‘Not always effective’: Ontario’s auditor general releases report on RECO

QUICK HITS

  • Ontario’s auditor general found RECO to be ineffective in regulating the province’s real estate industry and protecting consumers.
  • The report highlights several key findings, including RECO’s failure to track complaints and follow up on investigations, complete brokerage inspections and its handling of ethics violations.
  • The 51-page report contains 25 recommendations for the regulator.

Ontario’s industry regulator is “not always effective and timely” when it comes to ensuring real estate professionals comply with laws and regulations, according to a new report from the province’s auditor general.

On Wednesday, Bonnie Lysyk released her annual report on the government’s spending, which included detailed findings on the Real Estate Council of Ontario’s (RECO) inner workings. The province’s Ministry of Public and Business Service Delivery oversees RECO.

The 51-page report includes a laundry list of what Lysyk calls “significant concerns” about how RECO operates and details the regulator’s lack of policies and consistent processes.

Among findings, the auditor general discovered that the industry rarely reports cash and suspicious transactions. The Financial Transactions and Reports Analysis Center of Canada (FINTRAC), which monitors money laundering, received zero reports of large cash transactions between 2017 and 2021 and only 18 reports in the 2021/22 fiscal year from brokers and salespersons. Realtors and brokers are required by law to report suspicious transactions.

The report also found that between 2017 and 2021, 78 per cent of fines issued by RECO were $10,000 or less, “In (the auditor general’s) review of a sample of discipline cases, we found that 67 per cent of registrants were fined a lower amount than the commission earned in the related real estate transaction,” the report states. “When a fine is significantly lower than the commission earned, the fine may not act as a sufficient deterrent to future misconduct.”

One disciplinary case reviewed by RECO showed the registrant, representing the seller of the property, failed to inform prospective buyers (as required) that offers had been placed by the registrant’s own clients and that the registrant entered into an agreement to reduce their commission to double -end the sale. RECO fined the subject $5,000, while the commission on the property was $82,800.

The auditor general’s office also found that RECO does not have a process in place to ensure a proper inspection of brokerages is completed on a timely basis to assess compliance. According to the report, “RECO has never performed a full on-site inspection at 27 per cent of registered brokerages and has not conducted a full on-site inspection at a further 35 per cent of brokerages in more than five years.”

According to the auditor general, RECO rarely followed up on violations found during brokerage inspections to confirm they had been corrected. “These inspections identified significant violations, including shortages in the brokerage’s real estate trust account where client deposits are held,” the report said. The report also found there is no process in place that tracks whether investigators complete their investigations within a reasonable amount of time or take appropriate action based on their findings.

Overall, the report contains 25 recommendations with 63 action items. RECO promises it is actively working on a plan to address the recommendations in the report and will provide it to the Minister of Business and Public Service Delivery in the spring of 2023.

“We appreciate the opportunities the auditor general’s report presents to enhance the important work we do,” says Michael Beard, CEO of RECO, in a press release. “And we are pleased that so many of the recommendations align very closely with our strategy to modernize our approach to administering the law in the public interest.”

The Ontario Real Estate Association (OREA) says new provincial legislation will address many of the findings in the report. In 2020, the Ontario government passed the Trust in Real Estate Services Act (TRESA), replacing the decades-old Real Estate and Business Act.

TRESA includes updates to RECO’s regulatory and enforcement powers; changes to eligibility requirements for registration; regulatory changes to enhance consumer choice in the transaction process; and enhancements to ethical requirements for real estate professionals.

“With the passage of TRESA and the ongoing introduction of supporting regulations, Ontario is on the right track when it comes to strengthening consumer protection in real estate,” says Time Hudak, CEO of OREA. “OREA was pleased to see the auditor recommend stronger policies around criminal background checks, money laundering and stopping agents from profiting from breaking the rules.”

Hudak says many of the new rules go into effect in April 2023.

The auditor general’s full report can be found here.

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