Hudak: Ontario must close the loopholes for real estate auction companies

These companies are allowed to operate with almost no oversight, and that’s risky for home buyers and sellers.

Tim Hudak is CEO, Ontario Real Estate Association. He says that outside Manitoba, Ontario is the only province that does not have rules to protect consumers using auctions to sell property. PHOTO BY ERNEST DOROSZUK /Ernest Doroszuk/Toronto Sun

When it comes to buying and selling your home, the stakes are high. Young families use their life savings to scrape together a down payment while seniors put decades worth of hard-earned home equity in the hands of trusted real estate professionals.

The government’s role in the housing market has always been to protect home buyers and sellers against dishonest actors. That work has underscored a basic principle of our real estate system: no matter who you are or where you live or how you buy or sell a home, your provincial government will protect you against bad actors.

Unfortunately, when it comes to the resale real estate market in Ontario, that principle is being undermined by an out-of-date exemption which some real estate “auction” companies are using to sidestep oversight and avoid rules aimed at protecting consumers.

In the 1950s, traditional estate auctioneers were made exempt from having to follow Ontario’s real estate rules so they could help farmers sell their properties alongside their livestock, equipment and business.

In Ontario, real estate brokers must take mandatory licensing education, pass a background check, carry insurance and follow rules that are designed to protect consumers.

Since auctioneers are exempt from the rules in Ontario, real estate auction companies operate with almost no oversight, and that’s risky for home buyers and sellers. They use the farm auction “loophole” while marketing themselves like a traditional real estate brokerage and making it almost impossible for consumers to tell the difference.

For example, one of the most common consumer protection issues in real estate auctions is “phantom” bidding. Phantom bidders are non-legitimate prospective buyers who are planted to push bidding higher and create a false impression of a more competitive auction.

Under the rules realtors must follow, phantom bidding is illegal. Realtors are prohibited from saying they have received an offer unless that offer has been made in writing and signed by a consumer. Realtors must also keep records of offers they receive so they can be verified if someone has a complaint about the process.

In Australia, where the practice of auctioneering real estate is more common, phantom bidding was such a problem that government had to step in and introduce tough penalties, including fines of up to $55,000 for collusive practices during the auctioning of a property.

Outside Manitoba, Ontario is the only province in Canada that does not have rules to protect consumers using auctions to sell property. The lack of regulation of real estate auctions has other frightening implications for unsuspecting consumers including:

• Buyers have no way of knowing if participants in a virtual real estate auction are real. Most often, bidders show up only as a “username” to others participating in the process.
• If an auction goes badly, consumers have very few remedies available to them. There is no independent body to complain to and no penalties in the event a consumer feels they were treated unethically by an auction company.
• Real estate auction companies have no obligations to protect deposits — putting thousands of dollars at risk in the event the company goes bankrupt.
• Owners of real estate auction companies are not vetted for past criminal or fraudulent activity, which matters if they are helping to manage someone’s life savings.

At the end of the day, consumers have a right to choose how they want to buy and sell real estate. But no matter what they decide, they also have a right to expect they’ll be protected against bad actors. That’s not the case when it comes to real estate auctions and that’s why Ontario should close the outdated auction loophole.

Tim Hudak is CEO of the Ontario Real Estate Association.