenses paid to the franchisor: A franchisee is required to pay ongoing expenses to the franchisor, such as: o Royalties: fees paid to the franchisor for the right to operate the business under a proven brand and business model; generally calculated based on the franchisee’s monthly gross sales; failure to pay royalties can be considered a breach of the franchise agreement. o Advertising: generally calculated based on the franchisee’s monthly gross sales; franchisors collect advertising fees from all franchisees and execute collective advertising initiatives to create name recognition, which benefits all franchisees. o Ongoing costs/fees: Fees for ongoing operations can add up to significant amounts (for example, up to 10 per cent of sales revenue). • Loss of business freedom: The franchisee must meet franchisor standards and follow often stringent operating procedures. Exam Study Guide

• Purchase of franchisor products: Franchises involving the sale of products normally require that all products be acquired from the franchisor or an authorized franchisor supplier (often including a markup). • Remote head office: If the franchisor’s head office is located in another country, redress may be difficult if the franchisor fails to live up to promises and obligations. • Dependency on market: The success of franchising is usually dependent on market penetration to ensure maximum image building. Marketing and advertising costs are also usually high, since franchisors must develop a two-pronged market strategy: one for marketing the franchise opportunity and another for promoting the goods and services to the end-user. • Difficulty in selling the business: The franchisee may be bound by the terms of the franchise agreement and may only be able to sell the business to someone approved by the franchisor. If the agreement was negotiated for a fixed period, a potential buyer may be deterred by the possibility that the franchisor may not renew the agreement at the end of the franchise term. • Reputation: The actions of one franchisee owner or an incident at one franchise location may be detrimental to the reputation of other franchisees and locations.

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Lesson 8 | Page 6 of 12

Common Franchise Categories Business franchises generally fall into three broad categories: retail, business and personal services, and travel and leisure. As a salesperson, you will need to know about these different types of business formats so you can advise a prospective buyer. The following three sections contain information on the three types of business formats.

Retail Retail franchises sell goods or merchandise from a fixed location, such as a free-standing building, shopping centre, or kiosk. Examples of retail franchises include: • • • • •

Fast food chains Specialty food shops Automobile products and services Convenience stores Retail products such as electronics, pet products, home improvement and hardware, books, and clothing

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Business and personal services Business and personal services franchises focus on delivering services in a specific industry. Examples of business and personal services franchises include: • • • • • • • • • •

In-house cleaning services Security systems Car and truck rental and leasing services Tax returns Real estate brokerages Employment services Quick printing Education Exercise training Computer training

Travel and leisure Travel and leisure franchises offer services related to travel and leisure. Examples of travel and leisure franchises include: • • • •

Travel agencies Beauty salons Hotel and motel chains Campgrounds

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Lesson 8 | Page 7 of 12

A business brokerage is representing several clients interested in purchasing franchise businesses. Question #20: As a salesperson, to which client would you recommend a franchise business? There are four options. There are multiple correct answers.

1

Clive wants to open a hamburger restaurant but has no previous business or management experience.

2

Young-Hee wants to open a fitness and nutrition business where she can promote her new exercise techniques.

3

Omar wants to open a catering business using fresh produce from local farmers.

4

Carmelina is unable to obtain financing for the beauty salon she wants to open and operate. She has a large client base that she built up over the years of doing at-home appointments.

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Lesson 8 | Page 8 of 12

As a salesperson, if you are representing a buyer interested in purchasing a franchise business, you will need to understand the requirements and conditions unique to franchises. You will then need to discuss these items with the buyer to ensure they make an informed decision about whether to proceed with the purchase.

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Lesson 8 | Page 9 of 12

Additional Consideration: Selling a Franchise

Buying and selling a franchise is complicated mainly because the buyer must comply with the franchise agreement. Specifically, this type of transaction is complicated because of the following: • The buyer must be approved by a franchisor to assume an existing franchise agreement and any other contracts material to the business. Appropriate conditions must be inserted in the offer. • If the master franchisor is not on the lease, the existing landlord may need to grant approval of the new business operator (the buyer). Most leases signed are between a franchisor and a landlord. The franchisee is only a subtenant. A buyer needs to assume the sub-lease, which also needs the franchisor’s approval. • Some franchise agreements state that the franchise is strictly personal to the franchisee and is not assignable to others without the franchisor’s prior approval. • The franchisor may require that a new owner undertake specific product training.

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Lesson 8 | Page 10 of 12

Buyer’s Obligation and Salesperson’s Role

A franchise agreement outlines the fees, responsibilities, and obligations of a franchisee buyer. When buying a franchise, the buyer is agreeing to abide by the terms of the franchise agreement, including conditions that may affect or possibly nullify the sale. A salesperson representing a buyer interested in purchasing a franchise may provide the buyer with the following services: • Help the buyer find a strategic location that will likely generate revenue and be profitable • Read the franchise agreement carefully and pay particular attention to the following: o Many franchisors will want to maintain control of a valuable location by taking a lease on the site and subleasing it to the franchisee. o The franchise agreement, including provisions for the franchisee to assume contracts, such as the right to use a trademark licence and operate the business. o Provisions relating to payment of fees (initial cost and ongoing expenses), term of the rights, limitations on the use of the franchisor's trademarks, operational standards and specifications, restrictions on products Exam Study Guide

and services that the franchisee may offer, reporting requirements, default, termination, post-termination obligations, and restrictions on competition and disclosure of confidential information. • Confirm that the franchise agreement is either transferred or a new franchise agreement has been signed between the franchisor and the franchisee (otherwise, the buyer may face legal ramifications). • Discuss all the above with the buyer and ensure the buyer has understood. • Advise the buyer to consult a third-party professional, such as a lawyer.

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Lesson 8 | Page 11 of 12

A buyer is interested in purchasing a franchise business located in a leased space in a busy strip mall. The buyer has made some assumptions about what they can expect from being a franchised business owner based on what they have heard. The buyer discusses these assumptions with the salesperson and asks the salesperson for confirmation. Question #21: Which of the following assumptions stated by the buyer are false? There are three options. There are multiple correct answers.

1

The existing franchise agreement is easily transferable from the current franchisee owner to the buyer

2

Apart from the initial costs of the sale, the buyer does not need to pay any other expenses to the franchisor

3

The salesperson is permitted to manage the lease agreements between the franchisor seller and the buyer

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Lesson 8 | Page 12 of 12

Congratulations, you have completed the lesson! There are four sections on this page with a summary of the key topics that were covered in this lesson.

Turnkey businesses

A turnkey business includes everything a new owner needs to start running the business. Tangibles (premises, inventory and equipment) and intangibles (reputation and goodwill) are already in place and the new owner only has to turn the key. A common turnkey business is a franchise.

Franchise businesses A franchise is a style of business entrepreneurship under which the franchisor, for a fee or other remuneration, grants to the franchisee the right to sell goods or services perfected by the franchisor using the franchisor’s name, logo, and methods of expertise. A buyer may expect any of the following when purchasing a franchise (this is not an exhaustive list): • Franchisor provides a complete format to assist with the start-on and ongoing operations • Franchises offer training for new franchise owners regarding operating systems • The rapid growth of the franchisor increases the likelihood of success for the franchisee • The franchisor typically has an established image in the marketplace that provides the franchisee with brand name identification to attract consumers • Most franchise agreements provide that the franchisor takes an active role in launching and supporting the new franchise unit The buyer may also expect the following if they purchase a franchise (this is not an exhaustive list): • The initial cost for established franchise operations can be high • Fees for ongoing operations can add up to significant amounts (for example, up to 10 per cent of sales revenue) • The franchisee must meet franchisor standards and follow often stringent operating procedures Exam Study Guide

• Franchises involving the sale of products normally require that all products be acquired from the franchisor or an authorized franchisor supplier (often including a markup) • If the franchisor’s head office is located in another country, redress may be difficult if the franchisor fails to live up to promises and obligations

Common franchise categories

Business franchises generally fall into three categories: retail, business and personal services, and travel and leisure. • Retail – fast food chains, convenience stores, specialty food shops • Business and personal services – real estate brokerage, security systems, in-house cleaning services • Travel and leisure – travel agencies, hotel and motel chains, campgrounds

When buying a franchise, the buyer is agreeing to abide by the terms of the franchise Buyer’s obligation and salesperson role agreement, including conditions that may affect or possibly nullify the sale. A salesperson representing a buyer interested in purchasing a franchise may provide the buyer with the following services: • Help the buyer find a strategic location that will likely generate revenue and be profitable • Read the franchise agreement carefully and discuss each section with the buyer • Advise the buyer to consult a third-party professional, such as a lawyer

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Lesson 9 | Page 1 of 5

Lesson 9: Preparing to Sell a Business

This lesson outlines the salesperson’s responsibilities for collecting and reviewing all required documentation when preparing to sell a business. This lesson also provides a list of questions a salesperson should ask a seller of a business.

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Lesson 9 | Page 2 of 5

Preparing to Sell a Business

As a salesperson, when you are preparing to sell a business, you will need to review the financial documents of the business to ensure they include an accurate representation of gross sales, effective gross income, and before tax cashflows. You will also need to review documents such as leases. As you learned earlier in this module, these types of reviews will require consultation with third-party professionals, such as accountants and lawyers. You will need to ask a seller specific questions about the documents to ensure you have the information you need to list the business, and the buyer has all the information they need to make an informed decision about whether to proceed with the transaction. Upon completion of this lesson, you will be able to: • Identify questions a salesperson should ask regarding documentation Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

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Lesson 9 | Page 3 of 5

Gathering Facts: Questions to Ask Financial reports and associated information present the greatest challenge when preparing to sell a business. As a listing salesperson, you will need to ask the seller specific questions. Answers to these questions will help ensure that the information provided to the buyer and their salesperson is accurate, complete, and up-to-date, so the buyer can make an informed decision about whether to proceed with the transaction. In turn, the buyer’s salesperson can include clauses in the offer that protects the interests of the buyer. In addition, both the listing salesperson and the buyer’s salesperson should anticipate and make proper inquiries about the duration of time needed to acquire the required information. The following seven sections contain information on specific questions a salesperson should ask the seller.

Leased or owned premises Ask the seller the following questions about the business premises: • Is the business operated from a leased premises, or do you own the real property? • If the real property is leased: o Do you have a copy of the lease? o Does the lease permit subletting or assignment? o If yes, what are the governing conditions? o What is the remaining term under the lease? Are there any rights of renewal? • If the seller owns the real property: o Is the real property included in the sale? o If no, ask the owner of the real property what terms they will require in a lease for the buyer of the business portion?

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Financial statements Ask the seller the following questions about financial statements: • Do you have current financial statements (such as an income statement and balance sheet)? • Do you have prior financial statements, preferably for the last three to five years? • Can you provide a list of what chattels, fixtures, goods, rights, and other assets are included and excluded in the sale? If the seller does not have a list, the salesperson should create the list using information provided by the seller.

Type of sale (shares or assets) Ask the seller the following question about the type of sale: • Will the sale of this business involve the purchase of shares in a corporation (that owns the business) or the purchase of business assets?

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Inventory Ask the seller the following questions about inventory: • Is inventory involved in the sale of this business? • Have you estimated a value for the inventory? • If yes, how was the value estimated?

Business licences and agreements Ask the seller the following questions about business licences and agreements: • Are there any licences or agreements associated with the business that must be transferred to the new buyer? • Are there any special agreements (such as suppliers of inventory, equipment, or other business-related materials) that impact the sale of this business? • Is there a franchise agreement? • If yes, what limiting conditions are imposed on you and the potential buyer regarding the assignment of that franchise agreement?

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Buyer requirements Ask the seller the following question relating to buyer requirements (for example, if only a licensed professional is permitted to run the business): • Are there any unique requirements that a buyer must comply with when acquiring the business?

Leased or owned premises Ask the seller the following questions regarding discretion about the sale: • Will you permit the business to be advertised in the marketplace or do we use generic advertising that will not specifically identify the property and/or business? • Are your employees aware that the business is being offered for sale? • Will you require any special procedures when showing the business to prospective buyers during business hours?

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Lesson 9 | Page 4 of 5

An owner wants to sell their sole proprietorship insurance business. The business leases space in a small strip mall. The salesperson plans to gather all key information and review all documentation about the seller’s business. The documentation will then be provided to the buyer and the buyer’s salesperson. Question #22: To gather all possible facts about the business for a potential buyer, what questions should the salesperson ask the seller? There are four options. There are multiple correct answers.

1

Does the seller have the necessary operating licence to run the business and is the licence transferable?

2

Is the lease assignable and is the landlord’s consent required?

3

Do potential buyers need to be licensed to run the business?

4

Does the seller own a different type of business elsewhere and what is the financial health of that business?

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Lesson 9 | Page 5 of 5

Congratulations, you have completed this module!

Here is a summary of the key topics that were explained in this lesson. A salesperson preparing to list or sell a business should review the financial documents of the business, discuss the information with the seller, and advise the seller if they need to consult a third-party professional, such as a lawyer or accountant. To ensure the listing salesperson has the information they need to list the business and the buyer has the information they need to make an informed decision about whether to purchase the business, the salesperson needs to ask the seller specific questions, such as: • If the business is operated from a leased or owned premises • If the sale involves the purchase of shares in a corporation (that owns the business) or the purchase of business assets Exam Study Guide

• • • • • • •

If the seller has current financial statements and statements from the previous three to five years If inventory is included What chattels, fixtures, goods, rights, and other assets are included in the sale and which are excluded If any licence or agreement is associated with the business and if these items are transferrable to the buyer If the buyer has to comply with any unique requirements if they purchase the property If employees know the business is being sold What type of marketing is permitted

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Lesson 10 | Page 1 of 9

Lesson 10: Pre-closing Issues for a Business Trade

This lesson highlights pre-closing issues that may arise in a business transaction, and the leading practices that may prevent or resolve these issues.

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Lesson 10 | Page 2 of 9

Pre-closing Issues for a Business Trade

Issues may arise that may disrupt or delay the successful closing of a transaction. For a business trade, these issues may include concerns over ownership of major assets or the business entity, unforeseen circumstances affecting insurance rates, missing chattels or fixtures, and unfulfilled conditions or agreed-upon terms. As a salesperson, you will need to understand the potential issues that may disrupt or delay a business trade and how these issues may be resolved. Upon completion of this lesson, you will be able to: • Describe issues that can arise during the closing of a transaction • Identify actions to correct and/or prevent issues with the transaction Throughout this lesson, you will participate in decision points to test your knowledge on the topics presented.

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Lesson 10 | Page 3 of 9

Pre-closing Issues That May Affect a Business Trade Transaction Several issues may arise during the closing of a transaction, caused by misunderstanding, oversight, or some other unforeseen circumstance. As a salesperson, you will need to be proactive and consider what may arise during the closing of a transaction and monitor activities leading up to closing. You will need to establish an operating procedure to ensure you take all the necessary steps to prevent any misunderstanding. The following seven sections contain information on issues that may arise during the closing of a transaction.

Ownership of major assets Example: A buyer makes an offer to purchase a restaurant. During the initial visit, the buyer sees a cooler featuring the name and product of a well-known soft drink company. The buyer assumes the cooler is included in the sale. Before the offer is finalized, the buyer discovers that the cooler belongs to the soft drink company and was installed for advertising purposes through an agreement with the restaurant owner. If the buyer decided to discontinue selling the soft drink, the company would remove the cooler. The buyer would have to purchase a new cooler, adding to the buyer’s costs.

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Lender issues Example: A buyer has made an offer to purchase a travel agency. The offer is conditional upon the buyer being able to obtain a business loan. The lender provides the buyer with a letter of intent, a formal document that sets out the terms of the loan. The lender decides not to approve the loan because they believe this is a high-risk industry.

Unforeseen circumstances that affect insurance rates Example: An unexpected flood ravages the area of the business that has a pending sale. As a result, the insurance company that insures the business increases its rates. The buyer is concerned that the increased insurance rates will affect the profitability of the business. The buyer must decide whether to proceed with the purchase.

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Missing chattels and/or fixtures Example: A buyer, upon conducting a final inspection of the diner before closing, notices that the lighted exterior sign is missing. The sign was included in the purchase price. The seller explains that the electrical sign had been damaged only recently and was taken down for safety reasons. The buyer asks that the seller either compensate them for the damaged sign or reduce the purchase price.

Assumed approvals changed or withdrawn Example: The owner of a franchise hardware store wants to sell the business. A buyer makes an offer, which includes a clause that the offer is conditional upon the buyer obtaining approval by the franchisor. In addition, the buyer must agree to fulfill the requirements of the franchise agreement or the franchisor may refuse to transfer the franchise to the buyer. The franchisor approves the new buyer and prior to closing, the buyer’s lender cancels the line of credit the buyer was going to use for royalty payments to the franchisor. Concerned that the buyer will not be able to pay the royalty fee, the franchisor withdraws the buyer’s approval to purchase the franchise. Exam Study Guide

Unfulfilled agreed-upon terms Example: A first-time business buyer is interested in purchasing a restaurant but has little experience managing a restaurant. An agreed-upon term in the offer states that the seller will permit the buyer to work in the restaurant as a trainee. Prior to closing, the seller realizes they will not be able to fulfill the term. The buyer does not proceed with the transaction.

Change to a material component of the business Example: The day before a transaction involving the sale of a high-end fashion boutique is due to close, a fire breaks out and damages a few display cases and some of the inventory. These assets were part of the business, as specified in the agreement, and their value was part of the sale price. The buyer asks their salesperson to amend the agreement and include a condition that the seller compensate the buyer for the damage goods or lower the purchase price. The salesperson recommends that the buyer consult a lawyer. At this stage, a lawyer is needed to amend the agreement.

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Lesson 10 | Page 4 of 9

While carrying out due diligence on a business a buyer is interested in purchasing, the buyer’s salesperson discovers some details about the assets included in the sale. When made aware of this information, the buyer becomes concerned about the ownership of the assets. Question #23: Which of the following situations may warrant concern by the buyer? There are four options. There are multiple correct answers.

1

The owner of a laundromat borrowed money to install new washers and dryers and pledged them as security for the loan. When selling the business, the owner includes the machines in the list of assets and provides the details of the lender’s lien to the salesperson.

2

Restaurant equipment was acquired on a five-year rent-to-own agreement. The business was sold in the fourth year of the agreement.

3

Prior to closing, the buyer discovers that the value of the inventory is less than stated in the agreement of purchase and sale.

4

A computer system in a franchise printing business was leased from an office supply company. The lease will expire before the closing date.

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Lesson 10 | Page 5 of 9

Sample Clauses for Business Trades As a salesperson, you will need to know what actions you can take to prevent or resolve issues with a transaction. One such action is including clauses in the agreement of purchase and sale appropriate for the party you are representing or to whom you are providing services. The following three sections contain information on the actions a salesperson can take to correct or prevent issues with a transaction.

Condition for due diligence investigation extending to the day of closing Example: A buyer would like to make an offer on a bakery. A review of the financial statements of the bakery shows a supply contract with corporate customer that is supposed to continue after the sale. This customer is a source of regular revenue. However, the customer may want to withdraw from the contract after the closing date, which would affect profits. Salesperson action: The buyer’s salesperson should include a clause that the offer is conditional upon verification that the contract will continue after the sale.

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Condition to re-inspect the premises prior to closing Example: After viewing the local pub that is for sale, a buyer decides they would like to make an offer. The pub has an antique iconic sign near the front entrance. The buyer, a customer of the pub, overhears someone say they would take the sign if the pub is sold. The buyer wants to ensure the sign is not removed from the premises. Salesperson action: The buyer’s salesperson should include a clause that the sign is included in the purchase price. The buyer’s salesperson should also include a clause that the buyer has the right to reinspect the property prior to completion, at a time agreed to by both parties, provided that written notice is given to the seller.

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Condition for seller to update all due diligence documents A salesperson is facilitating the purchase of a jewellery store. The seller has been asked to provide financial information about the business, up to and including the day of closing. The buyer wants to ensure they receive updated income and expense statements and confirmation that the seller has paid the HST on the inventory. Salesperson action: The buyer’s salesperson should include a clause, written as either a condition precedent or a condition subsequent, that the seller provide updated information that reflects the status of the business at the day of closing and that the buyer may find this updated information satisfactory.

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Lesson 10 | Page 6 of 9

Example Condition for Updated Financial Information

To ensure the buyer receives updated financial information to reflect the status of the business at the day of closing, the buyer’s salesperson should include a clause in the agreement of purchase and sale. The following two sections contain an example of appropriate clauses written as both condition precedent and condition subsequent.

Condition precedent

The following clause is an example of condition precedent: This Offer is conditional upon the review of updated financial information (provided by the Seller’s accountant) by the Buyer’s lawyer and accountant at the Buyer’s own expense, and the obtaining of a report satisfactory to the Buyer in the Buyer’s sole and absolute discretion. Unless the Buyer gives notice in writing delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than_______ p.m. on the_______day of_______________, 20_______, that this condition is fulfilled, this Offer shall be null and void and the deposit shall be returned to the Buyer in full without deduction. This condition is included for the benefit of

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the Buyer and may be waived at the Buyer’s sole option by notice in writing to the Seller as aforesaid within the time period stated herein. Adapted from Condition – Inspection of Property by a Home Inspector – General Inspection. ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

Condition subsequent

The following clause is an example of condition subsequent: The Buyer may terminate this Agreement through written notice delivered to the Seller personally or in accordance with any other provisions for the delivery of notice in this Agreement of Purchase and Sale or any Schedule thereto not later than_______ p.m. on the ______day of___________, 20_____, if the updated financial information to be provided by the Seller’s accountant are reviewed by the Buyer’s lawyer and accountant, at the Buyer’s expense and the obtaining of a report satisfactory to the Buyer in the sole and absolute discretion of the Buyer. Upon receipt of the above notice, this Agreement shall be null and void and the deposit shall be returned to the Buyer in full without deduction. If no such notice is received within the above time limit, then this term of contract shall be deemed waived by the Buyer and this Agreement shall remain valid and binding whether or not such conditions have been satisfied. Adapted from Condition – Arranging New Mortgage (Condition Subsequent). ©2019 Ontario Real Estate Association. All rights reserved. Used under license.

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Lesson 10 | Page 7 of 9

Managing the Exchange of Documentation

The conditions for the delivery of the updated financial information to the buyer by the seller’s accountant must include the dates for when the financial statements must be provided to and verified by the buyer, the buyer’s lawyer, and/or the buyer’s accountant. The buyer’s salesperson needs to manage the process and ensure the following: • The financial statements are delivered by the date noted in the agreement of purchase and sale. • The financial statements are verified by the date noted in the agreement of purchase and sale. • The appropriate action has been taken regarding the buyer proceeding with or cancelling the transaction. Certain forms must be completed based on the buyer’s decision to either proceed or cancel the transaction.

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Lesson 10 | Page 8 of 9

A buyer has directed their salesperson to prepare an offer for a printing business with the offer conditional upon the seller replacing some of the equipment prior to closing. Question #24: What condition, clause, or term could the salesperson include in the agreement of purchase and sale for the buyer to verify that the equipment has been replaced prior to closing? There are three options. There is only one correct answer.

1

A condition for the seller’s lawyer to provide an authorized statement five days prior to closing stating that the equipment has been replaced

2

A clause requiring the seller to provide updated documentation prior to closing that reflects the value of the newly installed equipment

3

Terms for reinspection in the agreement of purchase and sale permitting the buyer to reinspect the business prior to closing

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Lesson 10 | Page 9 of 9

Congratulations, you have completed the lesson! There are two sections on this page with a summary of the key topics that were covered in this lesson. Issues arising during the closing of a transaction include: Issues arising during the closing • Concerns regarding ownership of major assets and the business entity of a transaction • Lender issues regarding a change in the buyer’s profile and/or the business profile • Unforeseen circumstances affecting insurance rates • Missing chattels and/or fixtures • Approvals for franchise agreements and leases being changed or withdrawn completely • Agreed-upon terms in the agreement of purchase and sale not fulfilled by the relevant party • Changes to a material component of the business

Actions to correct and/or prevent issues

A salesperson may take the following actions to correct and/or prevent issues with the transaction: • Provide for a due diligence investigation in the agreement of purchase and sale • Include a reinspection term in the agreement of purchase and sale • Include a clause within the agreement of purchase and sale requiring updated documentation on day of closing • Follow up on the status of all documentation to ensure requirements are met within the designated time frames • Assist the seller’s lawyer or the buyer’s lawyer by retrieving or delivering required documents

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Lesson 11 | Page 1 of 8

Lesson 11: Summary Practice Activities

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

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Lesson 11 | Page 2 of 8

Summary Practice Activities

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 11 | Page 3 of 8

Claire has been running her incorporated truck rental business for more than 15 years and has a well-established client base. Some of her clients include large corporations whose contracts constitute a major portion of the business revenue. Due to health issues, she decides to sell her business. Claire signs a representation agreement with ABC Real Estate and will be working with Han. Han schedules an in-person appointment with Claire to gather key information about the business. To ensure that accurate information is presented when listing the business, Han asks Claire questions about the business and her requirements. Question #25: Which of the following questions should Han ask Claire? There are four options. There are multiple correct answers.

1

Are you able to provide financial statements for the last three years?

2

Do you own the real property where the business is located or are the premises being leased?

3

Are you able to obtain the necessary financing for the sale?

4

Will the business sale be an asset sale or a share sale?

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Lesson 11 | Page 4 of 8

Based on Claire’s responses, Han determines that Claire does not have all the necessary financial statements she will need to provide to a potential buyer. Question #26: What should Han advise Claire do before listing the business? There are two options. There is only one correct answer.

1

Advise Claire to ask her accountant to draft a review engagement report to replace the missing financial statements

2

Advise Claire to sign an affidavit statement under oath that states she will not provide the buyer the required financial statements but will provide the affidavit instead

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Lesson 8 | Page 5 of 8

Using the information he has collected, Han lists the business for sale. A buyer makes an offer conditional upon certain terms and conditions being fulfilled by Claire. As part of his responsibilities, Han reviews the agreement and advises Claire on what to do regarding the buyer’s requirements. Question #27: What advice should Han give to Claire, in a case, where, when viewing the property, the buyer’s salesperson notices some discharge and soil discolouration around some outlet pipes? There are three options. There is only one correct answer.

1

That the buyer’s observation of the business will be done discreetly

2

To seek expert advice from third-party professionals

3

That the buyer needs to sign a confidentiality agreement

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Lesson 11 | Page 6 of 8

Soren is interested in turning his gardening hobby into a florist business and hopes to set up an in-store greenhouse on the premises in the future. However, Soren has just moved to the city, his finances are limited, and he has little experience running a business. Soren signs a representation agreement with XYZ Realty and will be working with Marisol. They meet to discuss Soren’s requirements. After a thorough analysis of Soren’s requirements, Marisol suggests a franchise business and explains why. Soren likes Marisol’s suggestion and asks her to proceed with finding suitable listings. Question #28: Which of the following explanations that Marisol would have given to Soren about franchises are applicable? There are four options. There are multiple correct answers.

1

A franchise business would make it easier for Soren to attract customers and establish business relationships

2

A franchise business would provide Soren with training and operating assistance

3

A franchise business would allow Soren to pursue his business model of setting up an in-store greenhouse

4

A franchise business could make it easier for Soren to acquire financing

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Lesson 11 | Page 7 of 8

While searching for appropriate businesses for Soren, Marisol finds a franchised florist shop listed for sale and asks the listing salesperson for more information. After visiting the florist shop, Soren asks Marisol to prepare an offer. However, Soren has a few concerns about the shop. Marisol recommends inserting various clauses in the agreement to address Soren’s concerns. Question #29: Before a franchised florist shop to be considered as an appropriate business, Soren wants to verify that a recent shipment of seasonal flowers is accounted for before the close of the sale. Which of the following clauses did Marisol recommend be inserted in the agreement? There are three options. There is only one correct answer.

1

Conditional term for the provision of a lease agreement to the buyer

2

Inventory clause to allow for physical counting of inventory one day prior to close of business

3

Conditions for viewing and reinspection of business before closing

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Lesson 8 | Page 8 of 8

Congratulations, you have completed the lesson!

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Module Summary | Page 1 of 4

Module Summary

This lesson contains a summary of the entire module.

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Module Summary | Page 2 of 4

Congratulations, you have completed this module!

This lesson will present a summary of Learning Objectives.

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Module Summary | Page 3 of 4

There are seven sections on this page with a summary of the key topics that were covered in this module. Once you have completed this module, you will still not be an expert in all areas of business trades. More importantly, if you are interested in this specialized area of real estate, you are encouraged to pursue further relevant learning opportunities to ensure you can provide services and act in the best interests of your clients.

REBBA’s impact on the sale and purchase of a business

REBBA defines a ‘business’ as an undertaking carried on for gain or profit, including any interest in any such undertaking. Any salesperson registered with RECO may trade in businesses. A business trade involves the transfer of ownership of the business entity and not the real property, although real property may be a component of the sale. When involved in the trade of a business, a salesperson must comply with REBBA and other applicable legislation that relate to the sale of a business. Specifically, a salesperson must comply with sections of Ontario Regulation 567/05, by ensuring that the following information is provided to a buyer before a seller or buyer enter into a final agreement of purchase and sale: • A profit and loss statement for the business for the preceding 12 months or since the business was acquired by the seller • A statement of the assets and liabilities of the business • A statement containing a list of all fixtures, goods, chattels, other assets, and rights relating to or connected with the business that are not included in the trade If financial statements are not available, the seller or their signing authority must deliver an affidavit statement signed under oath to the brokerage. The brokerage will then deliver the statement to the buyer, who will sign and acknowledge that they have received and read this statement from the seller. Completion of this lesson has enabled you to: • Identify the application of REBBA when a salesperson facilitates the trade of a business • Explain business brokerage as a specialty within the real estate profession • Detail the requirements under REBBA that affect the purchase or sale of a business Exam Study Guide

Depending on the business location and type of business activity, various municipal bylaws, Additional zoning, permits, and other rules and regulations that could impact the sale of a business. regulations and At the provincial level, the following legislation affects trading in businesses: legislation impacting the sale • The Business Corporations Act regulates trade names. of a business • The Partnerships Act guides the terms of the business partnership agreement. • The Employment Standards Act protects the rights of the employees of the business being sold. At the federal level, the following legislation affects trading in businesses: • The Income Tax Act regulates capital gains, defined as the gain from the disposition of capital property, a percentage of which must be added to taxable income on disposition of the asset. • The Excise Act references goods and services subject to the harmonized sales tax (HST). • Personal Information Protection and Electronic Documents Act (PIPEDA) regulates privacy matters involving business activities. • The Canada Labour Code applies to all employees in Canada who work in a federally regulated business industry. Completion of this lesson has enabled you to: • Outline the requirements affecting a business under municipal bylaws. • Outline provincial legislation affecting a business. • Outline the requirements affecting the sale of a business under federal legislation.

Providing services A salesperson provides many types of services to seller and buyer clients based on what is agreed to in the agreement. to a seller or Examples of services provided to seller clients include: buyer • Noting specifics about the premises (for example, chattels, fixtures, rental items, sublets) or any other issue that may impact the transaction and discussing these issues with the seller Exam Study Guide

• Obtaining and reviewing documents required under REBBA with the seller • Creating and implementing a marketing plan specific for the business being traded, including marketing a business discreetly • Scheduling visits to the business for the buyer, buyer’s salesperson, and any third-party professional in a manner consistent with the seller’s requests • Recommending that the seller obtain the services of a third-party professional for questions to which the salesperson does not have the knowledge, skills, expertise to provide or is legally permitted to provide (for example, designated appraiser, financial professional) • Obtaining confidentiality agreements from all interested parties (for example, listing and co-operative brokerage, buyer) before releasing sensitive business information Examples of services provided to buyer clients include: • Identifying businesses that may interest the buyer and scheduling appointments with the listing salesperson to view the premises • Drafting agreements of purchase and sale that protect the interests of the buyer (for example, including a condition for a property inspection) • Obtaining all necessary documentation from the listing salesperson (for example, financial records, lease documents) so the buyer can make an informed decision about whether to proceed with the transaction • Referring the buyer to third-party professionals (for example, designated appraiser, tax lawyer) when the salesperson does not have the skills, knowledge, or qualifications to provide this type of information Completion of this lesson has enabled you to: • Describe the services a salesperson could provide when the brokerage is representing a seller of a business • Describe the services a salesperson could provide when the brokerage is representing a buyer of a business

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• Describe activities of a salesperson that demonstrate compliance with requirements under REBBA in respect of business trades

Understanding financial statements

A seller is required to provide certain financial statements to the buyer. These financial statements are used to assess the financial revenue generated by the business. They include the following: • An income statement (profit and loss statement): The income statement shows the revenue and expenses of a business and reflects the financial performance of that business over a specific period of time. The information in this statement can be used to advise the seller or buyer on the best indicated value of a business. • A balance sheet (statement of the assets and liabilities): A balance sheet reflects all the assets and liabilities and shows the financial position of a business at a specific point in time. The balance sheet is used to determine the owner's equity in the business. • Audited and unaudited statements: Prepared by accountants, audited and unaudited statements show the financial status of the business. A salesperson should understand the differences between the statements and be able to confirm that the statements have been verified by accountants and appear to contain the correct information. Completion of this lesson has enabled you to: • Describe how an income and expense statement would be used by a salesperson, seller, and buyer • Describe how the balance sheet would be used by a salesperson, seller, and buyer • Describe the difference between an audited and unaudited statement • Describe the notice to reader report

Key considerations when selling a business

The two main types of business sales are asset sale and share sale. Key aspects of an asset sale include: • The buyer does not assume any existing liabilities such as debt • The buyer is eligible for tax deductions and benefits by claiming capital cost allowance on depreciable property Exam Study Guide

Key aspects of a share sale include: • The buyer essentially replaces the seller as the owner of the shares of a corporation • The buyer assumes all assets and accepts all liabilities • The seller benefits from a tax standpoint, since any gain to the seller on a sale of shares will be considered under the capital gain tax exemption Key considerations a salesperson needs to keep in mind when handling the sale of a business include: • Operating licences • Trade unions and unionized employees • Distribution rights agreements and intellectual property use agreements • Retention of key employees • Seller financing Completion of this lesson has enabled you to: • Explain the key aspects of an asset sale and a share sale • Describe key considerations when selling a business • Describe an operating licence as a key consideration for the sale of a business • Describe distribution rights as a key consideration for the sale of a business • Describe the retention of current employees and key employees as a consideration for the sale of a business • Describe seller financing as a key consideration for the sale of a business

Valuing a business Business valuations typically focus on gross income, but more refined measures may be used depending on business type and size.

Some methods for valuing a business include: • Direct capitalization • Gross income multiplier • Discounted cash flow Exam Study Guide

• Adjusted book value and asset valuation Factors influencing selection of valuation method include: • Business type and size • Personal perspectives • Historical cash flow performance • True financial statements • Present circumstances • Comparables (other businesses) • Inventory • Equipment and/or fixtures • Leasehold improvements • Potential value of remainder of current lease Basic rules when deciding on a valuation method for a business include: • Identifying the components of the business being sold • Establishing an effective date for the valuation • Determining if market value or other type of value is required • Gathering all pertinent documentation relating to identified components • Providing an estimate only after careful evaluation of all facts Completion of this lesson has enabled you to: • Describe the direct capitalization method • Describe the gross income multiplier method • Describe the discounted cash flow method • Describe the adjusted book value/asset valuation methods • Identify factors impacting the selection of the best or most appropriate valuation method Exam Study Guide

Role of third-party Business trades are complex and can include financial, legal, structural, and environmental risks. A listing salesperson and buyer’s salesperson must ensure their respective clients professionals understand these risks.

Due diligence is required to minimize these risks. Since a salesperson is not an expert in all areas of business trades, they must advise their seller or buyer to consult a third-party professional to make informed decisions. Third-party professionals are experts who can provide insight and guidance to a seller or buyer in situations where the salesperson does not have the knowledge, skills, or expertise. Their advice can help to avoid business risks arising out of incomplete or unclear information. A salesperson must take all reasonable steps to confirm financial, legal, structural, environmental, and compliance concerns, and refer the client to an appropriate third-party professional where required. Completion of this lesson has enabled you to: • Identify the role of potential third-party professionals in business trades • Describe environmental due diligence for a business brokerage • Describe the due diligence required of a salesperson and a brokerage during business trades • Describe business brokerage compliance challenges

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Module Summary | Page 4 of 4

There are three sections on this page with a summary of the key topics that were covered in this module. Once you have completed this module, you will still not be an expert in all areas of business trades. More importantly, if you are interested in this specialized area of real estate, you are encouraged to pursue further relevant learning opportunities to ensure you can provide services and act in the best interests of your clients.

Turnkey and franchise businesses

A turnkey business includes everything a new owner needs to start running the business. A common turnkey business is a franchise. A franchise is a style of business entrepreneurship under which the franchisor, for a fee or other remuneration, grants to the franchisee the right to sell goods or services perfected by the franchisor using the franchisor’s name, logo, and methods of expertise. Business franchises generally fall into three categories: retail, business and personal services, and travel and leisure. When buying a franchise, the buyer is agreeing to abide by the terms of the franchise agreement, including conditions that may affect or possibly nullify the sale. Some considerations that a buyer must keep in mind when purchasing a franchise business include: • A franchisor provides a complete format to assist with the start-on and ongoing operations. However, the franchisee must meet franchisor standards and follow often stringent operating procedures. • The rapid growth of a franchisor increases the likelihood of success for a franchisee. However, if a franchisor’s head office is located in another country, redress may be difficult if the franchisor fails to live up to promises and obligations. • A franchisor typically has an established image in the marketplace that provides the franchisee with brand name identification to attract consumers. However, franchises involving the sale of products normally require that all products be acquired from the franchisor or an authorized franchisor supplier. • The initial cost for established franchise operations can be high and fees for ongoing operations can add up to significant amounts. A salesperson representing a buyer interested in purchasing a franchise may provide the buyer with the following services: Exam Study Guide

• Help the buyer find a strategic location that will likely generate revenue and be profitable • Read the franchise agreement carefully and discuss each component with the buyer • Advise the buyer to consult a third-party professional, such as a lawyer Completion of this lesson has enabled you to: • Describe a turnkey business • Describe a franchise business

Preparing to sell a When preparing to sell a business, a salesperson has certain responsibilities, such as: business • Reviewing the financial documents of the business • Advising the seller to consult a third-party professional • Asking the seller specific questions to gather information about the business The salesperson should ask the following questions about the business, such as: • If the business is operated from a leased or owned premises • If the sale involves the purchase of shares in a corporation or the purchase of business assets • If the seller has current financial statements and statements from the previous three to five years • If inventory is included in the sale • Which chattels, fixtures, goods, rights, and other assets are included in the sale and which are excluded • If any licence or agreement is associated with the business and if these items are transferrable to the buyer • If the buyer has to comply with any unique requirements if they purchase the business • If employees know the business is being sold • What type of marketing is permitted Completion of this lesson has enabled you to: Exam Study Guide

• Identify questions a salesperson should ask regarding documentation

Pre-closing issues for a business trade

Issues may arise that may disrupt or delay the successful closing of a transaction. These issues may include: • Concerns regarding ownership of major assets and the business entity • Lender issues regarding a change in the buyer’s profile and/or the business profile • Unforeseen circumstances affecting insurance rates • Missing chattels and/or fixtures • Assumption approvals for franchise agreements and leases being changed or withdrawn completely • Agreed-upon terms in the agreement not being fulfilled by the relevant party • Changes to a material component of the business A salesperson may take the following actions to correct and/or prevent issues with the transaction: • Provide for a due diligence investigation in the agreement of purchase and sale • Include clauses in the agreement of purchase and sale for the seller to operate the business in a responsible manner until closing • Include a clause in the agreement of purchase and sale requiring updated documentation on day of closing • Follow up on the status of all documentation to ensure requirements are met within the designated time frames • Assist the seller’s lawyer or the buyer’s lawyer by retrieving or delivering required documents Completion of this lesson has enabled you to: • Describe issues that can arise during the closing of a transaction • Identify actions to correct and/or prevent issues with the transaction

Exam Study Guide

Appendix | Page 1 of 2

Appendix Answer Key Question #1: 3 Question #2: 2 Question #3: 2, 3 Question #4: 1, 2, 3 Question #5: 2 Question #6: 1, 3 Question #7: 3 Question #8: 2, 3 Question #9: 3 Question #10: 1, 3 Question #11: 3 Question #12: 2 Question #13: 1 Question #14: 2 Question #15: 2 Question #16: 1, 2 Question #17: 2, 3, 4 Question #18: 2 Question #19: 1, 2, 3, 4 Question #20: 1, 4 Question #21: 1, 2 Question #22: 1, 2, 3 Question #23: 1, 2, 4 Question #24: 3 Question #25: 1, 2, 4

Exam Study Guide

Appendix | Page 2 of 2 Question #26: 2 Question #27: 2 Question #28: 1, 2, 4 Question #29: 2

Exam Study Guide