Mike Cusano, Chair
Joe Richer, Registrar
Real Estate Council of Ontario
West Tower, 3300 Bloor St W #1200
Etobicoke, ON M8X 2X2
Dear Mike and Joe:
In light of the recent For the RECOrd column, OREA is quite concerned with RECO implying that escalation clauses are permissible in Ontario. This is leaving registrants confused about the use of such clauses in a real estate transaction.
Since the column, the Association has received a number of calls and emails expressing concern with RECO’s position. There has also been negative media coverage that has hurt the profession and the REALTORS® within it who depend on clear rules for maintaining a high standard of professionalism.
The source of the confusion for Ontario REALTORS® is that the Code of Ethics and Real Estate and Business Brokers Act, 2002 (REBBA) is very clear that registrants cannot disclose the contents of competing offers. An escalation clause, by virtue of its operation, would disclose the content (a competing offer price) of another offer.
Section 26 (1) of the Code of Ethics clearly states that “If a brokerage that has a seller as a client receives a competing written offer, the brokerage shall disclose the number of competing written offers to every person who is making one of the competing offers, but shall not disclose the substance of the competing offers.”
How can registrants use escalation clauses if they are not permitted to disclose the content of another offer?
Last year when contacted by a registrant about an escalation clause, RECO stated that “the clause type you have outlined not only can contravene the REBBA, 2002 but also expose the seller and perhaps a registrant to possible litigation.” What has changed in the past 12 months to cause RECO to change your position on escalation clauses?
OREA believes that RECO was right then and is wrong now. To make matters worse, despite being incorrect, the column has remained online for almost a week without correction. If RECO is not prepared to issue a correction, the column needs to be removed from the website forthwith.
Another concern for our members is that the preclusion of its usage seems to be confined to registrants under REBBA, 2002. In other words, buyers who are unrepresented, or buyers who are represented by solicitors would be free to use the clause. A clear disadvantage to buyers who are represented by a registrant.
This is at least the second public error by RECO in six months which has cast a negative light on the real estate profession. Recently, the “Ask Joe” column in the Toronto Star gave the harmful impression that a seller’s REALTOR® would not have to disclose a home previously being “a former meth lab or marijuana grow-op.” As a regulator, RECO’s role is to provide clear direction to registrants on regulatory issues, not sow confusion on matters that have significant consumer protection implications.
RECO needs to immediately set the record straight that escalation clauses are not allowed in Ontario because they go against the REBBA Code of Ethics.
Thank you for your attention to this matter. I look forward to your response.
Ettore Cardarelli, President