Legal corner: Mishandling of offer process results in major fine

Note to reader: This matter was prosecuted under the Real Estate and Business Brokers Act, 2002.

For listing representatives, fair handling of the offer presentation process is essential. Providing interested buyers a fair chance to put in an offer, or improve their offer in a multiple offer situation, is key to providing the best service to the seller client.

Mishandling the offer process can have serious consequences, and a recent fine of $10,000 provides a good example.

Here is the sequence of events that resulted in disciplinary action:

• A registrant (referred to as Representative A) listed the property, with a note indicating a delayed offer presentation—meaning that the representative would hold all offers and present them to the seller at a specific date and time. [A delayed offer presentation requires written direction from the seller.]
• The listing indicated that all offers had to be registered by February 24 at 5 p.m. [To register an offer means that the buyer or their representative has confirmed with the listing brokerage that they have an offer to submit.]
• The note said that the seller reserved the right to consider a pre-emptive offer (also known as a bully offer) at any time.
• Representative A showed the property to his own buyer client and prepared an offer for the seller’s consideration.
• A buyer’s representative (referred to as Representative B) contacted Representative A and set up a viewing appointment for February 19. In total, there were five viewing appointments scheduled for February 19. Representative A did not advise Representative B that an offer had already been received from his own buyer client.
• Representative B made a follow-up call to Representative A for more information about the property, and left a voicemail. Representative A did not return the call.
• Representative B later received a message that the property had been sold, and that the appointment for February 19 had been cancelled.

RECO’s discipline panel found that Representative A violated the Code of Ethics by:

• Failing to notify all buyers who expressed an interest in the property that an offer was registered on the property, and that the offer was from his own buyer client;
• Failing to respond to Representative B’s voicemail within a reasonable time;
• Failing to notify Representative B that a written offer had been registered or received for the property at the time they were making an appointment to view the property the following morning; and
• Failing to obtain written instructions from his client to review offers earlier than the date on the listing.

What you need to know

One element of that is promoting the property in such a way as to generate interest from multiple buyers, who can then submit offers for the seller’s consideration.

If the seller is considering a delayed offer presentation, it is a reasonable expectation that the representative would explain that the approach could prompt some buyers to submit pre-emptive offers (also known as bully offers). The written direction must explicitly outline how to handle pre-emptive offers.

In addition, if the seller changes their mind and decides to review offers before the previously-agreed time, a new written direction is required to do so. The listing is then updated to reflect the change, and any interested buyers should receive notice so they are aware of the revised approach (via their representative, if they have one). This is in the seller’s interest as it reduces the risk that the buyer is not aware of the change and fails to meet the revised timeline for offers.

With the timing of such events happening very quickly, it’s also essential to respond to inquiries from interested parties in a timely manner.

Outcome

Representative A agreed to pay a fine of $10,000. The decision is published on RECO’s website and the disciplinary decision appears whenever a member of the public uses RECO’s search tool to check on his registration status.

The panel concluded that the following sections of the Code of Ethics were breached:

Fairness, honesty, etc.

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.

Best interests

4. A registrant shall promote and protect the best interests of the registrant’s clients.

Error, misrepresentation, fraud, etc.

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.

More information

For more information about written direction for delayed offer presentation, see our Registrar’s Bulletin.