Vancouver realtor Michelle Vaughan recently sold a North Vancouver house and received 37 offers, which was great for the seller but not so great for Vaughan. She had to spend half a day documenting each offer on a disclosure of remuneration form so that her seller had full transparency on the commissions for both buyer and seller brokerages.
That’s a form required by the BC Financial Services Authority, just one of many. There are Financial Transactions and Reports Analysis Centre of Canada (FinTRAC) forms, designed to protect against money laundering and terrorist financing, and if they think that’s what they’re dealing with, they must file a Terrorist Property Report. Within 24 hours, they might also need to file a Large Cash Transaction Report, or a Large Virtual Currency Transaction Report. There is also the Suspicious Transaction Report. Realtors are also required to know their clients, to verify their identities and ensure transactions don’t involve unsavoury behaviours, as part of a compliance program set up by brokerages. They need to confirm the accuracy of beneficial ownership, such as the names behind numbered companies. The rules follow the Proceeds of Crime (Money Laundering) and Terrorist Financing Act, or the awkwardly abbreviated, PCMLTFA.
Realtors are also required to notify clients about policies aimed at curbing speculation and foreign buyer activity, and make all parties aware of tax responsibilities, such as the withholding tax on non-resident owned properties. As well, there is the federal foreign buyer ban, the Underused Housing Tax for houses owned by non-residents that are left mostly empty, and the anti-flipping tax rule that says if you sell a property within a year of buying it, the profit is taxed as business income. There are also transparency rules around disclosing whether the seller or buyer is a tax paying resident of Canada, and if all taxes are up to date. In BC, there is the speculation and vacancy tax, the 20% foreign buyer tax, the so-called “school tax” on properties priced at over $3M, and new short-term rental limitations, including only one secondary suite for such use. There are also municipal rules, such as Vancouver’s empty homes tax. For realtors, it’s a lot.
To be clear, Vaughan doesn’t mind the paperwork required for each offer, because her client gets the best deal, but she does find it “weird” that realtors have so much responsibility for vetting bad actors such as terrorists.
“Every year since I started, the paperwork has increased,” says Vaughan. “In my situation, I’m not dealing with people that are non-Canadians, but it’s the first question we ask clients now, ‘do you know about the foreign buyers’ ban? We have to make sure you’re okay to buy.’ I’ve had a couple of people who call from the States, and I have told them, ‘I’m sorry you can’t purchase.’ It's a whole other layer.
“I’m much less at risk than other realtors… But I find it weird they are using realtors as the front line. If we suspect suspicious activity, we are obligated to report it.”
Last year, real estate brokerage Centre Pacific was issued a $57,915 fine for failing to comply with federal anti-money-laundering reporting rules, after repeated notices of violation.
Realtor Lorne Goldman says that while some policies – such as those aimed at empty homes – have had a positive impact, overall the growing list of bureaucratic paperwork isn’t paying off. Added to the list is the new Home Buyer Rescission Period (HBRP) that gives buyers three days to renege on their offer. According to realtors, in the year that it’s been in effect, it’s rarely used.
“Provincial and federal government policies have created phenomenal amounts of paperwork,” says Goldman. “And what has happened? Nothing. The market is still active. It’s all virtue signalling. They know full well that the No.1 issue for voters is housing, and the government is doing all they can and yet the net result is zero.”
In other words, affordability remains a growing concern; homelessness isn’t abating; fixed-income seniors are in a housing crisis all their own; non-resident buyers are still active condo investors; and first-time home buyers are still scrambling to get into the market.
Some policies, such as the HBRP, were introduced in the slow market of the last couple of years, so they have yet to be tested. The HBRP was devised to protect buyers in a market so hot that they’re under pressure to make sudden offers without conditions that would normally protect them. By giving them three days to change their minds, the idea was that they could “cool off” and consider the offer. But those three days could be used by an unscrupulous buyer to flip the property, says Goldman. And if it doesn’t sell, the penalty of 0.25% on the offer amount is just the cost of doing business. That’s only $5,000 on a $2M offer
The concern is that the unintended consequences of the HBRP will be felt in another hot market that will come along once interest rates drop. The BC Real Estate Association has tried to engage the provincial government in dealing with the housing crisis, speculation, and other consumer concerns, outlining 34 recommendations in a report that it released February 2022. There was no research prior to introducing the HBRP, and government ignored BCREA’s concerns about it, says chief executive officer Trevor Koot. The BCREA has suggested a better option than the three-day rescission period would be a five-day pre-offer period, during which the buyers could do all due diligence before the seller accepts an offer. It also recommended that property disclosure statements and strata council documents be made available to buyers when a property is listed, offering more transparency.
The rescission period rule was brought in on January 3, 2023, when the market had already dropped off, so it’s had almost no impact. However, when interest rates go down and the market picks up, it could start impacting transactions, particularly for sellers, says Koot. If several buyers have offered on a property and the transaction is tied up in a three-day rescission period and the buyer backs out, the seller is at a disadvantage because the momentum is lost. The other buyers may drop out of the picture, concerned that there’s something wrong with the property if an offer fell through. Also, the rescission period is intended for the buyer to do due diligence, such as inspections. However, the HBRP on its own doesn’t allow for the buyer to have access to the property
“Really tough, extreme market environments require thoughtful ideas, but let’s explore and figure out what the unintended consequences are,” says Koot. “This one had zero consultation, there was no opportunity for feedback.
“Our concern is that it’s not the solution for a myriad of reasons… it favours the buyer and is detrimental to the seller.”
As well, the seller is often a buyer because they are moving into another property.
“One deal is dependent upon another, and if somebody exercises their right in that three-day period it becomes this cascading effect. It’s not a balanced environment.”
