Risk Management for Real Estate Agents ~ RECO Election 2012

 

RECO Election 2012 ~ Risk Management

Ontario Real Estate Source

By Brian Madigan LL.B.

As many of you know, I have offered to let my name stand as a candidate for election as a Director of the Real Estate Council of Ontario for a three year term commencing in June 2012.

Let’s look at an issue which I believe is topical for the 2012  election?

There are several matters that arise in terms of risks. Here are the top 2 causes of loss according RECO arising in both urban and rural areas:

· Non-Disclosure

· Miscommunication

Since these matters are fairly basic, I would suggest that RECO emphasize and address these matters through both education and enforcement.

I would support further education in the Pre-Registration Courses, Articling Courses and the Continuing Education Courses dealing with the issues giving rise to the greatest number of claims. Ultimately, it will save on insurance payments and that is a saving to the membership.

Enforcement is another tool available to RECO to manage risks. The problem here is often “too little…. too late”. The concept of enforcement must be used not only for correctional purposes in respect to the offending registrant, but the penalty should be communicated such that it acts as a deterrent to other registrants. 

Here’s the political promise: if I am elected I will support increased education and increased enforcement as effective tools to manage the risks that predictably materialize in the practice of real estate.

The effect in my view will be “increased professionalism” on the part of all registrants through improved education and enforcement.

Brian Madigan LL.B., Broker is a candidate for election to the Real Estate Council of Ontario Board of Directors, Region 1, election 2012, you may contact him through RE/MAX West Realty Inc., Brokerage 416-745-2300.
www.OntarioRealEstateSource.com

Risk Management Practice: Use the Informed Consent E-mail

Informed Consent E-Mail

Ontario Real Estate Source

By Brian Madigan LL.B.

From time to time, the issue of informed consent arises. That means that the client must truly understand and appreciate the consequences resulting from a decision. What better way to provide that information than through the “Informed Consent E-mail”.

Here is one which deals with no conditions in a multiple offer bidding war:

Bill,

I just wanted to clarify a few matters before we submit our first Offer once we find a suitable property.

The Toronto real estate market is very “hot” at the market for the type of property you describe in the price range which you can afford.

Consequently, many properties will be listed and sold within a few days of their coming on the market following the receipt of multiple offers. This is fine for the vendors, but is fraught with risk for the purchasers.

When multiple offers are submitted, purchasers are tempted to omit may of the usual conditions which we would recommend. It makes their Offers “clean” by being “unconditional”. This makes their Offers more attractive and appealing to the vendors.

Participating in the multiple offer submission process can be frustrating, and you may be tempted to submit such an Offer without conditions.

I want to advise you of some of the risks, particularly concerning the failure to include a home inspection condition and mortgage condition.

Home Inspection Condition

The purpose of this condition is to provide you with an opportunity to have a qualified inspector examine the premises on your behalf. The inspector should be able to identify structural problems, issues with the building’s plumbing, heating (cooling) and electrical systems, as well as the presence of mould and other forms of deterioration that you might not be aware of, yourself.

Usually, there is a short period of time to permit you to retain an inspector and conduct this inspection. The purpose of the report is to advise you of the facts related to the condition of the building and its equipment.

Mortgage Condition

The purpose of the mortgage condition is to ensure that you qualify for and will be able to secure the necessary financing to permit you to purchase the property.

A letter from your bank or mortgage broker holding a rate for you is not sufficient. The lending institution must approve the particular property transaction.

The specific approval will likely take a few days once the legal documentation has been submitted. In addition, there is the matter of valuation. The appraisal may not support the price you have offered in a “bidding war”. The lending institution may either decline to proceed or propose a reduced mortgage amount which may leave you without sufficient funds to close the transaction.

Non-Completion of the Agreement

If you have entered into an agreement conditional upon inspection and mortgage approval you are under an obligation to use your best efforts to satisfy these conditions, failing which you may withdraw from the transaction with legal consequences. Your deposit will be returned to you in full.

However, if you have submitted an unconditional Offer, then upon acceptance you have a firm and binding agreement of purchase and sale.

If for any reason, you fail to complete the transaction, you will lose your deposit, and you will also be responsible for any damages sustained by the vendor which exceeds your deposit. These damages would include the costs of carrying charges from the date of your closing to the date the property is actually sold, and any loss in purchase price. In addition, there may be moving expenses, short term financing and other expenses incurred by the vendor for which you would be responsible.

Recommendation

We always recommend that these two conditions be included in every Offer.

Alternate Accommodation

I appreciate that you may nevertheless wish to accept these risks. There are some ways to minimize the impact by having an inspection conducted before the Offer, and by ensuring that additional financing is available, if required.

These are serious matters, involving substantial risks that we should discuss each time an Offer is to be submitted. I need to ensure that I have your informed consent to each and every proposed transaction.

In that regard, I am attaching a copy of a Form of Informed Consent that we use at our offices.

Sincerely,

Robert Realtor, Sales Representative

ABC Realty Inc., Brokerage

 

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through RE/MAX West Realty Inc., Brokerage 416-745-2300.
www.OntarioRealEstateSource.com

Reduce Risks in the Home Staging Business

Home Staging and Risk Management

By Brian Madigan LL.B.

(Ontario Real Estate Source)

The Home Staging industry is still unregulated, and to some extent it is still in its infancy.

As society becomes somewhat more litigious, it would seem to be wise that those in the home staging business take some precautions on their own to reduce their potential liabilities.

In the real estate business, the home staging industry is placed in the forefront of disclosure, concealment, repair, rectification of defects, and renovations.

And, it is the home inspection industry which is in the forefront of having to discover problems. As an industry, it is also unregulated.

Home stagers are at risk for covering something up, and home inspectors are at risk for not finding them.

However, none of this really helps the individual practitioner. So, let me make some recommendations for risk management:

1) Have a website. Make sure it is full of information for the consumer.
2) Have a business services model. Make sure that the nature and type of services that are available are outlined.
3) Carry professional liability insurance. Ensure that it covers errors and omissions made in the ordinary course of business.
4) Maintain other insurance additional coverages as may be required.
5) Draft a Code of Ethics and publish it for the consumer.
6) Draft a standard form contract that provides protection from liability.
7) Specify the client, ensure that the client is protected and that your first obligation is to the client and not someone else. This should not be vague.
8) Clarify roles of referral agents.
9) Clarify the role of contractors.
10) Outline the obligations of the homeowner in terms of disclosure.
11) Outline the obligations of the real estate agent in terms of disclosure.
12) Limit liability by agreement to a refund of fees paid.
13) Encourage the owner to deal directly with the contractor, if possible.
14) Require a deposit on account of a retainer.
15) Provide a written report and recommendations.

Some of these steps will go a long way to reducing and limiting liability.

They will never eliminate every potential risk. If you are going to be sued, you might be, simply because you took on the wrong project.

However, if you follow some of these steps you will enhance your professional image while you await accreditation and regulation of the industry in some more formal way.

Brian Madigan LL.B., Broker is an author and commentator on real estate matters, if you are interested in residential or commercial properties in Mississauga, Toronto or the GTA, you may contact him through Royal LePage Innovators Realty, Brokerage 905-796-8888
www.OntarioRealEstateSource.com