There was a time when Terry Paranych ruled the Edmonton real estate market. His headshot—complete with suspenders and a flashy watch—was slapped on buses, billboards and benches around the city. His ads declared that he (or, more accurately, his brokerage) could sell your property “fast and for top dollar” and sometimes billed him as Canada’s top agent.
But Paranych’s ads ran afoul of the Real Estate Council of Alberta, the industry regulator. In a recent decision, Paranych was found to have violated the council’s rules 25 times in 2012 and 2013 with misleading advertisements and unverifiable claims. Ads promoting his status as Canada’s No. 1 agent neglected to mention the sample size was limited to Re/Max agents—not the entire country. According to the hearing panel, claims such as selling homes “quickly” and for “top dollar” cannot be verified. The panel suspended Paranych’s license for three months and fined him $96,000, including costs. Paranych did not respond to an interview request, but he was somewhat less than contrite in a Facebook post earlier this month. “I have decided that it is simply too expensive,” he wrote, “to continue to defend myself against what I believe to be an egregious fine and effort to make an example to our industry.”
While the scale and frequency of Paranych’s alleged transgressions could make him an outlier, it’s not unusual to come across hyperbolic real estate advertising, especially these days. Consider it a byproduct of a hot and ultra-competitive housing market, where people are flocking to the profession in hopes of getting rich, agents are undercutting one another and skirting rules—and clients end up losing.
Just as people are tempted to buy homes during boom times, so too are people lured into becoming realtors. The Canadian Real Estate Association counts more than 120,000 members, a figure that’s nearly doubled since 2000. In Greater Vancouver, the number of agents has increased by 23 per cent in the past five years. Membership of the Toronto Real Estate Board has ballooned 41 per cent since 2012 to 48,000. That’s approximately one real estate agent for every 96 people aged 18 to 69 in the Greater Toronto Area. Back in 2002, it was one agent for every 198 people. One reason Toronto is outpacing Vancouver is that its market tends to be more consistent. In the first three months of this year, as the market cooled, registration for the real estate program at the University of B.C.’s Sauder School of Business, which is required in order to become licensed in the province, fell roughly 20 per cent.
“People look at this as an easy gig and a get-rich-quick scheme,” says Toronto real estate agent David Fleming. Many newcomers assume they can sell one or two properties a year and score tens of thousands of dollars through commissions, especially in a heated market. The excessive number of real estate reality TV programs, such as Million Dollar Listing, glamourize the agent lifestyle—you get to drive a fancy car, wear expensive clothing and tour luxury properties—drawing even more people to the profession. Fleming often receives emails from young people hoping to become agents who have a warped sense of the job, while some working agents appear to be showboating for non-existent cameras. Recently, Fleming told another agent to “talk like a normal person” and stop posturing as though he were on television.
Obtaining a real estate license is easy, too. “There are very low barriers to entry to become a real estate agent,” says Melanie Piche, another Toronto agent and broker. The certification process varies by province, but generally involves completing a handful of courses and a training period. The courses are not particularly challenging, “and don’t prepare you for what it’s really like to be an agent,” Piche says. In Ontario, the training is provided by the Ontario Real Estate Association. Starting in 2019, however, Humber College and NIIT Canada will design and deliver a new curriculum.
It’s far less onerous than qualifying to work in, say, the investment industry as a chartered financial analyst—even though real estate agents are typically the ones coaching people through the biggest financial decision of their lives. It’s even more problematic when real estate professionals talk about purchasing property as an investment and tout rates of return, says Bruce Joseph, a broker at Anthem Mortgage Group in Barrie, Ont. “We’re happy to blow you up with debt, but if I’m going to take $50,000 of your money and invest it, I have to have a lot of academics,” he says.
New agents quickly find the industry is harder than anticipated. Start-up costs are steep, not to mention brokerage fees. Scoring the first deal is the biggest challenge for a newly licensed agent. The majority of transactions in any market are generally handled by a small percentage of realtors, and many newbies end up leaving the industry within a couple of years. But the influx of hopefuls is still causing headaches. Many turn to friends and family in hopes of securing their first listing. Even established agents will occasionally lose business when, say, a client’s cousin obtains a licence and the prospective buyer feels obliged to go with family. Others will compete with the only tool they have—price. “They’re so desperate they’re willing to cut their commission,” says Chris Borkowski, a real estate agent in Toronto.
Established agents cringe at the service provided by these perceived interlopers, and frequently see homes that are poorly marketed and end up selling for far less than they could have. Fleming took note when a penthouse in his building recently sold for less than the list price. “It wasn’t staged. The photos were taken on an iPhone,” he says. “It was just awful. It made me sick.” Fleming maintains he could have scored the sellers an additional $150,000. “These people probably thought, ‘Wow, we’re saving $20,000 on commission. We’re such geniuses.’”
What’s worse is when their peers simply don’t follow the rules. With so many listings receiving bully offers these days, the selling agent is supposed to notify everyone who expressed an interest (including those who viewed the property or placed a bid) to give them an opportunity to up their offers. Many agents say that no longer happens in every case. Some realtors are either getting lazy because the market is so frenzied, or they’re “double-ending.” That’s when an agent represents both the seller and the buyer, and therefore gets to keep the entire commission, typically five per cent. The Ontario government singled out double-ending when it announced a package of measures to stabilize the market, pledging to review industry rules to ensure real estate agents are behaving ethically.
Peruse disciplinary decisions handed down by real estate councils, and a fair number of fines are issued to agents who—either though sloppiness or laziness—advertise properties with incorrect measurements. Others get into trouble by accepting payment directly through clients, rather than through their brokerages. Depending on the model, some brokerages take a cut of agents’ commissions, providing a reason for a unethical realtors to keep their brokerage in the dark about certain transactions.
As the market has become heated, and more agents enter the field, marketing claims are getting torqued. Properties are touted as “goldmines” and the pressure to purchase is amped up. “If you own a home, buy another one. If you own two homes, buy a third,” one Toronto real estate wrote recently in an Instagram post. Last year in Vancouver, some real estate agents were aggressively advertising their connections to wealthy offshore buyers. “You really do want these New-Money Chinese Buyers; as they pay you much more than our local Vancouver buyers,” promised a flyer sent out by a Re/Max agent.
It’s enough to make some despair. “The profession is getting watered down,” Borkowski laments. “Everyone is saying the same thing. Everyone is wearing the same thing.” Borkowski entered the industry 15 years ago, and made a point of showcasing his numerous tattoos in order to stand out in a sea of other agents. He figures he’ll have to play up that renegade image even more these days to compete. “I’m gonna go more punk rock,” Borkowski says. He’s already putting that into practice, recently tweeting that he’s a cannabis-friendly realtor. “If you are #househunting in #toronto and would prefer to do it medicated,” he wrote, “I’m your guy.”
MORE ABOUT HOUSING MARKETS:
- Why Canada’s politicians won’t do what it takes on the housing market
- Toronto homebuyer misery: The game
- Ontario’s new housing measures could be too little, too late
- How Canada’s real estate market went completely insane
- Canada’s housing bubble looks a lot like the U.S. around 2007
- How Canada’s biggest banks have become complicit in the housing bubble
- The long, troubling list of things we still don’t know about Canada’s housing market
- How Brexit is further inflating Canada’s overheated housing market